Hancock Fabrics, Inc.

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 August 2, 2008


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 1 - 9482

HANCOCK FABRICS, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		64-0740905 (I.R.S. Employer Identification No.)

One Fashion Way, Baldwyn, MS (Address of principal executive offices)		38824 (Zip Code)

Registrant’s telephone number, including area code
(662) 365-6000

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 is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company þ

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 by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ No o

As of August 2, 2008, there were 19,385,343, shares of Hancock Fabrics, Inc. $.01 par value common stock outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEETS


	(unaudited)
	August 2,			February 2,
(in thousands, except for share and per share amounts)	2008			2008 ⁽¹⁾

Assets
Current assets:
Cash and cash equivalents	$	5,451		$	2,280
Receivables, less allowance for doubtful accounts		3,910			4,453
Inventories, net		78,684			77,907
Income taxes refundable		8,118			8,118
Prepaid expenses		2,182			1,748

Total current assets		98,345			94,506

Property and equipment, net		45,860			43,683
Goodwill		3,406			3,406
Other assets		6,685			7,107

Total assets	$	154,296		$	148,702


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	20,347		$	19,393
Accrued liabilities		17,836			14,354
Other pre-petition obligations		35,143			—

Total current liabilities		73,326			33,747

Long-term debt obligations		34,401			23,608
Capital lease obligations		3,328			—
Postretirement benefits other than pensions		8,927			315
Pension and SERP liabilities		5,432			270
Other liabilities		8,547			3,071

Total liabilities not subject to compromise		133,961			61,011

Liabilities subject to compromise		—			60,635

Total liabilities		133,961			121,646


Commitments and contingencies (See Note 6)


Shareholders’ equity:
Common stock, $.01 par value; 80,000,000 shares authorized; 32,751,983 and 32,601,483 issued and 19,385,343 and 19,285,235 outstanding, respectively		328			326
Additional paid-in capital		87,487			75,324
Retained earnings		82,487			100,953
Treasury stock, at cost, 13,366,640 and 13,316,248 shares held, respectively		(153,683	)		(153,622	)
Accumulated other comprehensive income		3,716			4,075

Total shareholders’ equity		20,335			27,056

Total liabilities and shareholders’ equity	$	154,296		$	148,702


⁽¹⁾		Derived from audited balance sheet included in our annual report on Form 10-K for the fiscal year ended February 2, 2008.

See accompanying notes to consolidated financial statements.

HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)


	Thirteen Weeks Ended						Twenty-six Weeks Ended
	August 2,			August 4,			August 2,			August 4,
(in thousands, except per share amounts)	2008			2007			2008			2007


Sales	$	63,799		$	58,030		$	127,615		$	127,212
Cost of goods sold		37,592			33,381			73,606			71,507


Gross profit		26,207			24,649			54,009			55,705

Selling, general and administrative expense		28,879			24,800			58,629			53,525
Depreciation and amortization		1,117			1,034			2,130			1,776


Operating income (loss)		(3,789	)		(1,185	)		(6,750	)		404

Reorganization expense, net		4,254			3,759			6,930			7,884
Interest expense, net		3,577			1,133			4,566			3,177


Loss from continuing operations before income taxes		(11,620	)		(6,077	)		(18,246	)		(10,657	)
Income taxes		—			—			—			—


Loss from continuing operations		(11,620	)		(6,077	)		(18,246	)		(10,657	)
Loss from discontinued operations, (net of tax expense of $0 and $0)		(762	)		(7,257	)		(220	)		(3,888	)

Net loss	$	(12,382	)	$	(13,334	)	$	(18,466	)	$	(14,545	)


Basic and diluted loss per share:
Loss from continuing operations	$	(0.61	)	$	(0.32	)	$	(0.96	)	$	(0.56	)
Loss from discontinued operations		(0.04	)		(0.38	)		(0.01	)		(0.21	)

Net loss	$	(0.65	)	$	(0.71	)	$	(0.97	)	$	(0.77	)


Weighted average shares outstanding:
Basic and diluted		19,069			18,895			19,027			18,871

See accompanying notes to consolidated financial statements.

HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(unaudited)

Twenty-six Weeks Ended August 2, 2008


																		Accumulated
						Additional												Other			Total
	Common Stock					Paid-in			Retained			Treasury Stock						Comprehensive			Shareholders’
(in thousands, except for number of shares)	Shares			Amount		Capital			Earnings			Shares			Amount			Income (Loss)			Equity

Balance February 2, 2008		32,601,483		$	326	$	75,324		$	100,953			(13,316,248	)	$	(153,622	)	$	4,075		$	27,056
Comprehensive loss:
Net loss										(18,466	)											(18,466	)
Minimum pension, SERP and OPEB liabilities, net of taxes of $0																			(359	)		(359	)

Total comprehensive loss																						(18,825	)
Issuance of restricted stock		161,500			2		72															74
Cancellation of restricted stock		(11,000	)				(74	)														(74	)
Stock compensation expense							480															480
Warrants issued with notes							11,685															11,685
Purchase of treasury stock													(50,392	)		(61	)					(61	)

Balance August 2, 2008		32,751,983		$	328	$	87,487		$	82,487			(13,366,640	)	$	(153,683	)	$	3,716		$	20,335

See accompanying notes to consolidated financial statements.

Hancock Fabrics, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)


(in thousands)	Twenty-six Weeks Ended
	August 2,			August 4,
	2008			2007

Cash flows from operating activities:
Net loss	$	(18,466	)	$	(14,545	)
Adjustments to reconcile net loss to cash flows (used in) provided by operating activities
Depreciation and amortization, including cost of goods sold		3,244			4,050
Amortization of deferred loan costs		403			1,346
Amortization of Bond Discount		13			—
LIFO inventory reserve		2,267			(5,918	)
Interest accrued on Pre-Petition Obligations		2,219			—
Stock compensation expense		480			556
Reserve for store closings credits, including interest expense		(899	)		3,730
Reserve for obsolete inventory		(194	)		(112	)
Reserve for sales returns and bad debts		(56	)		(78	)
Stepped rent accrual		(6	)		(802	)
Loss (Gain) on disposition of property and equipment		26			(1,217	)
Gain on disposition of lease financing obligations		—			(153	)
Compensation expense for issuance of shares under directors’ stock plan		—			69
Reorganization expense, net		6,930			7,884
(Increase) decrease in assets
Receivables and prepaid expenses		165			(2,907	)
Inventory at current cost		(2,835	)		61,531
Other noncurrent assets		1,221			(870	)
Increase (decrease) in liabilities
Accounts payable		2,323			7,014
Accrued liabilities		(175	)		(3,987	)
Postretirement benefits other than pensions		(369	)		(2,466	)
Long-term pension and SERP liabilities		363			794
Other liabilities		(1,056	)		(462	)

Net cash (used in) provided by operating activities before reorganization activities		(4,402	)		53,457
Net cash used for reorganization activities		(4,725	)		(7,884	)

Net cash (used in) provided by operating activities		(9,127	)		45,573

Cash flows from investing activities:
Additions to property and equipment		(5,565	)		(1,032	)
Proceeds from the disposition of property and equipment		101			4,074

Net cash (used in) provided by investing activities		(5,464	)		3,042

Cash flows from financing activities:
Net borrowings (payments) on credit facilities		22,465			(42,084	)
Payments for capital leases		(32	)		(47	)
Payments for loan costs		(1,202	)		—
Payments for Pre-Petition Obligations		(3,408	)		—
Purchase of treasury stock		(61	)		(77	)

Net cash (used in) provided by financing activities		17,762			(42,208	)

Increase in cash and cash equivalents		3,171			6,407
Cash and cash equivalents:
Beginning of period		2,280			2,499

End of period	$	5,451		$	8,906

Supplemental disclosures:
Cash paid during the period for:
Interest	$	2,343		$	3,192
Non-cash activities:
Warrants issued with notes	$	(11,685	)	$	—
Noncash change in funded status of benefit plans		(359	)		1,586
Decrease in capital lease obligations		(37	)		(2,366	)
Issuance of restricted stock		74			40
Cancellation of restricted stock		(74	)		(718	)

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1: BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

Hancock Fabrics, Inc. (“Hancock” or the “Company”) is a specialty retailer committed to serving creative enthusiasts with a complete selection of fashion and home decorating textiles, sewing accessories, needlecraft supplies and sewing machines. As of August 2, 2008, Hancock operated 267 stores in 37 states and an internet store under the domain name hancockfabrics.com. Hancock conducts business in one operating business segment.

References herein to “Hancock”, the “Company”, “we”, “our”, or “us” refer to Hancock Fabrics, Inc. and its subsidiaries unless the context specifically indicates otherwise.

We maintain our financial records on a 52-53 week fiscal year ending on the Saturday closest to January 31.

The accompanying unaudited Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and accompanying notes in our Annual Report on Form 10-K for the year ended February 2, 2008, filed with the U.S. Securities and Exchange Commission (SEC) on April 17, 2008. The accompanying (a) consolidated balance sheet as of February 2, 2008, which has been derived from audited financial statements, and (b) unaudited consolidated financial statements have been prepared pursuant to SEC Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading.

The unaudited results of operations for the interim periods shown in these financial statements are not necessarily indicative of operating results for the entire year. In the opinion of management, the accompanying unaudited Consolidated Financial Statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our consolidated financial position as of August 2, 2008, and our consolidated results of operations and cash flows for the interim periods presented.

Reclassification

The Company has netted $2.2 million of deferred tax assets against deferred tax liabilities of the same amount as of February 2, 2008, in the accompanying condensed consolidated balance sheet to conform with the current year presentation.

Amounts included in Liabilities Subject to Compromise at February 2, 2008 that will be paid in the due course have been reclassed as of August 2, 2008 to their respective liability categories. The remaining bankruptcy claims are presented as pre-petition obligations on the August 2, 2008 balance sheet. The funds to cover the payments to claimants will be funded primarily from the Company’s revolving credit facility.

Recently Issued Accounting Standards

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” — An Amendment of ARB No. 51. SFAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is in the process of determining the effect, if any, that the adoption of SFAS No. 160 will have on its results of operations or financial position.

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This Statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company currently adheres to the hierarchy of GAAP as presented in SFAS No. 162 and does not expect its adoption will have a material impact on its consolidated results of operations and financial condition.

Several other new accounting standards became effective during the periods presented or will be effective subsequent to August 2, 2008. None of these new standards had or is expected to have a significant impact on Hancock’s Consolidated Financial Statements.

NOTE 2 — PROCEEDINGS UNDER CHAPTER 11 AND RELATED FINANCINGS

Emergence from Bankruptcy Protection

On March 21, 2007 (the “Petition Date”), the Company and its affiliated debtors filed voluntary petitions for reorganization under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the District of Delaware (the “Court”). The reorganization case is being administered under the caption “In re Hancock Fabrics, Inc., et al., Case No. 07-10353 (BLS).” On June 10, 2008, the Company filed its joint plan of reorganization (Docket No. 2746) (as modified and including all documents ancillary thereto, the “Plan”) and, thereafter, its related Court-approved notice of plan confirmation hearing. On July 22, 2008, the Court entered an order confirming the Plan of Reorganization (Docket No. 2996). On August 1, 2008 (the “Effective Date”), the Plan became effective and the Company emerged from bankruptcy protection.

Fresh Start Reporting

Upon emergence from bankruptcy protection, the Company was not required to adopt the “fresh-start reporting” provisions of the American Institute of Certified Public Accountant Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (“SOP 90-7”).

Discharge and Treatment of Claims and Interests

As of the Effective Date, in general and except as otherwise provided under the Plan, the Company was discharged and released from all claims and interests in accordance with the Plan.

The Plan provides for payment in full in cash plus interest, as applicable, or reinstatement of allowed administrative, secured, priority, and general unsecured claims in addition to the retention of ownership by holders of equity interest in the Company. Therefore, there were no impaired classes of creditors or stockholders. The Plan was supported by both the official committee of unsecured creditors appointed in the reorganization case by the United States Trustee, which represented the interests and negotiated on behalf of general unsecured creditors, and the official committee of equity security holders appointed in the reorganization case by the United States Trustee, which represented the interests and negotiated on behalf of the stockholders of the Company.

Exit Financing

On the Effective Date, the Company closed a $100 million senior revolving line of credit facility, as well as issued $20 million of floating rate secured notes and warrants to purchase 9,500,000 shares of the common stock of the Company (See Note 5).

Claims Resolution and Plan Distributions

Prepetition claims against the Company are set forth in the schedules of liabilities filed by the Company during the reorganization case and by proofs of claim filed by creditors. Claims that are not objected to by the deadline established in the Plan are deemed to be allowed claims. Claims objected to by the Company are allowed or disallowed through a claims resolution process established by the Court. Pursuant to objections filed by the Company to date, the Court has reduced, reclassified and/or disallowed a significant number of claims for varying reasons, including claims that were duplicative, amended, without merit, misclassified or overstated. The Company resolved a majority of the claims against it prior to the Effective Date through settlement or by Court order. The claims resolution process is ongoing for the few remaining unresolved claims and will continue until all claims are resolved.

Priority Tax Claims: Under the Plan, each holder of an allowed priority tax claim has received or shall receive cash in an amount equal to the allowed priority tax claim plus post-petition interest. Allowed claims for any priority tax amount bear interest at the non-penalty rate set forth in the applicable state or federal law governing such claims from the Petition Date through the Effective Date.

Secured Claims: Under the Plan, each holder of an allowed secured claim has received or shall receive either cash in an amount equal to the allowed secured claim plus post-petition interest or shall have the debt reinstated at the option of the Company. The post-petition interest rate for allowed secured claims is the non-default rate set forth in the contract or other applicable document giving rise to such claim.

Priority Non-Tax Claims and General Unsecured Claims: Under the Plan, each holder of an allowed priority non-tax claim or general unsecured claim has received or shall receive payment in full of the allowed claim amount including post-petition interest from the Petition Date through the Effective Date.

Such allowed claims bear interest at 4.93%, compounded per annum on each anniversary of the Petition Date, from the Petition Date through the Effective Date.

Stock Interests in the Company: Under the Plan, on the Effective Date, stock interests in the Company were reinstated and all pre-petition stockholders retained such rights.

Leases and Contracts

During the course of the reorganization case and, pursuant to the Plan, on the Effective Date, the Company assumed a number of leases and other executory contracts. Pursuant to the Bankruptcy Code, the Company was required to cure any past due amounts owing under the assumed leases and contracts and, shortly after the Effective Date, made all undisputed cure payments with respect thereto. A small number of disputes as to the amount of certain cure obligations remain pending before the Court. The Company intends to satisfy continuing obligations under the assumed leases and contracts in the ordinary course of business. Any lease or contract that was not assumed, rejected or otherwise disposed of by Court order during the reorganization case was assumed unless specifically rejected under the Plan as of the Effective Date. Pursuant to the Bankruptcy Code, rejection damages related to rejected leases and contracts are treated as general unsecured claims under the Plan. See “—Claims Resolution and Plan Distributions.”

Liabilities Subject to Compromise

American Institute of Certified Public Accountant Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (“SOP 90-7”) provides financial reporting guidance for entities that are reorganizing under the Bankruptcy Code. The Company implemented this guidance for the year ended February 2, 2008. Per SOP 90-7, estimated claims are presented as Liabilities Subject to Compromise due to the uncertainty of the eventual settlement amount. Due to the Plan becoming effective and the claims reconciliation process being substantially complete, there is little uncertainty as to the total amount to be distributed under the Plan. As such, pre-petition liabilities are no longer presented as subject to compromise (see Note 1 for details of reclassification).

The Company has reclassified Liabilities Subject to Compromise as of February 2, 2008 to reflect their current classification as of August 2, 2008. The components of items classified as Liabilities Subject to Compromise in our February 2, 2008 Form 10-K were as follows:

Liabilities Subject to Compromise as of February 2, 2008 (in thousands):


	February 2,
	2008
Accounts payable	$	28,483
Accrued liabilities:
Payroll and benefits		132
Rent liability		576
Capital lease obligations		67
Store closing liability		5,396
Customer liability and property claims		695
Deferred compensation		290
Other		167

Total accrued liabilities		7,323

Total current liabilities		35,806
Income taxes payable		1,500
Long term capital lease obligations		3,365
Post retirement benefits other than pensions		8,414
Pension and SERP liability		5,007
Other Liabilities:
Long Term Deferred Compensation		3,948
Long Term Stepped Rent		2,186
Unapplied Rent Credit		390
Other		19

Total other liabilities		6,543

Total liabilities subject to compromise	$	60,635

Subsequent Distribution

Subsequent to August 2, 2008, the Company made a cash distribution to creditors for allowed claim amounts totaling approximately $31.6 million which was funded from the Revolver. In connection therewith, the Company distributed approximately $2.2 million of post-petition interest. The Company anticipates an additional distribution of approximately $1.3 million related to the Plan.

NOTE 3: LOSS PER SHARE

Loss per share is presented for basic and diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

COMPUTATION OF LOSS PER SHARE


	Thirteen Weeks Ended						Twenty-six Weeks Ended
	August 2,			August 4,			August 2,			August 4,
(in thousands, except for share and per share amounts)	2008			2007			2008			2007

Basic and diluted loss per share:
Net loss	$	(12,382	)	$	(13,334	)	$	(18,466	)	$	(14,545	)


Weighted average number of common shares outstanding during period		19,069,246			18,895,130			19,026,562			18,870,993


Basic and diluted loss per share	$	(0.65	)	$	(0.71	)	$	(0.97	)	$	(0.77	)
Weighted average common stock equivalents not included in EPS (stock options) because the effect would be anti-dilutive		1,400,164			1,779,191			1,436,844			1,993,716

NOTE 4: RESERVE FOR STORE CLOSINGS AND DISCONTINUED OPERATIONS

Reserves for store closings are established based on estimates of net lease obligations and other store closing costs.

At August 2, 2008, the total reserve balance included in current and noncurrent liabilities was $4.5M, which represents the present value of the future net lease obligations for the locations which have been closed.

During the twenty-six weeks ended August 2, 2008, there was approximately $220,000 of loss attributable to discontinued operations from prior years. This was the result of an increase in the closed store reserve due to settlement of certain real estate bankruptcy claims.

During this year, the Company made the decision to liquidate and close five stores. Three of these closings occurred during the second quarter of 2008 and two will occur in the third quarter. These closings are not included in discontinued operations because they are insignificant and part of the normal course of business. The Company’s methodology related to discontinued operations is that store closings are included in discontinued operations when: 1) a decision is made to close a significant number of stores under a store closure plan; 2) the operations and cash flows have been (or will be) eliminated from the ongoing operations of the Company as a result of the closure; and 3) there will be no significant continuing involvement in the store operations subsequent to their closure. Store closings in the ordinary course of business are not considered discontinued operations.

The activity in the reserve is as follows (in thousands):


			Addition to
	February 2,		(Reduction in)							August 2,
	2008		Reserve		Interest		Payments			2008

Lease obligations	$	5,396	$	849	$	7	$	(1,755	)	$	4,497

NOTE 5 — LONG-TERM DEBT OBLIGATIONS

From March 22, 2007 through August 1, 2008, the Company operated under a $105 million “debtor-in-possession” financing arrangement (the “Senior Secured Revolving Credit Facility” or “DIP Credit Facility”) with Wachovia Bank, N.A. The DIP Credit Facility called for $105 million maximum credit. There were minimum levels of availability that were required to be maintained, which had the effect of limiting the amount that could be borrowed to less than $105 million. Also, the level of borrowings was subject to a borrowing base as defined in the agreement. The DIP Credit Facility was collateralized by a first priority perfected collateral interest in and liens upon all of the Company’s present and future assets. The DIP Credit Facility was allowed to be used for letters of credit up to an aggregate amount of $25 million. This agreement provided for an unused line fee of .25% to .35%.

At February 2, 2008, Hancock had outstanding borrowings of approximately $6.1 million, under the DIP Credit Facility.

At February 2, 2008, Hancock had commitments under the above credit facility of $716,000, under documentary and standby letters of credit, which support purchase orders for merchandise. Hancock also has a standby letter of credit to guarantee payment of potential future workers’ compensation claims. This letter of credit amounted to $5.8 million as of February 2, 2008.

Additional financing beginning on June 15, 2007, was included in a definitive agreement (the “Loan Agreement”) with another lender for an additional loan of up to $17.5 million.

The Loan Agreement provided for a term loan facility in the aggregate principal amount of up to $17.5 million. The Company used the proceeds of the loans made under the Loan Agreement for general working capital purposes and to pay fees and expenses related to the Loan Agreement. As of February 2, 2008, $17.5 million was outstanding under the Loan Agreement. Both the DIP Credit Facility and the Loan Agreement were repaid and terminated on August 1, 2008.

On August 1, 2008, the Company and General Electric Capital Corporation (along with certain of its affiliates, “GE Capital”) entered into a financing arrangement whereby GE Capital provided the Company with a revolving line of credit (the “Revolver”) in the maximum amount of $100 million (the “Maximum Amount”). The Maximum Amount includes a letter of credit sub-facility (the “Sub-Facility”) of up to $20 million.

The Revolver has a 60-month term. At the Company’s option, all loans under the Revolver will bear interest at either (a) a floating interest rate plus the applicable margins or (b) absent a default, a fixed interest rate for periods of one, two or three months equal to the reserve adjusted London Interbank Offered Rate, or LIBOR, plus the applicable margins. The applicable margins initially range from 0.0% to 2.375%, depending on the nature of the borrowing under the Revolver. Starting on January 1, 2009, the applicable margins shall be subject to adjustment (up or down) prospectively, for three calendar month periods based on the Company’s average excess availability under the Revolver.

In addition to the Revolver, the Company issued $20 million of Floating Rate Secured Notes (the “Notes”) on August 1, 2008. The notes were offered pursuant to a prospectus dated June 17, 2008, to shareholders of common stock. The non-convertible notes had a $1,000 purchase price. Interest on the notes is payable quarterly at LIBOR plus 4.50%. Interest for the first four quarters may be paid by the issuance of additional notes. If additional notes are issued in lieu of interest, the interest for the period

will be equal to LIBOR plus 5.50%. The notes mature 5 years from the date of issuance (August 1, 2013), are subordinated to the Revolver, and are secured by a junior lien on all of the Company’s assets. Purchasers of the notes also received a detachable warrant to purchase shares of common stock. These warrants representing 9.5 million shares were issued in conjunction with the Notes, and are exercisable upon the date of issuance (August 1, 2008) for $1.12 per share and terminate 5 years from the date of issuance (August 1, 2013). The warrants were valued at $11.7 million using the Black-Scholes option pricing model and were recorded as a discount on notes payable and will be amortized to interest expense through the maturity date of the Notes.


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

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and reflect our current views regarding matters such as operations and financial performance. In general, forward-looking statements are identified by such words or phrases as “anticipates,” “believes,” “approximates,” “estimates,” “expects,” “intends” or “plans” or the negative of those words or other terminology. Forward-looking statements involve inherent risks and uncertainties; our actual results could differ materially from those expressed in our forward-looking statements. The risks and uncertainties, either alone or in combination, that could cause our actual results to differ from those expressed in our forward-looking statements include, but are not limited to, those that are discussed in our Annual Report on Form 10-K filed with the SEC on April 17, 2008, under Item 1A. Risk Factors. Other risks not presently known to us, or that we currently believe are immaterial, could also adversely affect our business, financial condition or results of operations. Forward-looking statements speak only as of the date made, and neither Hancock nor its management undertakes any obligation to update or revise any forward-looking statement.

GENERAL

Hancock Fabrics, Inc. is a specialty retailer committed to serving creative enthusiasts with a complete selection of fashion and home decorating textiles, sewing accessories, needlecraft supplies and sewing machines. As of August 2, 2008, we operated 267 stores in 37 states and an internet store under the domain name hancockfabrics.com. We conduct our business in one operating business segment.

FINANCIAL CONDITION

Hancock’s primary capital requirements are for the financing of inventories and, to a lesser extent, for capital expenditures relating to store locations and its distribution facility. Funds for such purposes have historically been generated from Hancock’s operations, credit extended by suppliers and borrowings from commercial lenders.

During the first half of the fiscal year, the Company was engaged in an aggressive remodeling program to implement the new store prototype, which was tested in 6 stores last year. Inventory increased $2.8 million, before LIFO adjustments, primarily due to more timely receipts of merchandise which in the previous year was received later due to the disruption caused by the bankruptcy filing, and expansion of high potential product lines. In addition, $5.6 million of capital expenditures were made primarily for store fixtures relating to the Company’s remodeling program. Accounts payable increased $2.3 million due to vendors returning to prepetition payable terms prior to our exit from bankruptcy.

During the twenty-six weeks ended August 2, 2008, operating losses, which included $6.9 million of reorganization cost, the inventory growth, capital expenditures and change in payable support, discussed above, resulted in an increase in outstanding borrowings of $22.5 million.

We opened one store and closed three during the twenty-six weeks ended August 2, 2008, and relocated two stores, resulting in 267 stores in operation at quarter end compared to 269 stores as of August 4, 2007.

RESULTS OF OPERATIONS

As previously disclosed in our Annual Report on Form 10-K for the year ended February 2, 2008, and in Note 2 of this Form 10-Q, the Company filed a voluntary petition of reorganization under Chapter 11 of the United States Bankruptcy Code on March 21, 2007. During the first quarter of 2007, the Company also fully liquidated and closed 30 retail store locations and began liquidation sales in 104 other stores that were completed by the end of June. One hundred and twenty four of the 134 liquidating locations qualified for discontinued operations treatment and are excluded from the 2007 continuing operating results presented. Ten stores, one from the group of 30 and nine of the 104 locations, did not qualify for discontinued operations treatment mainly due to the migration of revenues to other existing stores. Therefore, their results are reflected in the continuing operating results of the Company and in the following explanations.

Thirteen weeks ended August 2, 2008 compared with thirteen weeks ended August 4, 2007

During the thirteen weeks ended August 2, 2008, the net loss from continuing operations was $11.6 million, or $0.61 per basic and diluted share, compared with a net loss of $6.1 million, or $0.32 per basic and diluted share, in the second quarter of 2007.

Sales increased to $63.8 million from $58.0 million in the same quarter of the previous year, as a result of sales growth in the continuing stores, which more than offset the nine locations that did not qualify for exclusion from last year’s results. Comparable store sales for the quarter increased by 11.7% over the prior year. This increase is attributed to higher average retails on select products and better in stock positions.

Gross margin declined from 42.5% in 2007 to 41.1% in the current year, due to 2007 including the benefit of a LIFO credit of $450,000 while 2008 includes a LIFO charge of $1.5 million. With the LIFO effect excluded, gross margin improved over the prior year by 1.7%. This swing in LIFO can be primarily attributed to increases in the 2008 PPI indices used to measure inflation and the inventory reductions that occurred in 2007.

Selling, general and administrative expenses as a percentage of sales were 45.3% in the second quarter of 2008 compared to 42.7% in the second quarter of 2007. The expense leverage from positive comparable store sales was offset by $2.1 million of benefit in 2007 related to sale and rejection of real estate contracts, and the additional costs associated with supporting the store remodel program in 2008. Additionally, several key management positions were vacant during the second quarter of 2007, which have now been filled.

Depreciation and amortization expense increased to $1.1 million in the second quarter of 2008 from $1.0 million in 2007, due to new fixtures being added to remodeled locations and infrastructure improvements made in the prior year.

Reorganization expense increased from $3.8 million for the second quarter of 2007 to $4.3 million for the same period of 2008 due to the additional cost associated with finalizing the exit plan.

Interest expense increased by $2.5 million primarily due to the recognition of $2.2 million of interest expense to be paid on pre-petition obligations. Interest was $3.6 million for the second quarter of 2008 and $1.1 million for the same period of 2007.

An income tax benefit was not recognized in the second quarter of either year presented. The income tax benefits available from refunds due to NOL carrybacks have all been recognized in prior periods. Until it is more likely than not that current losses can be used to offset future tax obligations, additional benefits will not be recorded.

A loss of $762,000 was reported that related to locations which qualified for treatment as discontinued operations from prior years. This was the result of additions to the closed store reserve from the settlement of certain real estate bankruptcy claims. During the 13 weeks ended August 4, 2007, discontinued operations produced a loss of $7.3 million from the liquidation of inventories and expenses related to the closing of 95 locations, which qualified for treatment as discontinued operations.

Twenty-six weeks ended August 2, 2008 compared with twenty-six weeks ended August 4, 2007

During the twenty-six weeks ended August 2, 2008, the net loss from continuing operations was $18.2 million, or $0.96 per basic and diluted share, compared with a net loss of $10.6 million, or $0.56 per basic and diluted share, in the first twenty-six weeks of 2007.

Sales for the first half of the year increased to $127.6 million from $127.2 million for the same period of the previous year despite sales results for 10 liquidating stores, which did not qualify for treatment as discontinued operations, being included in 2007. On a comparable basis, sales increased by 3.9% over the prior year.

Gross margin declined from 43.8% in 2007 to 42.3% in the current year, due to the benefit of a LIFO credit in 2007 of $1.7 million while 2008 includes a LIFO charge of $2.3 million. With the LIFO effect excluded, gross margin improved over the prior year by 0.3%. This swing in LIFO can be primarily attributed to increases in the 2008 PPI indices used to measure inflation and the inventory reductions that occurred in 2007.

Selling, general and administrative expenses as a percentage of sales were 45.9% the first 26 weeks of 2008 compared to 42.1% in the same period of 2007. This increase in the expense percentage occurred partially from the inclusion of 10 liquidating stores in the prior year results, which leveraged the expense percentage. Additionally, the non-capital expenses associated with supporting 51 store remodels completed in the first half of 2008 and taking 56 more physical inventories, than in the prior year, adversely affected the expense leverage.

Depreciation and amortization expense was $2.1million and $1.8 million for the first half of 2008 and 2007, respectively. The increase is a result of capital expenditures for the store remodeling program, which began in the 4^th quarter of 2007 with six stores. An additional 51 remodels have been completed so far with 19 planned for the balance of 2008.

The Company has incurred $6.9 million of reorganization expense in first six months of 2008, which includes cost associated with the exit from Chapter 11, compared to $7.9 million for the same period of 2007, which included the cost of filing for Chapter 11 protection.

Interest expense was $4.6 million for 2008 and includes $2.2 million of interest cost to be paid on pre-petition obligations compared to a 2007 amount of $3.2 million.

An income tax benefit was not recognized in the six month period of either year presented. The income tax benefits available from refunds due to NOL carrybacks have all been recognized in prior periods. Until it is more likely than not that current losses can be used to offset future tax obligations, additional benefits will not be recorded.

A loss of $220,000 was reported that related to locations which qualified for treatment as discontinued operations from prior years. This was the result of additions to the closed store reserve due to settlement of certain real estate bankruptcy claims. During the 26 weeks ended August 4, 2007, discontinued operations produced a loss of $3.9 million from the liquidation of inventories and expenses related to the closing of 124 locations.

LIQUIDITY AND CAPITAL RESOURCES

Revolving credit facility and Notes

At February 2, 2008, Hancock had outstanding borrowings of approximately $6.1 million, under the DIP Credit Facility.

Additional financing beginning on June 15, 2007, was included in a definitive agreement (the “Loan Agreement”) with another lender for an additional loan of up to $17.5 million.

On August 1, 2008, the Company and General Electric Capital Corporation (along with certain of its affiliates, “GE Capital”) entered into a financing arrangement whereby GE Capital provided the Company with a revolving line of credit (the “Revolver”) in the maximum amount of $100 million (the “Maximum Amount”). The level of borrowings available is subject to a borrowing base computation, as defined in the Loan Agreement, which includes credit card receivables, inventory, and real property. The Maximum Amount includes a letter of credit sub-facility (the “Sub-Facility”) of up to $20 million.

The Revolver is collateralized by a fully perfected first priority security interest in all of the existing and after acquired real and personal, tangible and intangible assets of the Company. As of August 2, 2008, the Company had outstanding borrowings under the Revolver of $26.1 million. Subsequent to August 2, 2008, the Company made a cash distribution to creditors for allowed claim amounts totaling approximately $31.6 million, which was funded from the Revolver.

In addition to the Revolver, the Company issued $20 million of Floating Rate Secured Notes (the “Notes”) on August 1, 2008. The Notes were offered pursuant to a prospectus dated June 17, 2008, to shareholders of common stock. The non-convertible notes had a $1,000 purchase price. Interest on the Notes is payable quarterly at LIBOR plus 4.50%. Interest for the first four quarters may be paid by the issuance of additional notes. If additional notes are issued in lieu of interest, the interest for the period will be equal to LIBOR plus 5.50%. The Notes mature 5 years from the date of issuance (August 1, 2013), are subordinated to the Revolver, and are secured by a junior lien on all of the Company’s assets. Purchasers of the Notes also received a detachable warrant to purchase a total of 9.5 million shares of common stock. The warrants were valued at $11.7 million and were recorded as a discount on notes payable under “Long term debt obligations”.

From March 21, 2007 until August 1, 2008, the Company operated as a debtor-in-possession under Chapter 11 of the Bankruptcy Code. The Company’s continuation as a going concern is contingent upon, among other things, its ability to comply with terms of loan agreements, return to profitability, generate sufficient cash flows from operations and obtain financing sources to meet future obligations. There can be no assurance that the Company will be able to achieve any of these results, which could raise substantial doubts about our ability to continue as a going concern and result in the complete liquidation of all assets for the benefit of our creditors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the recorded amount of assets and liabilities at the date of the financial statements and revenues and expenses during the period. Significant accounting policies employed by Hancock, including the use of estimates and assumptions, are presented in the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K for the fiscal year ended February 2, 2008. Management bases its estimates on its historical experience, together with other relevant factors, in order to form the basis for making judgments, which will affect the carrying values of assets and liabilities. On an ongoing basis, management evaluates its estimates and makes changes to carrying values as deemed necessary.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern. Except as otherwise disclosed, these principles assume that assets will be realized and liabilities will be discharged in the ordinary course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties discussed above.

OFF-BALANCE SHEET ARRANGEMENTS

Hancock has no off-balance sheet financing arrangements. Hancock leases its retail fabric store locations mainly under non-cancelable operating leases. Four of the Company’s store leases qualify for capital lease treatment. Future payments under operating leases are appropriately excluded from the Company’s balance sheet. Capital lease obligations are, however, reflected on the Company’s balance sheet.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Hancock has an arrangement within its collateralized revolving credit facility that provides up to $20 million in letters of credit. At August 2, 2008, Hancock had commitments of $2.3 million on documentary letters of credit under the facility, which support purchase orders for merchandise. Hancock also has standby letters of credit for $6.1 million including $5.8 million to guarantee payment of potential future workers’ compensation claims. Hancock leases its retail fabric store locations under operating leases with initial terms expiring at various dates through 2024.

Hancock has no standby repurchase obligations or guarantees of other entities’ debt.

EFFECTS OF INFLATION

Inflation in labor and occupancy costs could significantly affect Hancock’s operations. Many of Hancock’s employees are paid hourly rates related to federal and state minimum wage requirements; accordingly, any increases in those requirements will affect Hancock. In addition, payroll taxes, employee benefits and other employee costs continue to increase. Health insurance costs, in particular, continue to rise at a high rate in the United States each year. Costs of leases for new store locations and renewal costs of older leases continue to increase. Hancock believes the practice of maintaining adequate operating margins through a combination of price adjustments and cost controls, careful evaluation of occupancy needs and efficient purchasing practices are the most effective tools for coping with increased costs and expenses.

Inflation is one of the key factors used in the calculation of the LIFO charge or credit to cost of goods sold. Increases in the PPI have resulted in LIFO charges in the current year.

SEASONALITY

Hancock’s business is seasonal. Peak sales periods occur during the fall and pre-Easter weeks, while the lowest sales periods occur during the summer months.


ITEM 3:		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Hancock does not hold derivative financial or commodity instruments at August 2, 2008. Hancock is exposed to financial market risks, including changes in interest rates.

Borrowings under the Company’s line of credit bear interest at either (a) a floating interest rate plus the applicable margins or (b) absent a default, a fixed interest rate for periods of one, two or three months equal to the reserve adjusted London Interbank Offered Rate, or LIBOR, plus the applicable margins. The applicable margins initially range from 0.0% to 2.375%, depending on the nature of the borrowing. Starting on January 1, 2009, the applicable margins are subject to adjustment (up or down) prospectively, for three calendar month periods based on the Company’s average excess availability.

Borrowings under the Company’s floating rate secured notes bear interest payable quarterly at LIBOR plus 4.50%. Interest for the first four quarters may be paid by the issuance of additional notes. If additional notes are issued in lieu of interest, the interest for the period will be equal to LIBOR plus 5.50%.

An increase in interest rates of 100 basis points would increase Hancock’s annual interest expense by $460,000 assuming borrowings of $26 million under the line of credit and $20 million in notes payable existing at August 2, 2008. All of Hancock’s business is transacted in U.S. dollars and accordingly, foreign exchange rate fluctuations have never had a significant impact on Hancock, and they are not expected to in the foreseeable future.


ITEM 4:		CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized, and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our President and Chief Executive Officer (CEO) and our Senior Vice President and Chief Financial Officer (CFO), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act), as of August 2, 2008.

Based on that evaluation, our CEO and CFO concluded that, as of that date, our disclosure controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 were not effective at a reasonable assurance level because of the identification of material weaknesses in our internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures. The effect of such weaknesses on our disclosure controls and procedures, as well as remediation actions taken and planned, are described in Item 9A, Controls and Procedures, of our Annual Report on Form 10-K for the year ended February 2, 2008.

Notwithstanding the material weaknesses, management has concluded that our unaudited consolidated financial statements recognize all adjustments of a normal recurring nature considered necessary and were prepared in accordance with GAAP. Accordingly, and to the best of management’s knowledge, the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present in all material respects our financial position, results of operations and cash flows for the periods presented in accordance with GAAP.

Remediation and Changes in Internal Controls

The Company reported one material weakness in internal control over financial reporting in its Form 10-K for the fiscal year ended February 2, 2008. This material weakness was the result of the Company not maintaining a sufficient complement of personnel with a level of financial reporting expertise that is commensurate with the Company’s financial reporting requirements. Management has taken actions to remediate the material weakness by:

	•		Hiring a new Senior Vice President and Chief Financial Officer to supplement the existing financial executive team.

	•		Continuing the engagement of a third party accounting and consulting firm to assist with accounting and disclosure matters related to the financial reporting and accounting requirements.

	•		Realigning internal resources to improve the staffing and knowledge of the financial reporting and accounting functions.

Management will continue to assess the complement of personnel needed to assist with accounting and disclosure matters related to the financial reporting and accounting requirements in the next several months, and additional changes are expected to be made.

Other than as described above, there have not been any other changes in our internal control over financial reporting in the six months ended August 2, 2008, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION:


ITEM 1:		LEGAL PROCEEDINGS

On March 21, 2007 (the “Petition Date”), the Company and its affiliated debtors filed voluntary petitions for reorganization under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), in the United States Bankruptcy Court for the District of Delaware (the “Court”). The reorganization case is being administered under the caption “In re Hancock Fabrics, Inc., et al., Case No. 07-10353 (BLS).” On June 10, 2008, the Company filed its joint plan of reorganization (Docket No. 2746) (as modified and including all documents ancillary thereto, the “Plan”) and, thereafter, its related Court-approved notice of plan confirmation hearing. On July 22, 2008, the Court entered an order confirming the Plan of Reorganization (Docket No. 2996). On August 1, 2008 (the “Effective Date”), the Plan became effective, and the Company emerged from bankruptcy protection.

The Company is a party to several legal proceedings and claims. Although the outcome of such proceedings and claims cannot be determined with certainty, we are of the opinion that it is unlikely that these proceedings and claims will have a material effect on the financial condition or operating results of the Company.


ITEM 1A:		RISK FACTORS

The risk factors listed in Part I “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended February 2, 2008, should be considered with the information provided elsewhere in this Quarterly Report on Form 10-Q, which could materially adversely affect the business, financial condition or results of operations. On August 1, 2008, the Company emerged from bankruptcy protection. There have been no material changes to the risk factors as previously disclosed in such Annual Report on Form 10-K.


ITEM 2:		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information with respect to purchases by the Company of shares of its common stock during the second quarter of 2008:

Issuer Purchases of Equity Securities


					Total Number of		Maximum
					Shares Purchased as		Number of Shares That
	Total Number of		Average Price		Part of Publicly		May Yet Be Purchased
Period	Shares Purchased (1)		Paid Per Share		Announced Plans (2)		Under the Plans
May 4, 2008 through May 31, 2008		—		—		—		243,617
June 1, 2008 through July 5, 2008		17,669	$	1.24		—		243,617
July 6, 2008 through August 2, 2008		—		—		—		243,617

Total		17,669	$	1.24		—		243,617


(1)		The shares purchased during the second quarter consisted of 17,669 shares deemed surrendered to the Company to satisfy tax withholding obligations arising from the lapse of restrictions on shares.

(2)		In June of 2000 the Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company’s Common Stock from time to time when warranted by market conditions. There have been 1,756,383 shares purchased under this authorization through August 2, 2008. The shares discussed in footnote (1) are excluded from these numbers.

		The Registrant did not sell any unregistered equity securities during the period covered by this Quarterly Report.


ITEM 3:		DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4:		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


ITEM 5:		OTHER INFORMATION

None.


ITEM 6:		EXHIBITS


10.1		2001 Stock Incentive Plan, as amended August 4, 2008

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) Under The Securities Exchange Act of 1934

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) Under The Securities Exchange Act of 1934

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002

SIGNATURE

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.


	HANCOCK FABRICS, INC. (Registrant)
	By:	/s/ Robert W. Driskell
		Robert W. Driskell
		Senior Vice President and Chief Financial Officer

September 15, 2008


	Page
Part I. Financial Information:

Item 1. Financial Statements

Consolidated Balance Sheets as of August 2, 2008 and February 2, 2008		3

Consolidated Statements of Operations for the Thirteen and Twenty-six Weeks Ended August 2, 2008 and August 4, 2007		4

Consolidated Statement of Shareholders’ Equity for the Twenty-six Weeks Ended August 2, 2008		5

Consolidated Statements of Cash Flows for the Twenty-six Weeks Ended August 2, 2008 and August 4, 2007		6

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3. Quantitative and Qualitative Disclosures about Market Risks		19

Item 4. Controls and Procedures		20

Part II. Other Information:

Item 1. Legal Proceedings		21

Item 1A. Risk Factors		21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		21

Item 3. Defaults Upon Senior Securities		22

Item 4. Submission of Matters to a Vote of Security Holders		22

Item 5. Other Information		22

Item 6. Exhibits		23

Signatures		23
EX-10.1 2001 Stock Incentive Plan
Ex-31.1 Section 302 Certification of the CEO
Ex-31.2 Section 302 Certification of the CFO
Ex-32.1 Section 906 Certification of the CEO
Ex-32.2 Section 906 Certification of the CFO

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents