FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark one)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April~~May 295, ~~2006~~2007

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 1-7288

THE BOMBAY COMPANY, INC.

(Exact name of registrant as specified in its charter)

Delaware		75-1475223
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

550 Bailey Avenue, Fort Worth, Texas		76107
(Address of principal executive offices)		(Zip Code)

(817) 347-8200

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. ~~(as~~See ~~defined~~definition inof “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). ~~Yes~~(Check one): Large Accelerated filer ¨ Accelerated filer x No Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date.

Class		Number of shares outstanding at June 813, ~~2006~~2007
Common stock, $1 par value		36,~~346~~880,~~230~~885

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

FORM 10-Q

Quarter Ended ~~April~~May 295, ~~2006~~2007

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	Page No.
Item
1. Financial Statements (Unaudited)	3-1213
Consolidated Statements of Operations	3
Consolidated Balance Sheets	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6-1213
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1314-1921
General	~~13-~~14
Executive Summary	~~14-16~~15
Results of Operations	~~16-18~~17
Liquidity and Capital Resources	1819
Recent Accounting Pronouncements	1920
3. Quantitative and Qualitative Disclosures About Market Risk	2021
4. Controls and Procedures	2021
PART II - OTHER INFORMATION
1. Legal Proceedings	2122
1A. Risk Factors	2122
6. Exhibits	22
2. Unregistered Sales of Equity Securities and Use of Proceeds	23
7. Signatures	23
4. Submission of Matters to a Vote of Security Holders	23
5. Other Information	23
6. Exhibits	24
Signatures	25

THE BOMBAY COMPANY, INC. AND ~~SUBSIDIARIES~~SUBIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

		~~Three Months Ended~~		Three Months Ended
		April 29,			April 30,
				May 5,		April 29,
		2006			2005
				2007		2006
					(as adjusted)
Net revenue ……………………………………………………………………………………				$104,629		$118,664
Net revenue ........................................................................................		$	118,664		$	122,111
Costs and expenses:
Cost of sales, buying and store occupancy costs ....................			94,650			95,200
	Cost of sales, buying and store occupancy costs ………………………………………			87,366		94,650
Selling, general and administrative expenses .............................			39,764			40,059
	Selling, general and administrative expenses ……………………………………………			31,709		39,764
Operating loss .................................................................................			(15,750)			(13,148)
	Operating loss ………………………………………………………………………………			(14,446)		(15,750)
Other income (expense):
Interest income ...............................................................................			37			8
	Interest income………………………………………………………………………………			18		37
Interest expense .............................................................................			(244)			(320)
	Interest expense ……………………………………………………………………………			(1,092)		(244)
Loss before income taxes ...............................................................			(15,957)			(13,460)
Loss before income taxes ……………………………………………………………………				(15,520)		(15,957)
Benefit for income taxes ..................................................................			(404)			(5,491)
Benefit for income taxes………………………………………………………………………				(75)		(404)
Net loss ........................................................................................			($15,553)			($7,969)
	Net loss ………………………………………………………………………………………			$(15,445)		$(15,553)
Basic and diluted loss per share .................................................			($0.43)			($0.22)
Basic and diluted loss per share………………………………………………………………				($0.42)		($0.43)
Average common shares outstanding ......................................			35,930			35,939
Average common shares outstanding ………………………………………………………				36,353		35,930
The accompanying notes are an integral part of these consolidated financial statements.

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

	April 29,		January 28,		April 30,
	May 5,		February 3,		April 29,
	2006		2006		2005
	2007		2007		2006
ASSETS					~~(as adjusted)~~
Current assets:
Cash and cash equivalents ..........................................................	$	3,303	$	4,015	$	10,386
Cash and cash equivalents …………………………………………………	$	3,816	$	1,406	$	3,303
Inventories......................................................................................		127,862		128,719		151,549
Inventories……………………………………………………………………		141,467		138,148		127,862
Other current assets .....................................................................		14,820		14,846		32,783
Other current assets …………………………………………………………		19,873		22,050		14,820
Total current assets ....................................................................		145,985		147,580		194,718
Total current assets …………………………………………………………		165,156		161,604		145,985
Property and equipment, net ..........................................................		82,496		84,651		87,538
Property and equipment, net …………………………………………………		70,026		71,812		82,496
Deferred taxes ...................................................................................		467		456		6,959
Goodwill, net ……………………………………………………………………		--		--		423
Goodwill, net ....................................................................................		423		423		423
Other assets ……………………………………………………………………		4,223		4,701		5,740
Other assets .....................................................................................		5,273		5,631		5,395
Total assets…………………………………………………………………	$	239,405	$	238,117	$	234,644
Total assets ................................................................................	$	234,644	$	238,741	$	295,033
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings .........................................................................	$	19,137	$	--	$	28,361
Borrowings under credit facility ……………………………………………	$	78,559	$	39,265	$	19,137
Accounts payable and accrued expenses ..............................		21,931		29,176		33,493
Accounts payable and accrued expenses…………………………………		20,825		38,546		21,931
Gift certificates redeemable .......................................................		8,971		9,224		7,558
Gift certificates redeemable …………………………………………………		8,953		9,077		8,971
Accrued payroll and bonuses .................................................		3,970		6,219		4,202
Accrued payroll and bonuses………………………………………………		3,814		4,613		3,970
Accrued insurance ....................................................................		5,252		5,178		4,029
Accrued insurance …………………………………………………………		5,019		5,058		5,252
Customer deposits ....................................................................		6,366		4,526		3,903
Customer deposits …………………………………………………………		3,700		5,529		6,366
Current portion of accrued rent ..............................................		4,702		3,871		3,047
Current portion of accrued rent ……………………………………………		3,659		4,144		4,702
Other current liabilities ............................................................		4,714		5,834		4,423
Other current liabilities………………………………………………………		4,030		7,677		4,714
Total current liabilities ...........................................................		75,043		64,028		89,016
Total current liabilities………………………………………………………		128,559		113,909		75,043
Accrued rent and other long term liabilities .............................		38,469		38,976		34,895
Accrued rent and other long term liabilities …………………………………		44,848		40,019		38,469
Stockholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized ...................................................		--		--		--
1,000,000 shares authorized ………………………………………………		--		--		--
Common stock, $1 par value, 50,000,000 ...............................
Common stock, $1 par value, 50,000,000
shares authorized, 38,149,646 shares issued .......................		38,150		38,150		38,150
shares authorized, 38,149,646 shares issued ……………………………		38,150		38,150		38,150
Additional paid-in capital ........................................................		79,473		79,817		79,743
Additional paid-in capital …………………………………………………		80,540		80,391		79,473
Retained earnings ....................................................................		8,117		23,669		62,431
Retained earnings (deficit) …………………………………………………		(48,461)		(29,112)		8,117
Accumulated other comprehensive income .........................		2,427		2,077		801
Accumulated other comprehensive income………………………………		2,544		1,634		2,427
Common shares in treasury, at cost, 1,716,569;
Common shares in treasury, at cost, 1,694,805
1,715,066 and 2,084,410 shares, respectively .......................		(7,035)		(7,038)		(8,554)
1,713,151 and 1,716,569 shares, respectively ……………………………		(6,775)		(6,874)		(7,035)
Deferred compensation ............................................................		--		(938)		(1,449)
Total stockholders' equity…………………………………………………		65,998		84,189		121,132
Total stockholders' equity .....................................................		121,132		135,737		171,122
Total liabilities and stockholders' equity ……………………………………	$	239,405	$	238,117	$	234,644
Total liabilities and stockholders' equity ..................................	$	234,644	$	238,741	$	295,033

The accompanying notes are an integral part of these consolidated financial statements.

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	April 29,		April 30,
	May 5,		April 29,
	2006		2005
	2007		2006
			(as adjusted)
Cash flows from operating activities:
Net loss .....................................................................................................................		($15,553)		($7,969)
Net loss ……………………………………………………………………………………………	$	(15,445)	$	(15,553)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .........................................................................		4,453		4,371
Depreciation and amortization ………………………………………………………………		4,243		4,453
Stock-based compensation expense ..............................................................		617		255
Stock-based compensation expense ………………………………………………………		200		617
Deferred taxes and other .................................................................................		(805)		683
Other……………………………………………………………………………………………		(1,195)		(805)
Change in assets and liabilities:
(Increase) decrease in other assets ...............................................................		68		(6,824)
Increase in other assets ………………………………………………………………………		2,530		68
(Increase) decrease in inventories ................................................................		1,212		(7,062)
(Increase) decrease in inventories …………………………………………………………		(2,016)		1,212
Decrease in current liabilities .........................................................................		(8,925)		(9,581)
Decrease in current liabilities…………………………………………………………………		(16,071)		(8,925)
Increase (decrease) in noncurrent liabilities ................................................		(720)		475
Increase (decrease) in noncurrent liabilities…………………………………………………		251		(720)
Landlord construction allowances ....................................................................		1,014		3,149
Landlord construction allowances………………………………………………………………		295		1,014
Net cash used in operating activities ...............................................................		(18,639)		(22,503)
Net cash used in operating activities……………………………………………………………		(27,208)		(18,639)
Cash flows from investing activities:
Purchases of property and equipment ..........................................................		(1,775)		(5,011)
Purchases of property and equipment ………………………………………………………		(1,388)		(1,775)
Net cash used in investing activities ..................................................................		(1,775)		(5,011)
Proceeds from sales of property and equipment……………………………………………		13		--
Net cash used in investing activities ……………………………………………………………		(1,375)		(1,775)
Cash flows from financing activities:
Net bank borrowings ..........................................................................................		19,137		28,361
Borrowings under credit facility ………………………………………………………………		39,294		19,137
Increase in outstanding checks in excess of cash balances .......................		635		--
Increase (decrease) in outstanding checks in excess of cash balances …………………		(7,782)		635
Sale of stock to employee benefit plans ........................................................		4		6
Sale of stock to employee benefit plans………………………………………………………		4		4
Proceeds from the exercise of employee stock options ...............................		3		317
Proceeds from exercise of employee stock options…………………………………………		--		3
Net cash provided by financing activities .........................................................		19,779		28,684
Net cash provided by financing activities ………………………………………………………		31,516		19,779
Effect of exchange rate change on cash and cash equivalents ...........................		(77)		48
Effect of exchange rate change on cash and cash equivalents …………………………………		(523)		(77)
Net increase (decrease) in cash and cash equivalents ..........................................		(712)		1,218
Net increase (decrease) in cash and cash equivalents……………………………………………		2,410		(712)
Cash and cash equivalents at beginning of period ...............................................		4,015		9,168
Cash and cash equivalents at beginning of period ………………………………………………		1,406		4,015
Cash and cash equivalents at end of period ..........................................................	$	3,303	$	10,386
Cash and cash equivalents at end of period ………………………………………………………	$	3,816	$	3,303
Supplemental disclosure of cash flow information:
Interest paid .............................................................................................................	$	117	$	274
Interest paid…………………………………………………………………………………………	$	1,055	$	117
Income taxes paid ....................................................................................................		28		241
Income taxes paid …………………………………………………………………………………		170		28
Non-cash investing and financing activities:
Distributions of restricted stock .............................................................................		18		372
Distributions of restricted stock …………………………………………………………………		160		18
Distribution of director fees ....................................................................................		--		52
Distribution of director fees………………………………………………………………………		14		--
Cancellation of restricted stock …………………………………………………………………		1		--
The accompanying notes are an integral part of these consolidated financial statements.

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

(1) Accounting Policies and Basis of Presentation

General

In the opinion of ~~the Company~~management, the accompanying unaudited consolidated financial statements, which include the accounts of The Bombay Company, Inc. and its wholly-owned subsidiaries (the “Company” or “Bombay”), contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position as of ~~April~~May 295, ~~2006~~2007 and April 3029, ~~2005~~2006, and the results of operations ~~for the three months then ended,~~ and cash flows for the three months then ended in accordance with the rules of the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform with current year presentation. ~~The~~These consolidated financial statements should be read in conjunction with the ~~financial~~audited financial statement disclosures contained in the Company’s ~~2005~~Fiscal 2006 Annual Report on Form 10-K/A.

Seasonality

The results of operations for the three-month periods ended ~~April~~May 295, ~~2006~~2007 and April 30 29, ~~2005~~2006 are not necessarily indicative of the results to be expected for the full fiscal year due to the seasonal nature of the Company’s business. Seasonal fluctuations in retail sales have historically resulted in increased profitability in the fiscal quarter that includes the holiday selling season.

~~Capital~~Liquidity ~~Resources~~ and ~~Liquidity~~Capital Resources

We have historically financed our operations through operating ~~capital~~cash flow, proceeds of public offerings of common stock and asset sales, and on a seasonal basis, through working capital credit facilities. Over the ~~past~~recent ~~three fiscal years~~past, we have made substantial investments of capital, ~~and~~to ~~for~~address ~~the~~expiring ~~past~~leases ~~two~~and ~~fiscal years~~invest ~~have~~ in ~~experienced~~ technology ~~operating~~and ~~losses.~~supply ~~Although~~chain ~~these~~infrastructure. ~~factors~~For ~~have~~the ~~reduced~~past ~~our~~three ~~cash~~fiscal years, ~~balances~~ we have ~~from~~experienced ~~historical~~cumulative ~~levels,~~operating aslosses ofand ~~April~~during ~~29,~~Fiscal 2006, ~~the~~had ~~Company has $3.3~~negative ~~million~~ net in cash ~~and~~flows ~~cash~~from ~~equivalents, bank borrowings of $19~~operations.1 ~~million~~Operating ~~and $42.3 million~~losses ofcontinue ~~availability~~through ~~under~~ the ~~existing credit facility for additional~~first ~~letters~~ quarter of ~~credit~~Fiscal ~~or borrowings~~2007. WeAll ~~believe~~of ~~that~~these ~~our~~factors ~~available~~have ~~cash and cash~~reduced ~~equivalents,~~our cash ~~flow from operations and cash available under~~balances ~~our existing~~ and ~~any expanded credit facilities, as well as potential additional~~ ~~liquidity~~ working ~~that~~capital ~~might~~from behistorical ~~obtained~~levels byand ~~selling~~increased orthe ~~otherwise~~outstanding ~~monetizing the~~borrowings ~~Company-owned~~ under ~~office~~our ~~building~~credit ~~or through other external resources~~facility, ~~will~~raising ~~be sufficient~~substantial todoubt ~~finance~~about ~~our~~the ~~operations and expected capital requirements for~~Company's at ability ~~least~~ to ~~the~~continue ~~next~~as ~~twelve~~a ~~months~~going concern.

~~Loss~~As ~~per~~ of ~~Share~~May 5, 2007, the Company had $3.8 million in cash and cash equivalents, $36.6 million of working capital, $78.6 million in outstanding debt under our existing credit facility and $27.9 million of availability under the credit facility for additional borrowings or letters of credit. During Fiscal 2006, we undertook a number of measures to reduce expenses and improve liquidity, including reducing corporate headcount, commencing the exit of the dedicated BombayKIDS business, reducing advertising expenditures and entering into our new credit facility. Management has identified a series of additional activities that it believes will be critical to achieving the Company’s long-term goals, including reducing inventory levels and returning to historical levels of inventory turnover, closing selected underperforming stores, and enhancing the merchandise assortment, allocation and presentation. The Company’s plan contemplates incurring additional operating losses during Fiscal 2007.

~~Basic~~During ~~loss~~ Fiscal ~~per~~2006, ~~share~~the isBoard ~~based~~of ~~upon~~Directors ~~the~~engaged ~~weighted~~William ~~average~~Blair ~~number~~& ofCompany, ~~shares outstanding~~an ~~excluding~~ investment ~~unvested~~banking ~~restricted~~firm, ~~stock~~to seek investment or other strategic alternatives. In April ~~Diluted~~2007, ~~loss~~a ~~per~~confidential ~~share~~descriptive ismemorandum ~~based~~was ~~upon~~distributed to potentially interested investors, and the Company is aggressively pursuing options. The ~~weighted~~ process ~~average~~is ~~number~~progressing, and in May 2007, the Board of ~~shares~~Directors ~~outstanding~~received non-binding ~~plus~~offers to purchase the ~~shares~~Company. ~~that~~Such ~~would~~offers beare subject to material ~~outstanding~~ conditions ~~assuming~~including ~~exercise~~substantial ofdue ~~dilutive~~diligence. ~~stock~~While ~~options~~the ~~and~~Board ~~distribution~~is ofencouraged ~~deferred~~ by these ~~director~~offers, ~~stock~~there ~~units~~is no assurance that these offers will ultimately lead to a transaction.

~~The~~In ~~computation~~ May 2007, the Company entered into an agreement for ~~basic~~a ~~and~~new ~~diluted~~$10 ~~loss~~million, ~~per~~secured term loan ~~share~~facility iswith asa ~~follows~~fund ~~(in~~managed ~~thousands~~by GB Merchant Partners, LLC. The ~~except~~ facility ~~per~~is ~~share~~coterminous ~~amounts):~~with the Company’s existing $125 million secured revolving credit facility with GE Commercial Finance. The new facility will provide incremental liquidity to fund working capital requirements and other corporate needs. See Note 7 to the Consolidated Financial Statements for additional information.

	Three Months Ended
	April 29, 2006		April 30, 2005
			(as adjusted)
Numerator:
Net loss ............................................................................................		($15,553)		($7,969)
Denominator for basic and diluted loss per share:
Average common shares outstanding ........................................		35,930		35,939
Basic and diluted loss per share ...........................................................		($0.43)		($0.22)

During the three-month periods ended April 29, 2006 and April 30, 2005, the Company reported a net loss. Accordingly, common stock equivalents would be anti-dilutive during these periods and, thus, are not included in the computation of diluted loss per share. The following table presents the potentially dilutive securities outstanding at each of the periods then ended (in thousands):

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont’d)

(Unaudited)

	Three Months Ended
	April 29, 2006		April 30, 2005
Stock options............................................................................................		4,023		3,295
Deferred director stock units ..................................................................		82		356
Total ...................................................................................................		4,105		3,651

The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

~~(2)~~Loss per ~~Adjustment to Previously Issued Financial Statements~~Share

~~During~~Basic ~~the~~ loss ~~fourth~~per ~~quarter~~share ofis ~~Fiscal~~based ~~2005,~~upon wethe ~~elected~~weighted ~~early~~average ~~adoption~~number of ~~Financial Accounting~~shares ~~Standards Board (“FASB”) Staff Position FAS 13-1, Accounting~~outstanding ~~for~~ excluding ~~Rental~~unvested ~~Costs~~restricted ~~Incurred~~stock. ~~During~~Diluted aloss ~~Construction~~per ~~Period, (“FSP FAS~~share ~~13-1”)~~is ~~which~~based ~~requires that rental costs incurred during~~ upon the ~~construction~~ ~~period~~ weighted ofaverage ~~new~~number ~~stores be charged to rental expense as a period cost. Our practice had been to capitalize such rents as part~~ of ~~the~~shares ~~cost~~outstanding ofplus the ~~asset~~shares ~~and~~that ~~amortize~~would ~~them over the asset’s estimated useful life. We elected early adoption and chose~~ be to outstanding ~~retrospectively~~assuming ~~apply~~exercise ~~FSP~~of ~~FAS~~dilutive ~~13-1~~stock tooptions ~~prior years’ financial statements for enhanced comparability with peers~~ and ~~consistency of internal treatment for~~distribution ~~all properties. The retrospective application includes adjustments to cost~~ of ~~sales, buying and~~ ~~store~~ deferred ~~occupancy~~director ~~costs,~~stock ~~income (loss) before income taxes, provision (benefit) for income taxes, net income (loss) and earnings (loss) per share~~units.

The ~~effects~~ computation offor ~~these~~basic ~~adjustments~~and ~~were~~diluted loss per share is as follows (in thousands, except per share amounts):

Three Months Ended April 30, 2005

	Three Months Ended
	May 5,	April 29,
	2007	2006
Numerator
Net loss ………………………………………………………………………	$(15,445)	$(15,553)
Denominator for basic and diluted loss per share:
Average common shares outstanding ……………………………………	36,353	35,930
Basic and diluted loss per share……………………………………………	$(0.42)	$(0.43)

	As Reported		Impact of Adjustment		As Adjusted
Consolidated Balance Sheet
Property and equipment, net……………	$	92,746	$	(5,208)	$	87,538
Deferred taxes………………………….		5,050		1,909		6,959
Other assets ……………………………		5,395		--		5,395
Total assets…………………………….		298,332		(3,299)		295,033
Retained earnings………………………		65,737		(3,306)		62,431
Total stockholders’ equity……………..		174,421		(3,299)		171,122
Total liabilities and stockholders’ equity………………….		298,332		(3,299)		295,033
Consolidated Statement of Operations
Cost of sales, buying and store occupancy costs ..........	$	95,253	$	(53)	$	95,200
Loss before income taxes………………		(13,513)		53		(13,460)
Benefit for income taxes……………….		(5,513)		22		(5,491)
Net loss…………………………………		(8,000)		31		(7,969)
Basic loss per share…………………….	$	(0.22)	$	0.00	$	(0.22)
Diluted loss per share…………………..	$	(0.22)	$	0.00	$	(0.22)

During the three-month periods ended May 5, 2007 and April 29, 2006, the Company reported a net loss. Accordingly, common stock equivalents would be anti-dilutive during these periods and, thus, are not included in the computation of diluted loss per share. The following table presents the potentially dilutive securities outstanding at each of the periods then ended (in thousands):

	Three Months Ended
	May 5,	April 29,
	2007	2006
Stock options ………………………………………………………………………	2,869	4,023
Deferred director stock units………………………………………………………	260	82
Total …………………………………………………………………………	3,129	4,105

(2)	Stock-Based Compensation Plans

We maintain stock-based compensation arrangements under which employees and directors may be awarded grants of restricted stock and stock options. The fair value of these equity awards is charged to expense over the vesting period associated with each grant in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (Revised 2004), Share-Based Payment (“SFAS 123R”)

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont’d)

(Unaudited)

~~(3)~~ Stock~~-Based Compensation Plans~~ Options

InThe ~~December 2004, the FASB issued Statement of Financial Accounting Standards~~ fair ~~(“SFAS”)~~ value No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123R”), which replaces SFAS No. 123, Accounting for Stock-Based Compensation, (“SFAS No. 123”) and supersedes Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). SFAS No. 123R requires all share-based payments, including grants of ~~employee~~ stock options, togranted beunder ~~recognized in~~ the ~~financial~~Company’s ~~statements~~ stock-based compensation ~~on their~~ plans ~~fair~~is ~~values.~~estimated ~~Under~~on ~~SFAS No. 123R, public companies are required to measure~~ the ~~cost~~date of ~~services~~grant ~~received~~using inthe ~~exchange~~Black-Scholes ~~for stock options and similar awards~~option-pricing ~~based~~ model. onThere ~~the~~were ~~grant-date~~no ~~fair~~option ~~value~~grants ofin the ~~award~~quarter ~~and~~ended ~~recognize~~May ~~this~~5, ~~cost~~2007. inThe ~~the~~ table ~~income~~ below ~~statement~~outlines ~~over~~ the ~~period~~weighted ~~during~~average ~~which~~assumptions anfor ~~award~~options ~~recipient~~granted ~~is required to provide service~~ in ~~exchange for~~ the ~~award. The pro forma disclosures previously~~ ~~permitted~~ quarter ~~under~~ended ~~SFAS~~April ~~No.~~29, ~~123 are no longer an alternative to financial statement recognition.~~2006:

We maintain stock-based compensation arrangements under which employees and directors may be awarded grants of restricted stock and stock options. Prior to January 29, 2006, we accounted for these awards under the recognition and measurement provisions of APB No. 25 as permitted under SFAS No. 123. Accordingly, compensation expense for stock options was not recognized because the stock options granted had an exercise price equal to the market price of our common stock on the date of grant.

		Three Months Ended April 29, 2006
Risk-free interest rate ………………………………………………………………………………		4.7%
Expected term (in years) ……………………………………………………………………………		6.0
Expected volatility …………………………………………………………………………………		63.0%
Expected dividend yield ……………………………………………………………………………		--
Weighted average fair value of options granted…………………………………………………		$2.04

~~Effective~~The ~~January~~ expected ~~29,~~term ~~2006,~~of ~~we adopted~~ the ~~fair~~options ~~value~~represents ~~recognition provisions of SFAS No. 123R using~~ the ~~modified~~estimated ~~prospective~~period ~~transition~~of ~~method.~~time ~~Under~~until exercise ~~this~~and ~~transition method,~~is ~~compensation~~based ~~expense~~on ~~recognized~~historical ~~beginning~~experience ~~January~~of ~~29,~~similar ~~2006~~awards. ~~included~~Expected ~~compensation~~ stock price ~~expense~~volatility ~~for~~is ~~all~~based ~~awards granted~~ on ~~or after~~ the ~~date~~historical volatility of ~~adoption and for~~ the ~~portion~~Company’s ofstock over ~~previously~~a ~~granted~~time ~~awards~~period that ~~were~~corresponds ~~unvested~~to at the ~~date of adoption.~~expected Interm ~~accordance~~of ~~with~~ the ~~modified prospective transition method, results for prior periods have not been restated~~options. The risk-free ~~adoption~~rate ofis ~~SFAS No. 123R resulted in share-~~based ~~compensation~~on ~~expense~~the ofimplied ~~approximately~~yield ~~$178,000~~available oron ~~less than $0~~U.~~01 per~~S. ~~share~~Treasury ~~for~~issues with ~~both~~an ~~basic~~equivalent ~~and~~remaining ~~diluted~~term ~~earnings~~equal ~~(loss)~~to ~~per share in~~ the ~~first quarter~~expected life of ~~Fiscal 2006~~the option.

~~Pro~~Compensation ~~forma~~ expense is recognized only for option grants expected to vest. The Company ~~disclosures~~ estimates asforfeitures ifat the ~~Company~~date ~~had~~of ~~adopted~~grant based on historical experience and future expectations. For the ~~fair~~quarters ~~value~~ended ~~recognition~~May 5, 2007 and April 29, 2006, ~~requirements~~ the Company ~~under~~recognized ~~SFAS~~$164,000 Noand $178,000, respectively, in stock-based compensation related to stock options. ~~123~~On ~~for~~a per share basis, stock option expense ~~awards~~was ~~during~~less ~~the~~than ~~prior~~$0.01 ~~year~~per share for both basic and diluted loss per ~~quarter~~ share, for ~~are~~each ~~presented~~of in the ~~following~~comparable ~~table~~periods.

(In thousands, except per share data)	Three Months Ended April 30, 2005
	(as adjusted)
Net loss as reported ..................................................................................................................	$	(7,969)
Stock-based employee compensation expense included in reported net income, net of related tax effects ......................................................................		151
Fair value based compensation expense, net of tax ............................................................		(490)
Net loss, pro forma ..................................................................................................................	$	(8,308)
Basic loss per share, as reported ..........................................................................................	$	(0.22)
Pro forma under SFAS 123 .............................................................................................	$	(0.23)

The unamortized fair value of stock options as of May 5, 2007 was $669,000, which is expected to be recognized over the weighted-average remaining period of 0.9 years.

The following table summarizes stock option activity during the first quarter of Fiscal 2007:

			Weighted
		Weighted	Average
		Average	Remaining
		Option	Contractual
Stock options	Shares	Price	Term (years)

Outstanding at February 3, 2007	3,056,725	$3.96
Granted	─	─
Exercised	─	─
Forfeited or expired	(187,456)	$5.07
Outstanding at May 5, 2007	2,869,269	$3.89	5.5

Exercisable at May 5, 2007	1,836,492	$4.57	5.1

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont’d)

(Unaudited)

~~Stock~~The ~~Options~~ aggregate intrinsic value of a stock option is defined as the amount by which the market price of the underlying stock exceeds the exercise price. As of May 5, 2007, all of the options outstanding and exercisable had exercise prices that were greater than the market price of our stock. For this reason, there was no aggregate intrinsic value associated with any of the options outstanding.

~~The~~Restricted fair value of stock options granted under the Company’s stock-based compensation plans was estimated on the date of grant using the Black-Scholes option-pricing model. The table below outlines the weighted average assumptions for options granted in the quarter ended April 29, 2006 and April 30, 2005: Stock

	Three Months Ended
	April 29, 2006		April 30, 2005
Risk-free interest rate ...............................................................................		4.7%		4.5%
Expected term (in years) ..........................................................................		6.0		6.0
Expected volatility ..................................................................................		63.0%		64.1%
Expected dividend yield ........................................................................		─		─
Weighted average fair value of options granted ..............................	$	2.04	$	2.76

The unamortized fair value of restricted stock as of May 5, 2007 was $102,000 , which is expected to be recognized over the weighted-average remaining period of 1.1 years. The following table summarizes restricted stock activity during the first quarter of Fiscal 2007:

The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards. Expected stock price volatility is based on the historical volatility of the Company’s stock over a time period that corresponds to the expected term of the options. The risk-free rate is based on the implied yield available on U.S. Treasury issues with an equivalent remaining term equal to the expected life of the option.

		Weighted
		Average
		Grant Date
Restricted Stock	Shares	Fair Value
Non-vested stock at February 3, 2007 …………………………………………………	98,001	$4.55
Granted ……………………………………………………………………………………	10,000	$0.88
Vested ……………………………………………………………………………………	(27,499)	$5.82
Forfeited …………………………………………………………………………………	(1,500)	$1.96
Non-vested at May 5, 2007………………………………………………………………	79,002	$3.70

~~Compensation~~Restricted stock granted during the first quarter of Fiscal 2006 had a weighted average grant date fair value of $3.15 per share. Stock-based compensation expense of $35,000 isand $440,000 was recognized ~~only~~in ~~for~~the ~~option~~first ~~grants~~quarters ~~expected~~of Fiscal 2007 and Fiscal 2006, respectively, related to ~~vest~~restricted stock. The ~~Company~~total fair value ~~estimates~~ of shares ~~forfeitures~~of atrestricted stock vested during the ~~date~~first quarter of ~~grant~~Fiscal ~~based~~2007 and Fiscal on2006 ~~historical~~was ~~experience~~$160,020 and ~~future~~ ~~expectations.~~$206,133, respectively.

~~The unamortized fair value of stock options as of April 29, 2006 was $1.~~(3) ~~million which~~Comprehensive ~~is expected to be recognized over the weighted-average remaining period of 1.1 years.~~ Loss

~~The~~Comprehensive ~~following~~ loss ~~table~~for ~~summarizes~~the ~~stock~~three ~~option~~months ~~activity~~ended ~~during~~May ~~the~~5, ~~first~~2007 ~~quarter~~and ~~of fiscal~~April 29, 2006 was as follows (in thousands):

						Weighted
	Three Months Ended
				Weighted		Average
	May 5,		April 29,
				Average		Remaining		Aggregate
	2007		2006
				Exercise		Contractual		Intrinsic
Net loss ………………………………………………………………………………………	$(15,445)		$(15,553)
Stock options	Shares			Price		Term (years)		Value
Foreign currency translation adjustment …………………………………………………	910		350
	(In thousands)							(In thousands)
Comprehensive loss …………………………………………………………………	$(14,535)		$(15,203)
Outstanding at January 28, 2006		3,168		$	5.52
Granted		911		$	3.28
Exercised		1		$	3.21			$	3
Forfeited or expired		56		$	4.79
Outstanding at April 29, 2006		4,022		$	5.02		6.7	$	20,205
Exercisable at April 29, 2006		3,038		$	5.58		6.6	$	16,951

~~The~~(4) ~~aggregate intrinsic value in the table above is based on the fair market value~~Income ~~on the grant date for outstanding and exercisable shares at April 29, 2006 and based on the fair market value on the exercise date for exercised shares.~~Taxes

The seasonality of the business is such that the Company expects a portion of losses incurred during the first nine months of the fiscal year to be partially offset by profits during the fourth quarter. In accordance with SFAS No. 109, Accounting for Income Taxes, the Company has calculated the annual effective tax rate for the three-month periods ended May 5, 2007 and April 29, 2006 based upon year-to-date results and projections of the remainder of the year.

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont’d)

(Unaudited)

~~Restricted~~We ~~Stock~~ recorded a valuation allowance against all U.S. deferred tax assets in the fourth quarter of Fiscal 2005 as a result of cumulative losses in recent years. Under generally accepted accounting principles, a pattern of future profitability in reversal of the current cumulative loss trend would result in the reinstatement of all or part of the deferred tax assets. The Company does not expect to recognize tax benefits associated with its U.S. operations during the current fiscal year. The income tax benefit reflected in the first quarter relates primarily to the Canadian operations net of estimated state income tax expense, and results in an effective tax rate of 0.5% compared to 2.5% in the prior year period.

~~The~~In ~~unamortized~~ July 2006, ~~fair~~the ~~value~~Financial Account Standards Board (“FASB”) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an Interpretation of ~~restricted~~FASB ~~stock~~Statement as109 (“FIN 48”). The Company adopted the provisions of ~~April~~FIN ~~29,~~48 ~~2006~~effective ~~was~~February 4, 2007, $0 the first day of the Fiscal 2007.~~5 million~~ As a result of the implementation of FIN 48, the ~~which~~Company isrecorded ~~expected~~a to$2.3 bemillion ~~recognized~~increase ~~over~~in the ~~weighted-average~~liability for unrecognized ~~remaining~~ tax ~~period~~benefits and a decrease to retained earnings of 0$4.60 ~~years~~million. The ~~following~~total unrecognized ~~table~~tax ~~summarizes~~benefit ~~restricted~~at ~~stock~~February 4, 2007, was $3.3 million, all of which ~~activity~~ would ~~during~~impact the ~~first~~Company’s ~~quarter~~effective rate if recognized. The amount of unrecognized ~~Fiscal~~tax ~~2006~~benefits ~~(shares~~did innot materially change as of May 5, ~~thousands):~~ 2007.

Restricted Stock	Shares		Weighted Average Grant Date Fair Value
Nonvested at January 28, 2006 .......................................		514,274	$	6.25
Granted ..............................................................................		5,000	$	3.15
Vested ...............................................................................		36,123	$	5.71
Forfeited ...........................................................................		─		─
Nonvested at April 29, 2006 .........................................		483,151	$	6.26

It is expected that the amount of unrecognized tax benefits will change in the next twelve months; however we do not expect the change to have a significant impact on the results of operations or the financial position of the Company. The Company recognizes interest and penalties related to unrecognized tax benefits as income tax expense in the Consolidated Statements of Income, which is consistent with the recognition of these items in prior reporting periods. As of February 4, 2007, the Company had recorded a liability of $1.2 million and $.8 million for the payment of interest and penalties, respectively. The liability for the payment of interest and penalties did not materially change as of May 5, 2007.

The ~~total~~ Bombay Company, Inc. and its U.S. subsidiaries join in the filing of a U.S. ~~fair~~ federal ~~value~~consolidated income tax return. Our Canadian subsidiary, The Bombay Furniture Company of ~~shares~~Canada, Inc., files Canadian federal and provincial income tax returns. The Internal Revenue Service (“IRS”) concluded its examination of our ~~restricted~~consolidated ~~stock~~federal ~~vested~~returns ~~during~~for the ~~first~~tax ~~quarter~~years ~~was~~2001 through 2003 in November ~~$206~~ 2005. The U.S. federal statute of limitations is open for the 2004,~~133~~ 2005 and 2006 tax years. Canadian and U.S. state jurisdictions have statutes of limitations generally ranging from 3 to 6 years. We currently have various state and international tax returns under examination.

(45) Recent ~~Comprehensive~~Accounting ~~Loss~~Pronouncements

~~Comprehensive~~In ~~loss~~ July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the ~~three~~accounting ~~months~~for ~~ended~~uncertainty ~~April~~in 29tax positions. This Interpretation requires that the Company recognize in its financial statements the impact of a tax position, ~~2006~~if ~~and~~that ~~April~~position 30is more likely than not of being sustained on audit, ~~2005~~based ~~was~~on the technical merits of the position. The provisions of FIN 48 were effective as ~~follows~~of the beginning of Fiscal 2007, with ( the cumulative effect of the change in ~~thousands):~~accounting principle recorded as an adjustment to opening retained earnings. As a result of the implementation of FIN 48, the Company recorded a $2.3 million increase in the liability for unrecognized tax benefits, and a decrease to retained earnings of $4.0 million.

	Three Months Ended
	April 29, 2006		April 30, 2005
			(as adjusted)
Net loss ..........................................................................................		($15,553)		($7,969)
Foreign currency translation adjustments ...............................		350		(150)
Comprehensive loss ...........................................................		($15,203)		($8,119)

(5) Income Taxes

The seasonality of the business is such that the Company expects a portion of losses incurred during the first nine months of the fiscal year to be partially offset by profits during the fourth quarter. In accordance with SFAS No. 109, Accounting for Income Taxes, the Company has calculated the annual effective tax rate for the three-month periods ended April 29, 2006 and April 30, 2005.

We recorded a valuation allowance against all U.S. deferred tax assets in the fourth quarter of Fiscal 2005 as a result of cumulative losses in recent years. Under accounting principles generally accepted in the United States, a pattern of future profitability in reversal of the current cumulative three-year loss trend would result in the reinstatement of all or part of the deferred tax assets. The Company does not expect to recognize tax benefits associated with its U.S. operations during the current fiscal year. The income tax benefit reflected in the first quarter of Fiscal 2006 relates primarily to the Canadian operations and results in an effective tax rate of 2.5% for the first quarter compared to 40.8% in the prior year period.

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont’d)

(Unaudited)

~~(6)~~beginning ~~Recent~~ of ~~Accounting~~the ~~Pronouncements~~fiscal year in which this statement is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The provisions of SFAS No. 157 are effective for the fiscal years beginning after November 15, 2007. We have not determined the effect, if any, the adoption of this statement will have on our financial condition or results of operations.

In ~~December~~ February ~~2004~~2007, the FASB issued SFAS No. ~~123 (Revised 2004)~~ 159, Share-Based Payment ("SFAS No. 123R"), which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements based on alternative fair value models. The ~~share-based compensation cost will be measured based on the fair value~~ ~~of the~~ Fair ~~equity~~Value orOption ~~liability~~for ~~instruments~~Financial ~~issued.~~Assets ~~Effective~~and ~~with~~Liabilities ~~the first quarter of Fiscal 2006, the Company has adopted~~ (“SFAS No. ~~123R~~159”). ~~and~~This ~~has~~statement ~~begun~~permits ~~recognizing compensation~~entities ~~expense related~~ to ~~share-based~~choose payment transactions using the modified prospective application method. The impact of adopting this pronouncement was the recognition of $178,000 of compensation expense in the first quarter of Fiscal 2006, and the Company expects the annual expense for Fiscal 2006 to bemeasure ~~approximately $1 million.~~

Inmany ~~November~~ financial ~~2004,~~instruments ~~the~~and ~~FASB~~certain ~~issued~~other ~~SFAS~~items ~~No.~~at ~~151,~~fair ~~Inventory Costs, (“SFAS No~~value. ~~151”).~~If ~~This statement requires that fixed production costs be allocated to inventory based on~~ the ~~normal~~fair ~~capacity~~ value option ofis ~~production~~elected, ~~facilities~~unrealized gains and ~~that~~losses ~~unallocated~~will ~~overhead~~ be recognized ~~as an~~ ~~expense~~ in earnings at ~~the~~each ~~periods~~subsequent inreporting ~~which~~date. ~~they are incurred~~SFAS No. 159 Inis ~~addition,~~effective ~~other items~~for ~~such~~ fiscal asyears ~~abnormal~~beginning ~~freight~~after November 15, ~~handling~~2007. ~~costs~~We ~~and~~have ~~amounts~~not ofdetermined ~~excess spoilage require~~the ~~treatment~~ effect, asif ~~current-period~~any, ~~charges~~the ~~rather~~adoption ~~than as a portion~~ of ~~the inventory cost. We adopted~~ this statement ~~effective~~will ~~January 29, 2006. The adoption of SFAS 151 did not~~ have ~~a material impact~~ on our financial condition or results of operations.

(76) ~~Geographic~~Commitments ~~Areas~~and Contingencies

WeAs ~~operate primarily in one industry segment, specialty retailing. Greater than 90%~~ of ~~all revenue results from the sale of home furnishings and accessories through~~May ~~retail~~ 5, ~~stores~~2007, inwe ~~the~~have ~~United~~outstanding ~~States~~unconditional ~~and~~purchase ~~Canada.~~orders ~~The remaining portion of our~~totaling ~~revenue results from the sale of home furnishings and accessories through our wholesale operations, direct-to-customer retail operations and related shipping charges~~ $71. ~~Our~~9 ~~wholesale and direct-to-customer operations have been immaterial to our~~ million ~~operations~~ relating ~~and financial results~~ to ~~date.~~the ~~Long-lived assets~~acquisition ~~include~~of ~~all~~inventory ~~non-current~~in ~~assets~~Fiscal ~~except deferred taxes~~2007.

~~The~~We ~~following~~ have certain ~~table~~contingent ~~shows~~liabilities ~~net~~resulting ~~revenue~~from litigation and ~~long-lived~~claims ~~assets~~incident to the byordinary ~~geographic~~course ~~area~~of business. Management believes that the probable ~~(in~~ resolution of such contingencies will not materially affect our financial ~~thousands):~~ position or results of operations or cash flows.

	Three Months Ended
	April 29, 2006		April 30, 2005
			(as adjusted)
Net revenue:
United States .................................................	$	101,951	$	107,182
Canada ...........................................................		16,713		14,929
Total ..............................................................	$	118,664	$	122,111
Long-lived assets:
United States .............................................	$	77,662	$	85,763
Canada ........................................................		10,530		7,593
Total ............................................................	$	88,192	$	93,356

We are party to employment agreements with certain executives, which provide for compensation and certain other benefits. The agreements also provide for severance payments under certain circumstances.

(7) Subsequent Events - Term Loan Facility & Amendment of Revolving Credit Facility

Effective May 25, 2007, the Company entered into an agreement for a new $10 million, secured term loan facility (“Term Loan”) with a fund managed by GB Merchant Partners, LLC (“Term B Lender”). The facility is coterminous with the Company’s existing $125 million secured revolving credit facility (“Revolver”) with GE Commercial Finance Corporate Lending (“Senior Lender”). The new facility will provide incremental liquidity to fund working capital requirements and other corporate needs.

The Term Loan is secured by a first priority perfected security interest in all of the Company’s unencumbered furniture, fixtures and equipment, leases and leaseholds, general intangibles including the brand name, a pledge of the stock of certain of the Company’s wholly owned subsidiaries, certain other collateral and a second priority security interest on all other assets, including the Company’s accounts receivable, inventory, cash, deposit accounts, real estate, and other assets constituting collateral for the Revolver.

The provisions of the Term Loan include a commitment fee equal to 1% of the principal amount of the loan which is being amortized over the term of the agreement. Borrowings bear interest at the London Interbank Offered Rate plus 7%, which is payable monthly. The Term Loan may be prepaid in full and terminated at any time, subject to payment of a prepayment fee on the original principal amount equal to 2% in the first year, and 1.5% in the second year.

The credit agreement contains no covenants regarding the maintenance of financial ratios, but does include other customary covenants including, but not limited to:

a requirement that the Company must maintain under its Revolver with its Senior Lender, the lesser of i) 10% of the aggregate borrowing base; or ii) a) $10 million availability through November 30, 2007 and b) $15 million availability thereafter, provided that this latter amount may be adjusted by the Term B Lender based on its acceptance of the Company’s business plan for the following fiscal year;

·	a requirement that the aggregate amount owed to the Term B Lender and the Senior Lender, including all letter of credit obligations, not exceed 60% of the cost of eligible inventory as of December 31, 2007;

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont’d)

(Unaudited)

~~(8) Commitments~~· a requirement that the Company report to the Term B Lender certain financial and ~~Contingencies~~operational information on a recurring basis;

~~As of April~~· ~~29,~~restrictions ~~2006,~~regarding ~~we have outstanding unconditional purchase orders totaling $120.1 million relating to~~ the ~~acquisition~~incurrence of ~~inventory~~debt inby ~~Fiscal 2006.~~the Company;

~~We have certain~~· ~~contingent~~restrictions ~~liabilities~~regarding ~~resulting from litigation and claims incident to~~ the ~~ordinary~~creation ~~course~~ of ~~business.~~liens ~~Management~~on ~~believes~~assets ~~that~~of the ~~probable resolution of such contingencies will not materially affect our financial position or results of operations or cash flows.~~Company;

~~We are party~~· torestrictions ~~employment~~regarding ~~agreements with certain executives~~dissolution, ~~which~~liquidation ~~provide~~or ~~for compensation~~merger ~~and~~of ~~certain~~the ~~other benefits. The agreements also provide for severance payments under certain circumstances.~~Company;

·	restrictions regarding the Company making certain investments, advances and loans;

·	restrictions regarding the sale, transfer or other disposition of assets of the Company; and

·	restrictions regarding transactions with affiliates of the Company.

The Term Loan allows the Company to acquire shares of its common stock and to declare and pay dividends, so long as:

·	no default or event of default shall have occurred and be continuing;

·	immediately after giving effect thereto and for the two fiscal quarters then ended immediately prior, availability under the facility is at least equal to $25 million; and

·	certain other conditions are satisfied.

The Company may also declare and pay any dividends on an may acquire shares of its common stock in exchange for common stock or other equity in the Company.

The Term Loan agreement also contains customary events of default including, but not limited to, the failure on the part of the Company to satisfy the above-described covenants. In the event a default occurs and is continuing, the Term B Lender may elect to pursue remedies including but not limited to:

·	declaring all obligations immediately due and payable;

·	terminating the Term Loan; or

·	liquidating the collateral for its benefit.

The Term Loan maturity date is October 24, 2011.

In connection with entering into the Term Loan agreement, the Company’s Revolver with its Senior Lender was amended to permit the Term Loan. Additionally, the amendment calls for the Revolver to be secured by a second priority security interest in all of the Company’s unencumbered furniture, fixtures and equipment, leases and leaseholds, general intangibles, including the brand name, a pledge of the stock of certain of the Company’s wholly-owned U.S. subsidiaries and 65% of the stock of its Canadian subsidiary, and certain other collateral. The amendment also provides for a prepayment fee of $200,000 in the event the Revolver is terminated within two years following the effective date of the amendment. The effective date of the amendment is May 25, 2007.

(8) Geographic Areas

We operate primarily in one industry segment, specialty retailing. Greater than 90% of all revenue results from the sale of home furnishings and accessories through retail stores in the United States and Canada. The remaining portion of our revenue results from the sale of home furnishings and accessories through our wholesale operations, direct-to-customer retail operations and related shipping charges. Our wholesale and direct-to-customer operations have been immaterial to our operations and financial results to date. Long-lived assets include all non-current assets except deferred taxes.

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (cont’d)

(Unaudited)

The following table shows net revenue and long-lived assets by geographic area (in thousands):

	Three Months Ended
	May 5, 2007		April 29, 2006
Net revenue:
United States ………………………………………………………………………	$	88,032	$	101,951
Canada ………………………………………………………………………………		16,597		16,713
Total………………………………………………………………………………	$	104,629	$	118,664

Long-lived assets:
United States ………………………………………………………………………	$	61,822	$	77,662
Canada ………………………………………………………………………………		11,799		10,530
Total………………………………………………………………………………	$	73,621	$	88,192

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

Certain statements in this Form 10-Q under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of The Bombay Company, Inc. and its wholly-owned subsidiaries (the “Company” or “Bombay”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. This discussion should be read in conjunction with the ~~condensed~~ consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q and that of the Company’s ~~2005~~Fiscal ~~Annual~~2006 Annual Report on Form 10-K/A.

Retrospective Application of New Accounting Pronouncement

During the fourth quarter of Fiscal 2005, we elected early adoption of FASB Staff Position FAS 13-1, Accounting for Rental Costs Incurred During a Construction Period, (“FSP FAS 13-1”) which requires that rental costs incurred during the construction period of new stores be charged to rental expense as a period cost. Our practice had been to capitalize such rents as part of the cost of the asset and amortize them over the asset’s estimated useful life. We elected early adoption and chose to retrospectively apply FSP FAS 13-1 to prior years’ financial statements for enhanced comparability with peers and consistency of internal treatment for all properties. The retrospective application includes adjustments to cost of sales, buying and store occupancy costs, income (loss) before income taxes, provision (benefit) for income taxes, net income (loss) and earnings (loss) per share. For additional information with respect to these adjustments as they relate to the quarter ended April 30, 2005, see Note 2 to the accompanying financial statements.

General

The ~~Company~~ Bombay ~~designs~~Company, ~~sources~~Inc. and ~~markets~~its awholly-owned ~~unique~~subsidiaries design, source and market a line of ~~fashionable~~proprietary home furnishings that includes large furniture, occasional ~~accessories~~ furniture, wall ~~décor~~decor and ~~furniture~~decorative ~~through~~accessories ~~482~~that ~~retail~~is ~~locations~~timeless, classic and traditional in 42its ~~states in~~styling ~~the~~through a network of retail locations throughout the United States and ~~eight Canadian provinces~~Canada, ~~specialty~~through ~~catalogs,~~its ~~the Internet~~direct-to-customer ~~and~~operations and international licensing arrangements. Throughout this report, the ~~terms~~ “terms "our”," “"we”," “"us”," “"Bombay”" and “Company” refer to The Bombay Company, Inc., including its subsidiaries.

Bombay’s ~~has~~ unique ~~three~~position ~~distinct~~in ~~retail concepts leveraging~~ the ~~Bombay~~market ~~brand:~~place ~~Bombay, BombayKIDS~~is ~~and~~a ~~Bombay~~result ~~Outlet.~~of ~~Bombay~~our ~~stores~~core ~~feature timeless and classically~~competencies ~~styled home furnishings including accessories, wall décor and furniture focusing~~ in ~~on the bedroom~~ design, ~~the~~sourcing ~~home office, the dining room~~ and ~~the living room~~importing. We ~~entered the~~are ~~children’s furnishings business in 2001 with the introduction of BombayKIDS, which features~~ a ~~line~~global ~~of children’s furniture~~importer, ~~textiles~~sourcing ~~and accessories for~~product ~~children’s~~ from approximately ~~bedrooms~~26 ~~and~~countries ~~bathrooms~~worldwide. ~~Bombay~~Over ~~Outlet~~90% ~~stores, which are located primarily in major outlet centers across the United States and in Canada, feature an assortment~~ of ~~home furnishings similar to~~ the ~~Bombay~~product ~~store~~has ~~offering~~been at designed or ~~lower~~styled ~~price points. Additionally, Bombay Outlet stores provide a channel~~ to ~~liquidate~~ ~~overstocks of~~ Bombay’s ~~and BombayKIDS product as well as merchandise produced for our former wholesale operation~~specifications.

InBombay ~~addition~~ operates toprimarily ~~our~~through ~~primary~~two retail ~~operations~~channels: store based, which consists of Bombay’s ~~also~~core ~~has~~offering ~~international~~(“core”), Bombay Outlet and BombayKIDS stores located in ~~licensing~~ the ~~agreements~~U.S. ~~under~~and Canada; and direct-to-customer, which aconsists ~~total~~primarily of the Company’s 18website ~~licensed~~operations. ~~international~~Bombay core stores feature timeless and ~~are~~ classically styled home furnishings including accessories, wall decor and ~~operating~~ furniture infocusing on the ~~Middle~~bedroom, ~~East~~the ~~and~~home office, the ~~Caribbean~~dining room and the living room. ~~Unless~~Bombay ~~specified~~Outlet ~~otherwise~~stores, which are located primarily in major ~~the~~ outlet ~~discussions~~ centers ~~herein~~across ~~relate~~the United States and in Canada, feature an assortment of home furnishings similar to the Bombay ~~retail~~core ~~operations~~store offering at lower price points. Additionally, ~~including~~Bombay Outlet stores provide a channel to liquidate overstocks of Bombay core and BombayKIDS, product. BombayKIDS features a limited line ~~outlets~~ of children’s furniture, ~~Internet~~textiles and ~~catalog~~accessories for children’s bedrooms and bathrooms.

In addition to our primary retail operations, Bombay has an international licensing business which contributed incrementally to profitability but was not significant to our operations in Fiscal 2006. Unless specified otherwise, the discussions in this Quarterly Report on Form 10-Q relate to the Bombay retail operations, including Bombay core, Bombay Outlet and BombayKIDS, and direct-to-customer.

The largest percentage of Bombay’s sales and operating income is realized in the fiscal quarter that includes December (Christmas season). Merchandise is manufactured to our specifications through a worldwide network of contract manufacturers. The impact of inflation on operating results is typically not significant because the majority of our products are proprietary. We attempt to alleviate inflationary pressures by adjusting selling prices (subject to competitive conditions), improving designs and finding alternative production sources in lower cost countries.

Same store sales comparisons are calculated based upon revenue from stores opened for more than 12 months. Stores converted from the regular format to the large format and stores relocated from mall to off-mall locations are classified as new and are excluded from same store sales until they have been opened for 12 months. Stores relocated within a mall and whose size is significantly changed are treated as new stores and are excluded from the same store sales calculation until opened for a full year. Remodeled stores remain in the computation of same store sales.

Cost of sales includes all costs associated with the purchase of product including, but not limited to, vendor cost, inbound transportation costs, duties, commission, inspections, quality control, warehousing and outbound transportation costs. Buying costs include costs associated with our buying department, consisting primarily of salaries, travel, product development and product sample costs. Store occupancy costs include costs such as rent, real estate taxes, common area maintenance charges, utilities and depreciation and amortization of leasehold improvements and other fixed assets relating to our retail locations, net of benefit recognized from landlord construction allowances.

Executive Summary

Bombay markets a line of proprietary home furnishings that includes large furniture, occasional furniture, wall décor and decorative accessories that is timeless and classic in its styling. Over 90% of the items are sourced from approximately 27 countries worldwide, with slightly more than half of the product coming from China. We are a multi-channel retailer with store locations, Internet and mail order operations. We continue to have a small wholesale operation that is immaterial to overall revenue, but contributes incrementally to profitability.

We focus on several key metrics in managing and evaluating our operating performance and financial condition including the following: same store sales, sales and gross margins, operating margins as a percentage of revenue, cash flow, and inventory.

We are currently executing a multi-phase turnaround intended to improve Bombay’s long-term profitability and generate competitive operating results in-line with current market leaders in the sector. During the course of the turnaround, we have focused on a number of strategies to position the Company to achieve these goals including repositioning the real estate portfolio by moving from high cost mall to lower cost off-mall locations, upgrading the merchandise assortment from both a quality and a pricing standpoint, attracting new customers and ensuring we have the appropriate infrastructure in place to meet these goals. Our focus has included or is expected to include the following:

· Migrating from mall to off-mall - During the 1980s and 1990s, the focus was on opening stores in “A” malls throughout North America. As shopping habits have evolved, with alternative venues such as lifestyle centers and big box strip centers gaining popularity, we began to migrate our stores to off-mall locations. Management continues to be encouraged by the results of its store migration. In addition to being more convenient for customers and suitable for the sale of large items, such locations typically have lower cost structures, both from a fixed rent perspective and for other common area expenses billed by landlords. On an annual basis, off-mall stores in the aggregate have consistently delivered four-wall profits that are 350 to 450 basis points higher than the mall-based stores while maintaining or growing the average sales volumes of the mall stores that they replaced. The Company expects to continue to execute its strategy of migrating to off-mall locations as leases expire, if economically viable relocation sites can be identified. We expect to relocate 20 to 25 such stores during Fiscal 2006. The Company has a total of 221 mall stores, 216 off-mall stores and 45 outlets as of the end of the first quarter of Fiscal 2006.

~~The~~Cost ~~following~~ of sales ~~table~~includes ~~reflects~~all costs associated with the ~~comparative~~purchase of product including, but not limited to, vendor cost, inbound transportation costs, duties, commissions, inspections, quality control, warehousing and outbound transportation costs. Buying costs include costs associated with our buying department, consisting primarily of salaries, travel, product development and product sample costs. Store occupancy costs include costs such as rent, real estate taxes, ~~portfolio~~common atarea ~~each~~maintenance ~~fiscal~~charges, utilities and depreciation and ~~period~~ amortization ~~end:~~of leasehold improvements and other fixed assets relating to our retail locations, net of benefit recognized from landlord construction allowances.

	April 29, 2006				January 28, 2006				April 30, 2005
	Units		% of total		Units		% of total		Units		% of total
Mall……….…......		221		46%		235		47%		298		60%
Off-mall………….		216		45		215		43		150		30
Outlet…………….		45		9		48		10		47		10
Total……………..		482		100%		498		100%		495		100%

Executive Summary

·Bombay is a ~~Although~~multi-channel wespecialty ~~ended~~retailer of value-priced home furnishings throughout the ~~quarter~~United ~~with~~States aand ~~total~~Canada. Founded in 1978, the Company has a history of ~~482~~providing ~~stores~~sophisticated ~~compared~~home tofurnishings ~~495~~that ~~stores~~are attimeless, ~~the~~classic ~~end~~and traditionally ofstyled. Bombay ~~the~~designs, ~~first~~sources ~~quarter~~and markets an assortment of proprietary ~~Fiscal~~large ~~2005~~furniture, ~~total~~occasional ~~square~~furniture, ~~footage~~wall ~~declined~~décor aand ~~modest~~decorative accessories ~~0.5~~which are sourced from approximately 26 countries worldwide with over 90% ~~due~~of products designed or styled to ~~the~~our ~~difference~~specifications. inWe ~~sizes~~operate primarily through two retail channels: store based, which consists of ~~the~~Bombay’s core offering, Bombay Outlet and BombayKIDS stores aslocated wein ~~have~~the ~~migrated~~U.S. toand Canada; ~~larger~~and ~~off~~direct-~~mall~~to-customer, ~~locations~~which ~~over~~consists primarily of the ~~past~~Company’s Internet ~~twelve~~operations. We ~~months~~also have an international licensing business that is immaterial to overall revenue but contributes incrementally to profitability.

·We focus on ~~Rationalizing~~several ~~the~~key ~~real~~metrics ~~estate~~in ~~portfolio~~managing -and ~~During~~evaluating ~~Fiscal 2005, we conducted a comprehensive review of~~ our ~~stores~~operating performance and financial ~~identified~~condition aincluding ~~total of approximately 25 unprofitable stores targeted for closure in Fiscal 2006. During~~ the ~~first~~following: ~~quarter~~same ofstore ~~Fiscal 2006 we closed a total of 20 stores~~sales, ~~the~~sales ~~majority of which were mall based stores whose leases were expiring. During the remainder of the year~~per square foot, wesales ~~expect to see an increase in the number of stores closed that were in the underperforming category. We will continue to assess closing opportunities~~ and ~~presently~~gross ~~expect~~margins, tooperating ~~close~~margins 10as toa 14percentage ~~stores during the second quarter. We expect to end the year with approximately 460 to 465 stores~~ of ~~which~~revenue, cash ~~approximately 43% will be in mall locations~~flow, ~~49% will be in off-mall locations~~ and ~~8% will be outlets~~inventory.

·The Company ~~Upgrading~~has ~~the~~experienced ~~assortment~~a three-year Wedecline ~~have~~in ~~focused~~operational ~~on upgrading our assortment - increasing quality~~ and ~~price points to further differentiate our offering from that of the mass merchants and other specialty retailers~~financial performance. We Ashave developed a ~~result~~transformation ofstrategy ~~these~~to ~~efforts~~streamline operations, inclarify ~~Fiscal~~Bombay’s ~~2006,~~positioning ~~our~~to ~~average~~consumers, ~~transaction~~increase ~~size~~profitability and ~~increased~~situate ~~by 15% over~~ the ~~first~~Company ~~quarter~~for ofre-emergence ~~2005.~~as ~~We also believe that we have made strides in improving the quality of our merchandise and have been able to offer~~ a ~~more~~highly ~~fashion-right~~competitive ~~assortment~~home furnishings ~~to our customers~~retailer. To Weeffect ~~will continue to make~~ this ~~a priority during the remainder of Fiscal 2006 as longer-term~~transformation, we ~~seek~~are tocurrently executing ~~attract~~ a ~~customer~~plan ~~less~~that ~~motivated~~includes byright-sizing ~~price~~the business and ~~promotion~~implementing a merchandising ~~and~~strategy ~~more~~that ~~likely~~returns to ~~make~~the aproven ~~purchase~~heritage ~~based~~of ~~upon~~ the ~~value we offer, which considers fashion, quality and price~~Bombay brand.

·Phase I: Beginning ~~Remerchandising~~in June ~~stores~~of -2006, ~~During~~management ~~Fiscal~~initiated ~~2006,~~an weaggressive ~~plan~~campaign to ~~test~~eliminate ~~variations~~excessive costs and ensure the liquidity of the ~~merchandise~~Company ~~offered~~through ~~within~~the ~~our~~2006 ~~stores~~holiday season. The ~~with~~initiatives ~~the~~undertaken ~~goal~~were ofto ~~increasing~~reduce ~~the~~employee ~~overall~~headcount, control ~~sales~~discretionary ~~per~~in-store ~~square~~mark-downs, ~~foot~~eliminate unproductive advertising, aggressively reduce inventory levels and ~~resulting~~renegotiate ~~profits~~the existing lending agreement. These Toinitiatives, ~~date~~implemented between June and December of 2006, weare ~~have~~expected ~~commenced~~to ~~tests~~generate ~~resulting~~an estimated $28 million to $31 million in: annualized cost reductions.

·Phase II: To ~~introducing~~further strengthen our transformation plan we focused on creating a ~~bath~~platform ~~assortment~~for sustainable and profitable growth. Over the past several months, Bombay management has conducted an in-depth review that included analysis of store and product performance, sourcing models and processes, operational productivity and expenses, marketing, merchandising and administrative expenses. We have taken a “return to basics” approach which focuses on the core strengths of the Company to re-establish Bombay as a leading specialty retailer of traditional and classic home furnishings, decor and accessories. While we are encouraged with the results of our cost cutting and restructuring initiatives that were put in place during the first half of Fiscal 2006, the difficult retail environment has resulted in continuing losses and declining cash flow. The Board of Directors has engaged William Blair & Company, an investment banking firm, to seek investors or other strategic alternatives to provide additional liquidity to enable the Company to achieve its long term goals and return to positive cash flow. In the meantime, during the second quarter of Fiscal 2007, the Company entered into 74a ~~stores;~~new $10 million secured term loan facility to supplement working capital needs and for other corporate purposes.

·The objectives ~~featuring~~of athis ~~limited~~phase ~~selection~~are ofto ~~the~~improve ~~top~~sales ~~selling~~productivity ~~BombayKIDS~~from an average $250 per square foot to $300 per square foot, generate positive comparable store sales, improve product margins and contain costs. The team has identified several key areas for improvement which are outlined below. Since these initiatives take several quarters to implement, the turnaround in aoverall performance ~~few~~will ~~larger~~be ~~core~~gradual. ~~stores;~~These ~~and~~initiatives include:

· reallocating a portion of BombayKIDS square footage in two stores and replacing it with other Bombay merchandise that we believe would generate higher sales per square foot.

We plan to remerchandise certain test stores with assortments that are more relevant to the current shopper beginning in the second quarter. We expect to conduct the tests over the course of the year and adapt our store assortments based upon those results.

· Reducing promotional activity - Our goal has been to reduce our reliance on promotional activity; however, we have found ourselves in an increasingly promotional environment. We intend to selectively reduce the level of promotional activity as we continue to offer an upgraded assortment and improve quality. Although product margins decreased somewhat in the first quarter compared to last year, we believe that progress toward higher product margins should be seen as we go through the fiscal year with the greatest opportunity existing in the second quarter as we anniversary last year’s aggressive clearance activity.

·Strengthen Merchandise ~~Controlling~~Management ~~costs~~and -Control: Due ~~During~~to softness ~~the~~in ~~early phases of~~ the ~~turnaround,~~current weoperating ~~have~~environment ~~made~~for ~~investments~~home infurnishings ~~infrastructure~~retailers, management tois ~~help~~approaching ~~support~~Fiscal ~~the~~2007 ~~growing~~with ~~base of stores and increasing complexities of being~~ a ~~multi-channel~~view ~~retailer.~~toward Wemanaging ~~completed~~its ~~the~~assortment and ~~roll~~expense ~~out~~structure ofto ~~the~~be ~~new~~responsive ~~point of sale system~~ to ~~our~~declining ~~stores~~same ~~and improved our~~ store ~~telecommunication~~sales ~~environment.~~trends and a Wereduced ~~relaunched~~demand ~~our~~for ~~Internet~~large ~~site~~ticket ~~on a more stable, reliable platform~~purchases. WeManagement ~~have~~is ~~made~~implementing ~~improvements~~a new merchandising instrategy ~~our~~that ~~planning~~is ~~and~~designed ~~allocations system and expect~~ to ~~continue~~increase tosales ~~invest~~velocity inand ~~this~~focuses on ~~area~~Bombay’s incore ~~order~~strengths toas ~~improve~~a ~~our~~provider ~~ability~~of totraditional ~~forecast~~ and ~~assort~~classic ~~our stores~~home furnishings. ~~While~~The wenew ~~believe~~strategy ~~that~~will ~~these~~(i) ~~investments~~emphasize ~~are~~highly ~~critical~~productive ~~to our future success~~SKUs, (ii) rationalize wethe ~~also~~core ~~need~~Bombay assortment to ~~ensure~~reduce ~~that~~fashion ~~our~~risk ~~expenses~~and ~~are~~pricing mark-down ~~in line with our revenue base. As a result~~exposure, we(iii) ~~have~~focus ~~taken~~the ~~steps~~assortment inon ~~other~~value ~~areas~~price points to ~~right~~attract the ~~size~~traditional ~~the~~Bombay ~~organization~~customer and ~~will~~(iv) ~~continue~~feature totransactional, ~~focus~~promotional product ~~on cost control in order~~ to ~~ensure~~drive ~~that~~consumer ~~infrastructure~~foot ~~costs~~traffic, ~~are~~attract innew ~~line~~customers, ~~with~~and ~~the~~improve customer ~~planned reduction in the store count during Fiscal 2006~~conversion.

·Strengthen Product ~~Growing~~Assortment, ~~customer~~Allocation, ~~base - As we upgrade our assortment~~ and ~~migrate~~Merchandising ~~our~~Strategy: Recognizing ~~stores to new off-mall locations, connecting with~~ the ~~right~~need ~~customer is critical~~ to ~~our~~increase ~~future~~sales ~~success. As part of our efforts to grow our customer base~~velocity, wemanagement ~~need~~is topursuing ~~not~~an aggressive ~~only~~initiative ~~attract more customers but we need~~ to ~~attract~~ensure ~~the~~that ~~right~~high ~~customer~~demand ~~who~~items ~~can~~are ~~grow~~stocked ~~with~~appropriately and ~~Bombay~~that ~~as we reposition~~ the ~~brand.~~allocation ~~During the first quarter, much~~ of ~~our~~inventory ~~investment~~remains ~~was~~flexible ~~for~~according ~~increased Internet marketing~~ to ~~support both retail and Internet sales. A key focus will be gathering additional customer names and email addresses with a goal of doubling the current number of customers~~ differences in ~~our~~regional ~~databases~~demand. ~~During~~In ~~the second quarter~~addition, wemanagement ~~are~~is ~~testing~~focused ~~national~~on ~~cable~~increasing ~~television~~conversion rates ~~and~~by ~~increasing~~re-establishing the ~~focus~~value onproposition ~~gathering~~that ~~customer~~customers ~~information~~have athistorically associated ~~the~~with ~~point of sale~~Bombay. ~~Recent~~Specific ~~investments~~measures inrelated ~~technology are expected~~ to ~~help~~this uscause ~~more effectively manage our customer databases and increase the effectiveness of direct marketing efforts across all channels.~~include:

· ~~Improving~~Introduction ~~the~~of ~~supply~~a ~~chain~~“never -out ~~Over~~of ~~the~~stock ~~past~~program” ~~three~~focused ~~years, we have made investments in the supply chain focusing in large part~~ on ~~improving~~key ~~the~~SKUs ~~domestic~~designed ~~distribution network - opening or relocating distribution centers in the Midwest, Northeast and Canada. During the Fiscal 2006, we expect~~ to ~~see~~ensure ~~the benefit of technology investments~~ that ~~will~~highly ~~improve~~productive ~~visibility~~and toprofitable ~~orders~~SKUs ~~within~~are ~~the~~always ~~global~~available ~~supply chain. We also appointed a logistics services provider to assist~~ in ~~managing~~ the ~~flow of product in an efficient, cost-effective manner worldwide~~stores. ~~These actions are expected to improve our ability to manage inventory flow and reduce overall supply chain costs.~~

~~Results of~~· ~~Operations~~A more flexible approach to inventory allocation to better respond to differing customer tastes and demands by location.

~~Quarters Ended~~· ~~April~~An ~~29,~~improved ~~2006~~customer value proposition to appeal to the Company’s traditional customers and ~~April~~to ~~30,~~attract ~~2005~~customers with high-impact price impression products.

~~Net revenue~~· ~~consists~~Integration of ~~sales~~an to“item ~~retail~~of ~~customers~~the ~~through~~week” ~~stores,~~program ~~mail~~throughout ~~order~~the ~~and Internet,~~year ~~and~~which ~~wholesale~~allocates ~~sales~~floor space to ~~our~~ongoing ~~international~~“take-with” ~~licensees~~products ~~and~~that ~~through~~will ~~Bailey Street~~be ~~during~~offered ~~Fiscal~~at ~~2005~~sharply attractive prices, asusually ~~well~~under as$20, ~~shipping~~designed ~~fees~~to increase the conversion rate of shoppers to buyers and ~~other~~average ~~revenue~~transaction value.

	Three Months Ended
Net revenue (in millions)	April 29, 2006		April 30, 2005
Retail sales ....................................................	$	115.5	$	117.1
Wholesale sales ..........................................		1.2		3.5
Shipping revenue .......................................		1.8		1.4
Other revenue .............................................		0.2		0.1
Total revenue .............................................	$	118.7	$	122.1

·	A unit buying plan focused on ensuring the necessary level of available inventory to meet customer demand.

~~Net revenue~~· ~~decreased~~Rationalization ~~2.8%~~of ~~to $118.7 million for~~ the ~~quarter~~core ~~ended~~product ~~April 29~~assortment, ~~2006~~ decreasing from ~~$122.1~~approximately ~~million for the quarter ended April 30~~2,700 ~~2005.~~core ~~Same~~SKUs ~~store~~to ~~sales declined~~ approximately 1.2%,100, ~~for~~eliminated ~~the~~SKU ~~quarter.~~redundancy Onthat acannibalized ~~geographic~~best ~~basis~~sellers, ~~stores in Canada~~ and ~~the Southern and Midwestern regions of the United States generated flat to low single~~re-~~digit~~focused ~~same~~on ~~store~~key ~~sales~~best ~~growth,~~selling ~~partially offsetting mid-single digit same-store sales declines in the Northeast and West Coast regions~~merchandise.

~~During the~~· ~~quarter,~~Differentiation ~~we opened 4 stores and closed 20 stores. Sales from stores opened less than twelve months contributed $8.1 million during the quarter, which partially offset the $8.8 million~~ of ~~revenue last year from stores that were closed stores over~~ the ~~past~~merchandising ~~twelve~~strategy ~~months. Our direct-to-customer business, driven primarily~~ by ~~Internet~~retail ~~sales,~~channel ~~increased 28%~~ to ~~$6.6~~better ~~million~~capitalize inon the ~~first quarter~~difference ~~compared~~between tomall, ~~$5.1~~off-mall ~~million~~and inoutlet ~~the prior year period~~locations.

Improve Merchandising Clarity and Drive Inventory Cross-Selling: We are in the process of implementing a new merchandising strategy that allows the Company to operate at lower inventory levels and positions product in a logical fashion throughout the store. Sales associate training programs designed to polish sales skills on key high-margin product and inventory cross-selling as well as incentive programs with a significant portion tied to sales volume have been implemented to further drive product turnover velocity.

Improve Inventory Flow for Improved Gross Margin: Currently, long lead times, vendor capacity limitations, and seasonal introductions result in the Company flowing product inconsistently. While some progress has been made and the supply chain infrastructure improved, management believes that there is significant opportunity to improve its product flow, which would result in improved gross margin over the long term. Less inventory in distribution centers and a higher inventory turn rate would result in lower outside storage costs, lower handling fees and less pressure on liquidity. In addition as processes are refined, vendors would be better able to plan production.

Phase Out BombayKIDS and Convert Space to Core Assortment: In the second quarter of Fiscal 2006, we determined that BombayKIDS was not a viable, stand alone concept and that the resources being devoted to that operation needed to be redeployed. The decision was made to systematically convert the BombayKIDS’ dedicated floor space to the core product line. We tested a number of stores during Fiscal 2006 and developed a conversion process to ultimately transition such stores to Bombay core assortment merchandise.

We have determined that in order to achieve a successful conversion of combo stores, a gradual phase-out of BombayKIDS will minimize customer isolation and loss for those who primarily visited stores for BombayKIDS merchandise. We have recently initiated a phased transition plan to convert all combo stores to Bombay core stores by the end of

~~Wholesales~~Fiscal ~~sales~~2008. ~~declined~~During ~~due~~the tointervening ~~the~~period, ~~sale~~a reduced BombayKIDS assortment, comprised of the ~~assets~~top ofselling ~~Bailey~~BombayKIDS ~~Street~~SKUs, ~~Trading~~will ~~Company~~be presented in certain locations ~~operations,~~and will ~~which~~be ~~were~~available ~~sold~~on ~~during~~the ~~Fiscal~~Internet. ~~2005~~During ~~and~~Fiscal ~~generated~~2006, ~~$3.2~~the ~~million~~Company inreduced ~~sales~~headcount ~~and~~related ~~added marginally~~ to ~~profit~~BombayKIDS ~~during~~design, ~~the~~purchasing ~~period~~and marketing. ~~Shipping~~To ~~revenue~~replace ~~increased~~the BombayKIDS ~~due~~assortment ~~to increases~~ in ~~Internet~~large ~~sales~~format asstores, ~~well~~the asCompany anhas ~~increase~~been indeveloping ~~store-based~~and ~~sales~~introducing ofnew ~~larger~~product ~~furniture~~and ~~pieces~~merchandising ~~for~~plans. ~~which~~We ended the ~~customer~~quarter ~~pays~~with ~~delivery~~25 ~~charges.~~BombayKIDS stores compared to 62 stores the same time last year.

~~The~~Rationalize ~~following~~Store ~~table~~Base: Management ~~outlines~~has ~~the~~identified ~~sales~~approximately ~~mix~~75 bystores ~~product~~for ~~category~~closure during Fiscal 2007. A total of 19 underperforming stores have been targeted for closing, prior to lease expiration. These stores are expected to be closed before the ~~three-month~~end ~~periods~~of Fiscal ~~ended~~2007 ~~April~~at 29an estimated aggregate cost of $600,000 ~~2006~~to $1,000,000, which would eliminate approximately $1.5 million in annual negative cash flow. We regularly review the real estate portfolio and ~~April~~reassess ~~30,~~the ~~2005:~~appropriateness of store closings in light of current performance and estimated costs to exit leases. Additionally opportunities may be identified to close stores on an economic basis and management expects to aggressively pursue those options where feasible.

	Three Months Ended
Sales mix:	April 29, 2006		April 30, 2005
Large furniture ...............................................		37%		32%
Occasional furniture .....................................		16		20
Wall décor .....................................................		16		16
Accessories ..................................................		31		32
Total revenue ...............................................		100%		100%

We closed 2 of these underperforming stores during the first quarter of Fiscal 2007, recording a positive income statement impact of $360,000. We are utilizing a third party specialist to assist in negotiations with landlords for early lease terminations and to restructure leases for other stores. During the first quarter of Fiscal 2007, 10 stores were closed at their natural lease expiration date, leaving approximately 13 stores to be closed at their lease expiration during the remainder of Fiscal 2007. We started Fiscal 2007 with 33 BombayKIDS stores whose square footage would be reallocated to Bombay core square footage. We reallocated square footage from 11 BombayKIDS stores to Bombay core during the first quarter of Fiscal 2007. We also closed 1 BombayKIDS store during the quarter.

~~The~~Optimize ~~decline~~Marketing inSpend: ~~occasional~~Based upon ~~furniture~~successful ~~resulted~~tests induring ~~part from~~ the ~~sale~~second half of ~~Bailey~~Fiscal ~~Street~~2006, ~~which~~ ~~focused~~the ~~primarily on sales of small occasional pieces. In addition,~~Company ~~occasional~~replaced ~~furniture~~catalogs ~~represented~~and anewspaper ~~smaller~~inserts ~~portion~~with ofhighly ~~the~~focused ~~total~~email ~~product~~marketing ~~offerings~~campaigns inand ~~stores~~post ascard ~~more~~mailings. ~~space~~These ~~was~~campaigns ~~devoted~~will toincrease ~~the large furniture items.~~customer ~~Large~~impressions ~~furniture~~to ~~sales~~an ~~increased~~estimated ~~due~~167 tomillion ~~the~~annual ~~change~~impressions inat ~~sales~~a ~~mix~~fraction ~~and growth in~~of the ~~bedroom,~~cost ~~home office~~ and ~~BombayKIDS~~have ~~furniture~~been ~~categories.~~the ~~The~~primary ~~average~~marketing ~~ticket increase~~vehicle ofutilized ~~15%~~ during the first ~~quarter resulted primarily from the shift~~ ~~in the~~quarter ~~mix~~of ~~toward~~Fiscal ~~higher ticket items, as well as an increase in average unit retail prices in all categories~~2007. ~~Total transactions, including those from new stores, declined 14% compared to the prior year.~~

~~Cost~~Phase ofIII: Bombay ~~sales,~~management ~~including~~believes ~~buying~~there ~~and~~is ~~occupancy~~an ~~costs,~~opportunity ~~was~~to ~~$94.7~~significantly ~~million~~improve ~~for~~ the ~~first~~ ~~quarter~~operational ofand ~~Fiscal~~financial ~~2006~~performance ~~compared~~of tothe ~~$95~~Company.2 ~~million~~While ~~for~~ the ~~same~~Company ~~period last year.~~has ~~Gross~~historically ~~margin~~been ~~for~~able ~~the~~to ~~quarter~~generate ~~declined~~strong ~~180~~same ~~basis~~store ~~points~~sales ~~compared~~growth, ~~to the prior~~competitive ~~year~~sales ~~period,~~per ~~primarily~~square ~~attributable~~foot toproductivity aand ~~150~~healthy ~~basis~~operating ~~point~~cash ~~decline~~flow, inthis ~~product~~has ~~margin.~~not been ~~The~~the ~~decline~~recent inexperience. ~~product~~By ~~margin~~correcting ~~was~~the ~~related~~weaknesses tooutlined ain ~~larger~~Phase I ~~portion of sales~~and ~~being~~II, ~~generated~~Bombay byexpects ~~promotional~~to ~~activity,~~have ~~particularly~~the inappropriate ~~the~~store ~~furniture~~base, ~~area~~cost structure and ~~where~~product ~~the~~focus ~~bedroom,~~to ~~dining~~return ~~room~~to ~~and~~profitability. ~~BombayKIDS~~Accordingly, ~~categories~~the ~~had~~third ~~margin~~phase ~~declines~~of ~~as a~~management’s ~~result~~operational ofimprovement ~~increased~~plan ~~clearance~~is ~~activity.~~to ~~Storewide~~reinvigorate ~~events~~the ~~such~~Company asto ~~our 40%~~grow ~~off single~~sales ~~item~~and ~~sales~~improve ~~were~~margins. ~~longer~~This inphase ~~duration~~is ~~than~~longer ~~last~~term ~~year,~~in ~~but~~nature ~~helped~~(three ~~drive~~years ~~sales of~~plus) ~~furniture~~ and ~~higher~~is ~~ticket~~reliant ~~items.~~on ~~Buying~~the ~~and~~successful ~~store~~execution ~~occupancy~~of ~~costs~~the ~~decreased~~prior two phases and ~~$0.5~~could ~~million~~include ~~due~~growth toof the ~~lower~~Internet, ~~store~~additional ~~count~~investments ~~and lower costs~~ in ~~off-mall~~existing ~~locations,~~stores ~~but~~to ~~increased~~help ~~from~~improve 23their productivity (e.5%g., ofnew ~~revenue~~fixtures) toand ~~23.8%~~in new stores. Many of ~~revenue~~the asinitiatives awill ~~result~~require ofadditional ~~lower same-store sales~~capital.

~~Selling,~~Results ~~general and administrative (“SG&A”) expenses decreased $0.3 million to $39.8 million, or 33.5%~~ of revenue in the first quarter of Fiscal 2006, compared to $40.1 million, or 32.8% of revenue, for the comparable period of the prior year. Current year results include $0.2 million of stock option expense recorded in connection with the adoption of FAS No. 123R. Operations

~~Marketing~~Quarters ~~and~~Ended ~~visual~~May ~~merchandising costs increased approximately $0.~~5 ~~million or 70 basis points as we have continued to invest in marketing to reach new customers~~, ~~primarily~~ in2007 ~~the~~and ~~direct-to-customer~~April ~~channel. Similarly~~29, SG&A expenses associated with the direct-to-customer channel increased $0.3 million due to the higher volumes generated in the Internet operations resulting in higher hosting expenses. 2006

~~These~~Net ~~increases~~revenue ~~were~~consists ~~partially~~of ~~offset~~sales byto aretail ~~$0.8~~customers ~~million~~through orstores, 50mail ~~basis~~order ~~point decrease~~and ~~in corporate~~Internet, ~~office~~and ~~SG&A~~wholesale ~~due~~sales ~~primarily~~ to ~~lower~~our ~~professional~~international ~~services~~licensees, ~~resulting from~~as ~~not~~well ~~anniversarying costs incurred in connection with the merchandise~~as ~~strategy~~shipping ~~study~~fees ~~conducted~~and inother ~~the first half of Fiscal 2005~~revenue.

At the store level, SG&A expenses decreased $0.3 million but increased 20 basis points compared to the first quarter of the prior year. The decline was related to lower costs that vary directly with sales such as credit card fees and supplies.

For the quarter ended April 29, 2006, interest expense was $244,000 and interest income was $37,000, compared to interest expense of $320,000 and interest income of $8,000 in the first quarter of Fiscal 2005. The reduction in interest expense is the result of lower inventory levels in the first quarter compared to the prior year period. Inventory levels were unusually high in the first quarter of the previous year as we prepared to reset the stores in the “rooms” lifestyle presentation.

For the first quarter of Fiscal 2006, the Company recorded an income tax benefit of $0.4 million compared to $5.5 million in the first quarter of Fiscal 2005. The income tax benefit reflected in the first quarter of Fiscal 2006 relates primarily to the Canada operations and results in an effective tax rate of 2.5%. The Company does not expect to recognize tax benefits associated with its U.S. operations during the current fiscal year. We recorded a valuation allowance against all U.S. deferred tax assets in the fourth quarter of Fiscal 2005 as a result of cumulative losses in recent years. Under accounting principles generally accepted in the United States, a pattern of future profitability in reversal of the current cumulative three-year loss trend would result in the reinstatement of all or part of the deferred tax assets. During the first quarter of Fiscal 2005, a tax benefit was provided at an effective tax rate of 40.8%, which assumed that tax benefits would be realized for both U.S. and Canadian operations.

Liquidity and Capital Resources

	Three Months Ended
Net revenue (in millions)	May 5, 2007	April 29, 2006
Retail sales …………………………………………………………………………………………	$102.4	$115.5
Wholesale sales ……………………………………………………………………………………	0.6	1.2
Shipping revenue …………….……………………………………………………………………	1.6	1.8
Other revenue ………………..……………………………………………………………………	0.0	0.2
Total revenue ………………………………………………………………………………	$104.6	$118.7

~~From~~Net ~~a liquidity~~ revenue ~~and~~decreased ~~capital~~11.9% ~~expenditure standpoint, our strategy has been~~ to ~~utilize our~~$104.6 ~~credit~~million ~~facility~~for tothe ~~finance~~quarter ~~seasonal~~ended ~~borrowings~~May ~~and~~5, ~~working capital required~~2007 ~~by store growth while we utilize cash flow~~ from ~~operations and our balance~~ ~~sheet to finance our long-term capital programs~~ $118.7 ~~Operating~~million ~~losses~~for ~~during~~ the ~~past two fiscal~~quarter ~~years~~ended ~~and~~April ~~capital~~29, ~~expenditures~~2006. ~~required~~Same tostore ~~address~~sales ~~expiring leases and~~declined ~~undersized~~ approximately ~~distribution~~10.2% ~~centers~~for ~~over~~ the ~~past~~quarter. ~~three~~On ~~years, has resulted in~~ a ~~decline~~ ingeographic ~~our available capital. During Fiscal 2005~~basis, westores ~~liquidated~~in ~~certain~~Canada ~~assets~~ generated ~~that~~flat ~~were~~same ~~not~~store ~~critical~~sales togrowth, ~~our~~while ~~core~~same ~~operations,~~stores ~~including~~sales ~~the~~in ~~disposal~~all regions of the ~~assets~~United ofStates ~~Bailey~~ranged ~~Street~~from ~~Trading~~single ~~Company~~to ~~and~~double ~~the~~digit ~~sale of non~~same-~~operating~~store ~~land~~sales ~~and a building~~ declines.

~~The~~During ~~primary~~ the ~~source~~quarter, ofwe ~~liquidity~~opened ~~and~~2 ~~capital~~stores ~~resources~~and ~~has~~closed ~~been~~24 ~~cash~~stores, ~~flows~~including ~~from~~11 BombayKIDS ~~operations~~ stores ~~and~~that awere ~~line~~part of ~~credit.~~combination Weformat ~~have~~stores. aThere ~~secured,~~was ~~revolving~~no ~~credit~~change ~~agreement~~in ~~with~~ the Company’s atotal ~~group~~retail ofsquare ~~banks,~~footage ~~with~~as ana ~~aggregate~~result ~~commitment~~ of upthe toreallocation ~~$125~~of ~~million for~~square ~~working~~ footage ~~capital,~~from ~~inventory~~BombayKIDS ~~financing~~to ~~and~~core ~~letter~~Bombay ofstores. ~~credit~~Overall ~~purposes.~~retail ~~The~~square footage ~~available~~ declined ~~commitment~~2% ~~under~~since the ~~facility~~end isof ~~limited~~Fiscal to2006. aSales ~~borrowing~~from ~~base~~stores ~~generally comprised~~opened ofless ~~73%~~than twelve ofmonths ~~eligible~~contributed U$4.S.3 ~~inventory~~million ~~and~~during ~~75%~~the ofquarter, ~~eligible~~which ~~Canadian~~partially ~~inventory,~~ offset ~~and~~the ~~85%~~$7.9 million of ~~receivables,~~revenue aslast ~~defined~~year infrom ~~the~~stores ~~credit~~closed ~~agreement~~during ~~and with~~the ~~seasonal~~ past twelve ~~and reserve adjustments~~months. AtOur ~~April~~direct-to-customer 29business, ~~2006,~~driven ~~the~~primarily ~~available~~by ~~commitment~~Internet ~~was~~ sales, ~~$68.6~~increased ~~million.~~32% ~~The~~to ~~Company had~~ $197.12 million in the ~~form~~first ofquarter ~~borrowings and another~~compared to $75.2 5 million in ~~letters~~the ofprior ~~credit,~~year ~~with $42~~period.3 ~~million available for borrowings or additional letters of credit. The credit facility expires September 15, 2009.~~

~~Management~~Shipping is revenue ~~currently~~decreased ~~working~~due ~~with~~primarily ~~its banks~~ to ~~amend~~an ~~the~~increase ~~credit facility to allow for increased borrowing capacity during peak the borrowing period~~ in ~~advance of~~ the ~~holiday~~ ~~selling~~number ~~season. We are also investigating opportunities for generating additional liquidity by borrowing against or executing a sale-leaseback~~ of ~~the corporate~~ ~~headquarters~~free ~~in Fort Worth, Texas. Finally, we are taking strong~~shipping ~~actions~~ promotions ~~to reduce operating expenses, aggressively managing inventory levels and reducing capital expenditures, where appropriate. Management is assessing its alternatives to ensure~~ that ithelped ~~can~~drive ~~meet~~internet ~~its obligations in a timely manner during peak borrowing periods and believes that, within a reasonable range of~~ sales performance, cash flow from operations combined with existing amounts available under our revolving credit facility and from monetizing the office building will be sufficient to fund our needs during the balance of the Fiscal year. ~~In the event that sales environment is more difficult than anticipated, we may be required to seek alternate sources of external financing to meet peak borrowing needs.~~

~~During~~The ~~the~~ following ~~first~~table ~~three~~outlines ~~months~~the ofsales ~~Fiscal~~mix ~~2006, cash flow utilized~~ by ~~operating activities~~product ~~was~~category ~~$18.6~~for ~~million compared to $22.5 million during~~ the ~~first~~ three-month ~~months~~ periods ofended ~~Fiscal~~May ~~2005. The increase in the operating loss has been offset by declines in inventory~~5, ~~net~~2007 ~~of payable, due largely to changes in the timing of the inventory receipts as last years’ levels were higher than normal due to the major change in the store presentation~~ and ~~assortment~~April in29, ~~summer 2005.~~2006:

Cash flows used in investing activities declined by $3.2 million from $5.0 million last year to $1.8 million for the first three months of this fiscal year. Fewer new store openings and migrations to off-mall locations as well as a decline in the expenditures relating to distribution center expansions and systems are the primary reasons for the decline in capital expenditures as we tightly control cash.

	Three Months Ended
Sales mix:	May 5, 2007	April 29, 2006
Large furniture ………………………………………………………………	43%	42%
Occasional furniture…………………………………………………………	13	10
Accessories………………………..…………………………………………	29	32
Wall decor……………………….……………………………………………	15	16
Total revenue…………...……………………………………………	100%	100%

~~Cash~~The ~~flow provided~~ increase byin ~~financing~~occasional ~~activities~~furniture ~~was~~as ~~$19.8~~a ~~million~~percentage ~~during~~of the ~~three~~overall ~~months~~mix is the ~~ended April~~ result ~~29,~~of ~~2006~~the ~~compared~~focus on take-with furniture to ~~$28~~drive higher velocity at higher margins.7 ~~million~~Accessories ~~for~~declined ~~the~~as ~~three~~a ~~months~~percentage ~~ended~~of ~~April~~the ~~30, 2005,~~overall mix due to deemphasizing acertain ~~decline~~categories insuch ~~borrowings~~as ~~under~~garden ~~the~~and ~~Company’s~~crystal ~~credit~~and ~~facility~~frames in ~~resulting~~ favor of ~~from~~other ~~lower~~accessory ~~inventory~~and ~~levels~~occasional furniture categories. ~~For~~The average ticket increased 5% during the ~~full~~first ~~fiscal~~quarter ~~year~~due weto ~~estimate~~the more significant role that ~~capital~~ furniture ~~expenditures,~~played ~~net~~in ofthe ~~landlord~~overall ~~allowances,~~mix. ~~will~~The benumber ~~approximately~~of ~~$11 to $13~~transactions ~~million~~however declined 16% as we ~~address~~have ~~expiring~~seen ~~store~~declines ~~leases~~in ~~and~~traffic ~~continue~~across the ~~migration of our~~country ~~stores~~and ~~from~~closed ~~mall~~stores during tothe ~~off-mall locations~~period.

Cost of sales, including buying and occupancy costs, was $87.4 million for the first quarter of Fiscal 2007 compared to $94.7 million for the same period last year. Gross margin for the quarter declined 370 basis points compared to the prior year period, primarily attributable to a 240 basis point decline in product margin. The decline in product margin was related to a larger portion of sales being generated by promotional activity, particularly in the furniture area. Buying and occupancy costs were $26.2 million or 25.0% of revenue for the quarter ended May 5, 2007 compared to $28.2 million or 23.7% of revenue for the corresponding period of the prior year. Total buying and occupancy costs declined $2.0 million due to the reduction in store count and the lower cost per square foot as the number of off-mall stores increased; however, as a percentage of revenue, such costs increased 130 basis points due to the deleveraging of fixed costs against the declining sales base.

~~Recent~~Selling, ~~Accounting~~ general ~~Pronouncements~~and administrative (“SG&A”) expenses decreased $8.1 million to $31.7 million, or 30.3% of revenue in the first quarter of Fiscal 2007, compared to $39.8 million, or 33.5% of revenue, for the comparable period of the prior year.

InMarketing ~~December~~ and ~~2004,~~visual ~~the~~merchandising ~~FASB~~costs ~~issued~~decreased ~~SFAS~~approximately No$4.0 ~~123~~million ~~(Revised~~or ~~2004), Share-Based~~290 ~~Payment ("SFAS 123R"),~~ basis ~~which requires~~ points ~~that~~as ~~the~~a ~~compensation~~result cost relating to share-based payment transactions be recognized in financial statements based on alternative fair value models. The share-based compensation cost will be measured based on the fair value of ~~the~~ ~~equity~~shifting ~~or liability instruments issued. Effective with~~ the ~~first~~marketing ~~quarter of Fiscal~~focus ~~2006,~~to ~~the~~email ~~Company~~marketing ~~has adopted SFAS No. 123R~~ and ~~has begun recognizing~~ ~~compensation~~ reducing ~~expense~~our ~~related~~reliance toon ~~share-based~~other ~~payment~~more ~~transactions~~expensive ~~using~~marketing ~~the modified prospective application method~~vehicles. The impact of adopting this pronouncement was the recognition of $178,000 of compensation expense in the first quarter of Fiscal 2006 and the Company expects the annual expense for Fiscal 2006 to be approximately $1 million.

InAt ~~November~~ the store ~~2004~~level, ~~the~~SG&A ~~FASB~~expenses ~~issued~~decreased ~~SFAS No~~$2.2 ~~151,~~million ~~Inventory Costs, (“SFAS No.~~but ~~151”).~~increased ~~This~~20 ~~statement requires~~basis ~~that~~ points ~~fixed~~compared ~~production costs be allocated~~ to ~~inventory based on~~ the ~~normal capacity~~first quarter of ~~production~~the ~~facilities~~prior ~~and~~year. ~~that~~The ~~unallocated~~decline ~~overhead~~was ~~be recognized~~related ~~as an~~ to ~~expense~~lower incosts ~~the~~that ~~periods~~vary indirectly ~~which~~with ~~they~~sales ~~are incurred. In addition, other items~~ such as ~~abnormal freight~~payroll, ~~handling~~credit ~~costs~~ card fees and ~~amounts~~supplies; ofhowever, ~~excess spoilage require treatment~~ as ~~current-period charges rather than as~~ a ~~portion~~percentage of ~~the inventory cost. We adopted this statement effective January 29~~sales, ~~2006.~~these ~~The~~costs ~~adoption~~increased due of to the ~~SFAS~~lower ~~151~~sales ~~did not have a material impact on our financial condition or results of operations~~base.

Corporate office SG&A decreased $1.9 million primarily due to a reduction of $1.0 million in payroll and related costs as a result of efforts made in Fiscal 2006 to streamline the organization and $0.4 million reduction in insurance costs which are directly affected by payroll and headcount as well as changes made to the medical insurance plan during the summer of Fiscal 2006. In addition, current year amounts include $0.7 million of foreign exchange gains compared to $0.1 million of gains during the prior period.

For the quarter ended May 5, 2007, interest expense was $1,092,000 and interest income was $18,000, compared to interest expense of $244,000 and interest income of $37,000 in the first quarter of Fiscal 2006. The increase in interest expense is the result of higher overall borrowings under the Company revolving credit agreement due primarily to increased losses and higher inventory levels.

For the first quarter of Fiscal 2007, the Company recorded an income tax benefit of $75,000 compared to $404,000 in the first quarter of Fiscal 2006. The income tax benefit reflected in the first quarter of Fiscal 2007 relates primarily to the Canadian operations, net of estimated state income tax expense, which results in an effective tax rate of 0.5%. The Company does not expect to recognize tax benefits associated with its U.S. operations during the current fiscal year. We recorded a valuation allowance against all U.S. deferred tax assets in the fourth quarter of Fiscal 2005 as a result of cumulative losses in recent years. Under generally accepted accounting principles, a pattern of future profitability in reversal of the current cumulative loss trend would result in the reinstatement of all or part of the deferred tax assets.

Liquidity and Capital Resources

We have historically financed our operations through operating cash flow, proceeds of public offerings of common stock and asset sales, and on a seasonal basis, through working capital credit facilities. Over the recent past, we have made substantial investments of capital to address expiring leases and invest in technology and supply chain infrastructure. For the past three fiscal years, we have experienced cumulative operating losses and during Fiscal 2007 had negative net cash flows from operations. All of these factors have reduced our cash balances and working capital from historical levels and increased the outstanding borrowings under our credit facility, raising substantial doubt about the Company's ability to continue as a going concern.

As of May 5, 2007, the Company had $3.8 million in cash and cash equivalents, $36.6 million of working capital, $78.6 million in outstanding debt under our existing credit facility and $27.9 million of availability under the credit facility for additional borrowings or letters of credit. During Fiscal 2006, we undertook a number of measures to reduce expenses and improve liquidity, including reducing corporate headcount, commencing the exit of the dedicated BombayKIDS business, reducing advertising expenditures and entering into our new credit facility. Management has identified a series of additional activities that it believes will be critical to achieving the Company’s long-term goals, including reducing inventory levels and returning to historical levels of inventory turnover, closing selected underperforming stores, and enhancing the merchandise assortment, allocation and presentation. The Company’s plan contemplates incurring additional operating losses during Fiscal 2007.

During Fiscal 2006, the Board of Directors engaged William Blair & Company to seek investment or other strategic alternatives. In April 2007, a confidential descriptive memorandum was distributed to potentially interested investors and the Company is aggressively pursuing options. The process is progressing and in May 2007, the Board of Directors received

non-binding offers to purchase the Company. Such offers are subject to material conditions including substantial due diligence. While the Board is encouraged by these offers, there is no assurance that these offers will ultimately lead to a transaction.

In May 2007, the Company entered into an agreement for a new $10 million, secured term loan facility with a fund managed by GB Merchant Partners, LLC. The facility is coterminous with the Company’s existing $125 million secured revolving credit facility with GE Commercial Finance. The new facility will provide incremental liquidity to fund working capital requirements and other corporate needs.

Working capital decreased by $11.1 million primarily due to increased borrowings under the credit facility of $39.3 million offset by $17.7 million in lower accounts payable and accrued expenses due to the timing of rent checks clearing and adjustments made to the flow of inventory. Our continued losses and lower sales resulted in higher inventory levels of $3.3 million, lower customer prepayments of $1.8 million, lower income tax payable of $1.3 million and a lower returns reserve of $1.0 million. Additional changes in working capital related to the timing of payments for sales taxes and field bonuses accrued at year end and paid during the first quarter of Fiscal Year 2007.

During the first three months of Fiscal 2007, cash flow utilized by operating activities was $27.2 million compared to $18.6 million during the first three months of Fiscal 2006. The decrease in the cash flow from operating activities results from decreases in account payable, customer prepayments and other current liabilities.

Cash flows used in investing activities declined $0.4 million from $1.8 million last year to $1.4 million for the first three months of this fiscal year. Fewer new store openings and migrations to off-mall locations as well as a decline in the expenditures relating to distribution center expansions and systems are the primary reasons for the decline in capital expenditures as we tightly control cash. For the full fiscal year, we estimate capital expenditures, net of landlord allowances, will be approximately $7 million as we address expiring store leases and make required investments in systems to ensure that we are compliant with credit card processing requirements.

Cash flow provided by financing activities was $31.5 million during the three months ended May 5, 2007 compared to $19.8 million for the three months ended April 29, 2006, due to an increase in borrowings under the Company’s credit facility resulting from carrying higher inventory levels and decreased sales during the period.

Recent Accounting Pronouncements

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the accounting for uncertainty in tax positions. This Interpretation requires that the Company recognize in its financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 were effective as of the beginning of Fiscal 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. As a result of the implementation of FIN 48, the Company recorded a $2.3 million increase in the liability for unrecognized tax benefits, and a decrease to retained earnings of $4.0 million.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, it applies under other accounting pronouncements that require or permit fair value measurements. The provisions of this statement are to be applied prospectively as of the beginning of the fiscal year in which this statement is initially applied, with any transition adjustment recognized as a cumulative-effect adjustment to the opening balance of retained earnings. The provisions of SFAS No. 157 are effective for the fiscal years beginning after November 15, 2007. We have not determined the effect, if any, the adoption of this statement will have on our financial condition or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities (“SFAS No. 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We have not determined the effect, if any, the adoption of this statement will have on our financial condition or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk primarily from fluctuations in interest rates as they impact our short-term borrowings and investments. At ~~April~~May 295, ~~2006~~2007, the Company’s had borrowings of $1978.16 million under its credit facility. For the ~~three~~ three months ended ~~April~~May 295, ~~2006~~2007, average borrowings under the facility were $1467.60 million. If interest rates changed by 100 basis points, the Company’s interest expense ~~on the average borrowing balances~~ would change by approximately $36200,000 for the three -month period.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Pursuant to Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, an evaluation was performed under the supervision and with the participation of of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of ~~April~~May 295, ~~2006~~2007 in ~~alerting~~ alerting them in a timely fashion to material information relating to the ~~Company~~ Company that is required to be included in periodic filings with the Securities and Exchange Commission.

Changes in Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting ~~(as defined in Rule 13a-15(f) of the Exchange Act).~~

(as defined in Rule 13a-15(f) of the Exchange Act).

There have been no significant changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

2021

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We have certain contingent liabilities resulting from litigation and claims incident to the ordinary course of business. Management believes that the probable resolution of such contingencies will not materially affect our financial position or results of operations.

Item 1A. Risk Factors

Our Annual Report on Form 10-K/A for the year ended ~~January~~February 283, ~~2006~~2007, includes a detailed discussion of our risk factors. The risks described in our Form 10-K/A are not the only risks facing the Company. Additional risks and uncertainties that we currently deem to be immaterial, or that are not currently known to to us, may materially adversely affect our future results. ~~The information presented below updates and should be read in conjunction with the risk factors and information disclosed in that Form 10-K/A.~~

WeThe Company may not ~~have~~be ~~sufficient~~able ~~liquidity~~ to ~~execute~~maintain ~~our~~its ~~turnaround~~listing ~~strategy~~on the New York Stock Exchange.

The ~~difficulty~~ New York ~~experienced~~Stock ~~during~~Exchange ~~Fiscal~~(“NYSE”) ~~2005~~has inminimum ~~the~~continuing ~~specialty~~listing ~~hardlines~~standards ~~sector, particularly~~that as it requires ~~relates~~of toits ~~retailers~~listed ~~selling~~companies ~~lower~~including ~~priced~~thresholds ~~and~~regarding ~~moderately priced~~stock ~~merchandise~~price, market ~~has~~capitalization ~~continued~~combined ~~into~~with ~~the~~minimum ~~Fiscal~~stockholders ~~2006~~equity and total market value. During ~~the~~May ~~first quarter~~2007, wethe ~~experienced~~Company areceived ~~decline~~notices infrom ~~revenue,~~the anNYSE ~~increase~~that ~~in operating losses~~the ~~and~~ Company ~~used~~was ~~cash~~not in ~~operations.~~compliance ~~Depending~~with onNYSE continued listing requirements because the ~~magnitude~~average ~~and~~closing ~~duration~~share price of the ~~downturn,~~ ~~cash~~Company’s ~~flow~~common ~~from~~stock ~~operations~~over ~~and~~a ~~funds~~consecutive 30-trading ~~available~~day ~~through~~period was less than $1.00 and the Company’s ~~existing~~ ~~credit~~30-day ~~facility~~average market capitalization and ~~any~~stockholders’ ~~expanded~~equity ~~credit~~had ~~facility,~~both asfallen ~~well~~below ~~as potential~~$75 ~~additional~~ million. ~~liquidity~~The ~~that~~Company ~~might~~has benotified ~~obtained~~the byNYSE ~~selling~~that orit ~~otherwise~~intends ~~monetizing~~ to cure the deficiencies ~~Company-owned~~and ~~office~~has ~~building~~submitted ~~may~~a bebusiness ~~insufficient~~plan to ~~cover~~demonstrate ~~working~~its ~~capital~~ability ~~needs~~ to achieve ~~during~~compliance ~~peak~~with ~~borrowing~~the ~~seasons~~continued listing standards. AsIf athe ~~result~~NYSE does not accept the Company’s plan materials, weif ~~might~~the ~~need~~Company is unable to ~~raise~~gain compliance ~~additional~~ with ~~funds~~the ~~through~~continued ~~external~~standards ~~sources~~within the timeframes allowed, ~~and~~or weif ~~cannot~~the ~~provide~~Company falls ~~assurance~~below the NYSE’s minimum continued listing standard requiring average ~~that additional~~ market ~~sources~~capitalization over a 30-trading day period of ~~funds~~at ~~would~~least be$25 ~~available~~million, the Company would intend to usseek onarrangements ~~terms~~for ~~acceptable~~its common stock to be quoted us on the OTC Bulletin Board or atsimilar ~~all~~quotation system. IfThe ~~adequate~~inability ~~funds~~to ~~were~~maintain a listing ~~not~~on ~~available,~~a ~~our~~national ~~operating~~market ~~flexibility~~ could adversely affect investors’ ability to trade be in ~~significantly~~the ~~impaired~~stock.

~~Our competition is both intense and varied, and our failure to effectively compete could adversely affect our prospects.~~ 22

WeItem ~~operate in an industry segment that is becoming increasingly competitive~~ 2. ~~Changes~~ inUnregistered ~~the~~Sales ~~degree~~ of ~~promotional~~Equity ~~intensity~~Securities ~~or merchandising strategy exerted by competitors could present us with difficulties in retaining existing customers, attracting new customers~~ and ~~maintaining~~Use ~~our profit margins. In addition, our business may be further impacted by a decline in the discretionary income~~ of ~~our customer base~~Proceeds. ~~Rising interest rates and higher fuel costs may be particularly impactful to our business because our targeted customer has a household income of less than $100,000 annually.~~

21The following table sets forth information concerning purchases made by or on behalf of Bombay or any affiliated purchaser (as defined in the SEC’s rules) of Bombay common stock for the periods indicated.

Purchases of Equity Securities by Bombay

Period	(a) Total number of shares (or units) purchased (1)	(b) Average price paid per share (or unit)	(c) Total number of shares (or units) purchased as part of publicly announced plans or programs(2)	(d) Maximum number (or approximate value) of shares (or units) that may yet be purchased under the plans or programs
February 4 - March 3, 2007	--	--	--	$ 3,366,711
March 4 - April 7, 2007	4,896	$ 1.30	4,896	$ 3,360,346
April 8 - May 5, 2007	5,578	$ 1.96	5,578	$ 3,349,393
Total	10,474		10,474

(1) Represents shares that were tendered by employees to satisfy minimum tax withholding amounts for restricted stock awards.

(2) During the period from June 1998 to July 2000, the Board of Directors authorized the repurchase of common stock up to an amount aggregating $30 million. Under the repurchase program, the Company is allowed to repurchase shares on the open market or in private transactions from time to time, depending on market conditions. The repurchase program does not have an expiration date. Since the inception of the share repurchase program, the Company has repurchased a total of 6.5 million shares of common stock for a total cash investment of $26.7 million ($4.12 per share). Our repurchases of common stock are limited under our debt agreements.

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits

(a) The Exhibits filed as a part of this report are listed below.

Exhibit No Description

Exhibit Number		Description

10(a)		Term Loan Agreement (1)

10(b)		Guaranty and Security Agreement (1)

10(c)		Pledge Agreement (1)

10(d)		Promissory Note (1)

10 (e)		Second Lien Deed of Trust, Security Agreement, Assignment of Leases and Rent and Fixture Filing (1)

10 (f)		Amended and Restated Canadian Security Agreement (1)

10 (g)		Amendment No. 1 to Credit Agreement (1)

10 (h)		Amendment No. 1 to Guaranty and Security Agreement (1)

10 (i)		Canadian Security Agreement (1)

10 (j)		Intellectual Property Security Agreement (1)

10 (k)		Intellectual Property Security Agreement (1)

31(a)		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended

31(b)		Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended

32		Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

31 (a1) ~~Certification by~~ Filed ~~Chief~~with ~~Executive~~the ~~Officer~~Commission ~~Pursuant~~as an Exhibit to ~~Rule~~the ~~13a-15~~Company’s Report ~~and~~on ~~Rule~~Form ~~15d~~8-15K ofon ~~The~~June 11, 2007. Such ~~Securities~~ Exhibit ~~Exchange~~is ~~Act~~incorporated ofherein ~~1934,~~by ~~as amended~~reference.

31(b) Certification by Chief Financial Officer Pursuant to Rule 13a-15 and Rule 15d-15 of The Securities Exchange Act of 1934, as amended24

32 Certifications of Registrant Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

THE BOMBAY COMPANY, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE BOMBAY COMPANY, INC.

(Registrant)

Date: June 814, ~~2006~~ 2007 /sS/ DAVID B. STEWART

David B. Stewart

Chief Executive Officer

Date: June 814, ~~2006~~ 2007 /sS/~~ELAINE~~ ELAINE D. CROWLEY

Elaine D. Crowley

Senior Vice President, Chief ~~Financial~~

Financial Officer and Treasurer

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