10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended July 28, 2012

OR

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number:  0-28784

HOT TOPIC, INC.

(Exact name of registrant as specified in its charter)

CALIFORNIA	77-0198182
(State of incorporation)	(IRS Employer Identification No.)
18305 EAST SAN JOSE AVE., CITY OF INDUSTRY, CA	91748
(Address of principal executive offices)	(Zip Code)

(626) 839-4681

(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x                      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o	Accelerated filer  x
Non-accelerated filer    o (Do not check if a smaller reporting company)	Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange

Act).

 Yes o                      No   x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  August 16, 2012  – 42,282,382 shares of common stock, no par value.

1

HOT TOPIC, INC.

INDEX TO FORM 10-Q

	.	Page No.
PART I.  FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)
Consolidated Statements of Operations and Comprehensive (Loss) Income for the three months and six months ended July 28, 2012 and July 30, 2011		3
Consolidated Balance Sheets – July 28, 2012 and January 28, 2012		4
Consolidated Statements of Cash Flows for the six months ended July 28, 2012 and July 30, 2011		5
Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 6.	Exhibits	44
SIGNATURES		45

2

PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Hot Topic, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive (Loss) Income
(In thousands, except per share amounts)
(Unaudited)
	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Net sales	$	157,828		$	150,950		$	329,372		$	312,223
Cost of goods sold, including buying,
distribution and occupancy costs		103,977			102,288			213,836			213,152
Gross margin		53,851			48,662			115,536			99,071
Selling, general and administrative expenses		55,091			58,760			110,694			121,558
(Loss) income from operations		(1,240	)		(10,098	)		4,842			(22,487	)
Interest and other (expense) income, net		(6	)		82			56			134
(Loss) income before (benefit) provision for
income taxes		(1,246	)		(10,016	)		4,898			(22,353	)
(Benefit) provision for income taxes		(478	)		(3,796	)		1,831			(8,472	)
Net (loss) income	$	(768	)	$	(6,220	)	$	3,067		$	(13,881	)
(Loss) earnings per share:
Basic	$	(0.02	)	$	(0.14	)	$	0.07		$	(0.31	)
Diluted	$	(0.02	)	$	(0.14	)	$	0.07		$	(0.31	)
Cash dividends declared and paid per share	$	0.08		$	0.07		$	0.16		$	0.14
Shares used in computing (loss) earnings per share:
Basic		42,252			44,843			42,196			44,778
Diluted		42,252			44,843			42,915			44,778
Comprehensive  (loss) income:
Net (loss) income	$	(768	)	$	(6,220	)	$	3,067		$	(13,881	)
Other comprehensive (loss) income:
Foreign currency translation adjustment		(34	)		25			(92	)		1
Unrealized gain (loss) on short-term and long-term  investments, net of taxes of $2 and $26 for the six-month periods		7			(22	)		5			68
Total other comprehensive (loss) income		(27	)		3			(87	)		69
Comprehensive (loss) income	$	(795	)	$	(6,217	)	$	2,980		$	(13,812	)

See accompanying Notes to Condensed Consolidated Financial Statements.

3

Hot Topic, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share amounts)
	July 28, 2012			January 28, 2012
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	51,575		$	49,615
Short-term investments		12,068			16,503
Inventory		80,239			70,800
Prepaid expenses and other		16,006			17,474
Deferred tax assets		5,706			5,953
Total current assets		165,594			160,345
Property and equipment, net		106,863			105,790
Deposits and other		7,165			7,002
Long-term investments		1,724			1,722
Deferred tax assets		3,900			3,104
Total assets	$	285,246		$	277,963
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	34,051		$	23,828
Accrued liabilities		42,736			44,253
Income taxes payable		1,350			171
Total current liabilities		78,137			68,252
Deferred rent and other		19,217			20,486
Income taxes payable		593			1,812
Deferred compensation		4,596			4,410
Commitments and contingencies
Shareholders’ equity:
Preferred shares, no par value; 10,000,000 shares
authorized; no shares issued and outstanding		-			-
Common shares, no par value; 150,000,000 shares authorized;
42,282,382 and 42,047,991 shares issued and
outstanding at July 28, 2012 and January 28, 2012, respectively		132,836			129,354
Retained earnings		50,171			53,866
Accumulated other comprehensive loss		(304	)		(217	)
Total shareholders’ equity		182,703			183,003
Total liabilities and shareholders’ equity	$	285,246		$	277,963

See accompanying Notes to Condensed Consolidated Financial Statements.

4

Hot Topic, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
	Six Months Ended
	July 28, 2012			July 30, 2011
OPERATING ACTIVITIES
Net income (loss)	$	3,067		$	(13,881	)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization		16,941			18,217
Stock-based compensation		2,068			2,724
Loss on disposal of property and equipment		954			2,507
Impairment of long-lived assets		509			1,861
Deferred taxes		(794	)		(1,171	)
Gift card breakage		(261	)		(249	)
Changes in operating assets and liabilities:
Inventory		(9,594	)		(2,681	)
Prepaid expenses and other current assets		1,468			(7,318	)
Deposits and other assets		(163	)		(291	)
Accounts payable		10,224			13,258
Accrued liabilities		(888	)		2,733
Deferred rent and other		(1,269	)		(3,690	)
Income taxes payable		(40	)		(3	)
Foreign currency translation gain		63			-
Net cash provided by operating activities		22,285			12,016
INVESTING ACTIVITIES
Purchases of property and equipment		(19,491	)		(12,102	)
Proceeds from sale of short-term and long-term investments, net of purchases		4,435			10,974
Net cash used in investing activities		(15,056	)		(1,128	)
FINANCING ACTIVITIES
Excess tax benefit from stock-based compensation		421			194
Proceeds from employee stock purchases and exercise of stock options		1,073			1,111
Payment of capital lease obligation		-			(191	)
Payment of cash dividends		(6,762	)		(6,278	)
Net cash used in financing activities		(5,268	)		(5,164	)
Increase in cash and cash equivalents		1,961			5,724
Effect of foreign currency exchange rate changes on cash		(1	)		(35	)
Cash and cash equivalents at beginning of period		49,615			51,316
Cash and cash equivalents at end of period	$	51,575		$	57,005
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest	$	1		$	10
Cash paid (received) during the period for income taxes	$	2,219		$	(900	)

See accompanying Notes to Condensed Consolidated Financial Statements.

5

HOT TOPIC, INC. and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.  Organization and Basis of Presentation

Description of Business  We are a mall and web-based specialty retailer of apparel, accessories, music and gift items for young men and women whose lifestyles reflect a passion for music, fashion and pop culture.  We operate under two concepts: Hot Topic and Torrid.  Music and pop culture are the overriding inspirations at Hot Topic, and Torrid is focused on providing the best in fashion to young plus-size women.  At our Hot Topic stores and our website hottopic.com, we sell a selection of licensed and non-licensed apparel, accessories and gift items that are influenced by popular music artists and pop culture trends, designed to appeal to young men and women.  We also sell a limited assortment of music CDs and DVDs at Hot Topic.  At our Torrid stores and on our website torrid.com, we sell on-trend fashion apparel, lingerie and accessories inspired by and designed to fit the young, voluptuous woman who wears a size 12 and up.  We generate revenues primarily through our retail stores in the United States of America, Puerto Rico and Canada, and online through our websites.  We were incorporated in California in 1988 and opened our first Hot Topic store the following year in fiscal 1989.  We opened our first Torrid store in fiscal 2001.  During the second quarter of fiscal 2011, the operations of ShockHound, our online digital music website launched in fiscal 2008, were discontinued.  Refer to “NOTE 2 – Business Events” for more information concerning the discontinuation of ShockHound’s operations.

References to Hot Topic, Inc.  Throughout this report, the terms “we,” “us,” “our,” “company” and similar references refer to Hot Topic, Inc. and its wholly-owned subsidiaries.

Fiscal Year  Our fiscal year ends on the Saturday nearest to January 31.  References to the second quarter of fiscal 2012 and 2011 refer to the thirteen week periods ended July 28, 2012 and July 30, 2011, respectively.  References to fiscal 2012 refer to the 53-week period ending February 2, 2013.  References to fiscal 2011, 2010 and 2009 refer to the 52-week periods ended January 28, 2012, January 29, 2011, and January 30, 2010, respectively.  Fiscal 2013 refers to the 52-week period ending February 1, 2014.

Segment Information We currently have one reportable segment given the similarities of the economic characteristics between the Hot Topic and Torrid concepts.

Interim Financial Information  The information set forth in these condensed consolidated financial statements is unaudited except for the January 28, 2012 consolidated balance sheet data.  These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K filed on March 21, 2012.

In the opinion of management, all adjustments necessary for a fair presentation have been included in these condensed consolidated financial statements.

6

NOTE 2.  Business Events

Strategic Business Changes  In March 2011, our Board of Directors, or the Board, approved certain strategic business changes to better position the company for growth.  The business changes involved discontinuing the operations of ShockHound; writing down inventory due to a change in management’s inventory strategy; writing down property and equipment that are no longer critical to our strategic direction; and implementing other strategic business and operational initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the strategic business changes.

Cost Reduction Plan  In November 2010, our Board approved a cost reduction plan, designed to meet the challenges of the environment at that time, which involved closing approximately 50 underperforming stores, a majority of which closed by the end of the first quarter of fiscal 2011.  These closures occurred as a result of natural lease expirations, exercising lease kick out clauses and other negotiations.  The cost reduction plan also included reducing our home office and field management positions, reducing planned capital expenditures in fiscal 2011 relative to fiscal 2010 and implementing other non-payroll overhead expense reduction initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the cost reduction plan, completed the announced reduction of our home office and field management positions, and completed the implementation of non-payroll overhead expense reduction initiatives as part of the cost reduction plan.  As of the end of the second quarter of fiscal 2012, we had closed all underperforming stores related to the cost reduction plan, totaling 41 Hot Topic stores and seven Torrid stores.

The following table details charges related to the strategic business changes and cost reduction plan recorded since their implementation in the first quarter of fiscal 2011 and the fourth quarter of fiscal 2010, respectively, (in thousands).

7

				Non-Store Related
				Severance and			Inventory and
	Store Related			Outplacement			Asset-Related			Consulting			Stock Option
	Closure Costs 1			Costs			Costs 2			Fees			Expense			Total
Balance at October 30, 2010	$	-		$	-		$	-		$	-		$	-		$	-
Cost Reduction Plan charges		(7,077	)		(1,850	)		(830	)		-			-			(9,757	)
Cash payments		93			985			-			-			-			1,078
Non-cash adjustments		6,497			-			830			-			-			7,327
Balance at January 29, 2011		(487	)		(865	)		-			-			-			(1,352	)
Cost Reduction Plan recovery		365			-			-			-			-			365
Strategic Business Changes charges		-			(1,583	)		(9,605	)		(1,606	)		-			(12,794	)
Cash payments		699			889			-			1,645			-			3,233
Non-cash adjustments		(659	)		-			4,891			-			-			4,232
Balance at April 30, 2011		(82	)		(1,559	)		(4,714	)		39			-			(6,316	)
Cost Reduction Plan recovery		174			-			-			-			-			174
Strategic Business Changes charges		-			(1,330	)		(532	)		(1,383	)		(1,072	)		(4,317	)
Cash payments		144			812			182			753			-			1,891
Non-cash adjustments		(455	)		-			4,866			-			1,072			5,483
Balance at July 30, 2011		(219	)		(2,077	)		(198	)		(591	)		-			(3,085	)
Cash payments		197			464			-			473			-			1,134
Non-cash adjustments		22			(43	)		18			20			-			17
Balance at October 29, 2011		-			(1,656	)		(180	)		(98	)		-			(1,934	)
Cash payments		-			682			20			-			-			702
Non-cash adjustments		-			-			75			-			-			75
Balance at January 28, 2012		-			(974	)		(85	)		(98	)		-			(1,157	)
Cash payments		-			476			-			-			-			476
Non-cash adjustments		-			17			68			98			-			183
Balance at April 28, 2012		-			(481	)		(17	)		-			-			(498	)
Cash payments		-			318			-			-			-			318
Non-cash adjustments		-			23			17			-			-			40
Balance at July 28, 2012	$	-		$	(140	)	$	-		$	-		$	-		$	(140	)

1 Store related closure costs represent charges for the closure of approximately 50 underperforming stores.  Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

2 Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

We recorded charges related to store closures, write down of assets; store severance; non-store related severance and outplacement; consulting fees; and stock option expense in selling, general and administrative expenses in our consolidated statements of operations.  Charges related to the write down of store inventory; accelerated depreciation of store assets; and early lease terminations were recorded in cost of goods sold in our consolidated statements of operations.

Discontinued Operations  During the second quarter of fiscal 2011, due to its slower than expected revenue growth, ShockHound’s operations were discontinued.  Revenues from partnerships entered into in the earlier part of fiscal 2010, as well as other revenues, did not build as much as we had anticipated.  See “Strategic Business Changes” above for more information concerning the discontinuation of ShockHound’s operations.

8

NOTE 3.  Stock-Based Compensation

Stock Plan Activity

Under our 1996 Equity Incentive Plan, or the 1996 Plan, we granted stock options, stock bonuses and other awards to our employees, directors and consultants as deemed appropriate by the Board.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 14, 2006, the 1996 Plan expired and was replaced with the 2006 Equity Incentive Plan, or the 2006 Plan.  Upon the expiration of the 1996 Plan, no shares had been granted to consultants and 732,456 shares out of an aggregate of 18,300,000 shares of common stock were authorized and available for grant.

Under our 2006 Plan, we granted stock options, stock bonuses and other awards to our employees, directors and consultants as deemed appropriate by the Board.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 5, 2012, the 2006 Plan was terminated and replaced with the 2012 Equity Incentive Plan, or the 2012 Plan.  The 2012 Plan was approved by the Board on March 16, 2012 and by our shareholders on June 5, 2012.  Upon the termination of the 2006 Plan, no shares had been granted to consultants, except for the independent consulting services provided by Lisa Harper in February 2011 and by an independent consultant in April 2012.  There were 942,602 shares out of an aggregate of 3,082,456 shares of common stock authorized and available for grant upon the termination of the 2006 Plan.

The 2012 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of equity compensation to our employees, consultants and directors as deemed appropriate by the Board.  Both incentive and non-statutory stock options granted by us under the 2012 Plan must carry an exercise price of at least 100% of the fair market value of our common stock on the date of grant.  Incentive stock options must carry an exercise price of at least 110% of the fair market value of our common stock on the date of grant for persons possessing 10% or more of the total combined voting power of all classes of stock.  Options granted may be subject to different vesting terms as determined by the Board and the maximum term of options granted is 8 years.  In addition, the maximum number of shares of common stock available for future issuance may not exceed the sum of (a) 942,602 and 34,976 shares of common stock remaining available for issuance under the 2006 Plan and the 1996 Non-Employee Directors’ Stock Option Plan, or the 1996 NEDSOP, respectively, as of June 5, 2012, (b) an additional 3,100,000 shares and (c) the number of shares subject to stock awards as of June 5, 2012 under the 2006 Plan and the 1996 NEDSOP pursuant to the terms of the 2006 Plan and the 1996 NEDSOP.  As of the end of the second quarter of fiscal 2012, 3,856,736 shares were available for future grants under the 2012 Plan.  All awards to date under the 2012 Plan have been granted to our employees and directors, and none have been granted to consultants.

Under the 1996 NEDSOP, we granted stock options to non-employee directors.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 5, 2012, the 1996 NEDSOP was terminated.  Upon the termination of the 1996 NEDSOP, no shares had been granted to anyone for their role as a consultant to the company and 34,976 shares out of an aggregate of 720,000 shares of common stock were authorized and available for grant.

9

In June 1996, the Board adopted the Employee Stock Purchase Plan, or the Stock Purchase Plan.   The Stock Purchase Plan provides for the issuance of up to 1,350,000 shares of common stock to our employees.  All eligible employees are granted identical rights to purchase common stock for each Board authorized offering under the Stock Purchase Plan.  Rights granted pursuant to any offering under the Stock Purchase Plan terminate immediately upon cessation of an employee’s employment for any reason.  In general, an employee may reduce their contribution or withdraw from participation in an offering at any time during the purchase period for such offering.  Employees receive a 15% discount on shares purchased under the Stock Purchase Plan.  Rights granted under the Stock Purchase Plan are not transferable and may be exercised only by the person to whom such rights are granted.  The initial offering under the Stock Purchase Plan commenced October 24, 1996 and terminated December 31, 1996.  Subsequent offerings have occurred every six months commencing January 1, 1997.  As of the end of the second quarter of fiscal 2012, 692,372 shares could still be sold to employees under the Stock Purchase Plan.  Compensation expense for the second quarter of fiscal 2012 and 2011 was $42,000 and $39,000, respectively, related to the fair value of the rights granted to participants under the plan.  During fiscal year-to-date 2012 and 2011, $84,000 and $78,000, respectively, was expensed.

In June 2012, we granted non-employee directors an aggregate of 21,008 shares of restricted common stock under the 2012 Plan.  In March 2012 and June 2011, we granted non-employee directors an aggregate of 515 and 25,387 shares of restricted common stock, respectively, under the 2006 Plan.  Restricted shares generally vest in one installment in the year subsequent to the grant year.  All awarded common shares remain restricted (i.e., not transferable by the holders) until such time as the recipient is no longer a member of our Board.  The value of these grants is expensed over the vesting period.  During the second quarter of fiscal 2012 and 2011, $50,000 and $47,000, respectively, was expensed.  During the fiscal year-to-date 2012 and 2011, $99,000 and $99,000, respectively, was expensed.

In April 2012, we granted an independent consultant 2,525 shares of restricted common stock under the 2006 Plan.  This grant was substantially similar to the restricted common stock granted to non-employee directors described above except that vesting shall occur in full after providing six months of continuous service to the company.  A charge of $13,000 and $17,000 was expensed for this grant during the second quarter of fiscal 2012 and fiscal year-to-date 2012, respectively.

In March 2012, we granted Lisa Harper an option to purchase 100,000 shares of our common stock under the 2006 Plan.  This 100,000 share option is subject to a service condition as well as a performance condition that the company achieves a defined earnings target in fiscal year 2012, which will be certified by the Compensation Committee of the Board during the first quarter of fiscal 2013.

In March 2011, in connection with her appointment as Chief Executive Officer, we granted Lisa Harper an option to purchase 500,000 shares of our common stock under the 2006 Plan.  This 500,000 share option vests only upon a vesting determination by the Compensation Committee of the Board.  The option will terminate on the day following the third anniversary of the date of grant if the vesting determination has not been made.   The vesting determination shall be made at any time on or before the third anniversary of the date of grant when the Compensation Committee of the Board certifies that the weighted average per share closing price of the company’s common stock for any trailing 90 trading days equals or exceeds twice the closing price per share on the date of grant.

In March 2011, we granted certain employees the option to purchase an aggregate of 440,000 shares of our common stock, net of forfeitures, under the 2006 Plan.  These share options are subject to four-year vesting, but vesting will occur in full upon the occurrence of the vesting determination described above.

In February 2011, prior to her appointment as Chief Executive Officer, we granted Lisa Harper, in her capacity as an independent consultant, 17,568 shares of restricted common stock under the 2006 Plan.  This grant was substantially similar to the restricted common stock granted to non-employee directors described above.  The total charge of $98,000 was expensed for this grant during the first quarter of fiscal 2011.

10

In March 2009, we granted performance stock awards under the 2006 plan to certain members of our management.  These 2009 awards provided for the issuance of up to 100,000 shares of our common stock, net of forfeitures, with vesting and issuance contingent upon achieving a performance goal for fiscal 2011, based upon our operating income for that fiscal year; and prior to vesting (or termination without vesting), the awards constituted an agreement by us to issue shares to the extent this performance goal was ultimately met.  The market value of our common stock as of the 2009 grant date of these performance stock awards was $9.56.  Compensation expense for these awards was required to be recorded over the three-year terms of the awards, based on the market values as of the grant dates, with actual amounts expensed dependent upon the likelihood from period to period of vesting of these awards at the end of fiscal 2011.  In March 2012, the Board confirmed that the target performance goal for fiscal 2011 had not been met, and therefore all such awards terminated without vesting or issuance of the underlying shares.  We did not recognize any compensation expense for these 2009 awards.

The following table summarizes stock options outstanding under all of our plans as of the end of the second quarter of fiscal 2012, as well as activity during fiscal year-to-date 2012:

	Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 28, 2012		5,890,439		$	9.29
Granted		1,683,354		$	9.68
Exercised		(152,501	)	$	5.62
Forfeited or expired		(391,247	)	$	13.73
Outstanding at July 28, 2012		7,030,045		$	9.21		7.23	$	12,951
Exercisable at July 28, 2012		3,032,067		$	11.03		5.15	$	5,282

The total fair value of shares vested during the second quarter of fiscal 2012 and 2011 is $0.6 million and $1.0 million, respectively.  The total fair value of shares vested during fiscal-year-to-date 2012 and 2011 was $1.5 and $2.3 million, respectively.

Cash proceeds, tax benefits and intrinsic values related to total stock options exercised during the second quarter of fiscal 2012 and 2011 and during fiscal year-to-date 2012 and 2011 are provided in the following table (in thousands):

11

	Three Months Ended				Six Months Ended
	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
Proceeds from stock options exercised	$	208	$	494	$	857	$	942
Tax benefit related to stock options exercised	$	49	$	44	$	265	$	88
Intrinsic value of stock options exercised	$	123	$	110	$	663	$	220

Accounting for Stock-Based Compensation Expense  We account for stock-based compensation expense by estimating the fair value of stock options granted, except for certain stock options granted in March 2011 that are subject to the vesting determination described above, using the Black-Scholes option-pricing formula and a single option award approach.  The fair value is then amortized over the requisite vesting periods of the awards.  As stock-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

We estimate the fair values of the share options granted in March 2011, that are subject to the vesting determination, using a Monte Carlo simulation valuation model.  The fair values of the options to purchase the aggregate of 440,000 shares, net of forfeitures, are amortized over the vesting period determined by this model.  The entire fair value of the 500,000 share option was recognized as compensation expense during fiscal 2011.

The effect of recording stock-based compensation for the second quarter of fiscal 2012 and 2011 and for fiscal year-to-date 2012 and 2011 was as follows (in thousands):

	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Stock-based compensation by type of award:
Employee and director stock options and awards	$	1,012		$	1,824		$	1,967		$	2,646
Non-employee stock award		13			-			17			-
Employee stock purchase plan		42			39			84			78
Total stock-based compensation expense		1,067			1,863			2,068			2,724
Tax effect on stock-based compensation expense		(385	)		(711	)		(747	)		(1,019	)
Net effect on net income or loss	$	682		$	1,152		$	1,321		$	1,705

For the second quarter of fiscal 2012 and 2011, $172,000 and $105,000, respectively, of stock-based compensation expense was recorded as a component of cost of goods sold and the remainder, $0.9 million and $1.8 million, respectively, was charged to selling, general and administrative expense.

For fiscal year-to-date 2012 and 2011, $333,000 and $218,000, respectively, of stock-based compensation expense was recorded as a component of cost of goods sold and the remainder, $1.7 million and $2.5 million, respectively, was charged to selling, general and administrative expense.

As of the end of the second quarter of fiscal 2012 and 2011, we had $8.0 million and $5.1 million, respectively, of unrecognized expense related to non-vested stock option grants (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that are subject to the performance condition, and the aggregate of 440,000 stock options granted in March 2011 that are subject to the vesting determination), which are expected to be recognized over weighted average periods of 2.87 years and 2.77 years, respectively.

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As of the end of the second quarter of fiscal 2012, we had $0.3 million of unrecognized expense related to Lisa Harper’s option to purchase 100,000 shares of our common stock granted in March 2012 that are subject to the performance condition, which is expected to be recognized over a weighted average period of 3.67 years.  This option to purchase 100,000 shares has a $3.44 weighted average fair value at grant date.

As of the end of the second quarter of fiscal 2012 and 2011, we had $0.3 million and $1.0 million, respectively, of unrecognized expense related to the options to purchase an aggregate of 440,000 shares of our common stock granted in March 2011 that are subject to the vesting determination, which is expected to be recognized over weighted average periods of 2.67 years and 3.67 years, respectively.

As of the end of the second quarter of fiscal 2012 and 2011, we had $175,000 and $150,000, respectively, of unrecognized expense related to restricted stock grants, which is expected to be recognized over weighted average periods of 0.78 and 0.72 years, respectively.

Calculation of Fair Value of Options  The Black-Scholes option valuation model used to determine the fair value of stock-based compensation for all options, except for those granted in March 2011 that are subject to the vesting determination, incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield.  The expected term of an award is generally no less than the option vesting period and is based on our historical experience.  Expected volatility is based upon the historical volatility of our stock price.  The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s expected life.  The dividend yield is based on the expected dividend yield as of the date of option grant.

The following weighted average assumptions were used in the Black-Scholes option valuation model for stock options granted:

	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Risk free interest rate		1	%		2	%		1	%		2	%
Expected life	5 years			5 years			5 years			5 years
Expected volatility		58	%		58	%		57	%		58	%
Expected dividend yield		3	%		4	%		4	%		5	%
Weighted average fair value at grant date (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that are subject to the performance condition)	$	3.77		$	2.68		$	3.50		$	2.10

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A Monte Carlo simulation was used to determine the fair value of stock-based compensation for the stock options granted in March 2011 that are subject to the vesting determination.  This risk neutral model is based on projections of stock price paths and incorporates various assumptions including the early exercise behavior, volatility of stock price, risk-free rates of return and dividend yield.  Expected volatility is based upon the historical volatility of our stock price.  The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s contractual life.  The dividend yield is based on the expected dividend yield as of the date of option grant.

The following weighted average assumptions were used in the Monte Carlo simulation valuation model for the stock options granted in March 2011 that are subject to the vesting determination:

Risk free interest rate	4%
Contractual life	10 years
Expected volatility	58%
Expected dividend yield	5%
Weighted average fair value at grant date	$2.06

NOTE 4. Cash Dividends

On July 5, 2012, we announced that our Board authorized a regular quarterly cash dividend of $0.08 per share.  The $0.08 per share dividend was paid in July 2012 to shareholders of record at the close of business on July 16, 2012.  We released the funds used to pay for this regular quarterly cash dividend during the second quarter of fiscal 2012.  Our Board will determine future regular quarterly cash dividends after giving consideration to our then existing levels of profit, capital requirements, current and forecasted liquidity, as well as financial and other business conditions existing at the time.  As of the end of the second quarter of fiscal 2012 and 2011, total dividends paid in fiscal 2012 and 2011 amounted to $6.8 million and $6.3 million, respectively.

NOTE 5. (Loss) Earnings Per Share

Basic earnings or loss per share is computed by dividing net income or net loss, respectively, by the weighted average number of common shares outstanding for the period.  Diluted earnings per share is applicable only in periods of net income and is computed by dividing net income by the weighted average number of common shares outstanding for the period and potentially dilutive common stock equivalents outstanding for the period.  Periods of net loss require the diluted computation to be the same as the basic computation.  As of the end of the second quarter of fiscal 2012 and 2011, options to purchase 3.2 million and 4.0 million shares, respectively, of potentially anti-dilutive common stock equivalents were outstanding.  For fiscal year-to-date 2012 and 2011, options to purchase 3.2 million and 4.2 million shares, respectively, of potentially anti-dilutive common stock equivalents were outstanding.

A reconciliation of the numerator and denominator of basic and diluted (loss) earnings per share is as follows (in thousands, except per share amounts):

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	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012		July 30, 2011
Basic and diluted (loss) earnings per share computation:
Numerator	$	(768	)	$	(6,220	)	$	3,067	$	(13,881	)
Denominator:
Weighted average common shares outstanding		42,252			44,843			42,196		44,778
Incremental shares from assumed exercise/issuance of options and awards		-			-			719		-
Total shares		42,252			44,843			42,915		44,778
Basic (loss) earnings per share	$	(0.02	)	$	(0.14	)	$	0.07	$	(0.31	)
Diluted (loss) earnings per share	$	(0.02	)	$	(0.14	)	$	0.07	$	(0.31	)

NOTE 6.  Short-Term and Long-Term Investments

Our short-term investments consist of highly-rated interest-bearing municipal bonds that have maturities that are less than one year and are accounted for as available for sale.  As of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011, short-term investments consisted of municipal bonds of $12.1 million and $16.5 million, respectively.  Refer to “NOTE 8 – Fair Value Measurements” for further discussion on how we determined the fair value of our short-term investments.  The associated unrealized net gains and losses in fiscal year-to-date 2012 and in the full year of fiscal 2011, respectively, were immaterial and have been recorded in the consolidated statements of comprehensive income (loss).

As of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011, our long-term investment comprised of an auction rate security.  Our auction rate security is a AAA/A3-rated debt instrument with a maturity of 25 years.  It is accounted for as available for sale and backed by pools of student loans guaranteed by the U.S. Department of Education.  Its interest rate is reset through an auction process, most commonly at intervals of approximately 4 weeks.  This same auction process is designed to provide a means by which this security can be sold and prior to 2008 had provided a liquid market for it.  There continues to be uncertainty in the global credit and capital markets, which has resulted in the failure of auctions representing the auction rate security we hold as the amount of securities submitted for sale in those auctions exceed the amount of bids.  While we have continued to earn and receive interest on our auction rate security through the date of this report, we concluded that its estimated fair value no longer approximates par value.  Due to the lack of availability of observable market quotes on our auction rate security, the fair market value of this security has been based on a valuation model using current assumptions.  Refer to “NOTE 8 – Fair Value Measurements” for further discussion on how we determined the fair value of our auction rate security investment.

As of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011, the fair value of our auction rate security remained the same at $1.7 million.  The fair value of our auction rate security as of the end of the second quarter of fiscal 2012 reflects a cumulative decline of $0.4 million from the par value.  This cumulative $0.4 million decline ($0.2 million net of tax) is deemed temporary as we have the ability to hold this security and we do not have the intent to sell it below par value.  Furthermore, it is not likely that we will be required to sell the security before the recovery of its amortized cost basis.  If uncertainties in the credit and capital markets continue, we may incur additional losses, some of which may be other-than-temporary, which could negatively affect our financial condition or results of operations.  In addition, in the event that we decide to sell this security and it becomes likely that we will be required to sell the security before the recovery of its amortized cost basis, we may be required to recognize impairment charges against income.  We have classified our auction rate security as a non-current asset on our consolidated balance sheet, as we do not expect it to successfully auction and recover its full or par value within the next 12 months.

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For the second quarter of fiscal 2012 and 2011, we recorded immaterial unrealized losses and for fiscal year-to-date 2012, we recorded immaterial unrealized gains, for our auction rate security in the consolidated statements of comprehensive income (loss).  For fiscal year-to-date 2011, we recorded unrealized gains of $0.1 million ($0.1 million net of tax).

NOTE 7.  Impact of Recently Issued Accounting Pronouncements

In May 2011, the FASB issued new guidance that results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards, or IFRS.  The new guidance changes some fair value measurement principles and disclosure requirements under U.S. GAAP.  Several new disclosures about Level 3 measurements are required, including quantitative information about the significant unobservable inputs used in the measurement, a qualitative discussion about the sensitivity of recurring measurements to changes in the unobservable inputs disclosed and a description of the valuation processes used by us.  The new guidance was effective for interim or fiscal years beginning on or after December 15, 2011, with early adoption prohibited.  Our adoption of this new guidance on January 29, 2012 did not have a material impact on our financial condition or results of operations.

In June 2011, the FASB issued a final standard requiring entities to present net income (loss) and other comprehensive income (loss) in either a single continuous statement or in two separate, but consecutive, statements of net income (loss) and other comprehensive income (loss).  The new standard eliminates the option to present items of other comprehensive income (loss) in the statement of changes in equity.  The new requirements do not change which components of comprehensive income (loss) are recognized in net income (loss) or other comprehensive income (loss), or when an item of other comprehensive income (loss) must be reclassified to net income (loss).  Also, earnings (loss) per share computations do not change.  The new requirements were effective for interim and fiscal years beginning after December 15, 2011, with early adoption permitted.  Full retrospective application is required.  As this standard relates only to the presentation of other comprehensive income (loss), our adoption of this new guidance on January 29, 2012 did not have a material impact on our financial condition or results of operations.

NOTE 8.  Fair Value Measurements

Our financial assets and liabilities are valued at the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  We determine fair value based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, we prioritize the inputs used in measuring fair value into a three-tier fair value hierarchy, which are as follows:

Level 1: Observable inputs such as quoted prices in active markets (the fair value hierarchy gives the highest priority to Level 1 inputs);

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

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Level 3: Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions (the fair value hierarchy gives the lowest priority to Level 3 inputs).

Financial assets and liabilities measured at fair value on a recurring basis as of the end of the second quarter of fiscal 2012 consisted of the following (in thousands):

	Balance at July 28, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalent)	$	50,120	$	50,120	$	-	$	-
Municipal bonds (short-term)		12,069		-		12,069		-
Auction rate securities (long-term)		1,724		-		-		1,724
Total assets	$	63,913	$	50,120	$	12,069	$	1,724
Liabilities:
Deferred compensation plan (long-term)	$	4,596	$	-	$	4,596	$	-

The fair value of our short-term municipal bonds is based on market prices for similar assets from third-party pricing services using observable market information.  The money market funds fair value is determined based on quoted prices in active markets.  Due to the lack of availability of observable market quotes on our auction rate securities, the fair market value of these securities has been determined based on an internal valuation model which incorporates primarily management’s own current assumptions.  The model values the securities by estimating the present value of future principal and interest payments discounted at rates considered to reflect current market conditions.  Significant assumptions used in the valuation include those made about the liquidity horizon which we currently estimate to be approximately five years and the net trading yield rate which we currently estimate to be approximately 5%.  The fair value measurement of our auction rate securities has an inverse relationship with our liquidity horizon assumption and changes in this assumption may cause the fair value to be significantly impacted.  Other factors that impact our valuation include changes to credit ratings of our auction rate securities as well as to the underlying assets supporting these securities and the ongoing strength and quality of the credit markets.  Our valuation is subject to uncertainties that are difficult to predict and could change significantly based on future market conditions.  The deferred compensation plan liability represents the amount that would be earned by participants if the funds were invested in securities traded in active markets.  The fair value of the deferred compensation plan liability is determined based on quoted prices of similar assets that are traded in observable markets.

The activity of our auction rate securities through the second quarter of fiscal 2012, whose fair value was measured using Level 3 inputs, is summarized below (in thousands):

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	Non-current
Carrying value as of  January 28, 2012	$	1,722
Total gains
Included in earnings		-
Included in other comprehensive (loss) income1		2
Carrying value as of  July 28, 2012	$	1,724

1 Unrealized gains of $5,000 and unrealized losses $3,000 occurred during the first and second quarters of fiscal 2012, respectively.

NOTE 9.  Deferred Compensation Plan

In August 2006, we adopted the Hot Topic Inc. Management Deferred Compensation Plan, or the Deferred Compensation Plan, for the purpose of providing highly compensated employees and members of our Board a program to meet their financial planning needs.  The Deferred Compensation Plan provides participants with the opportunity to defer up to 80% of their base salary and up to 100% of their annual earned bonus, or, in the case of members of our Board, 100% of their earned cash fees, all of which, together with the associated investment returns, are 100% vested from the outset.  The Deferred Compensation Plan, which is designed to be exempt from most provisions of the Employee Retirement Security Act of 1974, is informally funded by us in order to preserve the tax-deferred savings advantages of a non-qualified plan.  As such, all deferrals and associated earnings are general unsecured obligations of Hot Topic, Inc. held within a “rabbi trust” on our consolidated balance sheet.  We may at our discretion contribute certain amounts to eligible employees’ accounts.  In January 2009, to the extent participants were ineligible to receive such contributions from participation in our 401(k) Plan, we began to contribute 50% of the first 4% of participants’ eligible contributions into their Deferred Compensation Plan accounts.  As of the end of the second quarter of fiscal 2012, assets and associated liabilities of the Deferred Compensation Plan were $4.8 million and $4.6 million, respectively, and are included in other non-current assets and non-current liabilities, respectively, in our consolidated balance sheets.  As of the end of fiscal 2011, assets and associated liabilities of the Deferred Compensation Plan were $4.7 million and $4.4 million, respectively.

NOTE 10.  Valuation of Long-Lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  For our Hot Topic and Torrid concepts, we group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified.  Factors we consider important that could trigger an impairment review of our stores or online operations include a significant underperformance relative to expected historical or projected future operating results, a significant change in the manner of the use of the asset or a significant negative industry or economic trend.  When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method using a discount rate, which we currently estimate to be approximately 13%, determined by management.  These cash flows are calculated by netting future estimated sales of each store against estimated cost of goods sold, occupancy costs and other store operating expenses such as payroll, supplies, repairs and maintenance and credit/debit card fees.  The discount rate, the estimated sales and the aforementioned costs and expenses used for this nonrecurring fair value measurement are considered significant Level 3 inputs as defined in “NOTE 8 – Fair Value Measurements.”  Changes in these assumptions may cause the fair value to be significantly impacted.  In the event future performance is lower than forecasted results, future cash flows may be lower than expected, which could result in future impairment charges.  While we believe recently opened stores will provide sufficient cash flow, material changes in results could result in future store impairment charges.

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For the second quarter of fiscal 2012 and 2011, we recorded store impairment charges of $0.1 million and $0.4 million, respectively, which are included in selling, general and administrative expenses in our consolidated statements of operations.  For fiscal year-to-date fiscal 2012 and 2011, we recorded store impairment charges of $0.4 million and $1.6 million, respectively.

NOTE 11.  Bank Credit Agreement

We maintain an unsecured bank credit agreement of $5.0 million that will expire on September 1, 2013.  Letters of credit, which are primarily used for inventory purchases, are issued under the credit agreement.  There were no letters of credit as of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011.

NOTE 12.  Income Taxes

As ofthe end of the second quarter of fiscal 2012, the total liability for income tax associated with unrecognized tax benefits consisted of tax of $1.5 million ($0.7 million net of federal benefit), interest of $0.2 million ($0.1 million net of federal benefit) and $0.1 million related to penalties.  Our effective tax rate will be affected by any portion of this liability we may recognize.  As of the end of fiscal 2011, the total liability for income tax associated with unrecognized tax benefits consisted of tax of $1.6 million ($0.7 million net of federal benefit), interest of $0.3 million ($0.2 million net of federal benefit) and $0.1 million related to penalties.

We believe that it is reasonably possible that our liability for unrecognized tax benefits consisting of tax of $1 million ($0.7 million net of federal benefit), interest of $0.2 million ($0.1 million net of federal benefit) and penalties of $0.1 million, may be recognized in the next 12 months due to the settlement of audits and the expiration of statutes of limitations.  As such, we have classified these amounts as current liabilities.

Our continuing practice is to recognize interest and penalties related to unrecognized tax benefits as a tax expense.  Tax expense during the second quarter of fiscal 2012 and 2011 related to interest and penalties was not material.  As of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011, we had accrued $0.3 million and $0.4 million, respectively, of interest and penalties related to uncertain tax positions.

We operate stores throughout the United States as well as in Canada and Puerto Rico, and as a result, we file income tax returns in the United States federal jurisdiction and various states, local and foreign jurisdictions.  In the normal course of business, we are subject to examination by taxing authorities.  With few exceptions, we are no longer subject to United States federal, state, local or foreign income tax examinations for years before fiscal 2007.  While it is often difficult to predict the final outcome or the timing or resolution of any particular uncertain tax position, we believe our reserves for income taxes represent the most probable outcome.  We adjust these reserves, as well as the related interest and penalties, in light of changing facts and circumstances.

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NOTE 13.  Commitments and Contingencies

From time to time, we are involved in matters of litigation that arise in the ordinary course of business.  Though significant litigation or awards against us could seriously harm our business and financial results, we do not at this time expect any of our litigation to have a material adverse effect on our overall financial condition.

NOTE 14.  Share Repurchase

On August 17, 2011, we announced that our Board approved the repurchase of up to $25 million of our outstanding common stock during the period ended January 28, 2012.  As of the end of fiscal 2011, we had completed the repurchase of 3,212,628 shares of our common stock under this program for approximately $25 million (excluding expenses), which represents an average price of $7.78 per share.

On June 6, 2012, we announced that our Board approved the repurchase of up to $15 million of our outstanding common stock during the period ending February 2, 2013.  As of the end of the second quarter of fiscal 2012, we had not repurchased any shares of our common stock under this program.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

From time to time, in both written reports (such as this report) and oral statements, we make “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.  We intend that such forward-looking statements be subject to the “safe harbors” created by these sections.  Generally, the words “believes,” “anticipates,” “expects,” “continue,” “intends,” “will,” “may,” “plans” and similar expressions identify such forward-looking statements, although not all forward-looking statements contain these identifying words.  These statements include, for example, statements regarding our expectations, beliefs, intentions or strategies regarding the future, such as the extent and timing of future revenues and expenses, economic conditions affecting consumer demand, ability to realize anticipated benefits of cost reduction plans and business changes, ability to grow or maintain comparable sales, response to new concepts and other expected financial results and information.  All forward-looking statements included in this report are based on information available to us as of the date of this report and we assume no obligation to update or revise any forward-looking statements to reflect events or circumstances that occur after such statements are made.  Readers are cautioned not to place undue reliance on these forward-looking statements as they involve risks and uncertainties which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements.  These risks, as well as other risks and uncertainties, are located, among other places, in this Part I, Item 2 and in Part II, Item 1A under the caption “Risk Factors.”

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OVERVIEW

Business   We are a mall and web-based specialty retailer of apparel, accessories, music and gift items for young men and women whose lifestyles reflect a passion for music, fashion and pop culture.  We operate under two concepts: Hot Topic and Torrid.  Our business is discussed in more detail in “NOTE 1 – Organization and Basis of Presentation” contained in the accompanying financial statements.

Strategic Business Changes  We have completed the implementation of all planned initiatives related to the strategic business changes approved by the Board in fiscal 2011 to improve our operating results and to better position us for growth.  The business changes involved discontinuing the operations of ShockHound; writing down inventory; writing down property and equipment that are no longer critical to our strategic direction; and implementing other strategic business and operational initiatives.  As of the end of the second quarter of fiscal 2011, we had incurred all charges related to the strategic business changes.

Cost Reduction Plan  The cost reduction plan, which was designed to meet the challenges of the environment at that time, involved closing approximately 50 underperforming stores, a majority of which closed at the end of the first quarter of fiscal 2011.  These closures occurred as a result of natural lease expirations, exercising lease kick out clauses and other negotiations.  The implementation of the cost reduction plan was expected to improve annual income of approximately $13 million.  The cost reduction plan also included reducing our home office and field management positions, reducing planned capital expenditures in fiscal 2011 to approximately $25 million from $31 million in fiscal 2010 and implementing other non-payroll overhead expense reduction initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the cost reduction plan, completed the announced reduction of our home office and field management positions, and completed the implementation of non-payroll overhead expense reduction initiatives as part of the cost reduction plan.  As of the end of the second quarter of fiscal 2012, we had closed all underperforming stores related to the cost reduction plan, totaling 41 Hot Topic stores and seven Torrid stores.

The following table details charges related to the strategic business changes and the cost reduction plan recorded since their implementation in the first quarter of fiscal 2011 and the fourth quarter of fiscal 2010, respectively, (in thousands).

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				Non-Store Related
				Severance and			Inventory and
	Store Related			Outplacement			Asset-Related			Consulting			Stock Option
	Closure Costs 1			Costs			Costs 2			Fees			Expense			Total
Balance at October 30, 2010	$	-		$	-		$	-		$	-		$	-		$	-
Cost Reduction Plan charges		(7,077	)		(1,850	)		(830	)		-			-			(9,757	)
Cash payments		93			985			-			-			-			1,078
Non-cash adjustments		6,497			-			830			-			-			7,327
Balance at January 29, 2011		(487	)		(865	)		-			-			-			(1,352	)
Cost Reduction Plan recovery		365			-			-			-			-			365
Strategic Business Changes charges		-			(1,583	)		(9,605	)		(1,606	)		-			(12,794	)
Cash payments		699			889			-			1,645			-			3,233
Non-cash adjustments		(659	)		-			4,891			-			-			4,232
Balance at April 30, 2011		(82	)		(1,559	)		(4,714	)		39			-			(6,316	)
Cost Reduction Plan recovery		174			-			-			-			-			174
Strategic Business Changes charges		-			(1,330	)		(532	)		(1,383	)		(1,072	)		(4,317	)
Cash payments		144			812			182			753			-			1,891
Non-cash adjustments		(455	)		-			4,866			-			1,072			5,483
Balance at July 30, 2011		(219	)		(2,077	)		(198	)		(591	)		-			(3,085	)
Cash payments		197			464			-			473			-			1,134
Non-cash adjustments		22			(43	)		18			20			-			17
Balance at October 29, 2011		-			(1,656	)		(180	)		(98	)		-			(1,934	)
Cash payments		-			682			20			-			-			702
Non-cash adjustments		-			-			75			-			-			75
Balance at January 28, 2012		-			(974	)		(85	)		(98	)		-			(1,157	)
Cash payments		-			476			-			-			-			476
Non-cash adjustments		-			17			68			98			-			183
Balance at April 28, 2012		-			(481	)		(17	)		-			-			(498	)
Cash payments		-			318			-			-			-			318
Non-cash adjustments		-			23			17			-			-			40
Balance at July 28, 2012	$	-		$	(140	)	$	-		$	-		$	-		$	(140	)

1 Store related closure costs represent charges for the closure of approximately 50 underperforming stores.  Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

2 Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

We recorded charges related to store closures, write down of assets; store severance; non-store related severance and outplacement; consulting fees; and stock option expense in selling, general and administrative expenses in our consolidated statements of operations.  Charges related to the write down of store inventory; accelerated depreciation of store assets; and early lease terminations were recorded in cost of goods sold in our consolidated statements of operations.

Discontinued Operations  During the second quarter of fiscal 2011, due to its slower than expected revenue growth, ShockHound’s operations were discontinued.  Revenues from partnerships entered into in the earlier part of fiscal 2010, as well as other revenues, did not build as much as we had anticipated.  See “Strategic Business Changes” above for more information concerning the discontinuation of ShockHound’s operations.

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Comparable Sales and Store Count  We consider a store comparable after it has been open for 15 full fiscal months.  If a store is closed during a fiscal year, it is only included in the computation of comparable sales for full fiscal months in which it was open.  Partial fiscal months are excluded from the computation of comparable sales.  During the first quarter of fiscal 2012, we began including our internet sales in the computation of comparable sales.  All prior year comparable sales results have been adjusted. The following table shows our comparable sales results, including Internet, by division for the second quarter of fiscal 2012 and 2011 and fiscal year-to-date 2012 and 2011.

	Comparable Sales			Comparable Sales
	% Change			% Change
Second Quarter	2012	2011	Year-to-date	2012	2011
Hot Topic	3.9%	1.7%	Hot Topic	6.8%	0.4%
Torrid	4.0%	7.4%	Torrid	3.2%	6.9%
Total Company	3.9%	3.2%	Total Company	5.8%	2.1%

During the second quarter of fiscal 2012, the comparable sales increase in the Hot Topic division resulted primarily from increases in the fashion apparel and license categories, partially offset by decreases in the music and fashion accessories categories.  During the same period, the comparable sales increase in the Torrid division was due to an increase in apparel, partially offset by a decrease in accessories.

We continue to evaluate the need to close, remodel, relocate or open new stores.  The following table shows our store expansion and closure activity during the fiscal year-to-date 2012 and 2011.   Our planned store expansion and closure activity in fiscal 2012 is also reflected in the table.

	Number of Stores
	Actual		Estimate
	Six Months Ended	Six Months Ended
	July 28, 2012	July 30, 2011	Fiscal 2012
Hot Topic
Beginning of Period	628	657	628
Open	2	1	2
Close*	(10)	(22)	(13)
End of Period	620	636	617
Remodel/relocate	33	19	50
Torrid
Beginning of Period	148	153	148
Open	27	1	55
Close*	(4)	(9)	(12)
End of Period	171	145	191
Remodel/relocate	4	-	6

*Includes stores impacted by our cost reduction plan.

Share RepurchaseOur recent share repurchase activity is discussed in more detail in “NOTE 14 – Share Repurchase” contained in the accompanying financial statements.

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Cash Dividends  We began to pay cash dividends during the first quarter of fiscal 2010.  Cash dividends are discussed in more detail in “NOTE 4 – Cash Dividends” contained in the accompanying financial statements.

Segment Information  We currently have one reportable segment given the similarities of the economic characteristics among the Hot Topic and Torrid concepts.

Seasonality  Our business, particularly at Hot Topic, is subject to seasonal influences.  Refer to “Item 1 – Business” included in our annual report on Form 10-K filed on March 21, 2012, for further discussion about the seasonality of our business.

Key Performance Indicators  There are several key indicators that we use to help us evaluate the financial condition and operating performance of our business, including:

Store Sales Productivity is used to assess the operational performance of each of our stores.  Store productivity metrics include year over year store sales comparisons (or comparable sales results), net store sales per average square foot, number of transactions per store, dollars per transaction, number of units sold per store and number of units per transaction.

Merchandise Margin is used to allocate a variety of resources to each of our concepts, determine initial mark-ups, mark-downs, inventory reserves, freight costs, etc. for both concepts and to measure the general performance of each of our stores.  We consider merchandise margin to be the difference between net sales and certain costs associated with our merchandise, such as product costs, markdowns, freight, vendor allowances and inventory reserves.

Gross Margin is the difference between merchandise margin and buying, distribution and store occupancy costs.

Income from Operations is primarily driven by net sales, gross margin, our ability to control selling, general and administrative expenses, and our level of capital expenditures that affect depreciation expense.

RESULTS OF OPERATIONS

The following discussion of our results of operations, financial condition and liquidity and other matters should be read in conjunction with our condensed consolidated financial statements and the notes related thereto.

Three Months Ended July 28, 2012 Compared to the Three Months Ended July 30, 2011

The following table shows, for the periods indicated, certain selected statement of operations data expressed as a percentage of net sales.  The discussion that follows should be read in conjunction with this table:

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For the three months ended:	July 28, 2012				July 30, 2011
Net sales		100.0		%		100.0		%
Cost of goods sold, including buying, distribution and occupancy costs		65.9				67.8
Gross margin		34.1				32.2
Selling, general and administrative expenses		34.9				38.9
Loss before benefit for income taxes		(0.8	)			(6.7	)
Benefit for income taxes		(0.3	)			(2.6	)
Net loss		(0.5	)	%		(4.1	)	%

Net sales increased $6.9 million, or 4.6%, to $157.8 million during the second quarter of fiscal 2012 from $150.9 million during the second quarter of fiscal 2011.  The components of this $6.9 million increase in net sales are as follows:

Amount
(in millions)			Description
$	4.7		Increase in sales from Hot Topic and Torrid stores not yet qualifying as comparable stores.
	3.7		Hot Topic comparable sales increase of 3.9%.
	1.6		Torrid comparable sales increase of 4.0%.
	(3.1	)	Decrease in sales due to store closures.
$	6.9		Total

Gross margin increased $5.2 million, or 10.7%, to $53.9 million during the second quarter of fiscal 2012 from $48.7 million during the second quarter of fiscal 2011.  As a percentage of net sales, gross margin increased to 34.1% during the second quarter of fiscal 2012 from 32.2% in the second quarter of fiscal 2011.  The significant components of this 1.9 percentage point increase in gross margin as a percentage of net sales are as follows:

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%			Description
	1.2		Increase in merchandise margin primarily as a result of higher realized markup.
	0.4		Decrease in store depreciation expenses related to leverage on higher sales and store closures.
	0.4		Decrease in distribution expenses, primarily due to lower freight, depreciation, supplies, and leverage on higher sales, partially offset by higher payroll and consulting costs.
	0.2		Store occupancy percentage decrease primarily due to leverage on higher sales, partially offset by deferred rent credits recognized in the prior fiscal year as part of our cost reduction plan.
	(0.3	)	Increase in buying payroll expenses.
	1.9	%	Total

Selling, general and administrative expenses decreased $3.7 million, or 6.3%, to $55.1 million during the second quarter of fiscal 2012 from $58.8 million during the second quarter of fiscal 2011.  As a percentage of net sales, selling, general and administrative expenses decreased to 34.9% in the second quarter of fiscal 2012 from 38.9% in the second quarter of fiscal 2011.  The significant components of the 4.0 percentage point decrease in selling, general and administrative expenses as a percentage of net sales are as follows:

%			Description
	(2.7	)	Costs associated with the write-down of non-critical property and equipment, severance payments, consulting fees and other costs related to the strategic business changes incurred in the second quarter of the prior fiscal year.
	(1.3	)	Decrease in store and internet payroll expenses and related benefits as a result of leverage on higher sales, improved productivity, and lower store performance based bonuses.
	(0.8	)	Decrease in other store expenses, primarily due to lower debit/credit card processing costs, utility expenses, supplies, and freight costs, partially offset by higher inventory service fees.
	(0.7	)	Decrease in depreciation, relocation costs, and asset impairment charges, partially offset by an increase in computer maintenance costs.
	0.2		Increase in marketing expenses, primarily due to increases in payroll, marketing events, and media placement costs, partially offset by decreases in store signage expenses.
	0.2		Increase in preopening expenses as a result of a greater number of new, relocated and remodeled stores in the second quarter of fiscal 2012.
	1.1		Increase in performance based bonuses.
	(4.0	)%	Total

Loss from operations decreased $8.9 million to $1.2 million during the second quarter of fiscal 2012 from $10.1 million during the second quarter of fiscal 2011.  As a percentage of net sales, loss from operations was 0.8% in the second quarter of fiscal 2012 compared to 6.7% in the second quarter of fiscal 2011.

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Benefit for income taxes was $0.5 million in the second quarter of fiscal 2012 compared to $3.8 million in the second quarter of fiscal 2011.  The effective tax rate was 38.3% for the second quarter of fiscal 2012 compared to 37.9% for the second quarter of 2011.

Six Months Ended July 28, 2012 Compared to the Six Months Ended July 30, 2011

The following table shows, for the periods indicated, certain selected statement of operations data expressed as a percentage of net sales.  The discussion that follows should be read in conjunction with this table:

For the six months ended:	July 28, 2012			July 30, 2011
Net sales		100.0	%		100.0		%
Cost of goods sold, including buying, distribution and occupancy costs		64.9			68.3
Gross margin		35.1			31.7
Selling, general and administrative expenses		33.6			38.9
Income (loss) before provision (benefit) for income taxes		1.5			(7.2	)
Provision (benefit) for income taxes		0.6			(2.8	)
Net income (loss)		0.9	%		(4.4	)	%

Net sales increased $17.2 million, or 5.5%, to $329.4 million during fiscal year-to-date 2012 from $312.2 million during fiscal year-to-date 2011.  The components of this $17.2 million increase in net sales are as follows:

Amount (in millions)			Description
$	13.1		Hot Topic comparable sales increase of 6.8%.
	7.9		Increase in sales from Torrid stores not yet qualifying as comparable stores.
	2.7		Torrid comparable sales increase of 3.2%.
	0.8		Increase in sales from Hot Topic stores not yet qualifying as comparable stores (includes two new stores and 43 expanded or relocated stores opened since the second quarter of the prior year).
	(7.3	)	Decrease in sales due to store closures.
$	17.2		Total

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Gross margin increased $16.4 million, or 16.5%, to $115.5 million during fiscal year-to-date 2012 from $99.1 million during fiscal year-to-date 2011.  As a percentage of net sales, gross margin increased to 35.1% during the fiscal year-to-date 2012 from 31.7% in the fiscal year-to-date 2011.  The significant components of this 3.4 percentage point increase in gross margin as a percentage of net sales are as follows:

%			Description
	2.6		Increase in merchandise margin as a result of higher realized markup and lower markdowns, which included markdowns from strategic business changes in the prior fiscal year.
	0.5		Decrease in distribution expenses, primarily due to  lower freight, depreciation, supplies, payroll costs, and leverage on higher sales, partially offset by higher consulting fees.
	0.5		Decrease in store depreciation expenses related to store closures and leverage on higher sales.
	0.1		Store occupancy percentage decrease primarily due to leverage on higher sales, partially offset by deferred rent credits recognized in the prior fiscal year as part of our cost reduction plan.
	(0.3	)	Increase in buying payroll expenses.
	3.4	%	Total

Selling, general and administrative expenses decreased $10.9 million, or 9.0%, to $110.7 million during fiscal year-to-date 2012 from $121.6 million during fiscal year-to-date 2011.  As a percentage of net sales, selling, general and administrative expenses decreased to 33.6% in fiscal year-to-date 2012 from 38.9% in fiscal year-to-date 2011.  The significant components of the 5.3 percentage point decrease in selling, general and administrative expenses as a percentage of net sales are as follows:

%			Description
	(3.6	)	Costs associated with the write-down of non-critical property and equipment, severance payments, consulting fees and other costs related to the strategic business changes incurred in the  prior fiscal year.
	(1.5	)	Decrease in store and internet payroll expenses and related benefits as a result of leverage on higher sales and improved productivity.
	(0.8	)	Decrease in other store expenses, primarily due to lower debit/credit card processing costs, utility expenses, supplies, and freight costs.
	(0.6	)	Decrease in general and administrative payroll, depreciation and relocation costs, partially offset by an increase in consulting fees and computer maintenance costs and software assets writeoff.
	0.2		Increase in preopening expenses as a result of a greater number of new, relocated and remodeled stores in fiscal 2012.
	1.0		Increase in performance based bonuses.
	(5.3	)%	Total

Income from operations increased $27.3 million to $4.8 million during fiscal year-to-date 2012 from loss from operations of $22.5 million during fiscal year-to-date 2011.  As a percentage of net sales, income from operations was 1.5% in fiscal year-to-date 2012 compared to loss from operations of 7.2% in the fiscal year-to-date 2011.

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Provision for income taxes was $1.8 million in fiscal year-to-date 2012 compared to a benefit for income taxes of $8.5 million in fiscal year-to-date 2011.  The effective tax rate was 37.4% for fiscal year-to-date 2012 compared to 37.9% for fiscal year-to-date 2011.

LIQUIDITY AND CAPITAL RESOURCES

Historically and during the second quarter of fiscal 2012, uses of cash have been to purchase merchandise inventories, improve our information technology infrastructure and fund new store openings, store remodels and relocations.  We also funded cash dividend payments totaling $6.8 million during fiscal year-to-date 2012 and $12.2 million in the full fiscal year of 2011.  Our cash dividends are discussed in more detail in “NOTE 4 – Cash Dividends” contained in the accompanying financial statements.  While we have not repurchased any of our common stock during fiscal 2012, one of our primary uses of cash during fiscal 2011 was to repurchase an aggregate of $25 million of our common stock (discussed in more detail in “NOTE 14 – Share Repurchase” contained in the accompanying financial statements).  During fiscal 2012 and the full fiscal year of 2011, we made cash outlays of approximately $0.8 million and $7 million, respectively, related to the strategic business changes and cost reduction plan discussed in more detail in “NOTE 2 – Business Events” contained in the accompanying financial statements.  We have typically satisfied our cash requirements principally from cash flows from operations and we also maintain a $5 million unsecured credit agreement (discussed in more detail in “NOTE 11 – Bank Credit Agreement” contained in the accompanying financial statements).

Cash, cash equivalents and short-term and long-term investments, including auction rate securities, held by us were $65.4 million and $67.8 million as of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011, respectively, and are discussed in more detail in “NOTE 6 – Short-Term and Long-Term Investments” contained in the accompanying financial statements.  We believe our current cash balances and cash generated from operations will be sufficient to fund our operations through at least the next 12 months.  Auctions representing the auction rate securities we hold have continued to fail and will limit our ability to liquidate these investments for some period of time.  However, we do not believe the auction failures will impact our ability to fund our working capital needs, capital expenditures or other business requirements.

Net cash flows provided by operating activities were $22.3 million and $12.0 million during fiscal year-to-date 2012 and 2011, respectively.  The $10.3 million increase in net cash provided by operating activities in fiscal year-to-date 2012 as compared to fiscal year-to-date 2011 was primarily attributable to an increase in net income and a decrease in prepaid expenses and other current assets, partially offset by decreases in accounts payable and accrued liabilities, and an increase in inventory.

Net cash flows used in investing activities were $15.1 million and $1.1 million during fiscal year-to-date 2012 and 2011, respectively.  The $14 million increase in net cash used in investing activities in fiscal year-to-date 2012 as compared to fiscal year-to-date 2011 was primarily attributable to a $7.4 million increase in purchases of property and equipment and a $6.6 million decrease in proceeds from sale of short-term and long-term investments, net of purchases.

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Net cash flows used in financing activities were $5.3 million and $5.2 million during fiscal year-to-date 2012 and 2011, respectively.  The $0.1 million increase in cash flows used in financing activities was primarily attributable to an increase in the cash dividends paid.

The following table summarizes our contractual obligations as of fiscal year-to-date 2012 and the timing and effect that such commitments are expected to have on our liquidity and capital requirements in future periods:

	Payments due by period (in thousands)
Contractual obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Operating leases	$	223,376	$	50,597	$	80,083	$	49,546	$	43,150
Purchase obligations		87,077		87,077		-		-		-
Letters of credit and other obligations		6,755		4,647		2,108		-		-
Income tax audit settlements¹		506		506		-		-		-
Total contractual obligations	$	317,714	$	142,827	$	82,191	$	49,546	$	43,150

1.   The $0.5 million of income tax audit settlements relate to certain open audits we expect to be fully settled in fiscal 2012 and to gross unrecognized tax benefits for which the statutes of limitations are expected to expire in fiscal 2012.  Due to the uncertainty regarding the timing of future cash outflows associated with other noncurrent unrecognized tax benefits of $0.4 million, we are unable to make a reliable estimate of the periods of cash settlement with the respective tax authorities and have not included such amount in the contractual obligations table above.

In fiscal 2012, we anticipate we will spend approximately $25 million on capital expenditures for store construction and other improvements to existing stores, including remodels and relocations.  In fiscal 2012, we also plan to spend approximately $12 million on capital expenditures for various improvements in our information technology infrastructure, including technological improvements at the store level and the purchase of new computer hardware and software. We may make additional capital expenditures in fiscal 2012 for other strategic and operational purposes.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities.  On an ongoing basis, we evaluate estimates, including those related primarily to inventories, long-lived assets and contingencies.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

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We believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.  For a further discussion about the application of these and other accounting policies, refer to the notes included in our Annual Report on Form 10-K filed on March 21, 2012.

Inventories  Inventories are valued at the lower of average cost or market, on a weighted average cost basis, using the retail method.  Under the retail method, inventory is stated at its current retail selling value and then is converted to a cost basis by applying an average cost factor that represents the average cost-to-retail ratio based on beginning inventory and the purchase activity for the month.  Throughout the year, we review our inventory levels in order to identify slow-moving merchandise and use permanent markdowns to sell through selected merchandise.  We record a charge to cost of goods sold for permanent markdowns.  Inherent in the retail method are certain significant management judgments and estimates including initial merchandise markup, future sales, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost and the resulting gross margins.  To the extent our estimated markdowns at period-end prove to be insufficient, additional future markdowns will need to be recorded.  Physical inventories are conducted during the year to determine actual inventory on hand and shrinkage.  We accrue our estimated inventory shrinkage for the period between the last physical count and current balance sheet date.  Thus, the difference between actual and estimated shrink amounts may cause fluctuations in quarterly results, but not for the full fiscal year results.

Valuation of Long-Lived Assets We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  For our Hot Topic and Torrid concepts, we group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified.  Factors we consider important that could trigger an impairment review of our stores or online operations include a significant underperformance relative to expected historical or projected future operating results, a significant change in the manner of the use of the asset or a significant negative industry or economic trend.  When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method using a discount rate determined by management.  These cash flows are calculated by netting future estimated sales of each store against estimated cost of goods sold, occupancy costs and other store operating expenses such as payroll, supplies, repairs and maintenance and credit/debit card fees.  The discount rate, the estimated sales and the aforementioned costs and expenses used for this nonrecurring fair value measurement are considered significant Level 3 inputs as defined in “NOTE 8 – Fair Value Measurements.”  Changes in these assumptions may cause the fair value to be significantly impacted.  In the event future performance is lower than forecasted results, future cash flows may be lower than expected, which could result in future impairment charges.  While we believe recently opened stores will provide sufficient cash flow, material changes in results could result in future store impairment charges.

Revenue Recognition  Revenue is generally recognized at our retail store locations at the point at which the customer receives and pays for the merchandise at the register.  For online sales, revenue is recognized upon delivery to the customer.  Sales are recognized net of merchandise returns, which are reserved for based on historical experience.  Revenue from gift cards, gift certificates and store merchandise credits is recognized at the time of redemption.  Shipping and handling revenues from our websites are included as a component of net sales.

We recognize estimated gift card breakage as a component of net sales in proportion to actual gift card redemptions over the period that remaining gift card values are redeemed.  Gift card breakage is income recognized due to the non-redemption of a portion of gift cards sold by us for which liability was recorded in prior periods.  While customer redemption patterns result in estimated gift card breakage, which approximates 5% to 6%, changes in our customers’ behavior could impact the amount that ultimately is unused and could affect the amount recognized as a component of net sales.

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Vendor Allowances  We receive certain allowances from our vendors primarily related to damaged merchandise, markdowns and pricing.  Allowances received from vendors related to damaged merchandise and pricing are reflected as a reduction of inventory in the period they are received and allocated to cost of sales during the period in which the items are sold.  Markdown allowances received from vendors are reflected as reductions to cost of sales in the period they are received as these allowances are received after goods have been sold or marked down.

Stock-Based Payments  We account for stock-based compensation expense by estimating the fair value of stock options granted, except for certain stock options granted in March 2011 that are subject to the vesting determination described in “NOTE 3 – Stock-Based Compensation” contained in the accompanying financial statements, using the Black-Scholes option-pricing formula and a single option award approach.  We estimated the fair value of the stock options granted in March 2011 that are subject to the vesting determination using a Monte Carlo simulation valuation model.  Both of the option-pricing models used require the input of highly subjective assumptions, including the option’s expected life, price volatility of the underlying stock, risk free interest rate, early exercise behavior and expected dividend rate.  As stock-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.  Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  Forfeitures are estimated based on historical experience.

Self-Insurance  We are self-insured for certain losses related to medical and workers compensation claims although we maintain stop loss coverage with third party insurers to limit our total liability exposure.  The estimate of our liability for these claims involves uncertainty since we must use judgment to estimate the ultimate cost that will be incurred to settle reported claims and unreported claims for incidents incurred but not reported as of the balance sheet date.  When estimating our self-insurance liability, we consider a number of factors, which include historical claim experience and valuations provided by independent third party actuaries.  As claims develop, the actual ultimate losses may differ from actuarial estimates.  Therefore, an analysis is performed quarterly to determine if modifications to the accrual are required.

Rent Expense  Rent expense under our operating leases typically provides for fixed non-contingent rent escalations.  We recognize rent expense on a straight-line basis over the non-cancelable term of the lease, commencing when we take possession of the property.  Construction allowances are recorded as a deferred rent liability, which we amortize as a reduction of rent expense over the non-cancelable term of each lease.

Income Taxes  We account for income taxes using the liability method.  Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting bases and tax bases of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled.  Deferred tax assets are reduced by valuation allowances if we believe it is more likely than not that some portion or the entire asset will not be realized.

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We prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return.  For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.  The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.  We include interest and penalties related to uncertain tax positions in income tax expense.

INFLATION

We do not believe that inflation has had a material adverse effect on our net sales or results of operations in the past.  However, we cannot assure that our business will not be affected by inflation in the future.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

We are not a party to any derivative financial instruments.  Our exposure to market risk primarily relates to changes in interest rates on our investments with maturities of less than three months (which are considered to be cash and cash equivalents) and short-term and long-term investments with maturities in excess of three months.  A 100 basis point change in interest rates over a three-month period would not have a material impact on the fair value of our investment portfolio as of the end of the second quarter of fiscal 2012.  Cash, cash equivalents and short-term and long-term investments, including auction rate securities, are discussed in more detail in “NOTE 6 – Short-Term and Long-Term Investments” contained in the accompanying financial statements.

Item 4.  Controls and Procedures

Our management maintains disclosure controls and procedures that are designed to ensure that the information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure.

We have carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our most recent fiscal quarter.  Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) are effective as of the end of our most recent fiscal quarter.  There has been no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

Our legal proceedings are discussed in more detail in “NOTE 13 – Commitments and Contingencies” contained in the accompanying financial statements.

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Item 1A.  Risk Factors

CERTAIN RISKS RELATED TO OUR BUSINESS

Before deciding to invest in Hot Topic, Inc. or to maintain or increase an investment in Hot Topic, Inc., readers should carefully consider the risks described below, in addition to the other information contained in this Quarterly Report on Form 10-Q and in our other filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.  The risks described below are not the only risks we face.  Additional risks that are not presently known to us or that we currently deem immaterial may also affect our business.  If any of these known or unknown risks actually occur, our business, financial condition and results of operations could be seriously harmed, and our stock price could decline.  The risks described below include certain changes to the “Risk Factors” set forth in our Annual Report on Form 10-K filed on March 21, 2012.

Our success relies on popularity of music, pop culture and fashion trends, and our ability to react to them

Our financial performance is largely dependent upon the continued popularity of apparel, accessories and other merchandise inspired by music, film, television, pop culture, and fashion trends, particularly among teenagers and college-age adults.  The popularity of such products is influenced by the Internet; music videos and music television networks; the emergence of new artists; the success of music releases, movies and television shows; and music/pop culture-related products.  The popularity of particular types of music, movies, television shows, artists, actors, styles, trends and brands is constantly changing.  Our failure to anticipate, identify and react appropriately to changing trends and preferences of our customers could lead to, among other things, excess inventories and higher markdowns.  There can be no assurance that the products we sell will be accepted by our customers.

We depend on a small number of key licensed products for a portion of our earnings and lower than expected sales of those products or the inability to obtain new licensed products could adversely affect our revenues

We license from others the rights to produce and/or sell certain products that contain a third party’s trademarks, designs and other intellectual property.  If the popularity of those licensed products diminishes or if we are unable to obtain new licensed products with comparable consumer demand, our sales could decline.  Furthermore, we may not be able to prevent a licensor from choosing not to renew a license with us and/or from licensing a product to one of our competitors.

Our cost reduction plan and strategic business changes may not achieve their anticipated benefits and could adversely affect our operations and revenues and our ability to respond to future growth opportunities

We recently completed the implementation of all planned initiatives related to the strategic business changes announced in fiscal 2011 to improve our overall operations and reduce costs.  The strategic business changes involved closing underperforming stores, discontinuing our ShockHound operations, writing down inventory and writing down property and equipment that are no longer critical to the strategic direction of the company.  A number of factors could result in our not realizing the anticipated benefits from the initiatives.  Even if we are successful in implementing these initiatives, the loss of personnel and reduction in the number of stores we operate, among other things, may result in decreased operational efficiencies, unanticipated operational challenges and decreased revenues, or leave us unprepared to take advantage of growth opportunities in the future.

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Our access to merchandise could be hurt by changes in vendors’ business condition

Our financial performance depends on our ability to obtain our merchandise in sufficient quantities at competitive prices.  We depend on independent contractors and vendors to manufacture much of our merchandise.  Substantially all of our music/pop culture-licensed products are available from vendors that have exclusive license rights.  In addition, we rely on small, specialized vendors who generally have limited resources, production capacities and operating histories.  Lack of access to capital, as a result of the current economic conditions or otherwise, and changes in vendors’ compliance and certification procedures may cause our vendors to delay, reduce or eliminate shipment of products we otherwise would sell in our stores.  We generally do not have long-term purchase contracts or other contractual assurances of continued supply, pricing or access to new products.  There can be no assurance that we will be able to acquire desired merchandise in sufficient quantities on acceptable terms in the future.

Remodeling, relocating, closing and opening stores may not achieve the anticipated benefits and could create challenges we may not be able to adequately meet

We depend on our ability to manage our existing store base, ensure that the performance of our remodeled and relocated stores is at acceptable levels, open new stores, and close underperforming stores.  In order to open, remodel and relocate stores, among other things, we need to locate suitable store sites, negotiate acceptable lease terms, obtain or maintain adequate capital resources on acceptable terms, source sufficient levels of inventory, hire and train store managers and sales associates, integrate new or relocated stores into our existing operations and maintain adequate distribution center space and information technology systems.  Moving or expanding store locations and operating stores in new markets, especially markets outside the continental United States, may present competitive, merchandising and regulatory challenges we do not have experience in or know how to face.  There can be no assurance that moving or expanding store locations and operating stores in new markets will not adversely affect the individual financial performance of our existing stores or our overall results of operations.  In the event that the number of our stores increases, we may face risks associated with market saturation of our products and concepts.  Similarly, there can be no assurance that remodeling or relocating existing stores will not adversely affect either the individual financial performance of the store prior to the change or our overall results of operations.  Furthermore, there can be no assurance that we will successfully achieve our remodel or expansion targets or, if achieved, that planned remodel or expansion will result in profitable operations.

Our business strategy requires innovating and improving our operations, and we may not be able to do this sufficiently to effectively prevent a negative impact on our business and financial results

To be successful we must innovate our products, our stores, and the shopping experience for our customers.  Such innovation involves risks, including that we will not properly anticipate the need for or rate of change, that we are not able to successfully bring about such change, that we will not be able to produce anticipated results, and that our customers will not be receptive to the change.  Such innovation also involves significant capital expenditures and other costs that we may not be able to recover if the innovation is not favorably received by our customers.

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Failure of our vendors to use acceptable ethical business practices could negatively impact our business

We require and expect our vendors and manufacturers to operate in compliance with applicable laws, rules and regulations regarding working conditions, employment practices, the environment and intellectual property.  However, we do not control their labor and other business practices.  Further, we do not inspect our manufacturers’ operations and would not be immediately aware of any noncompliance by our vendors with applicable domestic or international laws and standards, including our internal standards.  If one of our vendors or manufacturers violates labor or other laws or implements labor or other business practices that are regarded as unethical, the shipment of merchandise to us could be interrupted, orders could be canceled, relationships could be terminated and our reputation could be damaged.

Technology and other risks associated with our Internet sales could hinder our overall financial performance

We sell merchandise over the Internet through websites we control and affiliated websites controlled by others.  Our Internet sales generate a significant portion of our total sales and are dependent on our ability to drive Internet traffic to our websites.  Our Internet operations are subject to numerous risks and pose risks to our overall business, including the inability to successfully establish partnerships that are instrumental in driving traffic to our websites; diversion of sales from our stores; liability for online content; computer and consumer privacy concerns; rapid technological changes; the need to invest in additional computer hardware and software to support sales; hiring, retention and training of personnel; failure of computer hardware and software, including computer viruses, telecommunication failures, online security breaches and similar disruptions; governmental regulations; and credit card fraud.  There can be no assurance that our Internet operations will achieve sales and profitability levels that justify our investment in them.

We materially rely on ecommerce, information and other technology systems, including such technology provided by third parties

We believe our dependence on ecommerce, information and other technology systems, including technology provided by third parties, will increase in the future, and it is possible we may not be able to obtain, maintain or use such systems as quickly or as effectively as needed.  Implementing new systems, modifying existing systems, and restoring such systems and technology following a shut-down could present technological and operational challenges which we are unprepared for.  We continue to evaluate the adequacy of the ecommerce, information and other technology systems we use to operate our business.  Our failure to adapt to changing technological needs could have a material adverse effect on our results of operations and financial condition.  We have agreements with third-party providers to maintain ecommerce and information technology systems, including content.  We would be negatively impacted if such third parties fail to provide such services, including by way of malfunction of third-party sites, hardware, software and other equipment; service outages of third-party sites; third-party claims of data privacy violations, security breaches and intellectual property infringement; and poor integration of our technology into their software and services.

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System security risk issues and system failures could disrupt our internal operations or information technology services provided to customers

Computer hacking attacks, as well as computer malware, denial-of-service attacks and viruses, have become increasingly prevalent in recent years.  Using such methods and others, experienced computer programmers, hackers and other users may be able to penetrate our network security and misappropriate our confidential information or that of third parties, create system disruptions or cause shutdowns.  As a result, we could incur significant expenses addressing problems created by security breaches of our network.  Moreover, we could incur significant loss of revenue and increased expenses in connection with system failures.  In addition, hardware and operating system software and applications that we procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of the system.  The costs to us to eliminate or alleviate security problems, viruses and bugs could be significant, and the efforts to address these problems could result in interruptions, delays or cessation of service that may impede our sales, distribution or other critical functions.  In addition, our systems are not fully redundant and could be subject to failure.  Our disaster recovery planning may not be sufficient, and we may not have adequate insurance coverage to compensate us for any significant casualty loss.

We are responsible for maintaining the privacy of personally identifiable information of our customers

Through our sale transactions, loyalty programs and other methods, we obtain personally identifiable information about our customers which is subject to federal, state and international privacy laws.  These laws are constantly changing.  If we fail to comply with these laws, we may be subject to fines, penalties or other adverse actions.  We are highly dependent on the use of credit cards to complete sale transactions in our stores and through our websites, and if we fail to comply with Payment Card Industry (PCI) Data Security Standards, we may become subject to limitations on our ability to accept credit cards.  Moreover, third parties may seek to access this information through improper means such as computer hacking, malware and viruses.  Any incidents involving unauthorized access or improper use of our customers’ personally identifiable information could damage our reputation and brand and result in legal or regulatory action against us.

Loss of key people or an inability to hire necessary and significant personnel could hurt our business

Our ability to achieve and maintain operating efficiency and to anticipate and effectively respond to changing trends and consumer preferences depends in part on our ability to retain and attract senior management and other key personnel in our operations, merchandising, music and other departments.  Competition for these personnel is intense, and we cannot be sure that we will be able to retain or attract qualified personnel as needed.  The sudden loss of the services of key people could have a material adverse effect on our business, results of operations and financial condition. 

Our supply chain has risks and uncertainties that could affect our sales and business

The merchandise we sell is obtained from vendors and manufacturers in the United States and outside of the country.  Generally, this product is shipped to our distribution centers in California and Tennessee, and from our distribution centers to our stores or directly to our customers using Federal Express and the United States Postal Service.  Certain products we sell are imported and subject to delivery delays based on availability and port capacity.  Our reliance on Federal Express and the United States Postal Service for shipments is subject to risks associated with their ability to provide delivery services that meet our shipping needs and our ability to obtain such services at an affordable cost.  We are also dependent upon the ability to hire temporary associates to adequately staff our distribution centers, particularly during busy periods such as the holiday season.  We may not be able to achieve or maintain operating efficiencies using two distribution centers that are located approximately 2,000 miles apart.

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Risks associated with contracting directly with manufacturers for merchandise could hinder our financial performance

Over time we expect to source a greater percentage of our merchandise directly from manufacturers.  We have limited experience in sourcing and importing merchandise directly from manufacturers.  We may encounter administrative challenges and operational difficulties with the manufacturers from which we may source our merchandise.  Operational difficulties could include reductions in the availability of production capacity, errors in complying with merchandise specifications, insufficient quality control and failures to meet production deadlines.  A manufacturer’s failure to ship merchandise to us on a timely basis or to meet the required quality standards could cause supply shortages that could result in lost sales.  If a manufacturer conducts its operations in a manner that is illegal or regarded as unethical, it could affect our business and our reputation could be damaged.

We could acquire merchandise without full rights to sell it, which could inhibit sales and lead to disputes or litigation

We purchase licensed merchandise from vendors who represent that they hold manufacturing and distribution rights to such merchandise.  We also contract directly with licensors to obtain the manufacturing and distribution rights.  We do not independently verify whether these vendors legally hold adequate rights to the licensed properties they are manufacturing, distributing or licensing.  If we license merchandise that we have not legally obtained the rights to sell, we could be obligated to remove such merchandise from our stores, incur costs associated with destruction of merchandise and be subject to liability under various civil and criminal causes of action, including actions to recover unpaid royalties and other damages.  As we expand our efforts to contract directly with manufacturers and licensors for licensed merchandise, we may incur difficulties securing the necessary manufacturing and distribution rights.  Even when we have secured the rights needed to sell such products in the United States, we may not be able to secure the rights to sell the products outside of the United States.

There are litigation and other claims against us from time to time, which could distract management from our business activities and could lead to adverse consequences to our business and financial condition

We are involved from time to time with litigation and other claims against us.  Often these cases can raise complex factual and legal issues, which are subject to risks and uncertainties and which could require significant management time.  Although we do not currently believe that the outcome of any current matter of litigation or claim against us will have a material adverse effect on our overall financial condition, we have, in the past, incurred unexpected expense in connection with litigation matters.  In the future, adverse settlements, judgments or resolutions may negatively impact earnings.  Injunctions against us could have an adverse effect on our business by requiring us to do or prohibiting us from doing certain things.  We may in the future be the target of material litigation, including class-action and securities litigation, which could result in substantial costs and divert our management’s attention and resources.

Uncertainty in the global capital and credit markets may materially impair the liquidity of a portion our cash and investment portfolio

We hold cash, cash equivalents and short-term and long-term investments, including auction rate securities (discussed in more detail in “NOTE 6 – Short-Term and Long-Term Investments” contained in the accompanying financial statements).  Continued failures of auctions for the auction rate securities we hold limit our ability to liquidate these investments and are expected to continue failing for some period of time.  Although the money market funds and municipal bonds we hold are highly rated and are comprised of high-quality, liquid instruments, if the financial markets trading the underlying assets experience a disruption, we may need to temporarily rely on other forms of liquidity.  In addition, a risk exists that our cash and investments may not always be optimally managed and this may affect our profitability and results of operations.

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Our charter documents and other circumstances could prevent a takeover or cause dilution of our existing shareholders, which could be detrimental to existing shareholders

Our Articles of Incorporation and Bylaws contain provisions that may have the effect of delaying, deterring or preventing a takeover of Hot Topic, Inc.  For instance, our Articles of Incorporation include certain “fair price provisions” generally prohibiting business combinations with controlling or significant shareholders unless certain minimum price or procedural requirements are satisfied, and our Bylaws prohibit shareholder action by written consent.  Additionally, our Board of Directors, or Board, has the authority to issue, without shareholder approval, up to 10,000,000 shares of “blank check” preferred stock having such rights, preferences and privileges as designated by the Board.  The issuance of these shares could have a dilutive effect on shareholders and potentially prohibit a takeover of Hot Topic, Inc. by requiring the preferred shareholders to approve such a transaction.  We also have a significant number of authorized and unissued shares of our common stock available under our Articles of Incorporation.  These shares provide us with the flexibility to issue our common stock for future business and financial purposes including stock splits, raising capital and providing equity incentives to employees, officers and directors.  The issuance of these shares could result in dilution to our shareholders.

We are dependent upon malls remaining popular as shopping destinations, the ability of shopping mall anchor tenants and other attractions to generate customer traffic and maintaining good relationships with shopping mall operators

The global economic downturn and other factors have diminished the ability of shopping mall operators to operate profitably and, in some cases, forced them to declare bankruptcy or cease operations entirely.  The ongoing slowdown in the United States economy, uncertain economic outlook, and other factors could continue to curtail shopping mall development, decrease shopping mall traffic, reduce the number of hours shopping mall operators keep their shopping malls open, cause shopping mall operators to lower their operational standards and negatively impact our lease contracts.  Consolidation of ownership of shopping malls may give landlords more leverage in negotiations and adversely affect our ability to negotiate favorable lease terms.  Such consolidation may result in increased lease costs.  We believe we have favorable relationships with shopping mall operators and developers, however if this changes it could inhibit our ability to negotiate with them and may make it more difficult for us to manage our leases, including for us to expand, remodel or relocate to certain sites.  If our relations with shopping mall operators or developers become strained, or we otherwise encounter difficulties in leasing store sites, we may not be able to open stores in malls we would otherwise be interested in maintaining stores; we may not be able to negotiate lease terms favorable to the company; and we may be inhibited in our ability to close underperforming stores.

We face intense competition

The apparel, music and accessory categories within the retail industry in which we operate are highly competitive.  Increased competition could have a material adverse effect on our business, results of operations and financial condition.  Our competitors, particularly big-box retailers, may have the ability to sell merchandise at substantially lower prices than we are able to sell such merchandise.  This may cause us to incur greater than anticipated price reductions and unanticipated increases in our inventories for such products.  It may also cause us to elect not to sell such products, despite the fact the products would otherwise attract customers and sell well in our stores.

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Timing, seasonal issues and other fluctuations outside of our control could negatively impact our financial performance for given periods

Our business, particularly our Hot Topic division, is subject to seasonal influences that affect our comparable sales.  There are heavier concentrations of sales during the back-to-school, Halloween and holiday (defined as the week of Thanksgiving through the first few days of January) seasons and other periods when schools are not in session.  Our results of operations may fluctuate materially depending on, among other things, the timing of store openings and related pre-opening and other startup expenses; net sales contributed by new stores; increases or decreases in comparable sales; timing, popularity of and our ability to obtain, certain pop culture-related licenses, including on an exclusive basis; releases of new music, movies and television shows; releases of new music/pop culture-related products; our ability to efficiently source and distribute products; changes in our merchandise mix and the challenges involved in getting the right mix into stores at the right time; shifts in timing of certain holidays; weather conditions; and overall economic conditions.

Our profitability could be adversely affected by volatile commodity prices, including petroleum and cotton

The profitability of our business depends to a certain degree upon the price of certain commodities, including petroleum and cotton products.  We are affected by changes in such prices to the extent that such commodities are part of the costs of delivery of merchandise to our stores and to the extent that the commodities are used in the production of our merchandise.  Higher gasoline prices may also affect the willingness of consumers to drive to our stores.

Significant fluctuation in the value of the United States dollar or foreign exchange rates may affect our profitability

Substantially all of our foreign purchases of merchandise have been negotiated and paid for in United States dollars.  As a result, our sourcing operations may be adversely affected by significant fluctuation in the value of the United States dollar against foreign currencies, restrictions on the transfer of funds and other trade disruptions.  A portion of our revenues come from foreign markets.  Changes in foreign exchange rates applicable to these markets may adversely affect our revenues, even if the volume of sales remains the same.  We may not be able to repatriate revenues earned in foreign markets.

Recording impairment charges for certain underperforming stores may negatively impact our future financial condition or results of operations, and closing stores might not have a positive impact on our operating results

We are required to assess, and where appropriate, record a charge for, the impairment of underperforming assets.  This may negatively impact our reported and future financial condition and results of operations.  In addition, we continue to close stores that do not meet our expectations of profitability which may cause us to impair or accelerate the depreciation of certain store assets and incur additional amounts for lease termination, severance and other closing costs.  There can be no assurance that we will not incur future impairment charges and store closure expenses for underperforming assets or that store closures will have a significant positive impact on our operating results.

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Changes in laws, including employment laws and laws related to our merchandise, could make conducting our business more expensive or change the way we do business

Changes in laws and any future changes could make our operations more expensive or require us to change the way we do business.  Changes in federal and state minimum wage laws could require us to change our entire wage structure for stores.  Other laws related to treatment of employees, including laws related to employee benefits and privacy, could also negatively impact us, such as by increasing medical insurance costs and related expenses.  Changes in product safety or other consumer protection laws, and private-party enforcement of existing laws, could lead to increased costs to us for certain merchandise, additional labor costs associated with readying merchandise for sale, or serve as the basis for litigation.

A disruption of imports may increase our costs and reduce our supply of merchandise

We receive apparel and other merchandise from foreign sources, both purchased directly in foreign markets and indirectly through domestic vendors with foreign sources.  As a result of our reliance on international vendors and manufacturers, we are subject to the risks generally associated with global trade and doing business abroad, which include foreign and domestic laws and regulations, political unrest, disruptions or delays in cross-border shipments and changes in economic conditions in countries in which our merchandise is manufactured.  In addition, disease outbreaks, terrorist acts or military conflicts could increase the risks of doing business with suppliers who rely on foreign markets.  Trade restrictions in the form of tariffs or quotas, or both, that are applicable to the merchandise we sell also could affect the importation of the merchandise and increase the cost and reduce the supply of products available to us.  Further, changes in tariffs or quotas for merchandise imported from individual foreign countries could lead us to shift our sources of supply among various countries.  Any shift we might undertake in the future could result in a disruption of our sources of supply and lead to a reduction in our revenues and earnings.  Supply chain security initiatives undertaken by the United States or foreign governments that impede the normal flow of product could also negatively impact our business.

We incur costs associated with regulatory compliance, and this cost could be significant

There are numerous regulatory requirements for public companies that we comply with or may be required to comply with in the future and compliance with these rules could result in the diversion of management’s time and attention, which could be disruptive to normal business operations.  These regulations may include more stringent accounting standards, taxation requirements (including changes in applicable income tax rate, new tax laws and revised tax law interpretations), trade restrictions, regulations regarding financial matters, privacy and data security, environmental regulations, advertising, safety and product liability.  We may in the future be required to adopt International Financial Reporting Standards, and doing so could be time-consuming and cause us to incur significant expense.  If we do not satisfactorily or timely comply with these requirements, possible consequences could include sanction or investigation by regulatory authorities such as the SEC or the Nasdaq Stock Market; fines and penalties; incomplete or late filing of our periodic reports, including our annual report on Form 10-K or quarterly reports on Form 10-Q or civil or criminal liability. 

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Government or consumer concerns about product safety could result in regulatory actions, recalls or changes to laws, which could harm our reputation, increase costs or reduce sales

We are subject to regulation by the Consumer Product Safety Commission and similar state and international regulatory authorities, and our products could be subject to involuntary recalls and other actions by these authorities.  We purchase merchandise from suppliers domestically as well as outside the United States.  One or more of our suppliers might not adhere to product safety requirements or our quality control standards, and we might not identify the deficiency before such merchandise is received by our customers.  Issues of product safety could result in a recall of products we sell.  Additionally, regulatory authorities, including the Consumer Product Safety Commission, have undertaken reviews of product safety and are in the process of enacting or are considering various proposals for more stringent laws and regulations.  In particular, the Consumer Product Safety Improvement Act of 2008, which imposes significant requirements on the sale of consumer products and enhanced penalties for noncompliance.  Such regulations contain provisions which have uncertain applicability to products we sell, and such lack of certainty may inhibit our willingness carry products or cause us to carry product we otherwise would not.  These regulations could result in delays in getting products to our stores, lost sales, the rejection of our products by consumers, damage to our reputation or material increases in our costs, and may have a material adverse effect on our business.  Moreover, individuals and organization may assert legal claims for our non-compliance with consumer product rules and regulations, and we may be subject to lawsuits relating to these claims.  There is a risk that these claims or liabilities may exceed or fall outside the scope of indemnities provided by third parties or outside the coverages of our insurance policies.

Economic conditions could decrease consumer spending and reduce our sales

Certain economic conditions could affect the level of consumer spending on merchandise we offer, including, among others, employment levels; salary and wage levels, particularly of teens and college-age adults; interest rates; availability of consumer credit; taxation; and consumer confidence in future economic conditions.  For example, the global economic downturn has significantly reduced consumer spending levels and mall customer traffic in general.  The ongoing slowdown in the United States economy and uncertain economic outlook could continue to cause lower consumer spending levels and mall customer traffic which could adversely affect our sales results and financial performance.  In addition, we are highly dependent on a significant level of teenage and college-age spending on music/pop culture-licensed and music/pop culture-influenced products, and we likely would be adversely affected if economic conditions limited such spending.

War, terrorism and other catastrophes could negatively impact our customers, places where we do business and our expenses

The continued threat of terrorism, heightened security and military action in response to this threat, any future acts of terrorism, and significant natural disasters or other catastrophic events may cause disruptions and create uncertainties that affect our business.  To the extent that such disruptions or uncertainties negatively impact shopping patterns and/or shopping mall traffic, or adversely affect consumer confidence or the economy in general, our business, operating results and financial condition could be materially and adversely affected.  A significant natural disaster or other catastrophic event affecting our facilities could materially affect our supply chain, our information system and other aspects of our operations.

Our stock price could fluctuate substantially for reasons outside of our control

Our common stock is quoted on the Nasdaq Stock Market, which has experienced, and is likely to experience in the future, significant price and volume fluctuations, which could adversely affect our stock price without regard to our financial performance.  In addition, we believe that factors such as quarterly fluctuations in our financial results and comparable sales; announcements by other apparel, accessory, music and gift item retailers; the trading volume of our stock; changes in estimates of our performance by securities analysts; litigation; overall economic and political conditions, including the global economic downturn; the condition of the financial markets, including the credit crisis; and other events or factors outside of our control could cause our stock price to fluctuate substantially. 

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Environmental risks associated with the retail industry may result in significant costs and decreased sales

We are exposed to risks arising out of environmental matters and existing and potential laws relating to the protection of the environment.  Adverse and unexpected weather conditions, including such conditions caused by the global climate change phenomena, could affect our supply chain, mall traffic and customer interest in our products.  We receive apparel and other merchandise from foreign sources, both purchased directly in foreign markets and indirectly through domestic vendors with foreign sources.  Stricter global and domestic greenhouse gas emission requirements may cause our vendors to incur higher costs, including increased transportation costs.  There is a risk that we may occupy retail space that may require remediation to comply with environmental laws.  In addition to potential liability for remediation costs, the cleanup process may cause our stores to be closed for an extended period of time, resulting in loss of sales.

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Item 6.  Exhibits

Exhibit Number	Description of Document
3.1	Amended and Restated Articles of Incorporation.  (Filed as an exhibit to Registrant’s Registration Statement on Form SB-2 (333-5054-LA) and incorporated herein by reference.)
3.2	Certificate of Amendment of Amended and Restated Articles of Incorporation.  (Filed as Exhibit 3.2 to Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005 and incorporated herein by reference.)
3.3	Amended and Restated Bylaws, as amended.  (Filed as Exhibit 3.3 to Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005 and incorporated herein by reference.)
4.1	Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2	Specimen stock certificate.  (Filed as an exhibit to Registrant’s Registration Statement on Form SB-2 (333-5054-LA) and incorporated herein by reference.)
10.1a	Form of Indemnity Agreement entered into between Registrant and its directors and officers.
10.2a	Amended and Restated Employment Agreement, dated as of March 16, 2012, by and between Registrant and Lisa Harper.
10.3a	2012 Equity Incentive Plan (the “2012 Plan”).  (Filed as Exhibit 99.1 to Registrant’s Initial Registration Statement on Form S-8 (333-181887), filed on June 5, 2012 and incorporated herein by reference.)
10.4a	Form of Restricted Stock Agreement of Registrant pursuant to the 2012 Plan.  (Filed as Exhibit 99.2 to Registrant’s Initial Registration Statement on Form S-8 (333-181887), filed on June 5, 2012 and incorporated herein by reference.)
10.5a	Form of Nonstatutory Stock Option Agreement of Registrant pursuant to the 2012 Plan.  (Filed as Exhibit 99.3 to Registrant’s Initial Registration Statement on Form S-8 (333-181887), filed on June 5, 2012 and incorporated herein by reference.)
31.1	Certification, dated August 21, 2012 of Registrant’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification, dated August 21, 2012, of Registrant’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications, dated August 21, 2012, of Registrant’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
a	Denotes management contract or compensatory plan or arrangement.

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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.

		Hot Topic, Inc.
		(Registrant)
Date:	August 21, 2012	/s/ Lisa Harper
		Lisa Harper
		Chief Executive Officer
		(Principal Executive Officer)
Date:	August 21, 2012	/s/ James McGinty
		James McGinty
		Chief Financial Officer
		(Principal Financial
		And Accounting Officer)

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Exhibit Index

Exhibit Number	Description of Document
3.1	Amended and Restated Articles of Incorporation.  (Filed as an exhibit to Registrant’s Registration Statement on Form SB-2 (333-5054-LA) and incorporated herein by reference.)
3.2	Certificate of Amendment of Amended and Restated Articles of Incorporation.  (Filed as Exhibit 3.2 to Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005 and incorporated herein by reference.)
3.3	Amended and Restated Bylaws, as amended.  (Filed as Exhibit 3.3 to Registrant’s Annual Report on Form 10-K for the year ended January 29, 2005 and incorporated herein by reference.)
4.1	Reference is made to Exhibits 3.1, 3.2 and 3.3.
4.2	Specimen stock certificate.  (Filed as an exhibit to Registrant’s Registration Statement on Form SB-2 (333-5054-LA) and incorporated herein by reference.)
10.1a	Form of Indemnity Agreement entered into between Registrant and its directors and officers.
10.2a	Amended and Restated Employment Agreement, dated as of March 16, 2012, by and between Registrant and Lisa Harper.
10.3a	2012 Equity Incentive Plan (the “2012 Plan”).  (Filed as Exhibit 99.1 to Registrant’s Initial Registration Statement on Form S-8 (333-181887), filed on June 5, 2012 and incorporated herein by reference.)
10.4a	Form of Restricted Stock Agreement of Registrant pursuant to the 2012 Plan.  (Filed as Exhibit 99.2 to Registrant’s Initial Registration Statement on Form S-8 (333-181887), filed on June 5, 2012 and incorporated herein by reference.)
10.5a	Form of Nonstatutory Stock Option Agreement of Registrant pursuant to the 2012 Plan.  (Filed as Exhibit 99.3 to Registrant’s Initial Registration Statement on Form S-8 (333-181887), filed on June 5, 2012 and incorporated herein by reference.)
31.1	Certification, dated August 21, 2012 of Registrant’s Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification, dated August 21, 2012, of Registrant’s Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certifications, dated August 21, 2012, of Registrant’s Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
	a            Denotes management contract or compensatory plan or arrangement.

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EX-10.1A

 Exhibit 10.1a

INDEMNITY AGREEMENT

This Indemnity Agreement (this “Agreement”) dated as of ___________, 2011, is made by and between Hot Topic, Inc., a California corporation (the “Company”), and _________________ (“Indemnitee”).

The Company desires and has requested Indemnitee to serve or continue to serve as a director, officer, employee or agent of the Company, as the case may be, and has proffered this Agreement to Indemnitee as an additional inducement to serve in such capacity.

Indemnitee is willing to serve, or to continue to serve, as a director, officer, employee or agent of the Company, as the case may be, if Indemnitee is furnished the indemnity provided for herein by the Company.

Now Therefore, in consideration of the mutual covenants and agreements set forth herein, the parties hereto, intending to be legally bound, hereby agree as follows:

1.            Definitions.

(a)        Agent.  For purposes of this Agreement, the term “agent” of the Company means any person who:  (i) is or was a director, officer, employee or other fiduciary of the Company, a subsidiary of the Company, or an employee benefit plan of the Company or a subsidiary of the Company; or (ii) is or was serving at the request or for the convenience of, or representing the interests of, the Company or a subsidiary of the Company, as a director, officer, employee or other fiduciary of a foreign or domestic corporation, partnership,  joint venture, trust or other enterprise.

(b)        Expenses.  For purposes of this Agreement, the term “expenses” shall be broadly construed and shall include, without limitation, all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’, witness, or other professional fees and related disbursements, and other out-of-pocket costs of whatever nature), actually and reasonably incurred by Indemnitee in connection with the investigation, defense or appeal of a proceeding or establishing or enforcing a right to indemnification under this Agreement, the Code or otherwise, and amounts paid in settlement by or on behalf of Indemnitee, but shall not include any judgments, fines or penalties actually levied against Indemnitee for such individual’s violations of law.  The term “expenses” shall also include reasonable compensation for time spent by Indemnitee for which he is not compensated by the Company or any subsidiary or third party (i) for any period during which Indemnitee is not an agent, in the employment of, or providing services for compensation to, the Company or any subsidiary; and (ii) if the rate of compensation and estimated time involved is approved by the directors of the Company who are not parties to any action with respect to which expenses are incurred, for Indemnitee while an agent of, employed by, or providing services for compensation to, the Company or any subsidiary.

(c)        Proceedings.  For purposes of this Agreement, the term “proceeding” shall be broadly construed and shall include, without limitation, any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, and whether formal or informal in any case, in which Indemnitee was, is or will be involved as a party or otherwise by reason of:  (i) the fact that Indemnitee is or was a director or officer of the Company; (ii) the fact that any action taken by Indemnitee or of any action on Indemnitee’s part while acting as director, officer, employee or agent of the Company; or (iii) the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, and in any such case described above, whether or not serving in any such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses may be provided under this Agreement.

(d)        Subsidiary.  For purposes of this Agreement, the term “subsidiary” means any corporation or limited liability company of which more than 50% of the outstanding voting securities or equity interests are owned, directly or indirectly, by the Company and one or more of its subsidiaries, and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.

(e)        Independent Counsel.  For purposes of this Agreement, the term “independent counsel” means a law firm, or a partner (or, if applicable, member) of such a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5)years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “independent counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

2.            No Employment Agreement; Inducement to Serve.  Nothing contained in this Agreement is intended as an employment agreement between Indemnitee and the Company or any of its subsidiaries or to create any right to continued employment of Indemnitee with the Company or any of its subsidiaries in any capacity.  The Company acknowledges that it has entered into this Agreement and assumes the obligations imposed on it hereby, in addition to and separate from its obligations to Indemnitee under the Bylaws, to induce Indemnitee to serve, or continue to serve, as a director,officer, employee or agent of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer, employee or agent of the Company.

3.             Indemnification.

(a)        Indemnification in Third Party Proceedings.  Subject to Section 10 below, the Company shall indemnify Indemnitee to the fullest extent permitted by the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits Indemnitee to broader indemnification rights than the Code permitted prior to adoption of such amendment), if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding, for any and all expenses, actually and reasonably incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of such proceeding.

(b)        Indemnification in Derivative Actions and Direct Actions by the Company.  Subject to Section 10 below, the Company shall indemnify Indemnitee to the fullest extent permitted by the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits Indemnitee to broader indemnification rights than the Code permitted prior to adoption of such amendment), if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any proceeding by or in the right of the Company to procure a judgment in its favor, against any and all expenses actually and reasonably incurred by Indemnitee in connection with the investigation, defense, settlement, or appeal of such proceedings.

4.             Indemnification of Expenses of Successful Party.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any proceeding or in defense of any claim, issue or matter therein, including the dismissal of any action without prejudice, the Company shall indemnify Indemnitee against all expenses actually and reasonably incurred in connection with the investigation, defense or appeal of such proceeding.

5.            Partial Indemnification.  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any expenses actually and reasonably incurred by Indemnitee in the investigation, defense, settlement or appeal of a proceeding, but is precluded by applicable law or the specific terms of this Agreement to indemnification for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

6.            Advancement of Expenses.  To the extent not prohibited by law, the Company shall advance  the expenses incurred by Indemnitee in connection with any proceeding, and such advancement shall be made within twenty (20) days after the receipt by the Company of a statement or statements requesting such advances (which shall include invoices received by Indemnitee in connection with such expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law shall not be included with the invoice) and upon request of the Company, an undertaking to repay the advancement of expenses if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company.  Advances shall be unsecured, interest free and without regard to Indemnitee’s ability to repay the expenses. Advances shall include any and all expenses actually and reasonably incurred by Indemnitee pursuing an action to enforce Indemnitee’s right to indemnification under this Agreement, or otherwise and this right of advancement, including expenses incurred preparing and forwarding statements to the Company to support the advances claimed.  Indemnitee acknowledges that the execution and delivery of this Agreement shall constitute an undertaking providing that Indemnitee shall, to the fullest extent required by law, repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company.  The right to advances under this Section shall continue until final disposition of any proceeding, including any appeal therein.  This Section 6 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 10(b).

7.            Notice and Other Indemnification Procedures.

(a)        Notification of Proceeding.  Indemnitee will notify the Company in writing promptly upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any proceeding or matter which may be subject to indemnification or advancement of expenses covered hereunder.  The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

(b)        Request for Indemnification and Indemnification Payments.  Indemnitee shall notify the Company promptly in writing upon receiving notice of any demand, judgment or other requirement for payment that Indemnitee reasonably believes to be subject to indemnification under the terms of this Agreement, and shall request payment thereof by the Company.  Indemnification payments requested by Indemnitee under Section 3 hereof shall be made by the Company no later than sixty (60) days after receipt of the written request of Indemnitee.  Claims for advancement of expenses shall be made under the provisions of Section 6 herein.

(c)        Application for Enforcement.  In the event the Company fails to make timely payments as set forth in Sections 6 or 7(b) above, Indemnitee shall have the right to apply to any court of competent jurisdiction for the purpose of enforcing Indemnitee’s right to indemnification or advancement of expenses pursuant to this Agreement.  In such an enforcement hearing or proceeding, the burden of proof shall be on the Company to prove that indemnification or advancement of expenses to Indemnitee is not required under this Agreement or permitted by applicable law.  Any determination by the Company (including its Board of Directors, shareholders or independent counsel) that Indemnitee is not entitled to indemnification hereunder, shall not be a defense by the Company to the action nor create any presumption that Indemnitee is not entitled to indemnification or advancement of expenses hereunder.

(d)        Indemnification of Certain Expenses.  The Company shall indemnify Indemnitee against all expenses incurred in connection with any hearing or proceeding under this Section 7 unless the Company prevails in such hearing or proceeding on the merits in all material respects.

8.            Assumption of Defense.  In the event the Company shall be requested by Indemnitee to pay the expenses of any proceeding, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, or to participate to the extent permissible in such proceeding, with counsel reasonably acceptable to Indemnitee.  Upon assumption of the defense by the Company and the retention of such counsel by the Company, the Company shall not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that Indemnitee shall have the right to employ separate counsel in such proceeding at Indemnitee’s sole cost and expense.  Notwithstanding the foregoing, if (a) Indemnitee’s counsel delivers a written notice to the Company stating that such counsel has reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (b) the Company shall not, in fact, have employed counsel or otherwise actively pursued the defense of such proceeding within a reasonable time and Indemnitee delivers a written notice to such effect to the Company, then in any such event the fees and expenses of Indemnitee’s counsel to defend such proceeding incurred following the delivery of such notice shall be subject to the indemnification and advancement of expenses provisions of this Agreement.

9.            Insurance.  To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any subsidiary (“D&O Insurance”), Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies.  If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has D&O Insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

10.          Exceptions.

(a)        Certain Matters.  Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of any proceeding with respect to (i) remuneration paid to Indemnitee if it is determined by final judgment or other final adjudication that such remuneration was in violation of law (and, in this respect, both the Company and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication, as indicated in Section 10(d) below); (ii) a final judgment rendered against Indemnitee for an accounting, disgorgement or repayment of profits made from the purchase or sale by Indemnitee of securities of the Company against Indemnitee or in connection with a settlement by or on behalf of Indemnitee to the extent it is acknowledged by Indemnitee and the Company that such amount paid in settlement resulted from Indemnitee's conduct from which Indemnitee received monetary personal profit, pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended, or other provisions of any federal, state or local statute or rules and regulations thereunder; (iii) a final judgment or other final adjudication that Indemnitee’s conduct was in bad faith, knowingly fraudulent or deliberately dishonest or constituted willful misconduct (but only to the extent of such specific determination); or (iv) on account of conduct that is established by a final judgment as constituting a breach of Indemnitee’s duty of loyalty to the Company or resulting in any personal profit or advantage to which Indemnitee is not legally entitled.  For purposes of the foregoing sentence, a final judgment or other adjudication may be reached in either the underlying proceeding or action in connection with which indemnification is sought or a separate proceeding or action to establish rights and liabilities under this Agreement.

(b)        Claims Initiated by Indemnitee.  Any provision herein to the contrary notwithstanding, the Company shall not be obligated to indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought by Indemnitee against the Company or its directors, officers, employees or other agents and not by way of defense, except (i) with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or under any other agreement, provision in the Bylaws or Articlesof Incorporation or applicable law, or (ii) with respect to any other proceeding initiated by Indemnitee that is either approved by the Board of Directors or Indemnitee’s participation is required by applicable law.  However, indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors determines it to be appropriate.

(c)        Unauthorized Settlements.  Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee under this Agreement for any amounts paid in settlement of a proceeding effected without the Company’s written consent.  Neither the Company nor Indemnitee shall unreasonably withhold consent to any proposed settlement; provided, however, that the Company may in any event decline to consent to (or to otherwise admit or agree to any liability for indemnification hereunder in respect of) any proposed settlement if the Company is also a party in such proceeding and determines in good faith that such settlement is not in the best interests of the Company and its shareholders.

(d)        Securities Act Liabilities.  Any provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee or otherwise act in violation of any undertaking appearing in and required by the rules and regulations promulgated under the Securities Act of 1933, as amended (the “Act”), or in any registration statement filed with the Securities and Exchange Commission under the Act.  Indemnitee acknowledges that paragraph (h) of Item 512 of Regulation S-K currently generally requires the Company to undertake in connection with any registration statement filed under the Act to submit the issue of the enforceability of Indemnitee’s rights under this Agreement in connection with any liability under the Act on public policy grounds to a court of appropriate jurisdiction and to be governed by any final adjudication of such issue.  Indemnitee specifically agrees that any such undertaking shall supersede the provisions of this Agreement and to be bound by any such undertaking.

11.          Nonexclusivity and Survival of Rights.  The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may at any time be entitled under any provision of applicable law, the Company’s Articles of Incorporation, Bylaws or other agreements, both as to action in Indemnitee’s official capacity and Indemnitee’s action as an agent of the Company, in any court in which a proceeding is brought, and Indemnitee’s rights hereunder shall continue after Indemnitee has ceased acting as an agent of the Company and shall inure to the benefit of the heirs, executors, administrators and assigns of Indemnitee.  The obligations and duties of the Company to Indemnitee under this Agreement shall be binding on the Company and its successors and assigns until terminated in accordance with its terms.  The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his or her corporate status prior to such amendment, alteration or repeal.  To the extent that a change in the Code, whether by statute or judicial decision, permits greater indemnification or advancement of expenses than would be afforded currently under the Company’s Articles of Incorporation, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, by Indemnitee shall not prevent the concurrent assertion or employment of any other right or remedy by Indemnitee.

12.          Subrogation.  In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who, at the request and expense of the Company, shall execute all papers required and shall do everything that may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

13.          Interpretation of Agreement.  It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to Indemnitee to the fullest extent now or hereafter permitted by law.

14.          Severability.  If any provision of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of the Agreement (including without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to Section 13 hereof.

15.         Amendment and Waiver.  No supplement, modification, amendment, or cancellation of this Agreement shall be binding unless executed in writing by the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

16.          Notice.  Except as otherwise provided herein, any notice or demand which, by the provisions hereof, is required or which may be given to or served upon the parties hereto shall be in writing and, if by telegram, telecopy or telex, shall be deemed to have been validly served, given or delivered when sent, if by overnight delivery, courier or personal delivery, shall be deemed to have been validly served, given or delivered upon actual delivery and, if mailed, shall be deemed to have been validly served, given or delivered three (3) business days after deposit in the United States mail, as registered or certified mail, with proper postage prepaid and addressed to the party or parties to be notified at the addresses set forth on the signature page of this Agreement (or such other address(es) as a party may designate for itself by like notice).  If to the Company, notices and demands shall be delivered to the attention of the Secretary of the Company.

17.          Governing Law.  This Agreement shall be governed exclusively by and construed according to the laws of the State of California, as applied to contracts between California residents entered into and to be performed entirely within California.

18.          Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement.  Only one such counterpart need be produced to evidence the existence of this Agreement.

19.          Headings.  The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.

20.          Entire Agreement.  This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and negotiations, written and oral, between the parties with respect to the subject matter of this Agreement; provided, however, that this Agreement is a supplement to and in furtherance of the Company’s Articles of Incorporation, Bylaws, the Code and any other applicable law, and shall not be deemed a substitute therefor, and does not diminish or abrogate any rights of Indemnitee thereunder.

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In Witness Whereof, the parties hereto have entered into this Indemnity Agreement effective as of the date first above written.

HOT TOPIC, INC.
By:
	Name:
	Title:

INDEMNITEE

Signature of Indemnitee

Print or Type Name of Indemnitee

EX-10.2A

Exhibit 10.2a

AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

ThisAmended and Restated Executive Employment Agreement (“Agreement”) is made and entered into as of the ___ day of _________, 2012 (the “Effective Date”) by and between Hot Topic, Inc. (the “Company”), and Lisa Harper (“Executive”).  As of the Effective Date, this Agreement amends, restates and supersedes in its entirety the Executive Employment Agreement previously entered into between the Company and Executive dated March 21, 2011 (the “Prior Agreement”) The Company and Executive are hereinafter collectively referred to as the “Parties", and individually referred to as a “Party".  This Agreement supersedes all prior and contemporaneous oral or written employment agreements or arrangements between Executive and the Company, including but not limited to the Prior Agreement.

Recitals:

The Company and Executive desire to formally restate the terms and conditions of Executive’s continued employment by the Company.

The Company desires to continue to employ Executive in the executive capacity hereinafter stated, and Executive desires to continue to be in the employ of the Company, and is willing to accept such continued employment on the terms and conditions set forth in this Agreement.

Agreement:

Now, Therefore, in consideration of the promises and the covenants set forth in this Agreement and for other valuable consideration, the Parties hereby agree as follows with respect to the terms of Executive’s employment on and after the Effective Date:

1.            Employment.

(a)          Title and Duties.  The Company hereby employs Executive as Chief Executive Officer (“CEO”), assigned with the responsibility to do and perform all services, acts, or things necessary or advisable to manage and conduct the business of the Company that are normally associated with the position of CEO.  Executive shall also serve as a member of the Company’s Board of Directors (the “Board”) as its Chairman of the Board.  Executive hereby accepts such employment and agrees to devote her full time and energies to fulfill all her responsibilities to the Company.

(b)          Policies and Practices. The employment relationship between the Parties shall be governed by this Agreement and by the policies and practices established by the Company and the Company’s Board, or any committee thereof to which the Company’s Board has delegated responsibility for compensation matters.  In the event that the terms of this Agreement differ from or are in conflict with the Company’s policies or practices or the Company’s Employee Handbook, this Agreement shall control.

(c)           Term.  The term of this Agreement shall begin on the Effective Date and shall continue until it is terminated pursuant to Section 3 herein (the “Term”).

(d)           Location.  Unless the Parties otherwise agree in writing, during the Term Executive shall perform the services Executive is required to perform pursuant to this Agreement at the Company’s executive offices in City of Industry, California; provided, however, that the Company may from time to time require Executive to travel temporarily to other locations in connection with the Company’s business.

2.            Compensation.  In consideration for all services rendered by Executive under this Agreement, Executive shall receive the compensation described in this Agreement.  All such compensation shall be paid subject to appropriate tax withholding and any other withholdings required by law or authorized by Executive.

(a)          Base Salary.  Executive shall be paid a base salary at the annualized rate of $650,000, less payroll deductions and all required withholdings, payable in periodic installments in accordance with the Company’s normal payroll practices (the “Base Salary”).  Executive’s Base Salary will be reviewed annually and may be adjusted by the Board in its discretion, provided however, that the Base Salary may only be reduced upon Executive’s written consent.  The Base Salary shall be prorated for any partial year of employment on the basis of a 365-day fiscal year.

(b)          Annual Bonus.  Executive will be eligible to participate in the Company’s annual bonus plan, as approved by the Board, with an annual target bonus amount equal to 175% of Executive’s Base Salary at the highest rate in effect during the applicable annual performance period, subject to standard deductions and withholdings.  The Executive’s bonus target will be reviewed annually and may be adjusted by the Board, provided however, that the bonus target may only be reduced upon Executive’s written consent.  The Executive must be employed on the date the bonus is awarded to be eligible for the bonus payment; the bonus will not be pro-rated in the event Executive’s employment is terminated for any reason.  Any earned bonus shall be paid to Executive during the calendar year following the calendar year for which such bonus was earned.

(c)           Stock Awards.

(i)   All outstanding stock awards granted to Executive prior to the Effective Date shall remain outstanding in accordance with their terms.

(ii)  The Company may grant the Executive stock awards to purchase the Company’s common stock at such times and on such terms as may be decided from time to time by the Board or Compensation Committee, in its sole discretion. 

(d)          Benefits.  During employment hereunder, Executive shall be entitled to receive those medical, dental, vision and insurance benefits which are routinely made available to executive officers of the Company.  Executive will be eligible to select an automobile of Executive’s choice (up to $60,000 value) that will be leased and held in the Company’s name. The Company will cover the monthly lease, gas for work-related purposes, maintenance and insurance on this vehicle.

(e)          Expense Reimbursement.  The Company will reimburse Executive for all reasonable business expenses Executive incurs in conducting her duties hereunder, pursuant to the Company’s usual expense reimbursement policies, but in no event later than thirty (30) days after the end of the calendar month following the month in which such expenses were incurred by Executive; provided that Executive supplies the appropriate substantiation for such expenses no later than the end of the calendar month following the month in which such expenses were incurred by Executive.

(f)            Personal Time Off.  Executive shall be entitled to paid time off in accordance with the Company’s policies applicable to executives.

3.            Termination.

(a)          Termination by the Company.  Executive’s employment with the Company is at will and may be terminated by the Company at any time and for any reason, or for no reason, including, but not limited to, under the following conditions:

(i)   Termination by the Company for Cause.  The Company may terminate Executive’s employment under this Agreement for “Cause” (as defined below) by delivery of written notice to Executive.  Any notice of termination given pursuant to this Section 3(a) shall effect termination as of the date of the notice, or as of such other date as specified in the notice.

(ii) Termination by the Company without Cause.  The Company may terminate Executive’s employment under this Agreement without Cause at any time and for any reason, or for no reason.  Such termination shall be effective on the date Executive is so informed, or as otherwise specified by the Company.

(b)          Termination by Executive.  Executive’s employment with the Company is at will and may be terminated by Executive at any time and for any reason, or for no reason, including, but not limited to, under the following conditions:

(i)   Termination by Executive for Good Reason.  Executive may terminate her employment under this Agreement for “Good Reason” (as defined below) in accordance with the procedures specified in Section 3(f)(ii) below.

(ii)  Termination by Executive Without Good Reason.  Executive may terminate Executive’s employment hereunder for other than Good Reason upon written notice to the Company.

(c)          Termination for Death or Complete Disability.  Executive’s employment with the Company shall automatically terminate effective upon the date of Executive’s death or Complete Disability (as defined below).

(d)          Termination by Mutual Agreement of the Parties.  Executive’s employment with the Company may be terminated at any time upon a mutual agreement in writing of the Parties.  Any such termination of employment shall have the consequences specified in such agreement.

(e)          Compensation Upon Termination.

(i)    Death or Complete Disability.  If, during the Term of this Agreement, Executive’s employment shall be terminated by death or Complete Disability as provided in Section 3(f)(i), the Company shall pay to Executive, or to Executive’s heirs, as applicable, Executive’s Base Salary and accrued and unused vacation benefits earned through the date of termination at the rate in effect at the time of termination, less standard deductions and withholdings (the “Accrued Amounts”).  The Company shall thereafter have no further obligations to Executive and/or to Executive’s heirs under this Agreement, except as otherwise provided by law.

(ii)  With Cause or Without Good Reason. If, during the Term of this Agreement, Executive’s employment is terminated by the Company for Cause, or Executive terminates Executive’s employment hereunder without Good Reason, the Company shall pay Executive the Accrued Amounts.  The Company shall thereafter have no further obligations to Executive under this Agreement, except as otherwise provided by law.

(iii) Without Cause or For Good Reason.  If, during the term of this Agreement, the Company terminates Executive’s employment without Cause or Executive resigns Executive’s employment for Good Reason, the Company shall pay Executive the Accrued Amounts.  In addition, subject to the Executive (A) timely complying with the requirements of Section 4 of this Agreement, (B) furnishing to the Company an executed waiver and release of claims in the form attached hereto as Exhibit A (or in such other form as may be specified by the Company in order to comply with then-existing legal requirements to effect a valid release of claims) (the “Release”) no later than forty-five (45) days following Executive’s termination; and (C) allowing the Release to become effective in accordance with its terms, then Executive shall be entitled to the following severance benefits:

(1)     payment of an amount equal to 200% of Executive’s Base Salary as in effect at the time of termination (but determined prior to any reduction in Base Salary that would give rise to Executive’s right to voluntarily resign for “Good Reason” pursuant to Section 3(f)(ii)), less required deductions and withholdings, payable in equal installments in accordance with the Company’s regular payroll practices over the twelve (12) month period following the date of Executive’s separation from service; provided, however, that any amounts otherwise scheduled to be paid prior to the effectiveness of the Release shall instead accrue and be paid in the first payroll period following the Release effective date, with the remainder of the payments to be made as originally scheduled, subject to any delay in payment required under Section 7;

(2)     if Executive is eligible for and timely elects continued coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 or analogous provisions of state law (collectively, “COBRA”) for herself and/or her eligible dependents under the Company’s group health insurance plans following the termination of her employment, then the Company shall pay the COBRA premiums necessary to continue the health insurance coverage in effect for Executive and/or her eligible dependents as of the termination date, until the earliest of: (A) thirty-six (36) months following Executive’s termination date (the “COBRA Severance Period”); (B) the expiration of Executive’s eligibility for continuation coverage under COBRA; and (C) the date when Executive becomes eligible for substantially equivalent group health insurance coverage in connection with new employment (such period from the termination date through the earliest of (A) through (C), the “COBRA Payment Period”).  If Executive becomes eligible for coverage under another employer's group health plan, or otherwise ceases to be eligible for COBRA coverage during the COBRA Severance Period, Executive must immediately notify the Company of such event, and the Company’s obligation to pay COBRA premiums on Executive’s behalf shall cease.  Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the Company cannot provide the COBRA premium benefits without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof pay Executive a taxable cash amount, which payment shall be made regardless of whether the Executive or her eligible dependents elect COBRA continuation coverage (the “Health Care Benefit Payment”). The Health Care Benefit Payment shall be paid in monthly or bi-weekly installments on the same schedule that the COBRA premiums would otherwise have been paid to the insurer.  The Health Care Benefit Payment shall be equal to the amount that the Company otherwise would have paid for COBRA insurance premiums (which amount shall be calculated based on the COBRA premium for the first month of coverage), and shall be paid until the earlier of (i) expiration of the COBRA Severance Period or (ii) the date that Executive becomes eligible for substantially equivalent group health insurance coverage in connection with new employment.  For purposes of this Agreement, any COBRA premiums that are payable by the Company shall not include any amounts payable by the Executive under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of the Executive; and

(3)     the vesting of all time-based stock options granted to Executive prior to the date of termination shall immediately fully accelerate such that all such awards shall be fully vested and immediately exercisable.  For purposes of this provision, “time-based stock options” means such options which vest solely based on the passage of time.  For avoidance of any doubt, any stock options or other equity awards granted to Executive with performance-based vesting condition(s) shall not accelerate vesting as a result of this provision.

(f)            Definitions.  For purposes of this Agreement, the following terms shall have the following meanings:

(i)    Complete Disability.  “Complete Disability” shall mean the inability of Executive to perform Executive’s duties under this Agreement, even with reasonable accommodation, because Executive has become permanently disabled within the meaning of any policy of disability income insurance covering employees of the Company then in force.  In the event the Company has no policy of disability income insurance covering employees of the Company in force when Executive becomes disabled, the term “Complete Disability” shall mean the inability of Executive to perform Executive’s duties under this Agreement, whether with or without reasonable accommodation, by reason of any incapacity, physical or mental, which the Company, based upon medical advice or an opinion provided by a licensed physician acceptable to the Company, determines to have incapacitated Executive from satisfactorily performing all of Executive’s usual services for the Company, with or without reasonable accommodation, for a period of at least one hundred twenty (120) days during any twelve (12) month period (whether or not consecutive).  Based upon such medical advice or opinion, the determination of the Company shall be final and binding and the date such determination is made shall be the date of such Complete Disability for purposes of this Agreement.

(ii)   Good Reason.  “Good Reason” for Executive to terminate Executive’s employment hereunder shall mean the occurrence of any of the following events without Executive’s consent:

(1)     a material reduction in Executive’s duties, authority, or responsibilities relative to Executive’s duties, authority, or responsibilities in effect immediately prior to such reduction; provided, however, that so long as Executive remains a member of the Board, the cessation of Executive’s role as Chairman of the Board shall not be deemed to constitute a material reduction in Executive’s duties, authority or responsibilities.  Any Material Reduction in Business Operations shall be presumed to constitute a material reduction in Executive’s duties, authority or responsibilities;

(2)     the relocation of Executive’s principal business location to a point that requires a one-way increase of Executive’s commuting distance of more than fifty (50) miles;

(3)     a material reduction of the Executive’s Base Salary as initially set forth herein or as the same may be increased from time to time; or

(4)     any material breach of this Agreement by the Company;

provided, however, that such termination by Executive shall only be deemed for Good Reason pursuant to the foregoing definition if: (A) Executive gives the Company written notice of the intent to terminate for Good Reason within thirty (30) days following the first occurrence of the condition(s) that Executive believes constitutes Good Reason, which notice shall describe such condition(s); (B) the Company fails to remedy such condition(s) within thirty (30) days following receipt of the written notice (the “Cure Period”); and (C) Executive terminates her employment within thirty (30) days following the end of the Cure Period.

(iii)  Affiliate.  “Affiliate” means, with respect to any specific entity, any other entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified entity.

(iv)   Cause.  “Cause”for the Company to terminate Executive’s employment hereunder shall mean the occurrence of any of the following events, as determined by the Company, in its sole discretion:

 Executive’s willful misconduct, including, but not limited to, dishonesty which materially and adversely reflects upon Executive’s ability to perform Executive’s duties for the Company,

 Executive’s conviction of, or the entry of a pleading of guilty or nolo contendere by Executive to, any crime involving moral turpitude or any felony,

 Executive’s fraud, embezzlement or theft against the Company,

 Executive’s material breach of any material provision of any employment contract, assignment of inventions, confidentiality and/or nondisclosure agreement between Executive and the Company, or

 Executive’s willful and habitual failure to attend to Executive’s duties, after written notice to Executive and no less than a 90 day period to cure such failure provided such failure to perform is subject to cure with the passage of time.

(v)    Material Reduction in Business Operations.  “Material Reduction in Business Operations” means the sale to a third-party of all or substantially all of the assets used by the Company in the operation of either of its Hot Topic or Torrid divisions, including a sale of any stock in any subsidiary holding such assets; provided, however, that (i) Executive has specifically and formally objected to the action prior to the Company’s approval and (ii) despite such objection, the Board shall have approved such action.

4.            Returning Company Property.  In the event of Executive’s termination of employment for any reason, Executive shall, prior to or on such termination date in the event of Executive’s resignation for any reason, or no later than five (5) days following such termination date in the event of Executive’s termination of employment for any other reason, deliver to the Company (and will not maintain possession of or deliver to anyone else) any and all devices, records, data, data bases software, software documentation, laboratory notebooks, notes, reports, proposals, lists, customer lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, or reproductions of any of the above aforementioned items belonging to the Company, its successors or assigns.

5.           Confidential and Proprietary Information.  As a condition of continued employment Executive agrees to continue to abide by the terms of the PIIA.  Executive recognizes that Executive’s employment with the Company will involve contact with information of substantial value to the Company, which is not generally known in the trade, and which gives the Company an advantage over its competitors who do not know or use it, including but not limited to, techniques, designs, drawings, processes, inventions know how, strategies, marketing, and/or advertising plans or arrangements, developments, equipment, prototypes, sales, supplier, service provider, vendor, distributor and customer information, and business and financial information relating to the business, products, services, practices and techniques of the Company, (hereinafter referred to as “Confidential and Proprietary Information”).  Executive will at all times regard and preserve as confidential such Confidential and Proprietary Information obtained by Executive from whatever source and will not, either during Executive’s employment with the Company or thereafter, publish or disclose any part of such Confidential and Proprietary Information in any manner at any time, or use the same except on behalf of the Company, without the prior written consent of the Company

6.            Conflict Of Interest.

(a)           Loyalty.  During the Term, Executive shall devote her full time and energies to fulfill all responsibilities to the Company in the capacity set forth in Section 1(a).

(b)          Covenant Not to Compete.  During the Term and during any period thereafter in which Executive is receiving severance benefits from the Company, Executive shall not engage in competition with the Company or any its Affiliates either directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate, promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member of any association or otherwise, in any phase of the business of developing, manufacturing and marketing of products or services that are in the same field of use or which otherwise compete with the products or services of the Company, except with the prior written consent of the Board.

(c)           Agreement not to Participate in the Company’s Competitors. During the Term, Executive agrees not to acquire, assume or participate in, directly or indirectly, any position, investment or interest known by Executive to be adverse or antagonistic to the Company, its business, or prospects, financial or otherwise, or in any company, person, or entity that is, directly or indirectly, in competition with the business of the Company or any of its Affiliates.  Ownership by Executive, in professionally managed funds over which the Executive does not have control or discretion in investment decisions, or as a passive investment, of less than two percent (2%) of the outstanding shares of capital stock of any corporation with one or more classes of its capital stock listed on a national securities exchange or publicly traded on a national securities exchange or in the over-the-counter market shall not constitute a breach of this Section 6(c).

7.            Application of Internal Revenue Code Section 409A. Notwithstanding anything to the contrary herein, the following provisions apply to the extent severance benefits provided herein are subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations and other guidance thereunder and any state law of similar effect (collectively “Section 409A”).  Severance benefits shall not commence until Executive has a “separation from service” for purposes of Section 409A.   Each installment of  severance benefits is a separate “payment” for purposes of Treas. Reg. Section 1.409A-2(b)(2)(i), and the severance benefits are intended to satisfy the exemptions from application of Section 409A to the maximum extent applicable.  However, if such exemptions are not available and Executive is, upon separation from service, a “specified employee” for purposes of Section 409A, then, solely to the extent necessary to avoid adverse personal tax consequences under Section 409A,  the timing of the severance benefits payments shall be delayed until the earlier of (i) six (6) months and one day after Executive’s separation from service, or (ii) Executive’s death.

Executive shall receive severance benefits only if Executive timely complies with the requirements of Section 4 of this Agreement and executes and returns to the Company, within the applicable time period set forth therein but in no event more than forty-five (45) days following the date of separation from service, the Release, and permits such Release to become effective in accordance with its terms (such latest permitted date, the “Release Deadline”).   If the severance benefits are not covered by one or more exemptions from the application of Section 409A and the Release could become effective in the calendar year following the calendar year in which Executive separates from service, the separation agreement will not be deemed effective any earlier than the Release Deadline.  None of the severance benefits will be paid or otherwise delivered prior to the effective date (or deemed effective date) of the Release.  Except to the minimum extent that payments must be delayed because Executive is a “specified employee” or until the effectiveness or deemed effectiveness of the Release, all amounts will be paid as soon as practicable in accordance with the Company’s normal payroll practices.

The severance benefits are intended to qualify for an exemption from application of Section 409A or comply with its requirements to the extent necessary to avoid adverse personal tax consequences under Section 409A, and any ambiguities herein shall be interpreted accordingly.

8.            Application of Internal Revenue Code Section 280G.  If any payment or benefit Executive would receive pursuant to a change in control from the Company or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount.  The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in Executive’s receipt, on an after-tax basis, of the greater economic benefit notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the manner that results in the greatest economic benefit for Executive.  If more than one method of reduction will result in the same economic benefit, the items so reduced will be reduced pro rata.

In the event it is subsequently determined by the Internal Revenue Service that some portion of the Reduced Amount as determined pursuant to clause (x) in the preceding paragraph is subject to the Excise Tax, Executive agrees to promptly return to the Company a sufficient amount of the Payment so that no portion of the Reduced Amount is subject to the Excise Tax.  For the avoidance of doubt, if the Reduced Amount is determined pursuant to clause (y) in the preceding paragraph, Executive will have no obligation to return any portion of the Payment pursuant to the preceding sentence.

Unless Executive and the Company agree on an alternative accounting firm, the accounting firm engaged by the Company for general tax compliance purposes as of the day prior to the effective date of the change in control shall perform the foregoing calculations.  If the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the change in control, the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder.  The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.

9.            Assignment.  This Agreement may not be assigned by Executive.  This Agreement shall bind and inure to the benefit of the Company’s successors and assigns, as well as Executive’s heirs, executors, administrators, and legal representatives.  The Company shall obtain from any successor, before the succession takes place, an agreement to assume the obligations and perform all of the terms and conditions of this Agreement.  For this purpose, “successor” means any person, firm, corporation or other business entity which at any tie, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.

10.          Notices.  All notices or demands of any kind required or permitted to be given by the Company or Executive under this Agreement shall be given in writing and shall be personally delivered (and receipted for) or faxed during normal business hours or mailed by certified mail, return receipt requested, postage prepaid, addressed as follows:

To Company:	Hot Topic, Inc.
	Attn: Board of Directors
	18305 E. San Jose Ave.
	City of Industry, CA 91748
To Executive:	Lisa Harper
	c/o Hot Topic, Inc.
	18305 E. San Jose Ave.
	City of Industry, CA 91748

Any such written notice shall be deemed given on the earlier of the date on which such notice is personally delivered or three (3) days after its deposit in the United States mail as specified above.  Either Party may change its address for notices by giving notice to the other Party in the manner specified in this section.

11.         Waiver.  No term, covenant or condition of this Agreement or any breach thereof shall be deemed waived, except with the written consent of the Party against whom the wavier is claimed, and any waiver or any such term, covenant, condition or breach shall not be deemed to be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach.

12.         Choice Of Law.  This Agreement shall be governed by the laws of the State of California, without regard to choice of law principles.

13.          Severability.  The finding by a court of competent jurisdiction of the unenforceability, invalidity or illegality of any provision of this Agreement shall not render any other provision of this Agreement unenforceable, invalid or illegal.  Such court shall have the authority to modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or provision, which most accurately represents the Parties’ intention with respect to the invalid or unenforceable term or provision.

14.         Complete Agreement.  This Agreement, including Exhibit A and the PIIA, and the terms of any outstanding stock option or other equity award agreements with the Executive, constitutes the entire agreement between the Parties in connection with the subject matter hereof and supersedes any and all prior or contemporaneous oral and written agreements or understandings between the Parties, including but not limited to the Prior Agreement.  This Agreement may be modified only by written agreement signed by both the Company and Executive.

15.          Interpretation; Construction.  The headings set forth in this Agreement are for convenience of reference only and shall not be used in interpreting this Agreement.  This Agreement has been drafted by legal counsel representing the Company, but the Executive has been encouraged to consult with, and has consulted with, Executive’s own independent counsel and tax advisors with respect to the terms of this Agreement.  The Parties acknowledge that each Party and its counsel has reviewed and revised, or had an opportunity to review and revise, this Agreement, and any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement.

16.         Representations and Warranties.  Executive represents and warrants that Executive is not restricted or prohibited, contractually or otherwise, from entering into and performing each of the terms and covenants contained in this Agreement, and that Executive’s execution and performance of this Agreement will not violate or breach any other agreements between the Executive and any other person or entity.

17.         Trade Secrets of Others.  It is the understanding of both the Company and Executive that Executive shall not divulge to the Company and/or its Affiliates any confidential information or trade secrets belonging to others, including Executive’s former employers, nor shall the Company and/or its Affiliates seek to elicit from Executive any such information.  Consistent with the foregoing, Executive shall not provide to the Company and/or its Affiliates, and the Company and/or its Affiliates shall not request, any documents or copies of documents containing such information.

18.          Advertising Waiver. Executive agrees to permit the Company, and persons or other organizations authorized by the Company, to use, publish and distribute advertising or sales promotional literature concerning the products and/or services of the Company, or the machinery and equipment used in the provision thereof, in which Executive’s name and/or pictures of Executive taken in the course of Executive’s provision of services to the Company appear.  Executive hereby waives and releases any claim or right Executive may otherwise have arising out of such use, publication or distribution.

19.         Counterparts.  This Agreement may be executed in two counterparts, each of which shall be deemed an original, all of which together shall contribute one and the same instrument.

20.         Miscellaneous.  Executive acknowledges full understanding of the matters set forth herein and the obligations undertaken upon the execution hereof.

{Signatures only on following page.}

In Witness Whereof, the parties have executed this Executive Employment Agreementas of the date first written above.

Hot Topic, Inc.

By:

Matthew  Drapkin

Lead Director Of The Board Of Directors Of Hot Topic, Inc.

Dated:

EXECUTIVE:

Lisa Harper

Dated:

EXHIBIT A

RELEASE AND WAIVER OF CLAIMS

TO BE SIGNED FOLLOWING TERMINATION WITHOUT CAUSE

OR RESIGNATION FOR GOOD REASON

In consideration of the payments and other benefits set forth in the Amended and Restated Employment Agreement dated_____________, 2012, to which this form is attached, I, Lisa Harper, hereby furnishHot Topic, Inc.(the “Company”), with the following release and waiver (“Release and Waiver”).

In exchange for the consideration provided to me by the Employment Agreement that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, Affiliates, and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring prior to my signing this Release and Waiver.  This general release includes, but is not limited to: (1) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (2) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment and Housing Act (as amended).

I also acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows:  “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.”I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to any claims I may have against the Company.

I acknowledge that, among other rights, I am waiving and releasing any rights I may have under ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for this Release and Waiver is in addition to anything of value to which I was already entitled as an executive of the Company.  If I am 40 years of age or older upon execution of this Release and Waiver, I further acknowledge that I have been advised, as required by the Older Workers Benefit Protection Act, that:  (a) the release and waiver granted herein does not relate to claims under the ADEA which may arise after this Release and Waiver is executed; (b) I should consult with an attorney prior to executing this Release and Waiver; and (c) I have twenty-one (21) days from the date of termination of my employment with the Company in which to consider this Release and Waiver (although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period has expired without my having previously revoked this Release and Waiver.

I acknowledge my continuing obligations under my Proprietary Information and Inventions Agreement.  Pursuant to the Proprietary Information and Inventions Agreement I understand that among other things, I must not use or disclose any confidential or proprietary information of the Company and I must immediately return all Company property and documents (including all embodiments of proprietary information) and all copies thereof in my possession or control.  I understand and agree that my right to the severance pay I am receiving in exchange for my agreement to the terms of this Release and Waiver is contingent upon my continued compliance with my Proprietary Information and Inventions Agreement.

This Release and Waiver constitutes the complete, final and exclusive embodiment of the entire agreement between the Company and me with regard to the subject matter hereof.  I am not relying on any promise or representation by the Company that is not expressly stated herein.  This Release and Waiver may only be modified by a writing signed by both me and a duly authorized officer of the Company.

Date:	By:
		Name: Lisa Harper

EX-31.1

Exhibit 31.1

CERTIFICATION

	I, Lisa Harper,certify that:
1.	I have reviewed this quarterlyreport on Form 10-Q of Hot Topic, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 21, 2012

/s/ Lisa Harper

Lisa Harper

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

	I, James McGinty,certify that:
1.	I have reviewed this quarterlyreport on Form 10-Q of Hot Topic, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 21, 2012

/s/ James McGinty

James McGinty

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted).

I, Lisa Harper, Chief Executive Officer of Hot Topic, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hot Topic, Inc.;

2. Based on my knowledge, this quarterly report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

3. Based on my knowledge, the financial statements, and other information included in this quarterly report, fairly present in all material respects the financial condition and results of operations of the registrant as of, and for, the periods presented in this quarterly report.

Date: August 21, 2012

/s/ Lisa Harper

Lisa Harper

Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Hot Topic, Inc. and will be retained by Hot Topic, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This certification “accompanies” the Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

I, James McGinty, Chief Financial Officer of Hot Topic, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hot Topic, Inc.;

2. Based on my knowledge, this quarterly report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

3. Based on my knowledge, the financial statements, and other information included in this quarterly report, fairly present in all material respects the financial condition and results of operations of the registrant as of, and for, the periods presented in this quarterly report.

Date: August 21, 2012

/s/ James McGinty

James McGinty

Chief Financial Officer

(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Hot Topic, Inc. and will be retained by Hot Topic, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

This certification “accompanies” the Form 10-Q, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.

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Short-Term and Long-Term Investments - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011	Jan. 28, 2012
Schedule of Available-for-sale Securities [Line Items]
Short-term investments	$ 12,068,000		$ 12,068,000		$ 16,503,000
Unrealized gains, net of tax	7,000	(22,000)	5,000	68,000
Auction rate securities
Schedule of Available-for-sale Securities [Line Items]
Auction rate securities maturity period			25 years
Auction rate securities interest rate setting interval			28 days
Long-term investments classified as available for sale, fair value	1,700,000		1,700,000		1,700,000
Auction rate securities, cumulative decline from par value, before tax	400,000		400,000
Auction rate securities, cumulative decline from par value, net of tax	200,000		200,000
Unrealized gains, before tax				100,000
Unrealized gains, net of tax				$ 100,000

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Share Repurchase - Additional Information (Detail) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended
	Jan. 28, 2012	Jun. 30, 2012 Maximum	Aug. 17, 2011 Maximum
Stockholders Equity Note [Line Items]
Stock repurchase authorized amount		$ 15	$ 25
Stock repurchased during period, shares	3,212,628
Stock repurchased during period, value	$ 25
Stock repurchased during period, price per share	$ 7.78

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Bank Credit Agreement - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jul. 28, 2012
Debt Instrument [Line Items]
Unsecured loan facility	$ 5.0
Unsecured bank credit agreement, expiration date	Sep. 01, 2013

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Weighted Average Assumptions used in Black-Scholes Option Valuation Model for Stock Options Granted (Detail) (Black-Scholes Option Valuation Model, USD $)	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011
Black-Scholes Option Valuation Model
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Risk free interest rate	1.00%	2.00%	1.00%	2.00%
Expected life	5 years	5 years	5 years	5 years
Expected volatility	58.00%	58.00%	57.00%	58.00%
Expected dividend yield	3.00%	4.00%	4.00%	5.00%
Weighted average fair value at grant date (with the exception of Lisa Harper's 100,000 stock options granted in March 2012 that are subject to the performance condition)	$ 3.77	$ 2.68	$ 3.50	$ 2.10

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Organization and Basis of Presentation - Additional Information (Detail)	6 Months Ended
	Jul. 28, 2012 Segment
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Number of reportable segment	1

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Activity of Auction Rate Securities, Fair Value Measured using Level 3 Inputs (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Apr. 28, 2012	Jul. 28, 2012
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Carrying value beginning balance		$ 1,722	$ 1,722
Total gains
Included in earnings
Included in other comprehensive (loss) income	(3)	5	2	[1]
Carrying value ending balance	$ 1,724		$ 1,724

[1] Unrealized gains of $5,000 and unrealized losses $3,000 occurred during the first and second quarters of fiscal 2012, respectively.

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(Loss) Earnings Per Share - Additional Information (Detail) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011
Earnings Per Share Disclosure [Line Items]
Number of Anti-dilutive options to purchase shares excluded from computation of earnings per share amount	3.2	4.0	3.2	4.2

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Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	Jul. 28, 2012	Jan. 28, 2012
Income Taxes [Line Items]
Unrecognized tax benefits, gross	$ 1.5	$ 1.6
Unrecognized tax benefits, net of federal benefits	0.7	0.7
Unrecognized tax benefits, interest	0.2	0.3
Unrecognized tax benefits, interest net of federal benefit	0.1	0.2
Unrecognized tax benefits, penalties	0.1	0.1
Accrued interest and penalties related to uncertain tax positions	0.3	0.4
Unrecognized Tax Benefits, Which May be Recognized in 12 Months
Income Taxes [Line Items]
Unrecognized tax benefits, gross	1.0
Unrecognized tax benefits, net of federal benefits	0.7
Unrecognized tax benefits, interest	0.2
Unrecognized tax benefits, interest net of federal benefit	0.1
Unrecognized tax benefits, penalties	$ 0.1

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Stock-Based Compensation

6 Months Ended

Jul. 28, 2012

Stock-Based Compensation

NOTE 3.  Stock-Based Compensation

Stock Plan Activity

Under our 1996 Equity Incentive Plan, or the 1996 Plan, we granted stock options, stock bonuses and other awards to our employees, directors and consultants as deemed appropriate by the Board.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 14, 2006, the 1996 Plan expired and was replaced with the 2006 Equity Incentive Plan, or the 2006 Plan.  Upon the expiration of the 1996 Plan, no shares had been granted to consultants and 732,456 shares out of an aggregate of 18,300,000 shares of common stock were authorized and available for grant.

Under our 2006 Plan, we granted stock options, stock bonuses and other awards to our employees, directors and consultants as deemed appropriate by the Board.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 5, 2012, the 2006 Plan was terminated and replaced with the 2012 Equity Incentive Plan, or the 2012 Plan.  The 2012 Plan was approved by the Board on March 16, 2012 and by our shareholders on June 5, 2012.  Upon the termination of the 2006 Plan, no shares had been granted to consultants, except for the independent consulting services provided by Lisa Harper in February 2011 and by an independent consultant in April 2012.  There were 942,602 shares out of an aggregate of 3,082,456 shares of common stock authorized and available for grant upon the termination of the 2006 Plan.

The 2012 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of equity compensation to our employees, consultants and directors as deemed appropriate by the Board.  Both incentive and non-statutory stock options granted by us under the 2012 Plan must carry an exercise price of at least 100% of the fair market value of our common stock on the date of grant.  Incentive stock options must carry an exercise price of at least 110% of the fair market value of our common stock on the date of grant for persons possessing 10% or more of the total combined voting power of all classes of stock.  Options granted may be subject to different vesting terms as determined by the Board and the maximum term of options granted is 8 years.  In addition, the maximum number of shares of common stock available for future issuance may not exceed the sum of (a) 942,602 and 34,976 shares of common stock remaining available for issuance under the 2006 Plan and the 1996 Non-Employee Directors’ Stock Option Plan, or the 1996 NEDSOP, respectively, as of June 5, 2012, (b) an additional 3,100,000 shares and (c) the number of shares subject to stock awards as of June 5, 2012 under the 2006 Plan and the 1996 NEDSOP pursuant to the terms of the 2006 Plan and the 1996 NEDSOP.  As of the end of the second quarter of fiscal 2012, 3,856,736 shares were available for future grants under the 2012 Plan.  All awards to date under the 2012 Plan have been granted to our employees and directors, and none have been granted to consultants.

Under the 1996 NEDSOP, we granted stock options to non-employee directors.  Options granted were subject to different vesting terms as determined by the Board and the maximum term of options granted was 10 years.  On June 5, 2012, the 1996 NEDSOP was terminated.  Upon the termination of the 1996 NEDSOP, no shares had been granted to anyone for their role as a consultant to the company and 34,976 shares out of an aggregate of 720,000 shares of common stock were authorized and available for grant.

In June 1996, the Board adopted the Employee Stock Purchase Plan, or the Stock Purchase Plan.   The Stock Purchase Plan provides for the issuance of up to 1,350,000 shares of common stock to our employees.  All eligible employees are granted identical rights to purchase common stock for each Board authorized offering under the Stock Purchase Plan.  Rights granted pursuant to any offering under the Stock Purchase Plan terminate immediately upon cessation of an employee’s employment for any reason.  In general, an employee may reduce their contribution or withdraw from participation in an offering at any time during the purchase period for such offering.  Employees receive a 15% discount on shares purchased under the Stock Purchase Plan.  Rights granted under the Stock Purchase Plan are not transferable and may be exercised only by the person to whom such rights are granted.  The initial offering under the Stock Purchase Plan commenced October 24, 1996 and terminated December 31, 1996.  Subsequent offerings have occurred every six months commencing January 1, 1997.  As of the end of the second quarter of fiscal 2012, 692,372 shares could still be sold to employees under the Stock Purchase Plan.  Compensation expense for the second quarter of fiscal 2012 and 2011 was $42,000 and $39,000, respectively, related to the fair value of the rights granted to participants under the plan.  During fiscal year-to-date 2012 and 2011, $84,000 and $78,000, respectively, was expensed.

In June 2012, we granted non-employee directors an aggregate of 21,008 shares of restricted common stock under the 2012 Plan.  In March 2012 and June 2011, we granted non-employee directors an aggregate of 515 and 25,387 shares of restricted common stock, respectively, under the 2006 Plan.  Restricted shares generally vest in one installment in the year subsequent to the grant year.  All awarded common shares remain restricted (i.e., not transferable by the holders) until such time as the recipient is no longer a member of our Board.  The value of these grants is expensed over the vesting period.  During the second quarter of fiscal 2012 and 2011, $50,000 and $47,000, respectively, was expensed.  During the fiscal year-to-date 2012 and 2011, $99,000 and $99,000, respectively, was expensed.

In April 2012, we granted an independent consultant 2,525 shares of restricted common stock under the 2006 Plan.  This grant was substantially similar to the restricted common stock granted to non-employee directors described above except that vesting shall occur in full after providing six months of continuous service to the company.  A charge of $13,000 and $17,000 was expensed for this grant during the second quarter of fiscal 2012 and fiscal year-to-date 2012, respectively.

In March 2012, we granted Lisa Harper an option to purchase 100,000 shares of our common stock under the 2006 Plan.  This 100,000 share option is subject to a service condition as well as a performance condition that the company achieves a defined earnings target in fiscal year 2012, which will be certified by the Compensation Committee of the Board during the first quarter of fiscal 2013.

In March 2011, in connection with her appointment as Chief Executive Officer, we granted Lisa Harper an option to purchase 500,000 shares of our common stock under the 2006 Plan.  This 500,000 share option vests only upon a vesting determination by the Compensation Committee of the Board.  The option will terminate on the day following the third anniversary of the date of grant if the vesting determination has not been made.   The vesting determination shall be made at any time on or before the third anniversary of the date of grant when the Compensation Committee of the Board certifies that the weighted average per share closing price of the company’s common stock for any trailing 90 trading days equals or exceeds twice the closing price per share on the date of grant.

In March 2011, we granted certain employees the option to purchase an aggregate of 440,000 shares of our common stock, net of forfeitures, under the 2006 Plan.  These share options are subject to four-year vesting, but vesting will occur in full upon the occurrence of the vesting determination described above.

In February 2011, prior to her appointment as Chief Executive Officer, we granted Lisa Harper, in her capacity as an independent consultant, 17,568 shares of restricted common stock under the 2006 Plan.  This grant was substantially similar to the restricted common stock granted to non-employee directors described above.  The total charge of $98,000 was expensed for this grant during the first quarter of fiscal 2011.

In March 2009, we granted performance stock awards under the 2006 plan to certain members of our management.  These 2009 awards provided for the issuance of up to 100,000 shares of our common stock, net of forfeitures, with vesting and issuance contingent upon achieving a performance goal for fiscal 2011, based upon our operating income for that fiscal year; and prior to vesting (or termination without vesting), the awards constituted an agreement by us to issue shares to the extent this performance goal was ultimately met.  The market value of our common stock as of the 2009 grant date of these performance stock awards was $9.56.  Compensation expense for these awards was required to be recorded over the three-year terms of the awards, based on the market values as of the grant dates, with actual amounts expensed dependent upon the likelihood from period to period of vesting of these awards at the end of fiscal 2011.  In March 2012, the Board confirmed that the target performance goal for fiscal 2011 had not been met, and therefore all such awards terminated without vesting or issuance of the underlying shares.  We did not recognize any compensation expense for these 2009 awards.

The following table summarizes stock options outstanding under all of our plans as of the end of the second quarter of fiscal 2012, as well as activity during fiscal year-to-date 2012:

	Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 28, 2012		5,890,439		$	9.29
Granted		1,683,354		$	9.68
Exercised		(152,501	)	$	5.62
Forfeited or expired		(391,247	)	$	13.73
Outstanding at July 28, 2012		7,030,045		$	9.21		7.23	$	12,951
Exercisable at July 28, 2012		3,032,067		$	11.03		5.15	$	5,282

The total fair value of shares vested during the second quarter of fiscal 2012 and 2011 is $0.6 million and $1.0 million, respectively.  The total fair value of shares vested during fiscal-year-to-date 2012 and 2011 was $1.5 and $2.3 million, respectively.

Cash proceeds, tax benefits and intrinsic values related to total stock options exercised during the second quarter of fiscal 2012 and 2011 and during fiscal year-to-date 2012 and 2011 are provided in the following table (in thousands):

	Three Months Ended				Six Months Ended
	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
Proceeds from stock options exercised	$	208	$	494	$	857	$	942
Tax benefit related to stock options exercised	$	49	$	44	$	265	$	88
Intrinsic value of stock options exercised	$	123	$	110	$	663	$	220

Accounting for Stock-Based Compensation Expense  We account for stock-based compensation expense by estimating the fair value of stock options granted, except for certain stock options granted in March 2011 that are subject to the vesting determination described above, using the Black-Scholes option-pricing formula and a single option award approach.  The fair value is then amortized over the requisite vesting periods of the awards.  As stock-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

We estimate the fair values of the share options granted in March 2011, that are subject to the vesting determination, using a Monte Carlo simulation valuation model.  The fair values of the options to purchase the aggregate of 440,000 shares, net of forfeitures, are amortized over the vesting period determined by this model.  The entire fair value of the 500,000 share option was recognized as compensation expense during fiscal 2011.

The effect of recording stock-based compensation for the second quarter of fiscal 2012 and 2011 and for fiscal year-to-date 2012 and 2011 was as follows (in thousands):

	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Stock-based compensation by type of award:
Employee and director stock options and awards	$	1,012		$	1,824		$	1,967		$	2,646
Non-employee stock award		13			-			17			-
Employee stock purchase plan		42			39			84			78
Total stock-based compensation expense		1,067			1,863			2,068			2,724
Tax effect on stock-based compensation expense		(385	)		(711	)		(747	)		(1,019	)
Net effect on net income or loss	$	682		$	1,152		$	1,321		$	1,705

For the second quarter of fiscal 2012 and 2011, $172,000 and $105,000, respectively, of stock-based compensation expense was recorded as a component of cost of goods sold and the remainder, $0.9 million and $1.8 million, respectively, was charged to selling, general and administrative expense.

For fiscal year-to-date 2012 and 2011, $333,000 and $218,000, respectively, of stock-based compensation expense was recorded as a component of cost of goods sold and the remainder, $1.7 million and $2.5 million, respectively, was charged to selling, general and administrative expense.

As of the end of the second quarter of fiscal 2012 and 2011, we had $8.0 million and $5.1 million, respectively, of unrecognized expense related to non-vested stock option grants (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that are subject to the performance condition, and the aggregate of 440,000 stock options granted in March 2011 that are subject to the vesting determination), which are expected to be recognized over weighted average periods of 2.87 years and 2.77 years, respectively.

As of the end of the second quarter of fiscal 2012, we had $0.3 million of unrecognized expense related to Lisa Harper’s option to purchase 100,000 shares of our common stock granted in March 2012 that are subject to the performance condition, which is expected to be recognized over a weighted average period of 3.67 years.  This option to purchase 100,000 shares has a $3.44 weighted average fair value at grant date.

As of the end of the second quarter of fiscal 2012 and 2011, we had $0.3 million and $1.0 million, respectively, of unrecognized expense related to the options to purchase an aggregate of 440,000 shares of our common stock granted in March 2011 that are subject to the vesting determination, which is expected to be recognized over weighted average periods of 2.67 years and 3.67 years, respectively.

As of the end of the second quarter of fiscal 2012 and 2011, we had $175,000 and $150,000, respectively, of unrecognized expense related to restricted stock grants, which is expected to be recognized over weighted average periods of 0.78 and 0.72 years, respectively.

Calculation of Fair Value of Options  The Black-Scholes option valuation model used to determine the fair value of stock-based compensation for all options, except for those granted in March 2011 that are subject to the vesting determination, incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield.  The expected term of an award is generally no less than the option vesting period and is based on our historical experience.  Expected volatility is based upon the historical volatility of our stock price.  The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s expected life.  The dividend yield is based on the expected dividend yield as of the date of option grant.

The following weighted average assumptions were used in the Black-Scholes option valuation model for stock options granted:

	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Risk free interest rate		1	%		2	%		1	%		2	%
Expected life	5 years			5 years			5 years			5 years
Expected volatility		58	%		58	%		57	%		58	%
Expected dividend yield		3	%		4	%		4	%		5	%
Weighted average fair value at grant date (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that are subject to the performance condition)	$	3.77		$	2.68		$	3.50		$	2.10

A Monte Carlo simulation was used to determine the fair value of stock-based compensation for the stock options granted in March 2011 that are subject to the vesting determination.  This risk neutral model is based on projections of stock price paths and incorporates various assumptions including the early exercise behavior, volatility of stock price, risk-free rates of return and dividend yield.  Expected volatility is based upon the historical volatility of our stock price.  The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s contractual life.  The dividend yield is based on the expected dividend yield as of the date of option grant.

The following weighted average assumptions were used in the Monte Carlo simulation valuation model for the stock options granted in March 2011 that are subject to the vesting determination:

Risk free interest rate	4%
Contractual life	10 years
Expected volatility	58%
Expected dividend yield	5%
Weighted average fair value at grant date	$2.06

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Activity of Auction Rate Securities, Fair Value Measured using Level 3 Inputs (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Apr. 28, 2012	Jul. 28, 2012
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Unrealized gains (losses) included in other comprehensive (loss) income	$ (3)	$ 5	$ 2	[1]

[1] Unrealized gains of $5,000 and unrealized losses $3,000 occurred during the first and second quarters of fiscal 2012, respectively.

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Stock-Based Compensation - Additional Information (Detail) (USD $)	3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		1 Months Ended	3 Months Ended		6 Months Ended			1 Months Ended		1 Months Ended		3 Months Ended	1 Months Ended	3 Months Ended		1 Months Ended		3 Months Ended		6 Months Ended		1 Months Ended	3 Months Ended	1 Months Ended	3 Months Ended	6 Months Ended	3 Months Ended		1 Months Ended			6 Months Ended				1 Months Ended		1 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012 Cost of goods sold	Jul. 30, 2011 Cost of goods sold	Jul. 28, 2012 Cost of goods sold	Jul. 30, 2011 Cost of goods sold	Jul. 28, 2012 Selling, General and Administrative Expense	Jul. 30, 2011 Selling, General and Administrative Expense	Jul. 28, 2012 Selling, General and Administrative Expense	Jul. 30, 2011 Selling, General and Administrative Expense	Jun. 30, 1996 ESPP	Jul. 28, 2012 ESPP	Jul. 30, 2011 ESPP	Jul. 28, 2012 ESPP	Jul. 30, 2011 ESPP	Jun. 14, 2006 1996 Equity Incentive Plan	Jun. 14, 2006 1996 Equity Incentive Plan Maximum	Jun. 05, 2012 2006 Equity Incentive Plan	Mar. 31, 2012 2006 Equity Incentive Plan Chief Executive Officer	Mar. 31, 2011 2006 Equity Incentive Plan Chief Executive Officer	Jul. 28, 2012 2006 Equity Incentive Plan Chief Executive Officer	Jun. 05, 2012 2006 Equity Incentive Plan Maximum	Jul. 28, 2012 2006 Equity Incentive Plan Restricted Stock	Jul. 30, 2011 2006 Equity Incentive Plan Restricted Stock	Mar. 31, 2012 2006 Equity Incentive Plan Restricted Stock Director	Jun. 30, 2011 2006 Equity Incentive Plan Restricted Stock Director	Jul. 28, 2012 2006 Equity Incentive Plan Restricted Stock Director	Jul. 30, 2011 2006 Equity Incentive Plan Restricted Stock Director	Jul. 28, 2012 2006 Equity Incentive Plan Restricted Stock Director	Jul. 30, 2011 2006 Equity Incentive Plan Restricted Stock Director	Feb. 28, 2011 2006 Equity Incentive Plan Restricted Stock Chief Executive Officer	Apr. 30, 2011 2006 Equity Incentive Plan Restricted Stock Chief Executive Officer	Apr. 30, 2012 2006 Equity Incentive Plan Restricted Stock Independent consultant	Jul. 28, 2012 2006 Equity Incentive Plan Restricted Stock Independent consultant	Jul. 28, 2012 2006 Equity Incentive Plan Restricted Stock Independent consultant	Jul. 28, 2012 2006 Equity Incentive Plan Employee Stock Option	Jul. 30, 2011 2006 Equity Incentive Plan Employee Stock Option	Mar. 31, 2011 2006 Equity Incentive Plan Employee Stock Option Employees	Mar. 31, 2009 2006 Equity Incentive Plan Performance Awards	Mar. 31, 2009 2006 Equity Incentive Plan Performance Awards Maximum	Jul. 28, 2012 2012 Equity Incentive Plan	Jul. 28, 2012 2012 Equity Incentive Plan Maximum	Jul. 28, 2012 2012 Equity Incentive Plan Minimum	Jul. 28, 2012 2012 Equity Incentive Plan Minimum Persons possessing 10% or more of voting power	Jun. 30, 2012 2012 Equity Incentive Plan Restricted Stock Director	Jun. 05, 2012 1996 NEDSOP	Jun. 05, 2012 1996 NEDSOP Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares available for future grant														692,372		692,372		732,456		942,602																							3,856,736					34,976
Aggregate number of shares authorized for grant													1,350,000					18,300,000		3,082,456																												720,000
Options, expiration period																			10 years					10 years																				8 years					10 years
Exercise price percentage on fair market value of common stock on date of grant																																													100.00%	110.00%
Number of additional shares authorized for grant																																											3,100,000
Stock Purchase Plan discount													15.00%
Share based compensation expense	$ 1,067,000	$ 1,863,000	$ 2,068,000	$ 2,724,000	$ 172,000	$ 105,000	$ 333,000	$ 218,000	$ 900,000	$ 1,800,000	$ 1,700,000	$ 2,500,000		$ 42,000	$ 39,000	$ 84,000	$ 78,000												$ 50,000	$ 47,000	$ 99,000	$ 99,000		$ 98,000		$ 13,000	$ 17,000
Award grants in period																											515	25,387					17,568		2,525							100,000					21,008
Vesting period																															1 year									4 years
Number of options granted			1,683,354																		100,000	500,000																		440,000
Market value common stock as of grant date																																									$ 9.56
Unrecognized expense, weighted average recognition period	2 years 318 days	2 years 281 days																					3 years 245 days		285 days	263 days												2 years 245 days	3 years 245 days		3 years
Total fair value of shares vested	600,000	1,000,000	1,500,000	2,300,000
Unrecognized expense	$ 8,000,000	$ 5,100,000	$ 8,000,000	$ 5,100,000																			$ 300,000		$ 175,000	$ 150,000												$ 300,000	$ 1,000,000
Weighted average fair value, grant date																							$ 3.44

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Charges Related to Strategic Business Changes and Cost Reduction Plan (Parenthetical) (Detail)	Nov. 30, 2010 Store
Restructuring Cost and Reserve [Line Items]
Number of underperforming stores to be closed	50

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Deferred Compensation Plan - Additional Information (Detail) (USD $)	1 Months Ended
	Jan. 31, 2009	Aug. 31, 2006	Jul. 28, 2012	Jan. 28, 2012
Deferred Compensation Arrangement with Individual [Line Items]
Deferred compensation plan, vesting percentage		100.00%
Percentage of employer contribution based on the first 4% eligible employee contribution	50.00%
Percentage of eligible contributions by employee	4.00%
Deferred compensation plan, asset			$ 4,800,000	$ 4,700,000
Deferred compensation plan, liability			$ 4,596,000	$ 4,410,000
Base Salary Compensation
Deferred Compensation Arrangement with Individual [Line Items]
Deferred compensation plan, eligible compensation for deferral percentage		80.00%
Annual earned Bonus
Deferred Compensation Arrangement with Individual [Line Items]
Deferred compensation plan, eligible compensation for deferral percentage		100.00%
Earned cash fees
Deferred Compensation Arrangement with Individual [Line Items]
Deferred compensation plan, eligible compensation for deferral percentage		100.00%

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Summary of Stock Options Outstanding under All Plans (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jul. 28, 2012
Options Outstanding
Options outstanding, beginning of period	5,890,439
Granted	1,683,354
Exercised	(152,501)
Forfeited or expired	(391,247)
Options outstanding, end of period	7,030,045
Options exercisable, end of period	3,032,067
Weighted-Average Exercise Price
Weighted-Average Exercise Price, beginning of period	$ 9.29
Granted	$ 9.68
Exercised	$ 5.62
Forfeited or expired	$ 13.73
Weighted-Average Exercise Price, end of period	$ 9.21
Weighted-Average Exercise Price, Exercisable, end of period	$ 11.03
Weighted-Average Remaining Contractual Term
Weighted-Average Remaining Contractual Term, Outstanding at end of period	7 years 84 days
Weighted-Average Remaining Contractual Term, Exercisable at end of period	5 years 55 days
Aggregate Intrinsic Value
Aggregate Intrinsic Value, Outstanding end of period	$ 12,951
Aggregate Intrinsic Value, Exercisable end of period	$ 5,282

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Cash Proceeds, Tax Benefits and Intrinsic Values Related to Stock Options Exercised (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Proceeds from stock options exercised	$ 208	$ 494	$ 857	$ 942
Tax benefit related to stock options exercised	49	44	265	88
Intrinsic value of stock options exercised	$ 123	$ 110	$ 663	$ 220

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Business Events

6 Months Ended

Jul. 28, 2012

Business Events

NOTE 2.  Business Events

Strategic Business Changes  In March 2011, our Board of Directors, or the Board, approved certain strategic business changes to better position the company for growth.  The business changes involved discontinuing the operations of ShockHound; writing down inventory due to a change in management’s inventory strategy; writing down property and equipment that are no longer critical to our strategic direction; and implementing other strategic business and operational initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the strategic business changes.

Cost Reduction Plan  In November 2010, our Board approved a cost reduction plan, designed to meet the challenges of the environment at that time, which involved closing approximately 50 underperforming stores, a majority of which closed by the end of the first quarter of fiscal 2011.  These closures occurred as a result of natural lease expirations, exercising lease kick out clauses and other negotiations.  The cost reduction plan also included reducing our home office and field management positions, reducing planned capital expenditures in fiscal 2011 relative to fiscal 2010 and implementing other non-payroll overhead expense reduction initiatives.  As of the end of the second quarter of fiscal 2011, we had recorded all charges related to the cost reduction plan, completed the announced reduction of our home office and field management positions, and completed the implementation of non-payroll overhead expense reduction initiatives as part of the cost reduction plan.  As of the end of the second quarter of fiscal 2012, we had closed all underperforming stores related to the cost reduction plan, totaling 41 Hot Topic stores and seven Torrid stores.

The following table details charges related to the strategic business changes and cost reduction plan recorded since their implementation in the first quarter of fiscal 2011 and the fourth quarter of fiscal 2010, respectively, (in thousands).

				Non-Store Related
				Severance and			Inventory and
	Store Related			Outplacement			Asset-Related			Consulting			Stock Option
	Closure Costs 1			Costs			Costs 2			Fees			Expense			Total
Balance at October 30, 2010	$	-		$	-		$	-		$	-		$	-		$	-
Cost Reduction Plan charges		(7,077	)		(1,850	)		(830	)		-			-			(9,757	)
Cash payments		93			985			-			-			-			1,078
Non-cash adjustments		6,497			-			830			-			-			7,327
Balance at January 29, 2011		(487	)		(865	)		-			-			-			(1,352	)
Cost Reduction Plan recovery		365			-			-			-			-			365
Strategic Business Changes charges		-			(1,583	)		(9,605	)		(1,606	)		-			(12,794	)
Cash payments		699			889			-			1,645			-			3,233
Non-cash adjustments		(659	)		-			4,891			-			-			4,232
Balance at April 30, 2011		(82	)		(1,559	)		(4,714	)		39			-			(6,316	)
Cost Reduction Plan recovery		174			-			-			-			-			174
Strategic Business Changes charges		-			(1,330	)		(532	)		(1,383	)		(1,072	)		(4,317	)
Cash payments		144			812			182			753			-			1,891
Non-cash adjustments		(455	)		-			4,866			-			1,072			5,483
Balance at July 30, 2011		(219	)		(2,077	)		(198	)		(591	)		-			(3,085	)
Cash payments		197			464			-			473			-			1,134
Non-cash adjustments		22			(43	)		18			20			-			17
Balance at October 29, 2011		-			(1,656	)		(180	)		(98	)		-			(1,934	)
Cash payments		-			682			20			-			-			702
Non-cash adjustments		-			-			75			-			-			75
Balance at January 28, 2012		-			(974	)		(85	)		(98	)		-			(1,157	)
Cash payments		-			476			-			-			-			476
Non-cash adjustments		-			17			68			98			-			183
Balance at April 28, 2012		-			(481	)		(17	)		-			-			(498	)
Cash payments		-			318			-			-			-			318
Non-cash adjustments		-			23			17			-			-			40
Balance at July 28, 2012	$	-		$	(140	)	$	-		$	-		$	-		$	(140	)

1 Store related closure costs represent charges for the closure of approximately 50 underperforming stores.  Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

2 Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

We recorded charges related to store closures, write down of assets; store severance; non-store related severance and outplacement; consulting fees; and stock option expense in selling, general and administrative expenses in our consolidated statements of operations.  Charges related to the write down of store inventory; accelerated depreciation of store assets; and early lease terminations were recorded in cost of goods sold in our consolidated statements of operations.

Discontinued Operations  During the second quarter of fiscal 2011, due to its slower than expected revenue growth, ShockHound’s operations were discontinued.  Revenues from partnerships entered into in the earlier part of fiscal 2010, as well as other revenues, did not build as much as we had anticipated.  See “Strategic Business Changes” above for more information concerning the discontinuation of ShockHound’s operations.

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Effect of Recording Stock-Based Compensation (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 1,067	$ 1,863	$ 2,068	$ 2,724
Tax effect on stock-based compensation expense	(385)	(711)	(747)	(1,019)
Net effect on net income or loss	682	1,152	1,321	1,705
Employee and director stock options and awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	1,012	1,824	1,967	2,646
Non-employee stock award
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	13		17
Employee stock purchase plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 42	$ 39	$ 84	$ 78

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Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Jul. 28, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	$ 63,913
Deferred compensation plan (long-term)	4,596
Money market funds (cash equivalent)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	50,120
Municipal Bonds | Short-term Investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	12,069
Auction rate securities | Long-term
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	1,724
Quoted Prices in Active Markets for Identical Items (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	50,120
Quoted Prices in Active Markets for Identical Items (Level 1) | Money market funds (cash equivalent)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	50,120
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	12,069
Deferred compensation plan (long-term)	4,596
Significant Other Observable Inputs (Level 2) | Municipal Bonds | Short-term Investments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	12,069
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	1,724
Significant Unobservable Inputs (Level 3) | Auction rate securities | Long-term
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	$ 1,724

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Consolidated Statements of Operations and Comprehensive (Loss) Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011
Net sales	$ 157,828	$ 150,950	$ 329,372	$ 312,223
Cost of goods sold, including buying, distribution and occupancy costs	103,977	102,288	213,836	213,152
Gross margin	53,851	48,662	115,536	99,071
Selling, general and administrative expenses	55,091	58,760	110,694	121,558
(Loss) income from operations	(1,240)	(10,098)	4,842	(22,487)
Interest and other (expense) income, net	(6)	82	56	134
(Loss) income before (benefit) provision for income taxes	(1,246)	(10,016)	4,898	(22,353)
(Benefit) provision for income taxes	(478)	(3,796)	1,831	(8,472)
Net (loss) income	(768)	(6,220)	3,067	(13,881)
(Loss) earnings per share:
Basic	$ (0.02)	$ (0.14)	$ 0.07	$ (0.31)
Diluted	$ (0.02)	$ (0.14)	$ 0.07	$ (0.31)
Cash dividends declared and paid per share	$ 0.08	$ 0.07	$ 0.16	$ 0.14
Shares used in computing (loss) earnings per share:
Basic	42,252	44,843	42,196	44,778
Diluted	42,252	44,843	42,915	44,778
Comprehensive (loss) income:
Net (loss) income	(768)	(6,220)	3,067	(13,881)
Other comprehensive (loss) income:
Foreign currency translation adjustment	(34)	25	(92)	1
Unrealized gain (loss) on short-term and long-term investments, net of taxes of $2 and $26 for the six-month periods	7	(22)	5	68
Total other comprehensive (loss) income	(27)	3	(87)	69
Comprehensive (loss) income	$ (795)	$ (6,217)	$ 2,980	$ (13,812)

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Valuation of Long - Lived Assets - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011
Impaired Long-Lived Assets Held and Used [Line Items]
Valuation of long-lived assets, estimated discount rate			13.00%
Store Related Closure Costs
Impaired Long-Lived Assets Held and Used [Line Items]
Impairment of long-lived assets	$ 0.1	$ 0.4	$ 0.4	$ 1.6

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011
OPERATING ACTIVITIES
Net income (loss)	$ 3,067	$ (13,881)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	16,941	18,217
Stock-based compensation	2,068	2,724
Loss on disposal of property and equipment	954	2,507
Impairment of long-lived assets	509	1,861
Deferred taxes	(794)	(1,171)
Gift card breakage	(261)	(249)
Changes in operating assets and liabilities:
Inventory	(9,594)	(2,681)
Prepaid expenses and other current assets	1,468	(7,318)
Deposits and other assets	(163)	(291)
Accounts payable	10,224	13,258
Accrued liabilities	(888)	2,733
Deferred rent and other	(1,269)	(3,690)
Income taxes payable	(40)	(3)
Foreign currency translation gain	63
Net cash provided by operating activities	22,285	12,016
INVESTING ACTIVITIES
Purchases of property and equipment	(19,491)	(12,102)
Proceeds from sale of short-term and long-term investments, net of purchases	4,435	10,974
Net cash used in investing activities	(15,056)	(1,128)
FINANCING ACTIVITIES
Excess tax benefit from stock-based compensation	421	194
Proceeds from employee stock purchases and exercise of stock options	1,073	1,111
Payment of capital lease obligation		(191)
Payment of cash dividends	(6,762)	(6,278)
Net cash used in financing activities	(5,268)	(5,164)
Increase in cash and cash equivalents	1,961	5,724
Effect of foreign currency exchange rate changes on cash	(1)	(35)
Cash and cash equivalents at beginning of period	49,615	51,316
Cash and cash equivalents at end of period	51,575	57,005
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest	1	10
Cash paid (received) during the period for income taxes	$ 2,219	$ (900)

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Weighted Average Assumptions used in Monte Carlo Simulation Valuation Model for Stock Options Granted (Detail) (Monte Carlo Simulation Valuation Model, USD $)	6 Months Ended
	Jul. 28, 2012
Monte Carlo Simulation Valuation Model
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Risk free interest rate	4.00%
Contractual life	10 years
Expected volatility	58.00%
Expected dividend yield	5.00%
Weighted average fair value at grant date	$ 2.06

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Stock-Based Compensation (Tables)

6 Months Ended

Jul. 28, 2012

Summary of Stock Options Outstanding under All Plans

The following table summarizes stock options outstanding under all of our plans as of the end of the second quarter of fiscal 2012, as well as activity during fiscal year-to-date 2012:

	Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at January 28, 2012		5,890,439		$	9.29
Granted		1,683,354		$	9.68
Exercised		(152,501	)	$	5.62
Forfeited or expired		(391,247	)	$	13.73
Outstanding at July 28, 2012		7,030,045		$	9.21		7.23	$	12,951
Exercisable at July 28, 2012		3,032,067		$	11.03		5.15	$	5,282

Cash Proceeds, Tax Benefits and Intrinsic Values Related to Stock Options Exercised

Cash proceeds, tax benefits and intrinsic values related to total stock options exercised during the second quarter of fiscal 2012 and 2011 and during fiscal year-to-date 2012 and 2011 are provided in the following table (in thousands):

	Three Months Ended				Six Months Ended
	July 28, 2012		July 30, 2011		July 28, 2012		July 30, 2011
Proceeds from stock options exercised	$	208	$	494	$	857	$	942
Tax benefit related to stock options exercised	$	49	$	44	$	265	$	88
Intrinsic value of stock options exercised	$	123	$	110	$	663	$	220

Effect of Recording Stock-Based Compensation

The effect of recording stock-based compensation for the second quarter of fiscal 2012 and 2011 and for fiscal year-to-date 2012 and 2011 was as follows (in thousands):

	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Stock-based compensation by type of award:
Employee and director stock options and awards	$	1,012		$	1,824		$	1,967		$	2,646
Non-employee stock award		13			-			17			-
Employee stock purchase plan		42			39			84			78
Total stock-based compensation expense		1,067			1,863			2,068			2,724
Tax effect on stock-based compensation expense		(385	)		(711	)		(747	)		(1,019	)
Net effect on net income or loss	$	682		$	1,152		$	1,321		$	1,705

Monte Carlo Simulation Valuation Model

Weighted Average Assumptions used for Stock Options Granted

The following weighted average assumptions were used in the Monte Carlo simulation valuation model for the stock options granted in March 2011 that are subject to the vesting determination:

Risk free interest rate	4%
Contractual life	10 years
Expected volatility	58%
Expected dividend yield	5%
Weighted average fair value at grant date	$2.06

Black-Scholes Option Valuation Model

Weighted Average Assumptions used for Stock Options Granted

The following weighted average assumptions were used in the Black-Scholes option valuation model for stock options granted:

	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012			July 30, 2011
Risk free interest rate		1	%		2	%		1	%		2	%
Expected life	5 years			5 years			5 years			5 years
Expected volatility		58	%		58	%		57	%		58	%
Expected dividend yield		3	%		4	%		4	%		5	%
Weighted average fair value at grant date (with the exception of Lisa Harper’s 100,000 stock options granted in March 2012 that are subject to the performance condition)	$	3.77		$	2.68		$	3.50		$	2.10

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Cash Dividends - Additional Information (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011
Dividends [Line Items]
Dividend paid, per share	$ 0.08	$ 0.07	$ 0.16	$ 0.14
Dividend declared, per share	$ 0.08
Dividend paid, record date	Jul. 16, 2012
Payment of cash dividends			$ 6,762	$ 6,278

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Fair Value Measurements (Tables)

6 Months Ended

Jul. 28, 2012

Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

Financial assets and liabilities measured at fair value on a recurring basis as of the end of the second quarter of fiscal 2012 consisted of the following (in thousands):

	Balance at July 28, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalent)	$	50,120	$	50,120	$	-	$	-
Municipal bonds (short-term)		12,069		-		12,069		-
Auction rate securities (long-term)		1,724		-		-		1,724
Total assets	$	63,913	$	50,120	$	12,069	$	1,724
Liabilities:
Deferred compensation plan (long-term)	$	4,596	$	-	$	4,596	$	-

Activity of Auction Rate Securities, Fair Value Measured using Level 3 Inputs

The activity of our auction rate securities through the second quarter of fiscal 2012, whose fair value was measured using Level 3 inputs, is summarized below (in thousands):

	Non-current
Carrying value as of  January 28, 2012	$	1,722
Total gains
Included in earnings		-
Included in other comprehensive (loss) income1		2
Carrying value as of  July 28, 2012	$	1,724

1 Unrealized gains of $5,000 and unrealized losses $3,000 occurred during the first and second quarters of fiscal 2012, respectively.

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Organization and Basis of Presentation

6 Months Ended

Jul. 28, 2012

Organization and Basis of Presentation

NOTE 1.  Organization and Basis of Presentation

Description of Business  We are a mall and web-based specialty retailer of apparel, accessories, music and gift items for young men and women whose lifestyles reflect a passion for music, fashion and pop culture.  We operate under two concepts: Hot Topic and Torrid.  Music and pop culture are the overriding inspirations at Hot Topic, and Torrid is focused on providing the best in fashion to young plus-size women.  At our Hot Topic stores and our website hottopic.com, we sell a selection of licensed and non-licensed apparel, accessories and gift items that are influenced by popular music artists and pop culture trends, designed to appeal to young men and women.  We also sell a limited assortment of music CDs and DVDs at Hot Topic.  At our Torrid stores and on our website torrid.com, we sell on-trend fashion apparel, lingerie and accessories inspired by and designed to fit the young, voluptuous woman who wears a size 12 and up.  We generate revenues primarily through our retail stores in the United States of America, Puerto Rico and Canada, and online through our websites.  We were incorporated in California in 1988 and opened our first Hot Topic store the following year in fiscal 1989.  We opened our first Torrid store in fiscal 2001.  During the second quarter of fiscal 2011, the operations of ShockHound, our online digital music website launched in fiscal 2008, were discontinued.  Refer to “NOTE 2 – Business Events” for more information concerning the discontinuation of ShockHound’s operations.

References to Hot Topic, Inc.  Throughout this report, the terms “we,” “us,” “our,” “company” and similar references refer to Hot Topic, Inc. and its wholly-owned subsidiaries.

Fiscal Year  Our fiscal year ends on the Saturday nearest to January 31.  References to the second quarter of fiscal 2012 and 2011 refer to the thirteen week periods ended July 28, 2012 and July 30, 2011, respectively.  References to fiscal 2012 refer to the 53-week period ending February 2, 2013.  References to fiscal 2011, 2010 and 2009 refer to the 52-week periods ended January 28, 2012, January 29, 2011, and January 30, 2010, respectively.  Fiscal 2013 refers to the 52-week period ending February 1, 2014.

Segment Information We currently have one reportable segment given the similarities of the economic characteristics between the Hot Topic and Torrid concepts.

Interim Financial Information  The information set forth in these condensed consolidated financial statements is unaudited except for the January 28, 2012 consolidated balance sheet data.  These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K filed on March 21, 2012.

In the opinion of management, all adjustments necessary for a fair presentation have been included in these condensed consolidated financial statements.

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Consolidated Statements of Operations and Comprehensive (Loss) Income (Parenthetical) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011
Unrealized gain (loss) on short-term and long-term investments, tax	$ 2	$ 26

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Bank Credit Agreement

6 Months Ended

Jul. 28, 2012

Bank Credit Agreement

NOTE 11.  Bank Credit Agreement

We maintain an unsecured bank credit agreement of $5.0 million that will expire on September 1, 2013.  Letters of credit, which are primarily used for inventory purchases, are issued under the credit agreement.  There were no letters of credit as of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011.

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Document and Entity Information	6 Months Ended
	Jul. 28, 2012	Aug. 16, 2012
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jul. 28, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Trading Symbol	HOTT
Entity Registrant Name	HOT TOPIC INC /CA/
Entity Central Index Key	0001017712
Current Fiscal Year End Date	--02-02
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		42,282,382

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Income Taxes

6 Months Ended

Jul. 28, 2012

Income Taxes

NOTE 12.  Income Taxes

As ofthe end of the second quarter of fiscal 2012, the total liability for income tax associated with unrecognized tax benefits consisted of tax of $1.5 million ($0.7 million net of federal benefit), interest of $0.2 million ($0.1 million net of federal benefit) and $0.1 million related to penalties.  Our effective tax rate will be affected by any portion of this liability we may recognize.  As of the end of fiscal 2011, the total liability for income tax associated with unrecognized tax benefits consisted of tax of $1.6 million ($0.7 million net of federal benefit), interest of $0.3 million ($0.2 million net of federal benefit) and $0.1 million related to penalties.

We believe that it is reasonably possible that our liability for unrecognized tax benefits consisting of tax of $1 million ($0.7 million net of federal benefit), interest of $0.2 million ($0.1 million net of federal benefit) and penalties of $0.1 million, may be recognized in the next 12 months due to the settlement of audits and the expiration of statutes of limitations.  As such, we have classified these amounts as current liabilities.

Our continuing practice is to recognize interest and penalties related to unrecognized tax benefits as a tax expense.  Tax expense during the second quarter of fiscal 2012 and 2011 related to interest and penalties was not material.  As of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011, we had accrued $0.3 million and $0.4 million, respectively, of interest and penalties related to uncertain tax positions.

We operate stores throughout the United States as well as in Canada and Puerto Rico, and as a result, we file income tax returns in the United States federal jurisdiction and various states, local and foreign jurisdictions.  In the normal course of business, we are subject to examination by taxing authorities.  With few exceptions, we are no longer subject to United States federal, state, local or foreign income tax examinations for years before fiscal 2007.  While it is often difficult to predict the final outcome or the timing or resolution of any particular uncertain tax position, we believe our reserves for income taxes represent the most probable outcome.  We adjust these reserves, as well as the related interest and penalties, in light of changing facts and circumstances.

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jul. 28, 2012	Jan. 28, 2012
Current assets:
Cash and cash equivalents	$ 51,575	$ 49,615
Short-term investments	12,068	16,503
Inventory	80,239	70,800
Prepaid expenses and other	16,006	17,474
Deferred tax assets	5,706	5,953
Total current assets	165,594	160,345
Property and equipment, net	106,863	105,790
Deposits and other	7,165	7,002
Long-term investments	1,724	1,722
Deferred tax assets	3,900	3,104
Total assets	285,246	277,963
Current liabilities:
Accounts payable	34,051	23,828
Accrued liabilities	42,736	44,253
Income taxes payable	1,350	171
Total current liabilities	78,137	68,252
Deferred rent and other	19,217	20,486
Income taxes payable	593	1,812
Deferred compensation	4,596	4,410
Commitments and contingencies
Shareholders' equity:
Preferred shares, no par value; 10,000,000 shares authorized; no shares issued and outstanding
Common shares, no par value; 150,000,000 shares authorized; 42,282,382 and 42,047,991 shares issued and outstanding at July 28, 2012 and January 28, 2012, respectively	132,836	129,354
Retained earnings	50,171	53,866
Accumulated other comprehensive loss	(304)	(217)
Total shareholders' equity	182,703	183,003
Total liabilities and shareholders' equity	$ 285,246	$ 277,963

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Short-Term and Long-Term Investments

6 Months Ended

Jul. 28, 2012

Short-Term and Long-Term Investments

NOTE 6.  Short-Term and Long-Term Investments

Our short-term investments consist of highly-rated interest-bearing municipal bonds that have maturities that are less than one year and are accounted for as available for sale.  As of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011, short-term investments consisted of municipal bonds of $12.1 million and $16.5 million, respectively.  Refer to “NOTE 8 – Fair Value Measurements” for further discussion on how we determined the fair value of our short-term investments.  The associated unrealized net gains and losses in fiscal year-to-date 2012 and in the full year of fiscal 2011, respectively, were immaterial and have been recorded in the consolidated statements of comprehensive income (loss).

As of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011, our long-term investment comprised of an auction rate security.  Our auction rate security is a AAA/A3-rated debt instrument with a maturity of 25 years.  It is accounted for as available for sale and backed by pools of student loans guaranteed by the U.S. Department of Education.  Its interest rate is reset through an auction process, most commonly at intervals of approximately 4 weeks.  This same auction process is designed to provide a means by which this security can be sold and prior to 2008 had provided a liquid market for it.  There continues to be uncertainty in the global credit and capital markets, which has resulted in the failure of auctions representing the auction rate security we hold as the amount of securities submitted for sale in those auctions exceed the amount of bids.  While we have continued to earn and receive interest on our auction rate security through the date of this report, we concluded that its estimated fair value no longer approximates par value.  Due to the lack of availability of observable market quotes on our auction rate security, the fair market value of this security has been based on a valuation model using current assumptions.  Refer to “NOTE 8 – Fair Value Measurements” for further discussion on how we determined the fair value of our auction rate security investment.

As of the end of the second quarter of fiscal 2012 and as of the end of fiscal 2011, the fair value of our auction rate security remained the same at $1.7 million.  The fair value of our auction rate security as of the end of the second quarter of fiscal 2012 reflects a cumulative decline of $0.4 million from the par value.  This cumulative $0.4 million decline ($0.2 million net of tax) is deemed temporary as we have the ability to hold this security and we do not have the intent to sell it below par value.  Furthermore, it is not likely that we will be required to sell the security before the recovery of its amortized cost basis.  If uncertainties in the credit and capital markets continue, we may incur additional losses, some of which may be other-than-temporary, which could negatively affect our financial condition or results of operations.  In addition, in the event that we decide to sell this security and it becomes likely that we will be required to sell the security before the recovery of its amortized cost basis, we may be required to recognize impairment charges against income.  We have classified our auction rate security as a non-current asset on our consolidated balance sheet, as we do not expect it to successfully auction and recover its full or par value within the next 12 months.

For the second quarter of fiscal 2012 and 2011, we recorded immaterial unrealized losses and for fiscal year-to-date 2012, we recorded immaterial unrealized gains, for our auction rate security in the consolidated statements of comprehensive income (loss).  For fiscal year-to-date 2011, we recorded unrealized gains of $0.1 million ($0.1 million net of tax).

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(Loss) Earnings Per Share

6 Months Ended

Jul. 28, 2012

(Loss) Earnings Per Share

NOTE 5. (Loss) Earnings Per Share

Basic earnings or loss per share is computed by dividing net income or net loss, respectively, by the weighted average number of common shares outstanding for the period.  Diluted earnings per share is applicable only in periods of net income and is computed by dividing net income by the weighted average number of common shares outstanding for the period and potentially dilutive common stock equivalents outstanding for the period.  Periods of net loss require the diluted computation to be the same as the basic computation.  As of the end of the second quarter of fiscal 2012 and 2011, options to purchase 3.2 million and 4.0 million shares, respectively, of potentially anti-dilutive common stock equivalents were outstanding.  For fiscal year-to-date 2012 and 2011, options to purchase 3.2 million and 4.2 million shares, respectively, of potentially anti-dilutive common stock equivalents were outstanding.

A reconciliation of the numerator and denominator of basic and diluted (loss) earnings per share is as follows (in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012		July 30, 2011
Basic and diluted (loss) earnings per share computation:
Numerator	$	(768	)	$	(6,220	)	$	3,067	$	(13,881	)
Denominator:
Weighted average common shares outstanding		42,252			44,843			42,196		44,778
Incremental shares from assumed exercise/issuance of options and awards		-			-			719		-
Total shares		42,252			44,843			42,915		44,778
Basic (loss) earnings per share	$	(0.02	)	$	(0.14	)	$	0.07	$	(0.31	)
Diluted (loss) earnings per share	$	(0.02	)	$	(0.14	)	$	0.07	$	(0.31	)

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(Loss) Earnings Per Share (Tables)

6 Months Ended

Jul. 28, 2012

Reconciliation of Numerator and Denominator of Basic and Diluted (Loss) Earnings Per Share

A reconciliation of the numerator and denominator of basic and diluted (loss) earnings per share is as follows (in thousands, except per share amounts):

	Three Months Ended						Six Months Ended
	July 28, 2012			July 30, 2011			July 28, 2012		July 30, 2011
Basic and diluted (loss) earnings per share computation:
Numerator	$	(768	)	$	(6,220	)	$	3,067	$	(13,881	)
Denominator:
Weighted average common shares outstanding		42,252			44,843			42,196		44,778
Incremental shares from assumed exercise/issuance of options and awards		-			-			719		-
Total shares		42,252			44,843			42,915		44,778
Basic (loss) earnings per share	$	(0.02	)	$	(0.14	)	$	0.07	$	(0.31	)
Diluted (loss) earnings per share	$	(0.02	)	$	(0.14	)	$	0.07	$	(0.31	)

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Commitments and Contingencies

6 Months Ended

Jul. 28, 2012

Commitments and Contingencies

NOTE 13.  Commitments and Contingencies

From time to time, we are involved in matters of litigation that arise in the ordinary course of business.  Though significant litigation or awards against us could seriously harm our business and financial results, we do not at this time expect any of our litigation to have a material adverse effect on our overall financial condition.

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Deferred Compensation Plan

6 Months Ended

Jul. 28, 2012

Deferred Compensation Plan

NOTE 9.  Deferred Compensation Plan

In August 2006, we adopted the Hot Topic Inc. Management Deferred Compensation Plan, or the Deferred Compensation Plan, for the purpose of providing highly compensated employees and members of our Board a program to meet their financial planning needs.  The Deferred Compensation Plan provides participants with the opportunity to defer up to 80% of their base salary and up to 100% of their annual earned bonus, or, in the case of members of our Board, 100% of their earned cash fees, all of which, together with the associated investment returns, are 100% vested from the outset.  The Deferred Compensation Plan, which is designed to be exempt from most provisions of the Employee Retirement Security Act of 1974, is informally funded by us in order to preserve the tax-deferred savings advantages of a non-qualified plan.  As such, all deferrals and associated earnings are general unsecured obligations of Hot Topic, Inc. held within a “rabbi trust” on our consolidated balance sheet.  We may at our discretion contribute certain amounts to eligible employees’ accounts.  In January 2009, to the extent participants were ineligible to receive such contributions from participation in our 401(k) Plan, we began to contribute 50% of the first 4% of participants’ eligible contributions into their Deferred Compensation Plan accounts.  As of the end of the second quarter of fiscal 2012, assets and associated liabilities of the Deferred Compensation Plan were $4.8 million and $4.6 million, respectively, and are included in other non-current assets and non-current liabilities, respectively, in our consolidated balance sheets.  As of the end of fiscal 2011, assets and associated liabilities of the Deferred Compensation Plan were $4.7 million and $4.4 million, respectively.

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Impact of Recently Issued Accounting Pronouncements

6 Months Ended

Jul. 28, 2012

Impact of Recently Issued Accounting Pronouncements

NOTE 7.  Impact of Recently Issued Accounting Pronouncements

In May 2011, the FASB issued new guidance that results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards, or IFRS.  The new guidance changes some fair value measurement principles and disclosure requirements under U.S. GAAP.  Several new disclosures about Level 3 measurements are required, including quantitative information about the significant unobservable inputs used in the measurement, a qualitative discussion about the sensitivity of recurring measurements to changes in the unobservable inputs disclosed and a description of the valuation processes used by us.  The new guidance was effective for interim or fiscal years beginning on or after December 15, 2011, with early adoption prohibited.  Our adoption of this new guidance on January 29, 2012 did not have a material impact on our financial condition or results of operations.

In June 2011, the FASB issued a final standard requiring entities to present net income (loss) and other comprehensive income (loss) in either a single continuous statement or in two separate, but consecutive, statements of net income (loss) and other comprehensive income (loss).  The new standard eliminates the option to present items of other comprehensive income (loss) in the statement of changes in equity.  The new requirements do not change which components of comprehensive income (loss) are recognized in net income (loss) or other comprehensive income (loss), or when an item of other comprehensive income (loss) must be reclassified to net income (loss).  Also, earnings (loss) per share computations do not change.  The new requirements were effective for interim and fiscal years beginning after December 15, 2011, with early adoption permitted.  Full retrospective application is required.  As this standard relates only to the presentation of other comprehensive income (loss), our adoption of this new guidance on January 29, 2012 did not have a material impact on our financial condition or results of operations.

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Fair Value Measurements

6 Months Ended

Jul. 28, 2012

Fair Value Measurements

NOTE 8.  Fair Value Measurements

Our financial assets and liabilities are valued at the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.  We determine fair value based on assumptions that market participants would use in pricing an asset or liability.  As a basis for considering such assumptions, we prioritize the inputs used in measuring fair value into a three-tier fair value hierarchy, which are as follows:

Level 1: Observable inputs such as quoted prices in active markets (the fair value hierarchy gives the highest priority to Level 1 inputs);

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions (the fair value hierarchy gives the lowest priority to Level 3 inputs).

Financial assets and liabilities measured at fair value on a recurring basis as of the end of the second quarter of fiscal 2012 consisted of the following (in thousands):

	Balance at July 28, 2012		Quoted Prices in Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalent)	$	50,120	$	50,120	$	-	$	-
Municipal bonds (short-term)		12,069		-		12,069		-
Auction rate securities (long-term)		1,724		-		-		1,724
Total assets	$	63,913	$	50,120	$	12,069	$	1,724
Liabilities:
Deferred compensation plan (long-term)	$	4,596	$	-	$	4,596	$	-

The fair value of our short-term municipal bonds is based on market prices for similar assets from third-party pricing services using observable market information.  The money market funds fair value is determined based on quoted prices in active markets.  Due to the lack of availability of observable market quotes on our auction rate securities, the fair market value of these securities has been determined based on an internal valuation model which incorporates primarily management’s own current assumptions.  The model values the securities by estimating the present value of future principal and interest payments discounted at rates considered to reflect current market conditions.  Significant assumptions used in the valuation include those made about the liquidity horizon which we currently estimate to be approximately five years and the net trading yield rate which we currently estimate to be approximately 5%.  The fair value measurement of our auction rate securities has an inverse relationship with our liquidity horizon assumption and changes in this assumption may cause the fair value to be significantly impacted.  Other factors that impact our valuation include changes to credit ratings of our auction rate securities as well as to the underlying assets supporting these securities and the ongoing strength and quality of the credit markets.  Our valuation is subject to uncertainties that are difficult to predict and could change significantly based on future market conditions.  The deferred compensation plan liability represents the amount that would be earned by participants if the funds were invested in securities traded in active markets.  The fair value of the deferred compensation plan liability is determined based on quoted prices of similar assets that are traded in observable markets.

The activity of our auction rate securities through the second quarter of fiscal 2012, whose fair value was measured using Level 3 inputs, is summarized below (in thousands):

	Non-current
Carrying value as of  January 28, 2012	$	1,722
Total gains
Included in earnings		-
Included in other comprehensive (loss) income1		2
Carrying value as of  July 28, 2012	$	1,724

1 Unrealized gains of $5,000 and unrealized losses $3,000 occurred during the first and second quarters of fiscal 2012, respectively.

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Valuation of Long-Lived Assets

6 Months Ended

Jul. 28, 2012

Valuation of Long-Lived Assets

NOTE 10.  Valuation of Long-Lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  For our Hot Topic and Torrid concepts, we group and evaluate long-lived assets for impairment at the individual store level, which is the lowest level at which individual cash flows can be identified.  Factors we consider important that could trigger an impairment review of our stores or online operations include a significant underperformance relative to expected historical or projected future operating results, a significant change in the manner of the use of the asset or a significant negative industry or economic trend.  When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the aforementioned factors, impairment is measured based on a projected discounted cash flow method using a discount rate, which we currently estimate to be approximately 13%, determined by management.  These cash flows are calculated by netting future estimated sales of each store against estimated cost of goods sold, occupancy costs and other store operating expenses such as payroll, supplies, repairs and maintenance and credit/debit card fees.  The discount rate, the estimated sales and the aforementioned costs and expenses used for this nonrecurring fair value measurement are considered significant Level 3 inputs as defined in “NOTE 8 – Fair Value Measurements.”  Changes in these assumptions may cause the fair value to be significantly impacted.  In the event future performance is lower than forecasted results, future cash flows may be lower than expected, which could result in future impairment charges.  While we believe recently opened stores will provide sufficient cash flow, material changes in results could result in future store impairment charges.

For the second quarter of fiscal 2012 and 2011, we recorded store impairment charges of $0.1 million and $0.4 million, respectively, which are included in selling, general and administrative expenses in our consolidated statements of operations.  For fiscal year-to-date fiscal 2012 and 2011, we recorded store impairment charges of $0.4 million and $1.6 million, respectively.

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Weighted Average Assumptions used in Black-Scholes Option Valuation Model for Stock Options Granted (Parenthetical) (Detail) (2006 Equity Incentive Plan, Chief Executive Officer)	1 Months Ended
	Mar. 31, 2012
2006 Equity Incentive Plan | Chief Executive Officer
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Stock options granted that are subject to performance condition	100,000

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Business Events (Tables)

6 Months Ended

Jul. 28, 2012

Charges Related to Strategic Business Changes and Cost Reduction Plan

The following table details charges related to the strategic business changes and cost reduction plan recorded since their implementation in the first quarter of fiscal 2011 and the fourth quarter of fiscal 2010, respectively, (in thousands).

				Non-Store Related
				Severance and			Inventory and
	Store Related			Outplacement			Asset-Related			Consulting			Stock Option
	Closure Costs 1			Costs			Costs 2			Fees			Expense			Total
Balance at October 30, 2010	$	-		$	-		$	-		$	-		$	-		$	-
Cost Reduction Plan charges		(7,077	)		(1,850	)		(830	)		-			-			(9,757	)
Cash payments		93			985			-			-			-			1,078
Non-cash adjustments		6,497			-			830			-			-			7,327
Balance at January 29, 2011		(487	)		(865	)		-			-			-			(1,352	)
Cost Reduction Plan recovery		365			-			-			-			-			365
Strategic Business Changes charges		-			(1,583	)		(9,605	)		(1,606	)		-			(12,794	)
Cash payments		699			889			-			1,645			-			3,233
Non-cash adjustments		(659	)		-			4,891			-			-			4,232
Balance at April 30, 2011		(82	)		(1,559	)		(4,714	)		39			-			(6,316	)
Cost Reduction Plan recovery		174			-			-			-			-			174
Strategic Business Changes charges		-			(1,330	)		(532	)		(1,383	)		(1,072	)		(4,317	)
Cash payments		144			812			182			753			-			1,891
Non-cash adjustments		(455	)		-			4,866			-			1,072			5,483
Balance at July 30, 2011		(219	)		(2,077	)		(198	)		(591	)		-			(3,085	)
Cash payments		197			464			-			473			-			1,134
Non-cash adjustments		22			(43	)		18			20			-			17
Balance at October 29, 2011		-			(1,656	)		(180	)		(98	)		-			(1,934	)
Cash payments		-			682			20			-			-			702
Non-cash adjustments		-			-			75			-			-			75
Balance at January 28, 2012		-			(974	)		(85	)		(98	)		-			(1,157	)
Cash payments		-			476			-			-			-			476
Non-cash adjustments		-			17			68			98			-			183
Balance at April 28, 2012		-			(481	)		(17	)		-			-			(498	)
Cash payments		-			318			-			-			-			318
Non-cash adjustments		-			23			17			-			-			40
Balance at July 28, 2012	$	-		$	(140	)	$	-		$	-		$	-		$	(140	)

1 Store related closure costs represent charges for the closure of approximately 50 underperforming stores.  Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

2 Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

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Business Events - Additional Information (Detail)		3 Months Ended
	Nov. 30, 2010 Store	Jul. 28, 2012 Hot Topic stores Store	Jul. 28, 2012 Torrid stores Store
Restructuring Cost and Reserve [Line Items]
Number of underperforming stores to be closed	50
Number of underperforming stores closed		41	7

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Fair Value Measurements - Additional Information (Detail)	6 Months Ended
	Jul. 28, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value measurement, estimated liquidity horizon	5 years
Fair value measurement, estimated net trading yield rate	5.00%

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Consolidated Balance Sheets (Parenthetical) (USD $)	Jul. 28, 2012	Jan. 28, 2012
Preferred shares, no par value
Preferred shares, shares authorized	10,000,000	10,000,000
Preferred shares, shares issued
Preferred shares, shares outstanding
Common shares, no par value
Common shares, shares authorized	150,000,000	150,000,000
Common shares, shares issued	42,282,382	42,047,991
Common shares, shares outstanding	42,282,382	42,047,991

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Cash Dividends

6 Months Ended

Jul. 28, 2012

Cash Dividends

NOTE 4. Cash Dividends

On July 5, 2012, we announced that our Board authorized a regular quarterly cash dividend of $0.08 per share.  The $0.08 per share dividend was paid in July 2012 to shareholders of record at the close of business on July 16, 2012.  We released the funds used to pay for this regular quarterly cash dividend during the second quarter of fiscal 2012.  Our Board will determine future regular quarterly cash dividends after giving consideration to our then existing levels of profit, capital requirements, current and forecasted liquidity, as well as financial and other business conditions existing at the time.  As of the end of the second quarter of fiscal 2012 and 2011, total dividends paid in fiscal 2012 and 2011 amounted to $6.8 million and $6.3 million, respectively.

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Charges Related to Strategic Business Changes and Cost Reduction Plan (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Jul. 28, 2012		Apr. 28, 2012		Jan. 28, 2012		Oct. 29, 2011		Jul. 30, 2011		Apr. 30, 2011		Jan. 29, 2011
Restructuring Cost and Reserve [Line Items]
Beginning Balance	$ (498)		$ (1,157)		$ (1,934)		$ (3,085)		$ (6,316)		$ (1,352)
Cost Reduction Plan recovery									174		365
Cost Reduction Plan charges/ Strategic Business Changes charges									(4,317)		(12,794)		(9,757)
Cash payments	318		476		702		1,134		1,891		3,233		1,078
Non-cash adjustments	40		183		75		17		5,483		4,232		7,327
Ending Balance	(140)		(498)		(1,157)		(1,934)		(3,085)		(6,316)		(1,352)
Store Related Closure Costs
Restructuring Cost and Reserve [Line Items]
Beginning Balance							(219)	[1]	(82)	[1]	(487)	[1]
Cost Reduction Plan recovery									174	[1]	365	[1]
Cost Reduction Plan charges/ Strategic Business Changes charges													(7,077)	[1]
Cash payments							197	[1]	144	[1]	699	[1]	93	[1]
Non-cash adjustments							22	[1]	(455)	[1]	(659)	[1]	6,497	[1]
Ending Balance									(219)	[1]	(82)	[1]	(487)	[1]
Non-Store Related Severance and Outplacement Costs
Restructuring Cost and Reserve [Line Items]
Beginning Balance	(481)		(974)		(1,656)		(2,077)		(1,559)		(865)
Cost Reduction Plan charges/ Strategic Business Changes charges									(1,330)		(1,583)		(1,850)
Cash payments	318		476		682		464		812		889		985
Non-cash adjustments	23		17				(43)
Ending Balance	(140)		(481)		(974)		(1,656)		(2,077)		(1,559)		(865)
Inventory and Asset-Related Costs
Restructuring Cost and Reserve [Line Items]
Beginning Balance	(17)	[2]	(85)	[2]	(180)	[2]	(198)	[2]	(4,714)	[2]
Cost Reduction Plan charges/ Strategic Business Changes charges									(532)	[2]	(9,605)	[2]	(830)	[2]
Cash payments					20	[2]			182	[2]
Non-cash adjustments	17	[2]	68	[2]	75	[2]	18	[2]	4,866	[2]	4,891	[2]	830	[2]
Ending Balance			(17)	[2]	(85)	[2]	(180)	[2]	(198)	[2]	(4,714)	[2]
Consulting Fees
Restructuring Cost and Reserve [Line Items]
Beginning Balance			(98)		(98)		(591)		39
Cost Reduction Plan charges/ Strategic Business Changes charges									(1,383)		(1,606)
Cash payments							473		753		1,645
Non-cash adjustments			98				20
Ending Balance					(98)		(98)		(591)		39
Stock Option Expense
Restructuring Cost and Reserve [Line Items]
Cost Reduction Plan charges/ Strategic Business Changes charges									(1,072)
Non-cash adjustments									$ 1,072

[1] Store related closure costs represent charges for the closure of approximately 50 underperforming stores. Such charges include the write down and accelerated depreciation of store assets, the write down of inventory, early lease terminations and store severance, partially offset by certain credits and allowances.

[2] Inventory and asset-related costs represent charges related to the write down and impairment of inventory and non-critical property and equipment.

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Reconciliation of Numerator and Denominator of Basic and Diluted (Loss) Earnings Per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jul. 28, 2012	Jul. 30, 2011	Jul. 28, 2012	Jul. 30, 2011
Basic and diluted (loss) earnings per share computation:
Numerator	$ (768)	$ (6,220)	$ 3,067	$ (13,881)
Denominator:
Weighted average common shares outstanding	42,252	44,843	42,196	44,778
Incremental shares from assumed exercise/issuance of options and awards			719
Total shares	42,252	44,843	42,915	44,778
Basic (loss) earnings per share	$ (0.02)	$ (0.14)	$ 0.07	$ (0.31)
Diluted (loss) earnings per share	$ (0.02)	$ (0.14)	$ 0.07	$ (0.31)

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Share Repurchase

6 Months Ended

Jul. 28, 2012

Share Repurchase

NOTE 14.  Share Repurchase

On August 17, 2011, we announced that our Board approved the repurchase of up to $25 million of our outstanding common stock during the period ended January 28, 2012.  As of the end of fiscal 2011, we had completed the repurchase of 3,212,628 shares of our common stock under this program for approximately $25 million (excluding expenses), which represents an average price of $7.78 per share.

On June 6, 2012, we announced that our Board approved the repurchase of up to $15 million of our outstanding common stock during the period ending February 2, 2013.  As of the end of the second quarter of fiscal 2012, we had not repurchased any shares of our common stock under this program.