----

----

| Commission File Number 1 – 9482 |
|---------------------------------------|

| HANCOCK FABRICS, INC. |
|-----------------------|

| (Exact name of registrant as specified in its charter) |
|--------------------------------------------------------|

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

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

| (662) 365-6000 |
|----------------|

| Registrant’s telephone number, including area code |
|----------------------------------------------------------|

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Table of Contents

|                                                                                                |   | Page   |
|-----------------------------------------------------------------------------------------------------|--------|--------|
| Part I. Financial Information                                                                       |   |   |
|                                                                                                |   |   |
| Item 1. Condensed Financial Statements                                                              |   |   |
|                                                                                                |   |   |
| Consolidated Balance Sheets as of May 1, 2010, May 2, 2009 and January 30, 2010                     |   | 3      |
|                                                                                                |   |   |
| Consolidated Statements of Operations for the Thirteen Weeks Ended May 1, 2010 and May 2, 2009      |   | 4      |
|                                                                                                |   |   |
| Consolidated Statement of Shareholders’ Equity for the Thirteen Weeks Ended May 1, 2010       |   | 5      |
|                                                                                                |   |   |
| Consolidated Statements of Cash Flows for the Thirteen Weeks Ended May 1, 2010 and May 2, 2009      |   | 6      |
|                                                                                                |   |   |
| Notes to Consolidated Financial Statements                                                          |   | 7      |
|                                                                                                |   |   |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |   | 11     |
|                                                                                                |   |   |
| Item 3. Quantitative and Qualitative Disclosures about Market Risks                                 |   | 20     |
|                                                                                                |   |   |
| Item 4T. 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. Removed and Reserved                                                                        |   | 22     |
|                                                                                                |   |   |
| Item 5. Other Information                                                                           |   | 22     |
|                                                                                                |   |   |
| Item 6. Exhibits                                                                                    |   | 22     |
|                                                                                                |   |   |
| Signatures                                                                                          |   | 22     |

----

| PART I. FINANCIAL INFORMATION           |
|----------------------------------------------|
| ITEM 1. CONDENSED FINANCIAL STATEMENTS  |
| HANCOCK FABRICS, INC.                        |
| CONSOLIDATED BALANCE SHEETS                  |

|                                                                                                                         |   | (unaudited) |     |   |   |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|-------------|----------|--------|--------|--------|
|                                                                                                                         |   | May 1,      |     |   | May 2, |   |   | January 30, |   |
| (in thousands, except for share amounts)                                                                                     |   | 2010        |     |   | 2009   |   |   | 2010(1) |   |
| Assets                                                                                                                       |   |        |     |   |   |   |   |   |   |
| Current assets:                                                                                                              |   |        |     |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                    |   | $           | 2,573    |   |   | $      | 2,242 |   |   | $ | 2,493 |   |
| Receivables, less allowance for doubtful accounts                                                                            |   |        | 3,165    |   |   |   | 2,968 |   |   |   | 3,469 |   |
|    Inventories                                                                                                     |   |        | 93,003   |   |   |   | 100,582 |   |   |   | 91,495 |   |
| Prepaid expenses                                                                                                             |   |        | 2,162    |   |   |   | 1,341 |   |   |   | 1,485 |   |
| Total current assets                                                                                                         |   |        | 100,903  |   |   |   | 107,133 |   |   |   | 98,942 |   |
|                                                                                                                         |   |        |     |   |   |   |   |   |   |   |   |   |
| Property and equipment, net                                                                                                  |   |        | 41,700   |   |   |   | 44,063 |   |   |   | 41,687 |   |
| Goodwill                                                                                                                     |   |        | 3,210    |   |   |   | 3,210 |   |   |   | 3,210 |   |
| Other assets                                                                                                                 |   |        | 4,325    |   |   |   | 5,533 |   |   |   | 4,707 |   |
| Total assets                                                                                                                 |   | $           | 150,138  |   |   | $      | 159,939 |   |   | $ | 148,546 |   |
|                                                                                                                         |   |        |     |   |   |   |   |   |   |   |   |   |
| Liabilities and Shareholders’ Equity                                                                                   |   |        |     |   |   |   |   |   |   |   |   |   |
| Current liabilities:                                                                                                         |   |        |     |   |   |   |   |   |   |   |   |   |
| Accounts payable                                                                                                             |   | $           | 23,271   |   |   | $      | 18,680 |   |   | $ | 18,638 |   |
| Accrued liabilities                                                                                                          |   |        | 12,859   |   |   |   | 14,001 |   |   |   | 15,113 |   |
| Other pre-petition obligations                                                                                               |   |        | 824      |   |   |   | 1,842 |   |   |   | 1,193 |   |
| Total current liabilities                                                                                                    |   |        | 36,954   |   |   |   | 34,523 |   |   |   | 34,944 |   |
|                                                                                                                         |   |        |     |   |   |   |   |   |   |   |   |   |
| Long-term debt obligations, net                                                                                              |   |        | 27,627   |   |   |   | 43,088 |   |   |   | 26,942 |   |
| Capital lease obligations                                                                                                    |   |        | 3,159    |   |   |   | 3,256 |   |   |   | 3,184 |   |
| Postretirement benefits other than pensions                                                                                  |   |        | 2,199    |   |   |   | 2,208 |   |   |   | 2,150 |   |
| Pension and SERP liabilities                                                                                                 |   |        | 27,286   |   |   |   | 22,212 |   |   |   | 27,017 |   |
| Other liabilities                                                                                                            |   |        | 6,892    |   |   |   | 7,979 |   |   |   | 7,097 |   |
| Total liabilities                                                                                                            |   |        | 104,117  |   |   |   | 113,266 |   |   |   | 101,334 |   |
|                                                                                                                         |   |        |     |   |   |   |   |   |   |   |   |   |
| Commitments and contingencies                                                                                                |   |        |     |   |   |   |   |   |   |   |   |   |
|                                                                                                                         |   |        |     |   |   |   |   |   |   |   |   |   |
| Shareholders’ equity:                                                                                                  |   |        |     |   |   |   |   |   |   |   |   |   |
| Common stock, $.01 par value; 80,000,000 shares authorized;                                                                  |   |        |     |   |   |   |   |   |   |   |   |   |
|    33,308,944, 33,064,070, and  33,283,944 issued and 19,915,813,                                   |   |        |     |   |   |   |   |   |   |   |   |   |
|    19,695,803  and 19,902,148 outstanding, respectively                                                  |   |        | 333      |   |   |   | 331 |   |   |   | 333 |   |
| Additional paid-in capital                                                                                                   |   |        | 89,293   |   |   |   | 88,273 |   |   |   | 89,128 |   |
| Retained earnings                                                                                                            |   |        | 125,394  |   |   |   | 124,025 |   |   |   | 126,695 |   |
| Treasury stock, at cost, 13,393,131, 13,368,267, and                                                                         |   |        |     |   |   |   |   |   |   |   |   |   |
|    13,381,796 shares held, respectively                                                                       |   |        | (153,723 | )      |   |   | (153,684 | ) |   |   | (153,698 | ) |
| Accumulated other comprehensive loss                                                                                         |   |        | (15,276  | )      |   |   | (12,272 | ) |   |   | (15,246 | ) |
| Total shareholders’ equity                                                                                             |   |        | 46,021   |   |   |   | 46,673 |   |   |   | 47,212 |   |
| Total liabilities and shareholders’ equity                                                                             |   | $           | 150,138  |   |   | $      | 159,939 |   |   | $ | 148,546 |   |
|                                                                                                                         |   |        |     |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.                                                                 |   |        |     |   |   |   |   |   |   |   |   |   |
|                                                                                                                         |   |        |     |   |   |   |   |   |   |   |   |   |
|    (1) From audited balance sheet included in our annual report on Form 10-K for the fiscal year January 30, 2010. |   |

----

| HANCOCK FABRICS, INC.                                                   |   |                |   |   |                |   |
|-------------------------------------------------------------------------|--------|---------------------|--------|--------|---------------------|--------|
| CONSOLIDATED STATEMENTS OF OPERATIONS                                   |   |                |   |   |                |   |
| (unaudited)                                                             |   |                |   |   |                |   |
|                                                                    |   |                |   |   |                |   |
|                                                                    |   | Thirteen WeeksEnded |   |   | Thirteen WeeksEnded |   |
|                                                                    |   | May 1,              |   |   | May 2,              |   |
| (in thousands, except per share amounts)                                |   | 2010                |   |   | 2009                |   |
| Net Sales                                                               |   | $                   | 63,103 |   |                | $      | 64,069 |   |
| Cost of goods sold                                                      |   |                | 35,370 |   |                |   | 35,157 |   |
| Gross profit                                                            |   |                | 27,733 |   |                |   | 28,912 |   |
|                                                                    |   |                |   |   |                |   |   |   |
| Selling, general and administrative expense                             |   |                | 26,644 |   |                |   | 27,181 |   |
| Depreciation and amortization                                           |   |                | 1,072  |   |                |   | 1,089 |   |
| Operating income                                                        |   |                | 17     |   |                |   | 642 |   |
|                                                                    |   |                |   |   |                |   |   |   |
| Reorganization expense, net                                             |   |                | 196    |   |                |   | 239 |   |
| Interest expense, net                                                   |   |                | 1,144  |   |                |   | 1,334 |   |
| Loss from continuing operations before income taxes                     |   |                | (1,323 | )      |                |   | (931 | ) |
| Income taxes                                                            |   |                | -      |   |                |   | - |   |
| Loss from continuing operations                                         |   |                | (1,323 | )      |                |   | (931 | ) |
| Earnings from discontinued operations (net of tax expense of $0 and $0) |   |                | 22     |   |                |   | 49 |   |
|                                                                    |   |                |   |   |                |   |   |   |
| Net loss                                                                |   | $                   | (1,301 | )      |                | $      | (882 | ) |
| Basic and diluted loss per share:                                       |   |                |   |   |                |   |   |   |
| Loss from continuing operations                                         |   | $                   | (0.07  | )      |                | $      | (0.05 | ) |
| Earnings from discontinued operations                                   |   |                | 0.00   |   |                |   | 0.00 |   |
|         Net loss                     |   | $                   | (0.07  | )      |                | $      | (0.05 | ) |
| Weighted average shares outstanding:                                    |   |                |   |   |                |   |   |   |
| Basic and diluted                                                       |   |                | 19,590 |   |                |   | 19,219 |   |

----

| HANCOCK FABRICS, INC.                                                   |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |          |   |   |     |   |
|-------------------------------------------------------------------------|--------|--------------|------------|--------|---------|--------|--------|------------|--------|--------|----------------|--------|--------|---------------|---------|--------|---------------------|--------|-------------|---------------|--------|--------|----------|--------|
| CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY                    |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |
| (unaudited)                                                             |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |          |   |   |     |   |
|                                                                    |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |          |   |   |     |   |
|                                                                    |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        | 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 January 30, 2010                                                |   |         | 33,283,944 |   |    | $      | 333    |       |   | $      | 89,128         |   |   | $             | 126,695 |   |                |   | (13,381,796 | )             |   | $      | (153,698 | )      |   | $ | (15,246 | ) |   | $ | 47,212 |   |
| Comprehensive loss:                                                     |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |          |   |   |     |   |   |   |   |   |   |   |   |   |
| Net loss                                                                |   |         |       |   |    |   |   |       |   |   |           |   |   |          | (1,301  | )      |                |   |        |          |   |   |     |   |   |   |   |   |   |   | (1,301 | ) |
| Minimum pension, SERP and                                               |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |          |   |   |     |   |   |   |   |   |   |   |   |   |
|     OPEB  liabilities, net of taxes of $0 |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |          |   |   |     |   |   |   | (30 | ) |   |   | (30 | ) |
| Total comprehensive loss                                                |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |          |   |   |     |   |   |   |   |   |   |   | (1,331 | ) |
| Stock options exercised                                                 |   |         | 5,000      |   |    |   |   |       |   |   | 8              |   |   |          |    |   |                |   |        |          |   |   |     |   |   |   |   |   |   |   | 8 |   |
| Issuance of restricted stock                                            |   |         | 20,000     |   |    |   |   |       |   |   | -              |   |   |          |    |   |                |   |        |          |   |   |     |   |   |   |   |   |   |   | - |   |
| Purchase of treasury stock                                              |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   | (11,335     | )             |   |   | (25      | )      |   |   |   |   |   |   | (25 | ) |
| Stock compensation expense                                              |   |         |       |   |    |   |   |       |   |   | 126            |   |   |          |    |   |                |   |        |          |   |   |     |   |   |   |   |   |   |   | 126 |   |
| Amortization of directors’ fees                                   |   |         |       |   |    |   |   |       |   |   | 31             |   |   |          |    |   |                |   |        |          |   |   |     |   |   |   |   |   |   |   | 31 |   |
| Balance May 1, 2010                                                     |   |         | 33,308,944 |   |    | $      | 333    |       |   | $      | 89,293         |   |   | $             | 125,394 |   |                |   | (13,393,131 | )             |   | $      | (153,723 | )      |   | $ | (15,276 | ) |   | $ | 46,021 |   |
|                                                                    |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |          |   |   |     |   |   |   |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements.            |   |         |       |   |    |   |   |       |   |   |           |   |   |          |    |   |                |   |        |          |   |   |     |   |   |

----

| Hancock Fabrics, Inc.                                                      |   |                 |   |   |   |   |
|----------------------------------------------------------------------------|--------|----------------------|--------|--------|--------|--------|
| Consolidated Statements of Cash Flows                                      |   |                 |   |   |   |   |
| (unaudited)                                                                |   |                 |   |   |   |   |
|                                                                       |   | Thirteen Weeks Ended |   |
|                                                                       |   | May 1,               |   |   | May 2, |   |
| (in thousands)                                                             |   | 2010                 |   |   | 2009   |   |
| Cash flows from operating activities:                                      |   |                 |   |   |   |   |
|    Net loss                                                      |   | $                    | (1,301 | )      |   | $      | (882 | ) |
| Adjustments to reconcile net loss to cash flows from operating activities  |   |                 |   |   |   |   |   |   |
| Depreciation and amortization, including cost of goods sold                |   |                 | 1,567  |   |   |   | 1,583 |   |
| Amortization of deferred loan costs                                        |   |                 | 62     |   |   |   | 62 |   |
| Amortization of bond discount                                              |   |                 | 583    |   |   |   | 583 |   |
| Interest paid-in-kind on notes                                             |   |                 | -      |   |   |   | 346 |   |
| Stock compensation expense                                                 |   |                 | 157    |   |   |   | 256 |   |
| Reserve for store closings credits, including interest expense             |   |                 | (33    | )      |   |   | (87 | ) |
| Other                                                                      |   |                 | 133    |   |   |   | (63 | ) |
| Reorganization expense, net                                                |   |                 | 196    |   |   |   | 239 |   |
| (Increase) decrease in assets                                              |   |                 |   |   |   |   |   |   |
| Receivables and prepaid expenses                                           |   |                 | (373   | )      |   |   | 807 |   |
| Inventory at current cost                                                  |   |                 | (1,602 | )      |   |   | 3,619 |   |
| Other noncurrent assets                                                    |   |                 | 320    |   |   |   | (780 | ) |
| Increase (decrease) in liabilities                                         |   |                 |   |   |   |   |   |   |
| Accounts payable                                                           |   |                 | 4,633  |   |   |   | (2,759 | ) |
| Accrued liabilities                                                        |   |                 | (2,315 | )      |   |   | (1,144 | ) |
| Postretirement benefits other than pensions                                |   |                 | (222   | )      |   |   | 257 |   |
| Long-term pension and SERP liabilities                                     |   |                 | 510    |   |   |   | 197 |   |
| Other liabilities                                                          |   |                 | (234   | )      |   |   | (299 | ) |
| Net cash provided by operating activities before reorganization activities |   |                 | 2,081  |   |   |   | 1,935 |   |
| Net cash provided by (used for) reorganization activities                  |   |                 | (244   | )      |   |   | 109 |   |
| Net cash provided by operating activities                                  |   |                 | 1,837  |   |   |   | 2,044 |   |
| Cash flows from investing activities:                                      |   |                 |   |   |   |   |   |   |
| Additions to property and equipment                                        |   |                 | (1,599 | )      |   |   | (649 | ) |
| Proceeds from the disposition of property and equipment                    |   |                 | 9      |   |   |   | 4 |   |
| Net cash used for investing activities                                     |   |                 | (1,590 | )      |   |   | (645 | ) |
| Cash flows from financing activities:                                      |   |                 |   |   |   |   |   |   |
| Net borrowings (payments) on revolving credit facility                     |   |                 | 102    |   |   |   | (820 | ) |
| Payments for pre-petition liabilities and other                            |   |                 | (269   | )      |   |   | (675 | ) |
| Net cash used for financing activities                                     |   |                 | (167   | )      |   |   | (1,495 | ) |
| Increase (decrease) in cash and cash equivalents                           |   |                 | 80     |   |   |   | (96 | ) |
| Cash and cash equivalents:                                                 |   |                 |   |   |   |   |   |   |
| Beginning of period                                                        |   |                 | 2,493  |   |   |   | 2,338 |   |
| End of period                                                              |   | $                    | 2,573  |   |   | $      | 2,242 |   |
| Supplemental disclosures:                                                  |   |                 |   |   |   |   |   |   |
| Cash paid during the period for:                                           |   |                 |   |   |   |   |   |   |
|   Interest                                                            |   | $                    | 509    |   |   | $      | 333 |   |
| Income taxes                                                               |   |                 | 200    |   |   |   | - |   |
| Non-cash activities:                                                       |   |                 |   |   |   |   |   |   |
| Noncash change in funded status of benefit plans                           |   | $                    | (30    | )      |   | $      | (50 | ) |
|                                                                       |   |                 |   |   |   |   |   |   |
| See accompanying notes to consolidated financial statements                |   |                 |   |   |   |   |   |   |

----

| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) |
|--------------------------------------------------------|

----

|                                     |   |   |   |   |   |   |   |        |   |
|------------------------------------------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|
| Pre-petition obligations (in thousands): |   |   |   |   |   |   |   |        |   |
|                                     |   |   |   |   |   |   |   |        |   |
|                                     |   | May 1, |   |   | May 2, |   |   | January 30, |   |
|                                     |   | 2010   |   |   | 2009   |   |   | 2010        |   |
| Real estate claims                       |   | $      | 99     |   |   | $      | 1,117  |        |   | $ | 468 |   |
| Professional fee claim                   |   |   | 725    |   |   |   | 725    |        |   |   | 725 |   |
| Total pre-petition claims                |   | $      | 824    |   |   | $      | 1,842  |        |   | $ | 1,193 |   |

----

|                                 |   | Retirement Plan      |   |   | Postretirement Benefit Plan |   |
|--------------------------------------|--------|----------------------|--------|--------|-----------------------------|--------|
|                                 |   | Thirteen Weeks Ended |   |   | Thirteen Weeks Ended        |   |
|                                 |   | May 1,               |   |   | May 2,                      |   |   | May 1, |   |   | May 2, |   |
|                                 |   | 2010                 |   |   | 2009                        |   |   | 2010 |   |   | 2009 |   |
| Service costs                        |   | $                    | 107    |   |                        | $      | 103 |   |   | $ | 17 |   |   | $ | 12 |   |
| Interest cost                        |   |                 | 1,139  |   |                        |   | 1,228 |   |   |   | 33 |   |   |   | 44 |   |
| Expected return on assets            |   |                 | (959   | )      |                        |   | (805 | ) |   |   | - |   |   |   | - |   |
| Amortization of prior service costs  |   |                 | -      |   |                        |   | - |   |   |   | (199 | ) |   |   | (193 | ) |
| Recognized net actuarial (gain) loss |   |                 | 240    |   |                        |   | 210 |   |   |   | (72 | ) |   |   | (67 | ) |
| Net periodic benefit cost            |   | $                    | 527    |   |                        | $      | 736 |   |   | $ | (221 | ) |   | $ | (204 | ) |

----

| COMPUTATION OF LOSS PER SHARE                                                  |   |                       |       |   |   |   |
|--------------------------------------------------------------------------------|--------|----------------------------|------------|--------|--------|--------|
|                                                                           |   |                       |       |   |   |   |
|                                                                           |   |                       |       |   |   |   |
| (in thousands, except for share and                                            |   |  Thirteen Weeks Ended |       |
|   per share amounts)                                                 |   | May 1,                     |       |   | May 2, |   |
|                                                                           |   | 2010                       |       |   | 2009   |   |
| Basic and diluted loss per share:                                              |   |                       |       |   |   |   |
|   Net loss                                                           |   | $                          | (1,301     | )      |   | $      | (882 | ) |
|                                                                           |   |                       |       |   |   |   |   |   |
|   Weighted average number of common shares outstanding during period |   |                       | 19,590,236 |   |   |   | 19,218,596 |   |
|                                                                           |   |                       |       |   |   |   |   |   |
| Basic and diluted loss per share                                               |   | $                          | (0.07      | )      |   | $      | (0.05 | ) |

|              |   |        |   |   | Addition to |   |   |     |   |   |     |   |   |   |   |
|-------------------|--------|-------------|--------|--------|------------------|--------|--------|----------|--------|--------|----------|--------|--------|--------|--------|
|              |   | January 30, |   |   | (Reduction in)   |   |   |     |   |   |     |   |   | May 1, |   |
|              |   | 2010        |   |   | Reserve          |   |   | Interest |   |   | Payments |   |   | 2010   |   |
|              |   |        |   |   |             |   |   |     |   |   |     |   |   |   |   |
| Lease obligations |   | $           | 346    |   |             | $      | (33    | )        |   | $      | 1        |   |   | $      | (188   | ) |   | $ | 126 |   |

----

----

| ● | Net sales for the first quarter of fiscal 2010 were $63.1 million compared to $64.1 million for first quarter of fiscal 2009, and comparable store sales decreased 2.0% in the first quarter of 2010 and increased 2.3% in the first quarter of 2009. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | Our online sales for the first quarter of fiscal 2010, which are included in the comparable sales number above, increased 9.8% to $1.0 million. |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | Gross margin for the first quarter of fiscal 2010 was 43.9% compared with 45.1% for the first quarter of fiscal 2009. |
|---------|-----------------------------------------------------------------------------------------------------------------------|

| ● | Operating income was $17,000 in the first quarter of fiscal 2010 compared to $0.6 million in the first quarter of fiscal 2009. |
|---------|--------------------------------------------------------------------------------------------------------------------------------|

| ● | Net loss was $1.3 million, or $0.07 per basic share, in the first quarter of fiscal 2010 compared to a net loss of $0.9 million, or $0.05 per share in the first quarter of fiscal 2009. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ● | The amount of cash generated from operations before reorganization activities increased by $146,000 to $2.1 million during the first thirteen weeks of fiscal 2010 compared to the same period of fiscal 2009. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                    |   | Thirteen Weeks Ended |   |
|-------------------------------------------------------------------------|--------|----------------------|--------|
|                                                                    |   | May 1,               |   |   | May 2, |   |
|                                                                    |   | 2010                 |   |   | 2009 |   |
|                                                                    |   |                 |   |   |   |   |
| Net sales (in thousands)                                                |   | $                    | 63,103 |   |   | $ | 64,069 |   |
|                                                                    |   |                 |   |   |   |   |   |   |
| Gross margin percentage                                                 |   |                 | 43.9   | % |   |   | 45.1 | % |
|                                                                    |   |                 |   |   |   |   |   |   |
| Number of stores                                                        |   |                 |   |   |   |   |   |   |
|       Open at end of period(1)            |   |                 | 266    |   |   |   | 264 |   |
|       Comparable stores at period end (2) |   |                 | 264    |   |   |   | 263 |   |
|                                                                    |   |                 |   |   |   |   |   |   |
| Sales growth                                                            |   |                 |   |   |   |   |   |   |
|       All retail outlets                  |   |                 | (1.5   | ) % |   |   | 0.4 | % |
|       Comparable retail outlets (2)       |   |                 | (2.0   | ) % |   |   | 2.3 | % |
|                                                                    |   |                 |   |   |   |   |   |   |
| Total store square footage at period end (in thousands)                 |   |                 | 3,809  |   |   |   | 3,784 |   |
|                                                                    |   |                 |   |   |   |   |   |   |
| Net sales per total square footage                                      |   | $                    | 16.57  |   |   | $ | 16.93 |   |

| (2) | A new store is included in the comparable sales computation immediately upon reaching its one-year anniversary. Comparable sales computation also includes net sales derived from e-commerce. In those rare instances where stores are either expanded or down-sized, the store is not treated as a new store and, therefore, remains in the computation of comparable sales. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                |   | Thirteen Weeks Ended |   |
|-----------------------------------------------------|--------|----------------------|--------|
|                                                |   | May 1,               |   |   | May 2, |   |
|                                                |   | 2010                 |   |   | 2009 |   |
| Net Sales                                           |   |                 | 100.0  | % |   |   | 100.0 | % |
| Cost of goods sold                                  |   |                 | 56.1   |   |   |   | 54.9 |   |
| Gross profit                                        |   |                 | 43.9   |   |   |   | 45.1 |   |
| Selling, general and administrative expense         |   |                 | 42.2   |   |   |   | 42.4 |   |
| Depreciation and amortization                       |   |                 | 1.7    |   |   |   | 1.7 |   |
| Operating income (loss)                             |   |                 | 0.0    |   |   |   | 1.0 |   |
| Reorganization expense, net                         |   |                 | 0.3    |   |   |   | 0.4 |   |
| Interest expense, net                               |   |                 | 1.8    |   |   |   | 2.1 |   |
| Loss from continuing operations before income taxes |   |                 | (2.1   | ) |   |   | (1.5 | ) |
| Income taxes                                        |   |                 | -      |   |   |   | - |   |
| Income from discontinued operations                 |   |                 | 0.0    |   |   |   | 0.1 |   |
| Net loss                                            |   |                 | (2.1   | ) % |   |   | (1.4 | ) % |

----

|                         |   | Thirteen Weeks Ended |   |
|------------------------------|--------|----------------------|--------|
| (in thousands)               |   | May 1,               |   |   | May 2, |   |
|                         |   | 2010                 |   |   | 2009 |   |
|                         |   |                 |   |   |   |   |
| Retail comparable store base |   | $                    | 61,519 |   |   | $ | 62,883 |   |
| New stores                   |   |                 | 576    |   |   |   | - |   |
| Closed stores                |   |                 | -      |   |   |   | 269 |   |
| E-Commerce                   |   |                 | 1,008  |   |   |   | 917 |   |
|                         |   |                 |   |   |   |   |   |   |
| Total net sales              |   | $                    | 63,103 |   |   | $ | 64,069 |   |

|                    |   | Thirteen Weeks Ended |   |
|-------------------------|--------|----------------------|--------|
|                    |   | May 1,               |   |   | May 2, |   |
|                    |   | 2010                 |   |   | 2009 |   |
|                    |   |                 |   |   |   |   |
| Apparel Fabrics         |   |                 | 27     | % |   |   | 27 | % |
| Home Decorating         |   |                 | 20     | % |   |   | 22 | % |
| Quilting/Craft          |   |                 | 26     | % |   |   | 26 | % |
| Notions and Accessories |   |                 | 27     | % |   |   | 25 | % |
|                    |   |                 | 100    | % |   |   | 100 | % |

| ● | the cost of merchandise |
|---------|-------------------------|

----

| ● | inventory rebates and allowances including term discounts |
|---------|-----------------------------------------------------------|

| ● | inventory shrinkage and valuation adjustments |
|---------|-----------------------------------------------|

| ● | freight charges |
|---------|-----------------|

| ● | costs associated with our sourcing operations, including payroll and related benefits |
|---------|---------------------------------------------------------------------------------------|

| ● | costs associated with receiving, processing, and warehousing merchandise |
|---------|--------------------------------------------------------------------------|

|                     |   |   |   |   | Thirteen Weeks Ended |   |   |   |   |
|--------------------------|--------|--------|--------|--------|----------------------|--------|--------|--------|--------|
|                     |   | May 1, |   |   | % of                 |   |   | May 2, |   |   | % of |   |
| (in thousands)           |   | 2010   |   |   | Sales                |   |   | 2009   |   |   | Sales |   |
|                     |   |   |   |   |                 |   |   |   |   |   |   |   |
| Net sales                |   | $      | 63,103 |   |                 |   | 100.0  | %      |   | $ | 64,069 |   |   |   | 100.0 | % |
|                     |   |   |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Merchandise cost         |   |   | 30,258 |   |                 |   | 48.0   | %      |   |   | 29,728 |   |   |   | 46.4 | % |
| Freight                  |   |   | 1,999  |   |                 |   | 3.2    | %      |   |   | 1,798 |   |   |   | 2.8 | % |
| Sourcing and warehousing |   |   | 3,113  |   |                 |   | 4.9    | %      |   |   | 3,631 |   |   |   | 5.7 | % |
|                     |   |   |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Gross Profit             |   | $      | 27,733 |   |                 |   | 43.9   | %      |   | $ | 28,912 |   |   |   | 45.1 | % |

| ● | payroll and related benefits (for our store operations, field management, and corporate functions) |
|---------|----------------------------------------------------------------------------------------------------|

----

| ● | advertising |
|---------|-------------|

| ● | general and administrative expenses |
|---------|-------------------------------------|

| ● | occupancy including rent, common area maintenance, taxes and insurance for our retail locations |
|---------|-------------------------------------------------------------------------------------------------|

| ● | operating costs of our headquarter facilities |
|---------|-----------------------------------------------|

| ● | other expense (income) |
|---------|------------------------|

|                     |   |   |   |   | Thirteen Weeks Ended |   |   |   |   |
|--------------------------|--------|--------|--------|--------|----------------------|--------|--------|--------|--------|
|                     |   | May 1, |   |   | % of                 |   |   | May 2, |   |   | % of |   |
| (in thousands)           |   | 2010   |   |   | Sales                |   |   | 2009   |   |   | Sales |   |
|                     |   |   |   |   |                 |   |   |   |   |   |   |   |
| Retail store labor costs |   | $      | 9,985  |   |                 |   | 15.8   | %      |   | $ | 10,066 |   |   |   | 15.7 | % |
| Advertising              |   |   | 2,418  |   |                 |   | 3.8    | %      |   |   | 2,111 |   |   |   | 3.3 | % |
| Store occupancy          |   |   | 7,321  |   |                 |   | 11.6   | %      |   |   | 7,364 |   |   |   | 11.5 | % |
| Retail SG&A          |   |   | 4,694  |   |                 |   | 7.4    | %      |   |   | 5,011 |   |   |   | 7.8 | % |
| Corp SG&A            |   |   | 2,226  |   |                 |   | 3.6    | %      |   |   | 2,629 |   |   |   | 4.1 | % |
|                     |   |   |   |   |                 |   |   |   |   |   |   |   |   |   |   |   |
| Total SG&A           |   | $      | 26,644 |   |                 |   | 42.2   | %      |   | $ | 27,181 |   |   |   | 42.4 | % |

----

|                        |   |   |   |   | Thirteen Weeks Ended |   |   |   |   |
|-----------------------------|--------|--------|--------|--------|----------------------|--------|--------|--------|--------|
|                        |   | May 1, |   |   | % of                 |   |   | May 2, |   |   | % of |   |
| (in thousands)              |   | 2010   |   |   | Sales                |   |   | 2009   |   |   | Sales |   |
|                        |   |   |   |   |                 |   |   |   |   |   |   |   |
| Reorganization expense, net |   | $      | 196    |   |                 |   | 0.3    | %      |   | $ | 239 |   |   |   | 0.4 | % |

|                  |   |   |   |   | Thirteen Weeks Ended |   |   |   |   |
|-----------------------|--------|--------|--------|--------|----------------------|--------|--------|--------|--------|
| (in thousands)        |   | May 1, |   |   | % of                 |   |   | May 2, |   |   | % of |   |
|                  |   | 2010   |   |   | Sales                |   |   | 2009   |   |   | Sales |   |
| Interest expense, net |   | $      | 1,144  |   |                 |   | 1.8    | %      |   | $ | 1,334 |   |   |   | 2.1 | % |

----

|                            |   | Thirteen Weeks Ended |   |
|---------------------------------|--------|----------------------|--------|
|                            |   | May 1,               |   |   | May 2, |   |
|                            |   | 2010                 |   |   | 2009 |   |
|                            |   |                 |   |   |   |   |
| Net cash flows provided (used): |   |                 |   |   |   |   |
| Operating activites             |   | $                    | 1,837  |   |   | $ | 2,044 |   |
| Investing activities            |   |                 | (1,590 | ) |   |   | (645 | ) |
| Financing activites             |   |                 | (167   | ) |   |   | (1,495 | ) |

----

----

----

| PART II.  OTHER INFORMATION |
|---------------------------------------|

| ITEM 1. LEGAL PROCEEDINGS |
|---------------------------|

| ITEM 1A. RISK FACTORS |
|-----------------------|

| The risk factors listed in Part I “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010, 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.  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 |
|---------------------------------------------------------------------|

----

| None. |
|-------|

| ITEM 4. REMOVED AND RESERVED |
|------------------------------|

| ITEM 5. OTHER INFORMATION |
|---------------------------|

| None. |
|-------|

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

|               | HANCOCK FABRICS, INC. |
|--------------------|-----------------------|
|               |   (Registrant)   |
|               |                  |   |   |
|               | By:                   | /s/ Robert W. Driskell |   |
|               |                  | Robert W. Driskell |
|               |                  | Executive Vice President and |
|               |                  | Chief Financial Officer |
|               |                  | (Principal Financial Officer) |
|               |                  |   |
| Date: June 3, 2010 |                  |   |

----

| Exhibit No. |   | Description                                                                                                                                                                   |
|-------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                          |
| 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 and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002 |