10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended July 31, 2010

OR

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

For the transition period from                      to                     

Commission file number 000-24381

HASTINGS ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

Texas (State or other jurisdiction of incorporation or organization)	75-1386375 (I.R.S. Employer Identification No.)
3601 Plains Boulevard, Amarillo, Texas	79102
(Address of principal executive offices)	(Zip Code)

(806) 351-2300
(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 þ 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 o 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 “accelerated filer”, “large accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

Yes o No þ

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

Class	Outstanding at July 31, 2010
Common Stock, $.01 par value per share	8,942,195 shares

HASTINGS ENTERTAINMENT, INC.
Form 10-Q
For the Quarterly Period Ended July 31, 2010

INDEX

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.
	Consolidated Balance Sheets as of July 31, 2010 (Unaudited), and January 31, 2010		3
	Unaudited Consolidated Statements of Operations for the Three and Six Months Ended July 31, 2010 and 2009		4
	Unaudited Consolidated Statements of Cash Flows for the Six Months Ended July 31, 2010 and 2009		5
	Notes to the Unaudited Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		10
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.		22
Item 4.	Controls and Procedures.		22
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings.		22
Item 1A.	Risk Factors.		22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		23
Item 6.	Exhibits.		24
SIGNATURES			25
INDEX TO EXHIBITS			26
EX-31.1
EX-31.2
EX-32.1

2

PART I — FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

HASTINGS ENTERTAINMENT, INC.

Consolidated Balance Sheets
July 31, 2010 and January 31, 2010
(Dollars in thousands, except par value)

	July 31,			January 31,
	2010			2010
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	6,427		$	8,863
Merchandise inventories, net		153,560			148,149
Deferred income taxes		6,461			7,804
Prepaid expenses and other current assets		11,197			10,120
Total current assets		177,645			174,936
Rental assets, net of accumulated depreciation of $20,046 and $21,444 at July 31, 2010 and January 31, 2010, respectively		13,134			13,127
Property, equipment and improvements, net of accumulated depreciation of $197,910 and $190,607 at July 31, 2010 and January 31, 2010, respectively		44,527			47,695
Deferred income taxes		3,362			1,310
Intangible assets, net		391			391
Other assets		1,362			1,341
Total Assets	$	240,421		$	238,800
Liabilities and Shareholders’ Equity
Current liabilities:
Trade accounts payable	$	59,236		$	58,068
Accrued expenses and other liabilities		25,825			28,128
Total current liabilities		85,061			86,196
Long term debt		43,874			38,174
Other liabilities		6,228			6,272
Shareholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued		—			—
Common stock, $.01 par value; 75,000,000 shares authorized; 11,944,544 shares issued and 8,942,195 shares outstanding at July 31, 2010; 11,944,544 shares issued and 9,463,838 shares outstanding at January 31, 2010		119			119
Additional paid-in capital		36,672			36,920
Retained earnings		87,820			86,884
Accumulated other comprehensive income		50			37
Treasury stock, at cost 3,002,349 shares and 2,480,706 shares at July 31, 2010 and January 31, 2010, respectively		(19,403	)		(15,802	)
Total Shareholders’ Equity		105,258			108,158
Total Liabilities and Shareholders’ Equity	$	240,421		$	238,800

See accompanying notes to unaudited consolidated financial statements.

3

HASTINGS ENTERTAINMENT, INC.

Unaudited Consolidated Statements of Operations

For the Three and Six Months Ended July 31, 2010 and 2009

(Dollars in thousands, except per share amounts)

	Three Months Ended July 31,						Six Months Ended July 31,
	2010			2009			2010			2009
Merchandise revenue	$	98,588		$	97,366		$	206,713		$	201,462
Rental revenue		20,349			19,826			41,128			41,423
Gift card breakage revenue		194			—			388			—
Total revenues		119,131			117,192			248,229			242,885
Merchandise cost of revenue		66,869			66,788			141,295			137,782
Rental cost of revenue		7,607			6,892			15,312			14,605
Total cost of revenues		74,476			73,680			156,607			152,387
Gross profit		44,655			43,512			91,622			90,498
Selling, general and administrative expenses		44,642			43,878			90,078			87,776
Pre-opening expenses		—			1			—			3
Operating income (loss)		13			(367	)		1,544			2,719
Other income (expense):
Interest expense		(189	)		(272	)		(321	)		(567	)
Other, net		25			61			45			79
Income (loss) before income taxes		(151	)		(578	)		1,268			2,231
Income tax expense (benefit)		(69	)		(182	)		332			925
Net income (loss)	$	(82	)	$	(396	)	$	936		$	1,306
Basic income (loss) per share	$	(0.01	)	$	(0.04	)	$	0.10		$	0.13
Diluted income (loss) per share	$	(0.01	)	$	(0.04	)	$	0.10		$	0.13
Weighted-average common shares outstanding:
Basic		9,090			9,672			9,258			9,727
Dilutive effect of stock awards		—			—			290			75
Diluted		9,090			9,672			9,548			9,802

See accompanying notes to unaudited consolidated financial statements.

4

HASTINGS ENTERTAINMENT, INC.

Unaudited Consolidated Statements of Cash Flows

For the Six Months Ended July 31, 2010 and 2009

(Dollars in thousands)

	Six Months Ended
	July 31,
	2010			2009
Cash flows from operating activities:
Net income	$	936		$	1,306
Adjustments to reconcile net income to net cash provided by operating activities:
Rental asset depreciation expense		5,697			6,464
Purchases of rental assets		(12,129	)		(10,105	)
Property and equipment depreciation expense		8,624			9,583
Deferred income taxes		(709	)		(643	)
Loss on rental assets lost, stolen and defective		981			466
Loss on disposal of other assets		26			191
Non-cash stock-based compensation		337			156
Changes in operating assets and liabilities:
Merchandise inventories		34			4,276
Prepaid expenses and other current assets		(528	)		1,365
Trade accounts payable		2,163			2,221
Accrued expenses and other current liabilities		(2,266	)		(7,228	)
Excess tax benefit from stock-based compensation		(37	)		—
Other assets and liabilities, net		(52	)		889
Net cash provided by operating activities		3,077			8,941
Cash flows from investing activities:
Purchases of property, equipment, and improvements		(5,483	)		(5,611	)
Net cash used in investing activities		(5,483	)		(5,611	)
Cash flows from financing activities:
Borrowings under revolving credit facility		263,344			255,355
Repayments under revolving credit facility		(257,644	)		(254,327	)
Purchase of treasury stock		(4,401	)		(434	)
Change in cash overdraft		(995	)		(6,859	)
Deferred financing costs paid		(549	)		—
Proceeds from exercise of stock options		178			—
Excess tax benefit from stock-based compensation		37			—
Net cash used in financing activities		(30	)		(6,265	)
Net decrease in cash and cash equivalents		(2,436	)		(2,935	)
Cash and cash equivalents at beginning of period		8,863			7,449
Cash and cash equivalents at end of period	$	6,427		$	4,514

See accompanying notes to unaudited consolidated financial statements.

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Hastings Entertainment, Inc

Notes to Unaudited Consolidated Financial Statements

(Tabular amounts in thousands, except per share data or unless otherwise noted)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Hastings Entertainment, Inc. and its subsidiary (“Hastings,” the “Company,” “we,” “our,” or “us”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with instructions in Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such principles and regulations of the Securities and Exchange Commission. All adjustments, consisting of normal recurring adjustments, have been made which, in the opinion of management, are necessary for a fair presentation of the results of interim periods. The results of operations for such interim periods are not necessarily indicative of the results that may be expected for a full year because of, among other things, seasonality factors in the retail business. As is the case with many retailers, a significant portion of our revenues, and an even greater portion of our operating earnings, is generated in the fourth fiscal quarter, which includes the holiday selling season. The unaudited consolidated financial statements contained herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

The balance sheet at January 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

Our fiscal year ends on January 31 and is identified as the fiscal year for the immediately preceding calendar year. For example, the fiscal year that will end on January 31, 2011 is referred to as fiscal year 2010.

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Hastings Entertainment, Inc

Notes to Unaudited Consolidated Financial Statements

(Tabular amounts in thousands, except per share data or unless otherwise noted)

2. Stock-Based Compensation

We have various stock incentive plans, which allow us to issue stock options, stock appreciation rights, restricted shares, restricted stock units, performance awards and other awards. Stock-based compensation is discussed more fully in Note 13 in our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

For the three months ended July 31, 2010 and 2009, we recognized approximately $0.1 million of stock-based compensation expense. For the six months ended July 31, 2010 and 2009, we recognized approximately $0.3 million and $0.1 million, respectively, of stock-based compensation expense. These amounts include expense related to incentive stock options, non-qualified stock options, restricted stock units, and performance-based restricted stock awards.

At our Annual Shareholder’s Meeting on June 2, 2010, shareholders voted to approve the 2010 Incentive Stock Plan, under which 500,000 shares are available to grant stock-based compensation awards. As of July 31, 2010, we had 649,600 shares available to grant stock-based compensation awards under our various stock incentive plans.

3. Long-term Debt

On July 22, 2010, we entered into the Amended and Restated Loan and Security Agreement (the “Amended Agreement”) with Bank of America, N.A., as agent, which amended and restated our Loan and Security Agreement dated as of August 29, 2000, as otherwise amended (the “Prior Agreement”). The Amended Agreement is substantially the same as the Prior Agreement, extends the maturity date of the Prior Agreement from August 29, 2011 to July 22, 2014, and provides that we may repurchase up to $10.0 million worth of our common stock. The Amended Agreement also provides that we may repurchase additional shares of our common stock in the event we meet certain criteria set forth in the Amended Agreement. The Amended Agreement prohibits the payment of dividends and includes certain other debt and acquisition limitations and requires a minimum availability of $10.0 million at all times. The Amended Agreement is secured by substantially all of the assets of the Company and our subsidiary and is guaranteed by our subsidiary.

The amount outstanding under the Amended Agreement is limited by a borrowing base predicated on the sum of (a) 85% of Eligible Credit Card Receivables plus (b) (i) 85% multiplied by (ii) the Appraised Inventory Liquidation Value multiplied by (iii) Eligible Inventory (net of Inventory Reserves), less (c) Availability Reserves (each term as defined in the Amended Agreement), and is limited to a ceiling of $100 million, less a $10 million availability reserve. The lender may increase specifically defined reserves to reduce availability in the event of adverse changes in our industry or our financial condition, that are projected to impact the value of our assets pledged as collateral. The lender must exercise reasonable judgment and act in good faith with respect to any changes in the specifically defined reserves.

Interest under the Amended Agreement will accrue, at our election, at a Base Rate or Libor Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of Availability as defined in the Amended Agreement, with the Applicable Margin for Libor Rate loans ranging from 2.00% to 2.75% and the Applicable Margin for Base Rate loans ranging from 1.00% to 1.75%. In addition, unused line fees ranging from 0.30% to 0.375% (determined by reference to the level of usage under the Amended Agreement) are also payable on unused commitments.

We utilize standby letters of credit to support certain insurance policies. The aggregate amount of the letters of credit at July 31, 2010, was approximately $0.9 million, which reduces the excess availability under the Amended Agreement.

At July 31, 2010, we had approximately $44.1 million in excess availability, after the $10 million availability reserve, under the Amended Agreement. The average rate of interest incurred for the three months ended July 31, 2010 and 2009 was 2.1% and 2.5%, respectively. The average rate of interest incurred for the six months ended July 31, 2010 and 2009 was 2.0% and 2.7%, respectively.

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Hastings Entertainment, Inc

Notes to Unaudited Consolidated Financial Statements

(Tabular amounts in thousands, except per share data or unless otherwise noted)

4. Income (Loss) per Share

The computations for basic and diluted income (loss) per share are as follows:

	Three Months Ended July 31,						Six Months Ended July 31,
	2010			2009			2010		2009
Net income (loss)	$	(82	)	$	(396	)	$	936	$	1,306
Average shares outstanding:
Basic		9,090			9,672			9,258		9,727
Effect of stock awards		—			—			290		75
Diluted		9,090			9,672			9,548		9,802
Income (loss) per share:
Basic	$	(0.01	)	$	(0.04	)	$	0.10	$	0.13
Diluted	$	(0.01	)	$	(0.04	)	$	0.10	$	0.13

The following options to purchase shares of common stock were not included in the computation of diluted income (loss) per share because their inclusion would have been antidilutive:

	Three Months Ended July 31,				Six Months Ended July 31,
	2010		2009		2010		2009
Shares of common stock underlying options		637		534		233		282
Exercise price range per share	$	1.69 to $8.70	$	1.33 to $8.70	$	4.25 to $8.70	$	3.39 to $9.00

5. Fair Value Measurements

We account for certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. These levels are:

• Level 1 – Observable inputs – quoted prices in active markets for identical assets and liabilities;

• Level 2 – Observable inputs other than the quoted prices in active markets for identical assets and liabilities – includes quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, and amounts derived from valuation models where all significant inputs are observable in active markets; and

• Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable and require us to develop relevant assumptions.

At July 31, 2010 and January 31, 2010, we had approximately $1.1 million and $1.0 million, respectively, in assets which are carried at fair value on a recurring basis. These assets consist of available-for-sale investments related to our non-qualified supplemental executive retirement plan (“SERP”). The fair value of these investments was determined using Level 1 inputs.

Our long-term debt is our only financial instrument with a fair value which can differ significantly from the carrying amount. The fair value of our long-term debt is estimated using a discounted cash flow analysis that applies interest rates currently being offered on borrowings of similar amounts and terms to those currently outstanding while also

8

Hastings Entertainment, Inc

Notes to Unaudited Consolidated Financial Statements

(Tabular amounts in thousands, except per share data or unless otherwise noted)

taking into consideration our current credit worthiness. At January 31, 2010, the estimated fair value of our long-term debt was approximately $36.8 million compared to carrying value of $38.2 million. We entered into the Amended Agreement on July 22, 2010. As a result, the carrying value of long-term debt at July 31, 2010 approximates fair value due to the instrument bearing interest at variable rates that are comparable to what is currently available to us.

6. Income Taxes

The effective tax rate for the three months ended July 31, 2010 was 45.7%, as compared to 31.5% for the same period in the prior year, primarily as a result of the relationship between permanent book to tax differences incurred (which typically stay consistent for each quarter in a fiscal year) in comparison to relatively low book income or loss before taxes for the respective quarters.

During the six months ended July 31, 2010, the Company recorded a discrete tax benefit of approximately $0.2 million related to amended state returns resulting from an Internal Revenue Service audit of the Company’s previously filed Federal tax returns. No discrete tax items were recorded during the six months ended July 31, 2009. Primarily as a result of this discrete tax benefit, the effective tax rate for the six months ended July 31, 2010 decreased to 26.2% compared to 41.5% for the same period in the prior year.

7. Litigation and Contingencies

We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial position, results of operations or cash flows.

8. Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010 — 06 – Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This standard amends the disclosure guidance with respect to fair value measurements for both interim and annual reporting periods. Specifically, this standard requires new disclosures for significant transfers of assets or liabilities between Level 1 and Level 2 in the fair value hierarchy, separate disclosures for purchases, sales, issuance and settlements of Level 3 fair value items on a gross, rather than net basis, and more robust disclosure of the valuation techniques and inputs used to measure Level 2 and Level 3 assets and liabilities. Except for the detailed disclosures of changes in Level 3 items, which will be effective for us as of February 1, 2011, the remaining new disclosure requirements were effective for us as of February 1, 2010. We adopted the provisions of this guidance, as applicable, beginning in the fiscal quarter ended April 30, 2010, with no material impact to our financial statements.

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

Certain written and oral statements set forth below or made by Hastings with the approval of an authorized executive officer constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “intend,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future including statements relating to the business, expansion, merchandising and marketing strategies of Hastings, industry projections or forecasts, inflation, effect of critical accounting policies including lower of cost or market for inventory adjustments, the returns process, rental asset depreciation, store closing reserves, impairment or disposal of long-lived assets, revenue recognition, and vendor allowances, sufficiency of cash flow from operations and borrowings under our revolving credit facility and statements expressing general optimism about future operating results are forward-looking statements. Such statements are based upon our management’s current estimates, assumptions and expectations, which are based on information available at the time of the disclosure, and are subject to a number of factors and uncertainties, including, but not limited to, consumer appeal of our existing and planned product offerings, and the related impact of competitor pricing and product offerings; overall industry performance and the accuracy of our estimates and judgments regarding trends; our ability to obtain favorable terms from suppliers; our ability to respond to changing consumer preferences, including with respect to new technologies and alternative methods of content delivery, and to effectively adjust our offerings if and as necessary; the application and impact of future accounting policies or interpretations of existing accounting policies; whether our assumptions turn out to be correct; our inability to attain such estimates and expectations; a downturn in market conditions in any industry relating to the products we inventory, sell or rent; the degree to which we enter into and maintain vendor relationships; the extremely challenging times that the U.S. and global economies are currently experiencing, the effects of which have had and will continue to have an adverse impact on spending by Hastings’ current retail customer base and potential new customers, and the possibility that general economic conditions could deteriorate further; volatility of fuel and utility costs; acts of war or terrorism inside the United States or abroad; unanticipated adverse litigation results or effects; and other factors which may be outside of our control; any of which could cause actual results to differ materially from those described herein. We undertake no obligation to affirm, publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion should be read in conjunction with the unaudited consolidated financial statements of the Company and the related notes thereto appearing elsewhere in this report on Form 10-Q.

General

Incorporated in 1972, Hastings Entertainment, Inc. (the “Company,” “Hastings,” or “Hastings Entertainment”) is a leading multimedia entertainment retailer. We operate entertainment superstores that buy, sell, trade and rent various home entertainment products, including books, music, software, periodicals, movies on DVD and Blu-ray, video games, video game consoles and consumer electronics. We also offer consumables and trends products such as apparel, t-shirts, action figures, posters, greeting cards and seasonal merchandise. As of July 31, 2010, we operated 147 superstores principally in medium-sized markets located in 20 states, primarily in the Western and Midwestern United States. In fiscal 2010, we opened and operate a new concept store, Sun Adventure Sports, located in Amarillo, Texas.

We also operate a multimedia entertainment e-commerce web site offering a broad selection of books, software, video games, movies on DVD and Blu-ray, music, trends, and consumer electronics. We fill orders for new and used product placed at the website and also through Amazon Marketplace using our proprietary goShip program, which allows us to ship directly from stores. We have one wholly-owned subsidiary, Hastings Internet, Inc.

References herein to fiscal years are to the twelve-month periods that end in January of each following calendar year. For example, the twelve-month period ended January 31, 2011 is referred to as fiscal 2010.

10

Critical Accounting Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. We believe the following critical accounting estimates comprise the more significant estimates and assumptions used in preparing our financial statements. Our significant estimates and assumptions are reviewed, and any required adjustments are recorded, on a monthly or quarterly basis.

Lower of Cost or Market for Merchandise Inventory. Our merchandise inventories are recorded at the lower of cost, which approximates the first-in, first-out (“FIFO”) method, or market. As with any retailer, economic conditions, cyclical customer demand and changes in purchasing or distribution can affect the carrying value of inventory. As circumstances warrant, we record the lower of cost or market inventory adjustments. In some instances, these adjustments can have a material effect on the financial results of an annual or interim period. In order to determine such adjustments, we evaluate the age, inventory turns and estimated market value and returnability of merchandise inventory by product category and record an adjustment if estimated market value is below cost.

Rental Asset Depreciation. We have established rental asset depreciation policies that match rental product costs with the related revenues. These policies require that we make significant estimates, based upon our experience, as to the ultimate amount and timing of revenue to be generated from our rental product. We utilize an accelerated method of depreciation because it approximates the pattern of demand for the product, which is higher when the product is initially released by the studios for rental and declines over time. In establishing salvage values for our rental product, we consider the sales prices and sales volume of our previously rented product and other used product.

We currently depreciate the cost of our rental assets on an accelerated basis over six months or nine months, except for rental assets purchased for the initial stock of a new store, which are depreciated on a straight-line basis over 36 months. Rental assets, which include DVDs, Books on CD and Video Games, are depreciated to salvage values ranging from $4 to $10. Rental assets purchased for less than established salvage values are not depreciated.

We also review the carrying value of our rental assets to ensure that estimated future cash flows exceed the carrying value. We periodically record adjustments to the value of previously rented product primarily for estimated obsolescence or excess product based upon changes in our original assumptions about future demand and market conditions. If future demand or actual market conditions are less favorable than our original estimates, additional adjustments, including adjustments to useful lives or salvage values, may be required. We continually evaluate the estimates surrounding the useful lives and salvage values used in depreciating our rental assets. Changes to these estimates resulting from changes in consumer demand, changes in customer preferences or the price or availability of retail products may materially impact the carrying value of our rental assets and our rental margins.

The costs of rental product purchased pursuant to revenue-sharing arrangements, which are recorded in rental cost of sales on the consolidated statements of earnings, typically include a lower initial product cost than traditional rental purchases with a certain percentage of the net rental revenues shared with studios over an agreed period of time. Any up-front costs exceeding the designated salvage value are amortized on an accelerated basis and revenue-sharing payments pursuant to the applicable arrangement are expensed as rental cost of sales as the related revenue is earned. Additionally, certain titles have performance guarantees. We analyze titles that are subject to performance guarantees and recognize an estimated expense for under-performing titles throughout the applicable period based upon our analysis of the estimated rental revenue shortfall. We revise these estimates on a monthly basis, based on actual results.

Impairment or Disposal of Long-Lived Assets. We evaluate under-performing stores on a quarterly basis to determine whether projected future cash flows over the remaining lease term are sufficient to recover the carrying value of the fixed asset investment in each individual store. If projected future cash flows are less than the carrying value of the fixed asset investment, an impairment charge is recognized if the estimated fair value is less than the carrying value of such assets. The carrying value of leasehold improvements as well as certain other property and equipment is subject to impairment write-down.

11

Income Taxes. In determining net income, we make certain estimates and judgments in the calculation of tax expense and the resulting tax liabilities and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenue and expense. We record deferred tax assets and liabilities for future income tax consequences that are attributable to differences between financial statement carrying amounts of assets and liabilities and their income tax bases. We base the measurement of deferred tax assets and liabilities on enacted tax rates that we expect will apply to taxable earnings in the year when we expect to settle or recover those temporary differences. We recognize the effect on deferred tax assets and liabilities on any change in income tax rates in the period that includes the enactment date.

The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood, on a cumulative basis, of being realized upon ultimate settlement. We recognize interest and penalties relating to any uncertain tax positions as a component of income tax expense.

Share-Based Compensation. Determining the amount of share-based compensation to be recorded in the statement of operations requires us to develop estimates that are used in calculating the grant-date fair value of stock options. In determining the fair value of stock options, we use the Black-Scholes valuation model, which requires us to make estimates of the following assumptions:

• Expected volatility – The estimated stock price volatility is derived based upon our historical stock prices over the expected life of the option.

• Expected life of the option – The estimate of an expected life is calculated based on historical data relating to grants, exercises and cancellations, as well as the vesting period and contractual life of the option.

• Risk-free interest rate – The risk-free interest rate is based on the yield on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected life of the option.

Our stock price volatility and expected option lives involve management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes pricing model and, ultimately, the expense that will be recognized over the vesting period of the option.

We recognize compensation expense only for the portion of options that are expected to vest. Therefore, we apply estimated forfeiture rates that are derived from historical employee termination behavior. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

In addition to stock options, we award restricted stock awards, including restricted stock units and performance-based restricted stock awards. The grant date fair value of restricted stock awards is equal to the average of the opening and closing stock price on the day on which they are granted. For performance-based restricted stock awards, compensation expense is recognized if management deems it probable that the performance conditions will be met. Management must use its judgment to determine the probability that a performance condition will be met. If actual results differ from management’s assumptions, future results could be materially impacted.

Gift Card Breakage Revenue. We sell gift cards through each of our stores and through our web site www.goHastings.com. The gift cards we sell have no stated expiration dates or fees and are subject to potential escheatment rights in some of the jurisdictions in which we operate. Gift card liabilities are recorded as deferred revenue at the time of sale of such cards with the costs of designing, printing and distributing the cards recorded as expense as incurred. Historically, the liability was relieved and revenue was recognized only upon redemption of the gift cards. Beginning in the fourth quarter of fiscal 2009, we had sufficient historical data to analyze gift card redemption patterns and a final determination of the escheatment laws applicable to our operations. As a result, during the fourth quarter of fiscal 2009, we began recognizing revenue for the estimated breakage on gift cards we previously issued and sold. Subsequent to the initial change in estimate related to gift card breakage, gift card breakage revenue is recognized as gift cards are redeemed, based upon an analysis of the aging and utilization of gift cards, our determination that the likelihood of future redemption is remote and our determination that such balances are not subject to escheatment laws applicable to our operations.

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Results of Operations

The following tables present our statement of earnings data, expressed as a percentage of revenue, and the number of superstores open at the end of the periods presented herein.

	Three Months Ended						Six Months Ended
	July 31,						July 31,
	2010			2009			2010			2009
Merchandise revenue		82.8	%		83.1	%		83.3	%		82.9	%
Rental revenue		17.1			16.9			16.6			17.1
Gift card breakage revenue		0.1			—			0.1			—
Total revenues		100.0			100.0			100.0			100.0
Merchandise cost of revenue		67.8			68.6			68.4			68.4
Rental cost of revenue		37.4			34.8			37.2			35.3
Total cost of revenues		62.5			62.9			63.1			62.7
Gross profit		37.5			37.1			36.9			37.3
Selling, general and administrative expenses		37.5			37.4			36.3			36.1
Pre-opening expenses		—			—			—			—
Operating income (loss)		—			(0.3	)		0.6			1.2
Other income (expense):
Interest expense		(0.2	)		(0.2	)		(0.1	)		(0.3	)
Other, net		—			—			—			—
Income (loss) before income taxes		(0.2	)		(0.5	)		0.5			0.9
Income tax expense (benefit)		(0.1	)		(0.2	)		0.1			0.4
Net income (loss)		(0.1	)%		(0.3	)%		0.4	%		0.5	%

Summary of Superstore Activity⁽¹⁾

	Three Months Ended					Six Months Ended						Year Ended January
	July 31,					July 31,						31,
	2010		2009			2010			2009			2010
Beginning number of stores		147		153			149			153			153
Openings		—		—			—			—			—
Closings		—		(2	)		(2	)		(2	)		(4	)
Ending number of stores		147		151			147			151			149

(1) We operate one concept store, Sun Adventure Sports, which is not included in the summary of superstore activity.

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Financial Results for the Second Quarter of Fiscal Year 2010

Operating income for the second quarter was approximately $13,000 compared to an operating loss of $0.4 million for second quarter of fiscal 2009. Adjusted operating income, which excludes gift card breakage revenue, stock compensation expense and store asset impairment expense, was approximately $13,000 for the second quarter compared to adjusted operating loss of $0.3 million for the second quarter of fiscal 2009. Earnings before interest, taxes, property and equipment depreciation expense and amortization (“EBITDA”) was approximately $4.3 million for the second quarter of fiscal 2010 as compared to approximately $4.4 million for the same period in the prior year. Adjusted EBITDA, which excludes gift card breakage revenue, stock compensation expense and store asset impairment expense, was approximately $4.3 million for the second quarter of fiscal 2010 compared to approximately $4.5 million for the same period in the prior year.

Reconciliations of non-GAAP financial measures to comparable GAAP financial measures are included in the tables following this section along with a discussion of why management believes these measures provide meaningful information regarding the Company’s performance.

Revenues. Total revenues for the second quarter increased approximately $1.9 million, or 1.7%, to $119.1 million compared to $117.2 million for the second quarter of fiscal 2009. Excluding gift card breakage revenue, total revenues for the second quarter of fiscal 2010 increased approximately $1.7 million, or 1.5%. Comparable store sales, which exclude gift card breakage revenue, increased approximately 4.5%. The following is a summary of our revenues results (dollars in thousands):

			Three Months Ended July 31,
	2010					2009					Increase
			Percent					Percent
	Revenues		Of Total			Revenues		Of Total			Dollar		Percent
Merchandise Revenue	$	98,588		82.8	%	$	97,366		83.1	%	$	1,222		1.3	%
Rental Revenue		20,349		17.1	%		19,826		16.9	%		523		2.6	%
Gift Card Breakage Revenue		194		0.1	%		—		0.0	%		194		—
Total Revenues	$	119,131		100.0	%	$	117,192		100.0	%	$	1,939		1.7	%

Comparable-store revenues (“Comp”)

Total	4.5	%
Merchandise	4.2	%
Rental	6.1	%

Below is a summary of the Comp results for our major merchandise categories:

	Three Months Ended July 31,
	2010			2009
Video Games		23.3	%		-20.9	%
Trends		11.0	%		-2.3	%
Hardback Café		10.0	%		17.2	%
Movies		9.3	%		-8.1	%
Consumables		4.1	%		3.0	%
Electronics		0.8	%		-4.4	%
Books		-1.8	%		-1.1	%
Music		-7.5	%		-15.6	%

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Stores included in the Comps calculation are those stores that have been open for a minimum of 60 weeks. Also included are stores that were remodeled or relocated during the comparable period. Sales via the internet are included and closed stores are removed from each comparable period for the purpose of calculating Comps. Prior year Comp sales have been revised to reflect current year classification of Comp sale categories.

Video Game Comps increased 23.3% for the quarter, primarily due to strong sales of new and used video games for the Playstation 3, XBOX 360 and Nintendo Wii platforms and increased sales of gaming consoles and accessories, partially offset by a decrease in sales of older generation video games. Titles that helped drive sales during the quarter included Red Dead Redemption, Alan Wake, Super Mario Galaxy 2, UFC Undisputed 2010, and NCAA Football 2011. Trends Comps increased 11.0% for the quarter, primarily due to strong sales of new and used comics, Hex Bugs, collectable card games such as Magic: The Gathering, action figures, and “As Seen on TV” products such as the Kymaro and the Big Top Cupcake. The increase in new and used comic sales is primarily due to an expanded comic footprint in eighty stores. Strong sales of action figures were driven by an increase in action figures sold over the internet and the addition of collectible action figures to our product mix. Hardback Café Comps increased 10.0% for the quarter primarily due to increased sales of specialty café drinks. Movie Comps increased 9.3% for the quarter, resulting from increased sales of new and used DVD boxed sets, new and used Blu-ray DVDs, and used DVDs. Consumables Comps increased 4.1% for the quarter, primarily resulting from strong sales of assorted candies and gums, including candy and snacks cross-merchandised on our video rental wall. Electronics Comps increased 0.8% for the quarter. Increased sales of headphones and MP3 accessories were partially offset by lower sales of refurbished iPods. Books Comps decreased 1.8% for the quarter, primarily due to decreased sales of new trade paperbacks, which to some degree is attributable to the increasing popularity of electronic book readers, partially offset by increased sales of new hardbacks along with increased sales of used trade paperbacks and hardbacks. Music Comps decreased 7.5% for the quarter due to lower sales of new and used CDs, resulting directly from a continued industry decline as well as a reduced footprint in eighty-nine stores. Merchandise Comps, excluding the sale of new music, increased 5.6% for the period.

Rental Comps increased 6.1% for the second quarter, primarily due to fewer promotions during the quarter and the rollout of our new rental program, which led to an increase in units rented of approximately 10.3% for the quarter as compared to the prior year. Rental Video Comps increased 7.7% for the quarter while Rental Video Game Comps increased 2.7%.

Gross Profit — Merchandise. For the second quarter, total merchandise gross profit dollars increased approximately $1.1 million, or 3.6%, to $31.7 million from $30.6 million for the same period in the prior year, primarily due to higher revenues and an increase in margin rates. As a percentage of total merchandise revenue, merchandise gross profit increased to 32.2% for the quarter compared to 31.4% for the same period in the prior year, resulting from improvements in margin management, lower costs to return product and lower markdown expense. These were partially offset by increased freight costs, which resulted directly from increased shipments in our goShip program, and increased shrinkage expense. We have created a comprehensive store audit program to assess store level execution and controls to reduce shrink, with a strong focus on our high-shrinkage stores.

Gross Profit — Rental. For the second quarter, total rental gross profit dollars decreased approximately $0.2 million, or 1.6%, to $12.7 million from $12.9 million for the same period in the prior year due to lower margin rates, partially offset by an increase in revenue. As a percentage of total rental revenue, rental gross profit decreased to 62.6% for the quarter compared to 65.2% for the same period in the prior year primarily due to increased shrinkage and higher depreciation expense. Depreciation is a function of rental purchases over approximately a six month period.

Selling, General and Administrative Expenses (“SG&A”). As a percentage of total revenue, SG&A increased to 37.5% for the second quarter compared to 37.4% for the same quarter in the prior year. SG&A increased approximately $0.7 million, or 1.6%, to $44.6 million compared to $43.9 million for the same quarter last year. The main drivers in the increase of SG&A for the quarter included an increase in bonuses under our bonus incentive programs of approximately $0.6 million over the prior year period due to the fact that no bonuses were earned for the first half of fiscal 2009 and an increase in associate health insurance costs of approximately $0.5 million. These increases were partially offset by a decrease in depreciation expense of approximately $0.5 million resulting from a reduction in capital expenditures and a decrease of store occupancy costs of approximately $0.5 million due to operating fewer stores during the current period.

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Interest Expense. For the second quarter, interest expense decreased approximately $0.1 million, or 33.3%, to $0.2 million, compared to $0.3 million for the same period in the prior year primarily as a result of lower interest rates and lower average debt levels outstanding during the period. The average rate of interest charged for the quarter decreased to 2.1% compared to 2.5% for the same period in the prior year.

Financial Results for the Six Months Ended July 31, 2010

Operating income for the six months ended July 31, 2010 was approximately $1.5 million compared to operating income of $2.7 million for same period in the prior year. Adjusted operating income, which excludes gift card breakage revenue, stock compensation expense and store asset impairment expense, was approximately $1.5 million for the current six month period compared to adjusted operating income of $3.0 million for the same period in the prior year. Earnings before interest, taxes, property and equipment depreciation expense and amortization (“EBITDA”) was approximately $10.2 million for the six months ended July 31, 2010 as compared to approximately $12.4 million for the same period in the prior year. Adjusted EBITDA, which excludes gift card breakage revenue, stock compensation expense and store asset impairment expense, was approximately $10.2 million for the current six month period compared to approximately $12.7 million for the same period in the prior year.

Revenues. Total revenues for the first six months of fiscal 2010 increased approximately $5.3 million, or 2.2%, to $248.2 million compared to $242.9 million for the same period in fiscal 2009. Excluding gift card breakage revenue, total revenues for the period increased approximately $5.0 million, or 2.0%. Comparable store sales, which exclude gift card breakage revenue, increased approximately 4.7%. The following is a summary of our revenues results (dollars in thousands):

			Six Months Ended July 31,
	2010					2009					Increase (Decrease)
			Percent					Percent
	Revenues		Of Total			Revenues		Of Total			Dollar			Percent
Merchandise Revenue	$	206,713		83.3	%	$	201,462		82.9	%	$	5,251			2.6	%
Rental Revenue		41,128		16.6	%		41,423		17.1	%		(295	)		-0.7	%
Gift Card Breakage Revenue		388		0.1	%		—		0.0	%		388			—
Total Revenues	$	248,229		100.0	%	$	242,885		100.0	%	$	5,344			2.2	%

Comparable-store revenues (“Comp”)

Total	4.7	%
Merchandise	5.3	%
Rental	2.1	%

Below is a summary of the Comp results for our major merchandise categories:

	Six Months Ended July 31,
	2010			2009
Video Games		24.4	%		-15.4	%
Hardback Café		12.9	%		12.7	%
Movies		10.3	%		-6.8	%
Trends		9.9	%		1.7	%
Consumables		6.8	%		3.8	%
Electronics		2.7	%		-1.0	%
Books		-1.5	%		-0.6	%
Music		-6.1	%		-15.4	%

Prior year Comp sales have been revised to reflect current year classification of Comp sale categories. Video Game Comps increased 24.4% for the period, primarily due to strong sales of new and used video games for the

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Playstation 3, XBOX 360, and Nintendo Wii platforms and increased sales of gaming consoles and accessories, partially offset by lower sales of older generation video games. Hardback Café Comps increased 12.9% for the period, resulting from increased sales of specialty café drinks. Movie Comps increased 10.3% for the period, primarily resulting from increased sales of new and used Blu-ray DVDs, DVD boxed sets, and used DVDs. Trends Comps increased 9.9% for the period, primarily due to strong sales of collectable card games such as Magic: The Gathering, Hex Bugs, “As Seen on TV” products such as the Kymaro and the Big Top Cupcake, and action figures. The increase in action figure sales was driven by an increase in action figures sold over the internet and the addition of collectible action figures to our product mix. The increases were partially offset by lower sales of apparel products, including t-shirts and jewelry. Consumables Comps increased 6.8% for the period, primarily due to strong sales of novelty drinks and assorted candies and gums, including candies and snacks cross-merchandised on our video rental wall. Electronics Comps increased 2.7% for the period primarily due to strong sales of MP3 accessories and headphones, partially offset by lower sales of digital converter boxes and refurbished iPods. Book Comps decreased 1.5% for the period, primarily due to decreased sales of new trade paperbacks and hardbacks, partially offset by an increase in sales of used trade paperbacks and used hardbacks. Sales of new hardbacks and trade paperbacks faced a challenging comparison due to strong sales of books from Stephenie Meyer’s The Twilight Saga series during fiscal 2009. Excluding The Twilight Saga series sales, book Comps for the six month period would have increased 1.1%. Music Comps decreased 6.1% for the period due to lower sales of new and used CDs, resulting directly from a continued industry decline as well as a reduced footprint in eighty-nine stores. Merchandise Comps, excluding the sale of new music, increased 9.9% for the period.

Rental Comps increased 2.1% for the period, primarily due to fewer promotions being offered during the current period. Units rented increased approximately 10.0% for the period as compared to the prior year. Rental Video Comps increased 3.0% for the period while Rental Video Game Comps were flat.

Gross Profit — Merchandise. For the current six months, total merchandise gross profit dollars increased approximately $1.7 million, or 2.7%, to $65.4 million from $63.7 million for the same period in the prior year, due to higher revenues. As a percentage of total merchandise revenue, merchandise gross profit remained consistent at 31.6%. Improvements in margin management, lower markdown expense, and lower costs to return product were offset by increases in freight costs, which resulted directly from increased shipments in our goShip program, and increased shrinkage expense. We have created a comprehensive store audit program to assess store level execution and controls to reduce shrink, with a strong focus on our high-shrinkage stores.

Gross Profit — Rental. For the current six months, total rental gross profit dollars decreased approximately $1.0 million, or 3.7%, to $25.8 million from $26.8 million for the same period in the prior year primarily due to lower margin rates. As a percentage of total rental revenue, rental gross profit decreased to 62.8% for the period compared to 64.7% for the same period in the prior year primarily as a result of increased shrinkage and lower rental revenues.

Selling, General and Administrative Expenses (“SG&A”). As a percentage of total revenue, SG&A increased to 36.3% for the current six months compared to 36.1% for the same period in the prior year. SG&A increased approximately $2.3 million, or 2.6%, to $90.1 million compared to $87.8 million for the same quarter last year. The main drivers of the SG&A increase included an increase in bonuses under our bonus incentive programs of approximately $0.6 million over the prior year due to the fact that no bonuses were earned for the first half of fiscal 2009, an increase in store advertising costs of $0.5 million, an increase in associate health insurance of approximately $0.7 million, and an increase in labor of approximately $0.5 million. Increases were partially offset by a decrease in depreciation expense of $1.2 million due to a reduction in capital expenditures.

Interest Expense. For the current six months, interest expense decreased approximately $0.3 million, or 50.0%, to $0.3 million, compared to $0.6 million for the same period in the prior year primarily as a result of lower interest rates and lower average debt levels outstanding during the period. The average rate of interest charged for the current six months decreased to 2.0% compared to 2.7% for the same period in the prior year.

Income Tax Expense. During the six months ended July 31, 2010, the Company recorded a discrete tax benefit of approximately $0.2 million related to amended state returns resulting from an IRS audit of the Company’s previously filed Federal tax returns. No discrete tax items were recorded during the six months ended July 31, 2009. Primarily as a result of this discrete tax benefit, the effective tax rate for the six months ended July 31, 2010 decreased to 26.2% compared to 41.5% for the same period in the prior year.

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Use of Non-GAAP Financial Measures

The Company is providing free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income (loss) as supplemental non-GAAP financial measures regarding the Company’s operational performance. The Company evaluates its historical and prospective financial performance, and its performance relative to its competitors, by using such non-GAAP financial measures. Specifically, management uses these items to further its own understanding of the Company’s core operating performance, which management believes represents the Company’s performance in the ordinary, ongoing and customary course of its operations. Therefore, management excludes from core operating performance those items, such as those relating to restructuring, investing, stock-based compensation expense and non-cash activities that management does not believe are reflective of such ordinary, ongoing and customary activities.

The Company believes that providing this information to its investors, in addition to the presentation of GAAP financial measures, allows investors to see the Company’s financial results “through the eyes” of management. The Company further believes that providing this information allows investors to both better understand the Company’s financial performance and to evaluate the efficacy of the methodology and information used by management to evaluate and measure such performance.

Free Cash Flow

Management defines free cash flow as net cash provided by operating activities for the period less purchases of property, equipment and improvements during the period. Purchases of property, equipment and improvements during the period are netted with any proceeds received from insurance on casualty loss that are directly related to the reinvestment of new capital expenditures. The following table reconciles net cash provided by operating activities, a GAAP financial measure, to free cash flow, a non-GAAP financial measure (in thousands):

	Six months ended July 31,
	2010			2009
Net cash provided by operating activities	$	3,077		$	8,941
Purchase of property, equipment and improvements, net		(5,483	)		(5,611	)
Free cash flow	$	(2,406	)	$	3,330

EBITDA and Adjusted EBITDA

EBITDA is defined as net income (loss) before interest expense (net), income tax expense (benefit), property and equipment depreciation expense and amortization. Adjusted EBITDA, as presented herein, is EBITDA excluding gift card breakage revenue, stock-based compensation expense and store asset impairment expense. The following table reconciles net income (loss), a GAAP financial measure, to EBITDA and adjusted EBITDA, non-GAAP financial measures (in thousands):

	Three months ended July 31,						Six months ended July 31,
	2010			2009			2010			2009
Net income (loss)	$	(82	)	$	(396	)	$	936		$	1,306
Adjusted for
Interest expense, net		189			272			321			567
Income tax expense (benefit)		(69	)		(182	)		332			925
Property and equipment depreciation expense		4,303			4,733			8,624			9,583
EBITDA		4,341			4,427			10,213			12,381
Gift card breakage revenue		(194	)		—			(388	)		—
Non-cash stock-based compensation		194			105			337			156
Store asset impairment expense		—			—			—			155
Adjusted EBITDA	$	4,341		$	4,532		$	10,162		$	12,692

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Adjusted Operating Income (Loss)

Adjusted operating income (loss) is defined as operating income excluding gift card breakage revenue, stock based compensation expense and store asset impairment expense. The following table reconciles operating income (loss), a GAAP financial measure, to adjusted operating income (loss), a non-GAAP financial measure (in thousands):

	Three months ended July 31,						Six months ended July 31,
	2010			2009			2010			2009
Operating income (loss)	$	13		$	(367	)	$	1,544		$	2,719
Adjusted for
Gift card breakage revenue		(194	)		—			(388	)		—
Non-cash stock-based compensation		194			105			337			156
Store asset impairment expense		—			—			—			155
Adjusted operating income (loss)	$	13		$	(262	)	$	1,493		$	3,030

Free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income (loss) are considered non-GAAP financial measures under the SEC’s Regulation G and therefore should not be considered in isolation of, or as a substitute for, net income, operating income (loss), cash flow from operating activities, or any other measure of financial performance or liquidity presented in accordance with GAAP. The financial measures of non-GAAP free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income (loss) may vary among other companies. Therefore, our free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income (loss) may not be comparable to similarly titled measures used by other companies.

Liquidity and Capital Resources

We generate cash from operations from the sale of merchandise and the rental of products, most of which is received in cash and cash equivalents. Our primary sources of working capital are cash flow from operating activities including trade credit from vendors and borrowings under our revolving credit facility, with the most significant source during the first six months of fiscal 2010 and 2009 being borrowings under our revolving credit facility and cash flow from operating activities, respectively. Other than our principal capital requirements arising from the purchasing, warehousing and merchandising of inventory and rental products, opening new stores and expanding or reformatting existing stores and updating existing and implementing new information systems technology, we have no anticipated material capital commitments, except for the stock buyback programs discussed more fully in Item 2 of Part II of this Quarterly Report on Form 10-Q. We believe our cash flow from operations and borrowings under our revolving credit facility will be sufficient to fund our ongoing operations, new stores, store expansions, and store reformations for the next twelve months.

At July 31, 2010, total outstanding debt was approximately $43.9 million. We project our outstanding debt level will be in the range of $37.5 million to $39.5 million by the end of fiscal 2010. At July 31, 2010, we had approximately $44.1 million in excess availability, after the $10 million availability reserve, under the Amended Agreement (as defined below).

Consolidated Cash Flows

Operating Activities. Net cash provided by operating activities totaled approximately $3.1 million for the six months ended July 31, 2010, compared to $8.9 million for the six months ended July 31, 2009. Net earnings for the current period were approximately $0.9 million compared to net earnings of $1.3 million for the same period in fiscal 2009. Merchandise inventories decreased approximately $34,000 for the current six months, compared to a decrease of $4.3 million during the same period in fiscal 2009 primarily due to maintaining inventory levels to support revenue growth and an increased product assortment related to an expanded comic footprint in eighty stores. Accrued expenses and other liabilities decreased approximately $2.3 million during the period compared to a decrease of $7.2 million during the same period in fiscal 2009. Other current assets increased approximately $0.5 million during the period compared to a decrease of $1.4 million during the same period in fiscal 2009. The changes in accrued

19

expenses and other liabilities and other current assets were primarily driven by the timing of federal income tax payments. Purchases of rental video increased to $12.1 million for the period, compared to $10.1 million for the same period in the prior year, resulting primarily from increased purchases to support additional demand resulting from competitor stores that have closed during the first six months of fiscal 2010 in markets in which we operate. During fiscal 2010, we estimate net cash provided by operations of approximately $17.0 to $19.0 million. The expected decrease from fiscal 2009 net cash provided by operations of $26.6 million to estimated fiscal 2010 net cash provided by operations results primarily from projected increases in the purchases of rental asset inventory during fiscal 2010.

Investing Activities. Net cash used in investing activities decreased approximately $0.1 million from $5.6 million for the six months ended July 31, 2009, to $5.5 million for the six months ended July 31, 2010. This decrease was primarily the result of planned reductions in our capital expenditures. For the full fiscal year 2010, the Company projects capital expenditures to be approximately $16.3 million, which includes approximately $1.6 million related to the reformatting of twenty stores to expand the footprint of our Comics category, and $0.7 million to expand the Comics footprint in another ten stores on a smaller scale, with remaining planned discretionary capital expenditures related to new stores, relocated stores and our internet site. The Company incurred approximately $11.3 million of capital expenditures during fiscal year 2009.

Financing Activities. Cash flows from financing activities are primarily associated with borrowings and payments made under our revolving credit facility (described below under “Capital Structure”). For the six months ended July 31, 2010, cash used in financing activities was approximately $30,000 compared to $6.3 million for the six months ended July 31, 2009. For the current six months, net borrowings from our revolving credit facility were approximately $5.7 million compared to net borrowings of approximately $1.0 million for same period in the prior year. Changes in our cash overdraft position decreased from a use of $6.9 million for the six months ended July 31, 2009 to a use of $1.0 million for the six months ended July 31, 2010, due to the timing of payments issued to vendors during the period. The Company purchased approximately $4.4 million of treasury stock during the six months ended July 31, 2010 compared to $0.4 million during the six months ended July 31, 2009.

On December 4, 2009, we entered into a stock transfer agreement with the Marmaduke Family Limited Partnership (the “Partnership”). Under the stock transfer agreement, for a period of three years following the death of Mr. John H. Marmaduke, the Company’s President and Chief Executive Officer, the Partnership may tender for purchase to the Company, and, if so tendered, the Company will be required to purchase, the number of shares of the Company’s common stock belonging to the Partnership that equal an aggregate fair market value of $5.0 million. During this three year period, the Partnership may elect to tender portions of such shares in various lots and parcels, at any time and from time to time, and any tender shall not exhaust or limit the Partnership’s right to tender an additional amount of such shares, subject to the limitations set within the stock transfer agreement. Under the stock transfer agreement, the Company is not obligated to purchase, and the Partnership does not have the right to tender, any amount of such shares with an aggregate fair market value in excess of $5.0 million. In the event that Mr. Marmaduke resigns as an officer or director of the Company prior to his death, the Partnership’s right to tender the shares to the Company shall terminate. The stock transfer agreement shall terminate on the earlier of February 9, 2019, or four years after the death of Mr. Marmaduke. The Company is currently the beneficiary of a $10 million key-man life insurance policy on Mr. Marmaduke, a portion of the proceeds of which would be used to complete any purchases of shares resulting from the stock transfer agreement.

Capital Structure. On July 22, 2010, we entered into the Amended and Restated Loan and Security Agreement (the “Amended Agreement”) with Bank of America, N.A., as agent, which amended and restated our Loan and Security Agreement dated as of August 29, 2000, as otherwise amended (the “Prior Agreement”). The Amended Agreement is substantially the same as the Prior Agreement, extends the maturity date of the Prior Agreement from August 29, 2011 to July 22, 2014, and provides that we may repurchase up to $10.0 million worth of our common stock. The Amended Agreement also provides that we may repurchase additional shares of our common stock in the event we meet certain criteria set forth in the Amended Agreement. The Amended Agreement prohibits the payment of dividends and includes certain other debt and acquisition limitations and requires a minimum availability of $10.0 million at all times. The Amended Agreement is secured by substantially all of the assets of the Company and our subsidiary and is guaranteed by our subsidiary.

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The amount outstanding under the Amended Agreement is limited by a borrowing base predicated on the sum of (a) 85% of Eligible Credit Card Receivables plus (b) (i) 85% multiplied by (ii) the Appraised Inventory Liquidation Value multiplied by (iii) Eligible Inventory (net of Inventory Reserves), less (c) Availability Reserves (each term as defined in the Amended Agreement), and is limited to a ceiling of $100 million, less a $10 million availability reserve. The lender may increase specifically defined reserves to reduce availability in the event of adverse changes in our industry or our financial condition, that are projected to impact the value of our assets pledged as collateral. The lender must exercise reasonable judgment and act in good faith with respect to any changes in the specifically defined reserves.

Interest under the Amended Agreement will accrue, at our election, at a Base Rate or Libor Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of Availability as defined in the Amended Agreement, with the Applicable Margin for Libor Rate loans ranging from 2.00% to 2.75% and the Applicable Margin for Base Rate loans ranging from 1.00% to 1.75%. In addition, unused line fees ranging from 0.30% to 0.375% (determined by reference to the level of usage under the Amended Agreement) are also payable on unused commitments.

At July 31, 2010, we had approximately $44.1 million in excess availability, after the $10 million availability reserve, under the Amended Agreement. We expect to have approximately $54.0 million in excess availability, after the $10 million availability reserve and outstanding letters of credit, at January 31, 2011. However, excess availability may be reduced in the future as changes in the borrowing base occur or the lenders increase availability reserves. The average rate of interest incurred for the three and six months ended July 31, 2010 was 2.1% and 2.0%, respectively.

We utilize standby letters of credit to support certain insurance policies. The aggregate amount of the letters of credit at July 31, 2010, was approximately $0.9 million, which reduces the excess availability under the Amended Agreement.

At July 31, 2010, our minimum lease commitments for the remainder of fiscal 2010 were approximately $11.1 million. Total existing minimum operating lease commitments for fiscal years 2010 through 2025 were approximately $164.5 million as of July 31, 2010.

Contractual obligations and off-balance sheet arrangements. We have contractual obligations associated with ongoing business and financing activities, which will result in cash payments in future periods. These obligations include long-term debt, operating leases and certain revenue-sharing agreements. As of July 31, 2010, other than operating leases and standby letters of credit, we had not entered into any off-balance sheet arrangements or third-party guarantees, nor does our business ordinarily require us to do so. At July 31, 2010, there have been no material changes in our contractual obligations or off-balance sheet arrangements from those reported in our Annual Report on Form 10-K for the fiscal year ended January 31, 2010.

Seasonality

As is the case with many retailers, a significant portion of our revenues, and an even greater portion of our operating income, is generated in the fourth fiscal quarter, which includes the holiday selling season. As a result, a substantial portion of our annual earnings has been, and will continue to be, dependent on the results of the fourth quarter, which could be impacted by the extremely challenging times that the U.S. and global economies are currently experiencing, the conditions of which have had and will continue to have an adverse impact on spending by Hastings’ current retail customer base and potential new customers. Less than satisfactory net sales for such period could have a material adverse effect on the Company’s financial condition or results of operations for the year and may not be sufficient to cover any losses that may have been incurred in the first three quarters of the year. We experience reduced video rental activity in the spring because customers spend more time outdoors. Major world or sporting events, such as the Super Bowl, the Olympic Games or the World Series, also have a temporary adverse effect on revenues. Future operating results may be affected by many factors, including variations in the number and timing of superstore openings, the number and popularity of new book, music and video titles, the cost of the new release or “best renter” titles, changes in comparable-store revenues, competition, marketing programs, increases in the minimum wage, weather, special or unusual events and other factors that may affect our operations.

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ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

In the ordinary course of our business, we are exposed to certain market risks, primarily changes in interest rates. Our exposure to interest rate risk consists of variable rate debt based on the lender’s base rate or LIBOR plus a specified percentage, at our option. The annual impact on our results of operations of a 100 basis point interest rate change on the July 31, 2010 outstanding balance of the variable rate debt would be approximately $0.4 million. After an assessment of these risks to our operations, we believe that the primary market risk exposures (within the meaning of Regulation S-K Item 305) are not material and are not expected to have any material adverse impact on our financial position, results of operations or cash flows for the next fiscal year.

ITEM 4 — CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the end of the period covered by this report on Form 10-Q. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to provide reasonable assurance that the information required to be disclosed by us in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

Management has implemented a process to monitor and assess both the design and operating effectiveness of internal control over financial reporting. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

There has not been any change in our internal control over financial reporting during our fiscal quarter ended July 31, 2010, 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.

We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our financial position, results of operations, or cash flows.

ITEM 1A — RISK FACTORS.

Our Annual Report on Form 10-K for the fiscal year ended January 31, 2010 includes a detailed discussion of our risk factors. Since that time, there have been no material changes to our risk factors.

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ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

A summary of our purchases of shares of common stock for the three months ended July 31, 2010 is as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

							Approximate dollar
					Total number of		value of shares
					shares purchased as		that may yet be
	Total number of				part of publicly		purchased under the
	shares purchased		Average price paid		announced plans or		plans or programs
Period	(1)		per share		programs		(2)
May 1, 2010 through May 31, 2010		124,200	$	7.41		124,200		N/A
June 1, 2010 through June 30, 2010		243,300		7.71		243,300		N/A
July 1, 2010 through July 31, 2010		89,400		7.12		89,400		N/A
Total		456,900	$	7.51		456,900	$	233,750

(1)

All shares were open-market purchases made under a repurchase plan publicly announced in a press release dated September 28, 2001. Our Board of Directors initially authorized the repurchase of up to $5.0 million of our common stock. As of July 31, 2010, the Board of Directors has approved the repurchase of up to an additional $22.5 million of our common stock. Each such authorization to increase amounts was publicly announced in a press release. The repurchases satisfied the conditions of the safe harbor of Rule 10b-18 under the Exchange Act.

(2)

A total of 4,385,245 shares have been purchased under the repurchase plan at a total cost of approximately $27.3 million, or approximately $6.22 per share. Subsequent to July 31, 2010, the Board of Directors approved an increase of $10.0 million in the stock repurchase program.

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ITEM 6 — EXHIBITS.

a. The following exhibits are filed herewith or incorporated by reference as indicated as required by Item 601 of Regulation S-K. Any exhibits designated by an asterisk are management contracts and/or compensatory plans or arrangement required to be filed as exhibits to this Quarterly Report on Form 10-Q.

Exhibit Number			Description of Documents
3.1	(1	)	Third Restated Articles of Incorporation of the Company.
3.2	(2	)	Amended and Restated Bylaws of the Company.
4.1	(3	)	Specimen of Certificate of Common Stock of the Company.
4.2	(1	)	Third Restated Articles of Incorporation of the Company (see 3.1 above).
4.3	(2	)	Amended and Restated Bylaws of the Company (see 3.2 above).
10.1	(4	)	Amended and Restated Loan and Security Agreement, dated as of July 22, 2010, between the Company and Bank of America, N.A., acting in its capacity as agent for various lenders identified therein.
31.1	(5	)	Principal Executive Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
31.2	(5	)	Principal Financial Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
32.1	(5	)	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, dated March 18,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are incorporated herein by reference.
(2)	Previously filed as an exhibit to the Company’s Form 8-K (File No. 000-24381) filed on January 17, 2008 and incorporated herein by reference.
(3)	Previously filed as an exhibit to the Company’s Registration Statement on Form S-1/A, dated May 19,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are incorporated herein by reference.
(4)	Previously filed as an exhibit to the Company’s Form 8-K (File No. 000-24381) filed on July 23, 2010 and incorporated herein by reference.
(5)	Filed herewith.

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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:

	HASTINGS ENTERTAINMENT, INC
Date: August 25, 2010	/s/ Dan Crow
	Dan Crow
	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS

Exhibit Number			Description of Documents
3.1	(1	)	Third Restated Articles of Incorporation of the Company.
3.2	(2	)	Amended and Restated Bylaws of the Company.
4.1	(3	)	Specimen of Certificate of Common Stock of the Company.
4.2	(1	)	Third Restated Articles of Incorporation of the Company (see 3.1 above).
4.3	(2	)	Amended and Restated Bylaws of the Company (see 3.2 above).
10.1	(4	)	Amended and Restated Loan and Security Agreement, dated as of July 22, 2010, between the Company and Bank of America, N.A., acting in its capacity as agent for various lenders identified therein.
31.1	(5	)	Principal Executive Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
31.2	(5	)	Principal Financial Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
32.1	(5	)	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)	Previously filed as an exhibit to the Company’s Registration Statement on Form S-1, dated March 18,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are incorporated herein by reference.
(2)	Previously filed as an exhibit to the Company’s Form 8-K (File No. 000-24381) filed on January 17, 2008 and incorporated herein by reference.
(3)	Previously filed as an exhibit to the Company’s Registration Statement on Form S-1/A, dated May 19,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are incorporated herein by reference.
(4)	Previously filed as an exhibit to the Company’s Form 8-K (File No. 000-24381) filed on July 23, 2010 and incorporated herein by reference.
(5)	Filed herewith.

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EX-31.1

Exhibit 31.1

Principal Executive Officer
Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)

I, John H. Marmaduke, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Hastings Entertainment, 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(s) 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 controls 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(s) 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 associates who have a significant role in the registrant’s internal control over financial reporting.

Date: August 25, 2010	/s/ John H. Marmaduke
	John H. Marmaduke
	President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Principal Financial Officer
Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a)

I, Dan Crow, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Hastings Entertainment, 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(s) 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 controls 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(s) 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 associates who have a significant role in the registrant’s internal control over financial reporting.

Date: August 25, 2010	/s/ Dan Crow
	Dan Crow
	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Hastings Entertainment, Inc. (the “Company”), do hereby certify, to such officer’s knowledge, that:

     The Quarterly Report on Form 10-Q for the quarter ended July 31, 2010 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Date: August 25, 2010	/s/ John H. Marmaduke
	John H. Marmaduke
	President and Chief Executive Officer (Principal Executive Officer)
Date: August 25, 2010	/s/ Dan Crow
	Dan Crow
	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

     The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

     A signed original of this written statement required by §906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission, or its staff, upon request.