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

Indicate by check mark whether the registrant 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 ¨

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.

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

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

	April 30, 2014			January 31, 2014
Assets		(Unaudited)
Current assets:
Cash and cash equivalents	$	2,967		$	3,753
Merchandise inventories, net		150,416			152,138
Prepaid expenses and other current assets		8,013			10,394
Total current assets		161,396			166,285
Rental assets, net of accumulated depreciation of $15,927 and $ 16,869 at April 30, 2014 and January 31, 2014, respectively		9,729			10,227
Property, equipment and improvements, net of accumulated depreciation of $233,166 and $230,971 at April 30, 2014 and January 31, 2014, respectively		28,313			29,212
Intangible assets, net		244			244
Other assets		593			677
Total Assets	$	200,275		$	206,645
Liabilities and Shareholders’ Equity
Current liabilities:
Trade accounts payable	$	56,771		$	57,236
Accrued expenses and other current liabilities		26,535			28,359
Total current liabilities		83,306			85,595
Long term debt		51,289			51,749
Deferred income taxes		63			60
Other liabilities		5,166			5,239
Shareholders’ equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized; none issued		0			0
Common stock, $0.01 par value; 75,000,000 shares authorized; 11,944,544 shares issued and 8,143,317 shares outstanding at April 30, 2014 and January 31, 2014		119			119
Additional paid-in capital		36,435			36,413
Retained earnings		45,233			48,459
Accumulated other comprehensive income		0			347
Treasury stock, at cost; 3,801,227 shares at April 30, 2014 and January 31, 2014		(21,336	)		(21,336	)
Total Shareholders’ Equity		60,451			64,002
Total Liabilities and Shareholders’ Equity	$	200,275		$	206,645

	Three Months Ended April 30,
	2014			2013
Merchandise revenue	$	91,586		$	94,800
Rental revenue		12,348			14,213
Gift card breakage revenue		23			114
Total revenues		103,957			109,127
Merchandise cost of revenue		63,473			64,433
Rental cost of revenue		4,287			4,903
Total cost of revenues		67,760			69,336
Gross profit		36,197			39,791
Selling, general and administrative expenses		39,390			41,745
Operating loss		(3,193	)		(1,954	)
Other income (expense):
Interest expense, net		(342	)		(263	)
Other, net		360			70
Loss before income taxes		(3,175	)		(2,147	)
Income tax expense		52			59
Net loss	$	(3,227	)	$	(2,206	)
Basic loss per share	$	(0.40	)	$	(0.27	)
Diluted loss per share	$	(0.40	)	$	(0.27	)
Weighted-average common shares outstanding:
Basic		8,143			8,143
Dilutive effect of stock awards		0			0
Diluted		8,143			8,143

	Three Months Ended April 30,
	2014			2013
Net loss	$	(3,227	)	$	(2,206	)
Other comprehensive income (loss) before income taxes
Unrealized gains on available for sale investments for Supplemental Executive Retirement Plan		0			62
Reclassification adjustment realized in net loss, included in Other Income (Expense)		(422	)		0
Other comprehensive income (loss), before income taxes		(422	)		62
Income taxes related to components of other comprehensive income (loss)		75			0
Other comprehensive income (loss), net of income taxes		(347	)		62
Total comprehensive loss	$	(3,574	)	$	(2,144	)

	Three Months Ended April 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(3,227	)	$	(2,206	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Rental asset depreciation expense		984			1,160
Purchases of rental assets		(1,332	)		(2,281	)
Property and equipment depreciation expense		2,692			3,372
Deferred income taxes		3			3
Loss on rental assets lost, stolen and defective		12			24
Loss on disposal or impairment of property and equipment, excluding rental assets		25			16
Non-cash stock-based compensation		23			22
Changes in operating assets and liabilities:
Merchandise inventories, net		2,725			746
Prepaid expenses and other current assets		451			(804	)
Trade accounts payable		3,110			3,917
Accrued expenses and other current liabilities		(217	)		3,076
Other assets and liabilities, net		(13	)		198
Net cash provided by operating activities		5,236			7,243
Cash flows from investing activities:
Purchases of property, equipment and improvements		(1,987	)		(1,324	)
Net cash used in investing activities		(1,987	)		(1,324	)
Cash flows from financing activities:
Borrowings under revolving credit facility		108,115			103,415
Repayments under revolving credit facility		(108,575	)		(108,743	)
Purchase of treasury stock		0			(28	)
Change in cash overdraft		(3,575	)		(761	)
Net cash used in financing activities		(4,035	)		(6,117	)
Net decrease in cash and cash equivalents		(786	)		(198	)
Cash and cash equivalents at beginning of period		3,753			3,730
Cash and cash equivalents at end of period	$	2,967		$	3,532

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, 2014.

The consolidated balance sheet at January 31, 2014 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, 2014.

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, 2015 is referred to as fiscal year 2014.

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 14 to the Audited Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended January 31, 2014.

For the three months ended April 30, 2014 and 2013, we recognized approximately $23,000 and $22,000, respectively, of stock-based compensation expense. These amounts include expense related to incentive stock options, non-qualified stock options, and restricted stock units.

As of April 30, 2014, we had 298,396 shares available to grant as stock-based compensation awards under our various stock incentive plans.

From time to time and in the normal course of business, we evaluate our store base to determine if we need to close a store. Such evaluations include consideration of, among other factors, current and future expected profitability, market trends, age of store and lease status.

Amounts in “Accrued expenses and other current liabilities” and “Other liabilities” in the consolidated balance sheet at April 30, 2014 included the current and long-term portions, respectively, of accruals for the net present value of future minimum lease payments, net of estimated sublease income, attributable to closed stores. Expenses related to store closings are included in SG&A expenses in the consolidated statements of operations.

We have entered into an Amended and Restated Loan and Security Agreement with Bank of America, N.A., as lender and agent (as subsequently amended, the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility of $115 million, allows for the payment of dividends, has a maturity date of January 4, 2017, and provides that we may repurchase up to $10 million worth of our common stock. The Credit Agreement also provides that we may repurchase additional shares of our common stock in the event we meet certain criteria set forth in the Credit Agreement. The Credit Agreement includes certain debt and acquisition limitations and requires a minimum Availability (as defined in the Credit Agreement) that is greater than or equal to $10 million at all times. Our obligations under the Credit Agreement are secured by a pledge of substantially all of the assets of the Company and our subsidiary and are guaranteed by our subsidiary. The Merger Agreement that we entered into on March 17, 2014 (See Item 2—Management’s Discussion and Analysis of Financial Condition of Results of Operation—Merger Agreement) restricts our ability to pay dividends or purchase our shares.

The amount outstanding under the Credit Agreement is limited by a borrowing base predicated on the sum of (a) 85% of Eligible Credit Card Receivables plus (b) either (i) at all times during the year, other than those stated in (ii), 90% of the liquidation value of eligible inventory or (ii) from September 1^st through and including December 27^th of each year, 92.5% of the liquidation value of eligible inventory, less (c) Availability Reserves and is limited to a ceiling of $115 million, less a minimum availability reserve that is greater than or equal to 10% of the lesser of (a) the Borrowing Base, or (b) the Revolving Credit Ceiling (each term as defined in the Credit Agreement), provided however that we must also maintain Availability that is greater than or equal to $10 million at all times. 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 Credit 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 Credit Agreement, with the Applicable Margin for Libor Rate loans ranging from 2.00% to 2.50% and the Applicable Margin for Base Rate (each term as defined in the Credit Agreement) loans ranging from 1.00% to 1.50%. In addition, unused line fees ranging from 0.30% to 0.375% (determined by reference to the level of usage under the Credit 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 April 30, 2014, was approximately $0.8 million, which reduces the excess availability under the Credit Agreement.

At April 30, 2014, we had approximately $46.3 million in excess availability, after the availability reserve, under the Credit Agreement. The average rate of interest incurred for the three months ended April 30, 2014 and 2013 was 2.5%. Deferred financing costs that were amortized into interest expense during the three months ended April 30, 2014 and 2013 are excluded from the calculation of the average rate of interest for each respective period.

	Three Months Ended April 30,
	2014			2013
Net loss	$	(3,227	)	$	(2,206	)
Average shares outstanding:
Basic		8,143			8,143
Effect of stock awards		0			0
Diluted		8,143			8,143
Loss per share:
Basic	$	(0.40	)	$	(0.27	)
Diluted	$	(0.40	)	$	(0.27	)

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

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:

At January 31, 2014, we had approximately $1.9 million in assets which were carried at fair value on a recurring basis, which consisted of available-for-sale investments related to our supplemental executive retirement plan (“SERP”). The fair value of these investments was determined using Level 1 inputs. During the first quarter of fiscal 2014, the remaining investments for the SERP were distributed by the Company.

Our long-term debt approximates fair value as of both April 30, 2014 and January 31, 2014, due to the instrument bearing interest at variable rates that are comparable to what is currently available to us. We entered into a second amendment to the Credit Agreement on January 4, 2013, at which time our current interest rates were determined. See Note 4 on Debt for a more detailed discussion of our Credit Agreement.

The effective tax rate for the three months ended April 30, 2014 was (1.6%) primarily due to Texas state income tax expense, which is based primarily on gross margin.

As the Company has a net operating loss and a net deferred tax asset, which has been offset by a full valuation allowance at April 30, 2014, there is no tax liability, with the exception of Texas state income tax. The valuation allowance is approximately $15.6 million as of April 30, 2014. We reassess the valuation allowance quarterly, and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.

The Company is obligated to pay certain studios minimum amounts associated with certain revenue-sharing agreements related to rental assets. As of April 30, 2014 and 2013, such minimum future payments approximated $0.9 million and $1.0 million, respectively. The balance at April 30, 2014 is expected to be paid during fiscal 2014.

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.

On March 28, 2014, a lawsuit challenging the merger contemplated in the Merger Agreement that we entered into on March 17, 2014 (See Item 2--Management’s Discussion and Analysis of Financial Condition of Results of Operation--Merger Agreement) (the “Merger”), captioned CV-00072-J—Andreas Oberegger and David A. Capps, directly and derivatively on behalf of Hastings Entertainment, Inc., v. Danny W. Gurr, Ann S. Lieff, Frank O. Marrs, John H. Marmaduke, Jeffrey G. Shrader, Draw Another Circle, LLC (“Parent”), Hendrix Acquisition Corp. (“Merger Sub”), Joel Weinshanker and National Entertainment Collectibles Association, Inc. (NECA”), as defendants, and Hastings Entertainment, Inc., as a nominal defendant, was filed in the United States District Court for the Northern District of Texas, Amarillo Division. The plaintiffs are purported shareholders of the Company and are alleging several claims in connection with the Merger Agreement and the transactions contemplated therein. Plaintiffs allege, among other things, that the Merger contemplated in the Merger Agreement provides for insufficient consideration to be paid to the Company’s shareholders in exchange for their shares of the Company’s common stock, that the officers and directors of the Company breached their respective fiduciary duties in the course of negotiating and approving the Merger Agreement and that the other defendants aided and abetted such breach of fiduciary duties. The lawsuit seeks to enjoin the Merger or rescind the Merger if it is consummated and compensatory damages in an unspecified amount. The Company believes that the lawsuit was improperly and prematurely filed under Texas law. On April 16, 2014, the Company filed a Motion to Dismiss the Action, and Parent, Merger Sub, NECA and Mr. Weinshanker filed a Joinder to this Motion to Dismiss the Action on April 18, 2014. The plaintiffs have filed a response in opposition to the motion to dismiss, and the Company has filed a reply. The Court has not yet ruled on the motion.

On May 13, 2014, the defendants filed a Notice of Stay under the Texas Business Organizations Code seeking an automatic stay for 60 days of all proceedings in this litigation except for the Court’s ruling on the defendant’s motion to dismiss. The plaintiffs have filed a response contesting the stay. The Court has not yet entered a stay of the action.

On May 15, 2014, the plaintiffs filed a motion for leave to amend their complaint to add claims for failure to disclose material information in the preliminary proxy statement that we filed on April 22, 2014 in connection with the Merger Agreement (the “Proxy Statement”). The defendants have filed responses opposing the motion. The Court has not yet acted on this motion.

On May 28, 2014, the plaintiffs filed a motion for expedited discovery and a motion for entry of a temporary restraining order to enjoin the proposed transaction from closing. On May 30, 2014, two days after the plaintiffs filed this motion, the Court issued an Order Granting Motion for Temporary Restraining Order and Setting Hearing on Request for a Preliminary Injunction (the “Order”) restricting the Merger. Under the terms of the Order, the Company is restricted, among other things, from consummating the Merger prior to June 12, 2014, on which date a hearing has been scheduled with respect to the Order.

The Company believes that the lawsuit was improperly and prematurely filed under Texas law and that the claims alleged therein are factually incorrect and deficient as a matter of law. The Company also believes that the grounds upon which the plaintiffs sought the Order are insufficient as a matter of fact and law. The Company intends to vigorously dispute these claims at the June 12 hearing with respect to the Order and throughout the life of this litigation.

Prior to filing the lawsuit, the plaintiffs' counsel sent the Company a demand letter dated March 20, 2014 demanding that the Board of Directors commence an action on behalf of the Company against the Directors. The Board of Directors appointed a Special Committee composed of independent directors to review the plaintiffs’ allegations. The Committee has not yet completed its review or made any determination as to what action, if any, should be taken in response to those allegations.

On May 9, 2014, a second lawsuit was filed, alleging material omissions and misstatements in our Proxy Statement in violation of Sections 14 and 20 of the Exchange Act. The action, captioned CV-00114-J—Sarabjeet Singh, individually and on behalf of others similarly situated v. Hastings Entertainment, Inc., John H. Marmaduke, Jeffrey G. Shrader, Ann S. Lieff, Frank O. Marrs, Danny W. Gurr, Draw Another Circle, LLC, Hendrix Acquisition Corp., Joel Weinshanker and National Entertainment Collectibles Association, Inc., was filed in the United States District Court for the Northern District of Texas, Amarillo Division. The lawsuit, which purports to be a class action, seeks an injunction preventing consummation of the Merger, rescinding the Merger, if consummated, or granting rescissionary damages in an unspecified amount, compensatory damages in an unspecified amount and an award of costs and expenses. The Company’s answer has not yet been filed, but it believes the allegations contained in the complaint are without merit and intends to vigorously defend the lawsuit.

Changes in the balances of each component of other comprehensive income (“OCI”) included in accumulated OCI for the three months ended April 30, 2014 are presented below. All reclassification amounts are net of tax.

In July 2013, the Financial Accounting Standards Board issued ASU No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which requires unrecognized tax benefits to be presented as a decrease in a net operating loss, similar tax loss or tax credit carryforward if certain criteria are met. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of ASU 2013-11 in the first quarter of fiscal 2014 did not have a material impact on the Company’s consolidated financial statements.

In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09: Revenue from Contracts with Customers, which requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The ASU is effective for fiscal years, and interim periods within those years, beginning in the first quarter of 2017. We are in the process of reviewing ASU 2014-09; however, we do not anticipate any material impact on the Company’s consolidated financial statements.

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

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 opinions 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; the reduction or elimination of the in-store window for rental video; 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 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; the effect of inclement weather on the ability of consumers to reach our stores 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 Quarterly Report on Form 10-Q.

Incorporated in 1972, Hastings Entertainment, Inc. (the “Company,” “Hastings,” or “Hastings Entertainment”) is a leading multimedia entertainment and lifestyle 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, hobby, sports and recreation, lifestyle 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 April 30, 2014, we operated 126 superstores principally in medium-sized markets located in 19 states, primarily in the Western and Midwestern United States. We also operate three concept stores, Sun Adventure Sports, located in Amarillo, Texas and Lubbock, Texas, and TRADESMART, located in Littleton, Colorado. Sun Adventure Sports sells a wide range of bicycles and related accessories, skateboards, and various other athletic equipment, apparel, and shoes, and offers bicycle repair services and cycling classes. TRADESMART, born from the culture of recycling, features over 450,000 predominantly used and new books, CDs, DVDs, Blu-rays, video games and video game systems, as well as consumer electronics, trends, skateboards and paintball merchandise, and much more available for purchase. TRADESMART also buys back for cash or store credit entertainment products that customers have previously enjoyed.

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, comics, sports & recreation and electronics. We fill orders for new and used product placed at the website and also through Amazon and eBay Marketplaces using our proprietary goShip program, which allows us to ship directly from stores or the distribution center. 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 ending January 31, 2015 is referred to as fiscal 2014.

As described under the heading “Merger Agreement” in Item 1 of our Annual Report on Form 10-K, for the fiscal year ended January 31, 2014, on March 17, 2014, we entered into an Agreement and Plan of Merger(the “Merger Agreement”) with Draw Another Circle, LLC (“Parent”) and its wholly owned subsidiary. Pursuant to the Merger Agreement, subject to satisfaction or waiver of certain closing conditions, Merger Sub will merge with and into the Company, with the Company continuing its existence under Texas law as the surviving entity in the Merger. Upon the completion of the Merger, the Company will be a wholly owned subsidiary of Parent.

If the Merger is completed, at the effective time of the Merger, each share of common stock of the Company issued and outstanding as of immediately prior to the effective time (excluding any shares of common stock held by Parent or its affiliates , any shares of common stock held by the Company in treasury or by any direct or indirect wholly owned subsidiary of the Company) will be automatically cancelled and converted into the right to receive the merger consideration of $3.00 per share as provided in the Merger Agreement.

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 our more significant estimates and assumptions used in the preparation of 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, Blu-rays and video games, are depreciated to salvage values ranging from $4 to $15. 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 carrying 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 operations, 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, in addition to certain other property and equipment, is subject to impairment write-down.

Income Taxes. In determining net income (loss), 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 revenues and expenses. 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. A valuation allowance is established if it is more likely than not that a deferred tax asset will not be realized. In determining the appropriate valuation allowance, we consider all available positive and negative evidence, including our ability to carry back operating losses to prior periods, projected future taxable income, tax planning strategies and the reversal of deferred tax liabilities. We reassess the valuation allowance quarterly, and, if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.

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.

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. Revenue from sales of gift cards is recognized when the gift card is redeemed by the customer, or the likelihood of a gift card being redeemed by the customer is remote (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.

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

	Three Months Ended April 30,
	2014			2013
Merchandise revenue		88.1	%	86.9	%
Rental revenue		11.9		13.0
Gift card breakage revenue		0.0		0.1
Total revenues		100.0		100.0
Merchandise cost of revenue		69.3		68.0
Rental cost of revenue		34.7		34.5
Total cost of revenues		65.2		63.5
Gross profit		34.8		36.5
Selling, general and administrative expenses		37.9		38.3
Operating loss		(3.1	)	(1.8	)
Other income (expense):
Interest expense		(0.3	)	(0.2	)
Other, net		0.3		0.1
Loss before income taxes		(3.1	)	(1.9	)
Income tax expense (benefit)		0.1		0.1
Net loss		(3.2	)%	(2.0	)%

	Three Months Ended April 30,						Year Ended January 31,
	2014			2013			2014
Beginning number of stores		127			137			137
Openings		0			0			0
Closings		(1	)		(3	)		(10	)
Ending number of stores		126			134			127

Revenues. Total revenues for the first quarter decreased approximately $5.1 million, or 4.7%, to $104.0 million compared to $109.1 million for the first quarter of fiscal 2013. As of April 30, 2014, we operated 8 fewer Hastings superstores, as compared to April 30, 2013. The following is a summary of our revenues results (dollars in thousands):

	Three Months Ended April 30,
	2014				2013				Increase/(Decrease)
	Revenues		Percent Of Total		Revenues		Percent Of Total		Dollar			Percent
Merchandise Revenue	$	91,586	88.1	%	$	94,800	86.9	%	$	(3,214	)	-3.4	%
Rental Revenue		12,348	11.9	%		14,213	13.0	%		(1,865	)	-13.1	%
Gift Card Breakage Revenue		23	0.0	%		114	0.1	%		(91)		-79.8	%
Total Revenues	$	103,957	100.0	%	$	109,127	100.0	%	$	(5,170	)	-4.6	%

Trends Comps increased 25.9% for the quarter primarily due to strong sales in action figures, comics, novelty toys, licensed and branded products, and recreational and lifestyle products. Licensed and branded products for which we experienced strong sales during the quarter were Magic the Gathering, Frozen and Doctor Who. The Trends department also includes recreation and lifestyles products whose growth was driven by the addition of hobby products to reset stores as well as growth in the existing categories of skateboards, licensed sports and disc golf. Hobby products continued to show strong growth during the quarter with sales of remote control vehicles and model kits. Video Games Comps increased 13.7% during the quarter due to continued sales of PlayStation 4 and the Xbox One game consoles as well as the release of several high profile games such as Titanfall, Infamous Second Son and South Park. Electronics Comps increased 7.0% for the quarter primarily due to increased sales in musical instruments and instrument accessories, televisions, turntables, speaker systems, tablets, home electronics, and phone accessories. Movies Comps remained relatively flat for the quarter due to a slight decrease in new and previously viewed DVD’s partially offset by an increase in used DVD’s. Sales of promotional product were not as strong as expected but we continue to have strong sales in new movies from new releases, Blu-rays and boxed sets. Consumables Comps decreased 4.3% for the quarter primarily due to lower sales of bottled drinks and assorted snacks. Books Comps decreased 5.7% for the quarter due to a decrease in paperback, bargain books and magazines, partially offset by sales of the Divergent trilogy. Hardback Café Comps decreased 8.8% for the quarter primarily due to the closing of thirteen Hardback Cafés which operated in comp stores. Music Comps decreased 14.5% for the quarter primarily due to a significant reduction in retail space in the 95 stores that were reset, as of April 30, 2014, as well as the increasing popularity of digital delivery.

Rental Comps decreased 8.8% for the first quarter, primarily resulting from fewer rentals of traditional DVDs and video games, partially offset by an increase in rentals of Blu-ray movies. Rental Movie Comps decreased 7.1% and Rental Video Game Comps decreased 25.6% for the quarter primarily as sales were negatively impacted by competition from rental kiosks and subscription-based rental services.

Gross Profit – Merchandise. For the first quarter, total merchandise gross profit dollars decreased approximately $2.3 million, or 7.6%, to $28.1 million from $30.4 million for the same period in the prior year, primarily due to a decrease in revenue attributed to operating eight fewer superstores this quarter compared to the same quarter in the prior year. As a percentage of total merchandise revenue, merchandise gross profit decreased to 30.7% for the quarter compared to 32.0% for the same quarter in the prior year, primarily due to a shift in mix of revenues by category and higher markdown expenses and freight expenses, partially offset by lower expense to return products and lower shrinkage.

Gross Profit – Rental. For the first quarter, total rental gross profit dollars decreased approximately $1.2 million, or 12.9%, to $8.1 million from $9.3 million for the same period in the prior year, primarily due to a decrease in revenue partially attributed to operating fewer superstores this quarter compared to the same quarter in the prior year. As a percentage of total rental revenue, rental gross profit slightly decreased to 65.3% for the quarter compared to 65.5% for the same quarter in the prior year.

Selling, General and Administrative Expenses (“SG&A”). As a percentage of total revenue, SG&A decreased to 37.9% for the first quarter compared to 38.3% for the same quarter in the prior year. SG&A decreased approximately $2.3 million during the quarter, or 5.5%, to $39.4 million compared to $41.7 million for the same quarter last year. The decrease results primarily from a $1.4 million reduction in corporate salary expense due to the restructuring that took place in the first quarter of fiscal 2013, a decrease of $0.8 million in store labor expense, $0.5 million reduction in depreciation expense, a decrease in store advertising expense of $0.2 million,

a decrease of $0.2 million in store occupancy expense and a decrease of $0.1 million in store supplies. The decrease in store expenses were primarily the result of operating fewer superstores this quarter compared to the same period in the prior year. The reductions were partially offset by an increase of $0.6 million in legal and other expenses associated with the proposed merger and an increase in senior retirement plan expense of $0.3 million related to the payout of the Supplemental Executive Retirement Plan (“SERP”). The increase in expense related to the SERP is offset by an increase in other income resulting from an Other Comprehensive Income (OCI) reclassification adjustment from the realization of a gain upon the distribution of the investments for the SERP.

Interest Expense. For both the first quarter of fiscal 2014 and fiscal 2013, interest expense was approximately $0.3 million. Interest rates for both periods averaged 2.5%.

Income Tax Expense. As the Company has a net operating loss and a net deferred tax asset, which has been offset by a full valuation allowance at April 30, 2014, there is no tax liability, with the exception of Texas state income tax; therefore, the effective tax rate for the first quarter of fiscal 2014 is (1.6%). The valuation allowance is approximately $15.6 million as of April 30, 2014. We reassess the need for a valuation allowance quarterly, and if future evidence allows for a partial or full release of the valuation allowance, a tax benefit will be recorded accordingly.

Since April 21, 2014, when we last reported store activity, we have not closed any of our stores or opened any new stores.

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 three months of fiscal 2014 being cash flows from borrowings under our revolving credit facility. Other than our principal capital requirements arising from the purchasing, warehousing and merchandising of inventory and rental products, opening new stores and expanding or resetting existing stores and updating existing and implementing new information systems technology, we have no anticipated material capital commitments. We believe the Company will have adequate resources to fund its cash needs for the next twelve months and beyond, including its capital spending, its seasonal increase in merchandise inventory and other operating cash requirements and commitments.

At April 30, 2014, total outstanding debt was approximately $51.3 million. We project our outstanding debt level will be in the range of $56.0 million to $60.0 million by the end of fiscal 2014. At April 30, 2014, we had approximately $46.3 million in excess availability, after the $10 million availability reserve, under the Credit Agreement (as defined herein).

The Merger Agreement places certain limitations on our ability to, among other things, repurchase shares, declare dividends and make capital expenditures in excess of certain thresholds. In addition, the Merger Agreement places certain limitations on the amount of additional debt we can assume outside of our Credit Agreement.

Operating Activities. Net cash provided by operating activities totaled approximately $5.2 million for the three months ended April 30, 2014, compared to cash provided by operating activities of $7.2 million for the three months ended April 30, 2013. Net loss for the current period was approximately $3.2 million compared to a net loss of $2.2 million for the same period in fiscal 2013. Merchandise inventories decreased approximately $2.7 million for the current period compared to a decrease of approximately $0.7 million during the same period in fiscal 2013. The decrease in merchandise inventories is primarily the result of operating eight fewer superstores this period compared to the prior period, partially offset by an increase of inventories in the new product categories of our reset stores. Merchandise inventories, net of trade accounts payable, decreased approximately $0.4 million for the current period compared to a decrease of approximately $3.2 million for the same period in fiscal 2013. Trade accounts payable increased approximately $3.1 million for the current period compared to an increase of approximately $3.9 million during the same period in fiscal 2013. The decrease in merchandise inventories, net of trade accounts payable, and the decrease in trade accounts payable are primarily the result of operating fewer superstores this current period. Accrued expenses and other liabilities decreased approximately $0.2 million during the current period compared to an increase of approximately $1.2 million during the same period in fiscal 2013. Prepaid expenses and other current assets decreased approximately $0.5 million during the current period compared to a decrease of $1.3 million during the same period in fiscal 2013. The decreases in accrued expenses and other liabilities and prepaid expenses and other current assets are primarily the result of the payout of the supplemental executive retirement plan in the current period and a

decrease in store closing reserve. Purchases of rental assets decreased approximately $1.0 million to $1.30 million during the current period compared to $2.3 million during the same period in fiscal 2013 in anticipation of lower rental revenues. For fiscal 2014, we estimate net cash provided by operations to be in the range of approximately $3.0 to $4.0 million as compared to net cash used in operations of approximately $1.0 million in fiscal 2013. The expected increase from fiscal 2013 net cash used in operations to estimated fiscal 2014 net cash provided by operations results primarily from lower merchandise inventories for fiscal 2014.

Investing Activities. Net cash used in investing activities increased approximately $0.7 million from $1.3 million for the three months ended April 30, 2013, to $2.0 million for the three months ended April 30, 2014. This increase was primarily due to increased capital expenditures relating to the reset stores. For fiscal 2014, we project capital expenditures to be approximately $8.0 million to $9.0 million as we continue to manage discretionary spending during fiscal 2014.

Financing Activities. Cash provided by or used in financing activities is primarily associated with borrowings and payments made under our revolving credit facility (described below under “Capital Structure”). For the three months ended April 30, 2014, cash used in financing activities was approximately $4.0 million compared to cash used in financing activities of approximately $6.1 million for the three months ended April 30, 2013. For the current three months, net repayments from our revolving credit facility were approximately $0.5 million compared to net repayments of approximately $5.3 million for the same period in the prior year. Changes in our cash overdraft position decreased from approximately $0.8 million in cash used for the three months ended April 30, 2013 to cash used of approximately $3.6 million for the three months ended April 30, 2014. The increase in net borrowings and the decrease in our cash overdraft position are primarily due to the decrease in cash from operating activities and also due to the timing of payments issued to vendors during the period.

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 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. We have entered into an Amended and Restated Loan and Security Agreement with Bank of America, N.A., as agent (as subsequently amended, the “Credit Agreement”). The Credit Agreement provides a revolving credit facility of $115 million, allows for the payment of dividends, has a maturity date of January 4, 2017 and provides that we may repurchase up to $10.0 million worth of our common stock. The Credit Agreement also provides that we may repurchase additional shares of our common stock in the event we meet certain criteria set forth in the Credit Agreement. The Merger Agreement restricts our ability to pay dividends or purchase our shares. The Credit Agreement includes certain debt and acquisition limitations and requires a minimum Availability (as defined in the Credit Agreement) that is greater than or equal to $10.0 million at all times. Our obligations under the Credit Agreement are secured by a pledge of substantially all of the assets of the Company and our subsidiary and are guaranteed by our subsidiary.

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.

At April 30, 2014, we had approximately $46.3 million in excess availability, after the $10 million availability reserve, under the Credit Agreement. We expect to have approximately $55.0 million to $59.0 million in excess availability, after the availability reserve and outstanding letters of credit, at January 31, 2015. However, excess availability may be reduced in the future as changes in the borrowing base occur or the lender increases availability reserves. The average rate of interest incurred for the three months ended April 30, 2014 and 2013 was 2.5%. Deferred financing costs that were amortized into interest expense during the three months ended April 30, 2014 and 2013 are excluded from the calculation of the average rate of interest for each respective period.

Contractual obligations and off-balance sheet arrangements. In the ordinary course of business, we routinely enter into purchase commitments for various aspects of our operations, such as warehouse equipment and office equipment. However, we do not believe that these commitments will have a material effect on our financial condition, results of operations or cash flows. As of April 30, 2014, other than operating leases and standby letters of credit, we had not entered into any off-balance sheet arrangements or third-party guarantees, nor is it our business practice to do so.

At April 30, 2014, our minimum lease commitments for the remainder of fiscal 2014 were approximately $19.4 million. Total existing minimum operating lease commitments for fiscal years 2014 through 2026 were approximately $131.5 million as of April 30, 2014.

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. 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 rental activity in the spring because customers spend more time outdoors. Major world or sporting events, such as the Super Bowl, the Olympic Games and 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 store openings, the number and popularity of new book, music, video and video game titles, the popularity of electronics and trends merchandise, the cost of 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.

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, at our option, on the lender’s Base Rate or LIBOR, plus a specified percentage. The annual impact on our results of operations of a 100 basis point interest rate change on the April 30, 2014 outstanding balance of the variable rate debt would be approximately $0.5 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.

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 Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and, based upon the forgoing 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.

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 April 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

On March 28, 2014, a lawsuit challenging the merger contemplated in the Merger Agreement (the “Merger”), captioned CV-00072-J—Andreas Oberegger and David A. Capps, directly and derivatively on behalf of Hastings Entertainment, Inc., v. Danny W. Gurr, Ann S. Lieff, Frank O. Marrs, John H. Marmaduke, Jeffrey G. Shrader, Draw Another Circle, LLC (“Parent”), Hendrix Acquisition Corp. (“Merger Sub”), Joel Weinshanker and National Entertainment Collectibles Association, Inc. (“NECA”), as defendants, and Hastings Entertainment, Inc., as a nominal defendant, was filed in the United States District Court for the Northern District of Texas, Amarillo Division. The plaintiffs are purported shareholders of the Company and are alleging several claims in connection with the Merger Agreement and the transactions contemplated therein. Plaintiffs allege, among other things, that the Merger contemplated in the Merger Agreement provides for insufficient consideration to be paid to the Company’s shareholders in exchange for their shares of the Company’s common stock, that the officers and directors of the Company breached their respective fiduciary duties in the course of negotiating and approving the Merger Agreement and that the other defendants aided and abetted such breach of fiduciary duties. The lawsuit seeks to enjoin the Merger or rescind the Merger if it is consummated and compensatory damages in an unspecified amount. The Company believes that the lawsuit was improperly and prematurely filed under Texas law. On April 16, 2014, the Company filed a Motion to Dismiss the Action, and Parent, Merger Sub, NECA and Mr. Weinshanker filed a Joinder to this Motion to Dismiss the Action on April 18, 2014. The plaintiffs have filed a response in opposition to the motion to dismiss, and the Company has filed a reply. The Court has not yet ruled on the motion.

expenses. The Company’s answer has not yet been filed, but it believes the allegations contained in the complaint are without merit and intends to vigorously defend the lawsuit.

Our Annual Report on Form 10-K for the fiscal year ended January 31, 2014 includes a detailed discussion of our risk factors. Since that time, there have been no material changes to our risk factors.

Exhibit Number	Description of Documents
2.1	(1)	Agreement and Plan of Merger by and among the Company, Draw Another Circle, LLC and Hendrix Acquisition Corp., dated as of March 17, 2014.
3.1	(2)	Third Restated Articles of Incorporation of the Company
3.2	(3)	Amended and Restated Bylaws of the Company.
4.1	(4)	Specimen of Certificate of Common Stock of the Company.
4.2	(2)	Third Restated Articles of Incorporation of the Company (see 3.1 above).
4.3	(3)	Amended and Restated Bylaws of the Company (see 3.2 above).
10.1	(1)	Separation Agreement by and between Hastings Entertainment, Inc. and John H. Marmaduke, dated as of March 17, 2014.
10.2	(1)	Separation Agreement by and between Hastings Entertainment, Inc. and Dan Crow, dated as of March 17, 2014.
10.3	(1)	Waiver and Amendment to the Employment Agreement by and between Hastings Entertainment, Inc. and Alan Van Ongevalle dated as of March 17, 2014.
10.4	(1)	Waiver and Amendment to the Employment Agreement by and between Hastings Entertainment, Inc. and Phillip McConnell dated as of March 17, 2014.
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.
101.INS	(5)	XBRL Instance Document
101.SCH	(5)	XBRL Taxonomy Extension Schema
101.CAL	(5)	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	(5)	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	(5)	XBRL Taxonomy Extension Label Linkbase
101.PRE	(5)	XBRL Taxonomy Extension Presentation Linkbase

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:

Exhibit Number	Description of Documents
2.1	(1)	Agreement and Plan of Merger by and among the Company, Draw Another Circle, LLC and Hendrix Acquisition Corp., dated as of March 17, 2014.
3.1	(2)	Third Restated Articles of Incorporation of the Company.
3.2	(3)	Amended and Restated Bylaws of the Company.
4.1	(4)	Specimen of Certificate of Common Stock of the Company.
4.2	(2)	Third Restated Articles of Incorporation of the Company (see 3.1 above).
4.3	(3)	Amended and Restated Bylaws of the Company (see 3.2 above).
10.1	(1)	Separation Agreement by and between Hastings Entertainment, Inc. and John H. Marmaduke, dated as of March 17, 2014.
10.2	(1)	Separation Agreement by and between Hastings Entertainment, Inc. and Dan Crow, dated as of March 17, 2014.
10.3	(1)	Waiver and Amendment to the Employment Agreement by and between Hastings Entertainment, Inc. and Alan Van Ongevalle dated as of March 17, 2014.
10.4	(1)	Waiver and Amendment to the Employment Agreement by and between Hastings Entertainment, Inc. and Philip McConnell dated as of March 17, 2014.
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.
101.INS	(5)	XBRL Instance Document
101.SCH	(5)	XBRL Taxonomy Extension Schema
101.CAL	(5)	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	(5)	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	(5)	XBRL Taxonomy Extension Label Linkbase
101.PRE	(5)	XBRL Taxonomy Extension Presentation Linkbase

Texas		75-1386375
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3601 Plains Boulevard, Amarillo, Texas		79102
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	¨	Accelerated filer	¨

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

Class		Outstanding at April 30,2014
Common Stock, $.01 par value per share		8,143,317 shares

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of April 30, 2014 (Unaudited), and January 31, 2014	3
	Unaudited Consolidated Statements of Operations for the Three Months Ended April 30, 2014 and 2013	4
	Unaudited Consolidated Statements of Comprehensive Loss for the Three Months Ended April 30, 2014 and 2013	5
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2014 and 2013	6
	Notes to the Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	20
	PART II – OTHER INFORMATION	21
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	22
Item 6.	Exhibits	22
	SIGNATURES	23
	INDEX TO EXHIBITS	24

	Store Closing Reserve
Balance at January 31, 2014	$	1,113
Additions to provision		--
Changes in estimates		34
Cash outlay, net		(105	)
Balance at April 30, 2014	$	1,042

	Net Unrealized Gain (Loss) on Available-for Sale Securities in Supplemental Executive Retirement Plan
Balance at January 31, 2014	$	347
Other comprehensive income before reclassifications		0
Amounts reclassified from accumulated OCI		(347	)
Balance as of April 30, 2014	$	0

	HASTINGS ENTERTAINMENT, INC

Date: June 10, 2014	By:	/S/ DAN CROW
		Dan Crow
		Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Total	0.2	%
Merchandise	1.6	%
Rental	-8.8	%