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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-K

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

         For the fiscal year ended January 31, 2002

                                       OR

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

         For the transition period from ________________ to ________________

                        COMMISSION FILE NUMBER: 000-24381

                          HASTINGS ENTERTAINMENT, INC.
             (Exact name of registrant as specified in its charter)

            TEXAS                                                75-1386375
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                              Identification No.)

        3601 PLAINS BOULEVARD, AMARILLO, TEXAS                      79102
       (Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code:  (806) 351-2300

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value per share             Nasdaq National Market
         (Title of Class)                 (Name of Exchange on which registered)

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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes  [X]     No  [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $46,298,867 based upon the closing market price of
$7.89 per share of Common Stock on the Nasdaq National Market as of March 28,
2002. (For the purposes of determination of the above-stated amounts, only the
directors, executive officers and 5% or greater shareholders of the registrant
have been deemed affiliates.)

Number of shares of $.01 par value Common Stock outstanding as of March 28,
2002: 11,300,531

                               (Cover page 1 of 2)


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                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual meeting of shareholders of the
registrant to be held during 2002 are incorporated by reference into Parts II
and III of this Form 10-K.



                               (Cover page 2 of 2)

                                       2

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                          HASTINGS ENTERTAINMENT, INC.
                             FORM 10-K ANNUAL REPORT
                   FOR THE FISCAL YEAR ENDED JANUARY 31, 2002


                                      INDEX

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<Caption>
                                                                             PAGE
                                                                             ----
<S>      <C>                                                                 <C>
PART I
Item 1.  Business..........................................................    4
Item 2.  Properties........................................................   12
Item 3.  Legal Proceedings.................................................   13
Item 4.  Submission of Matters to a Vote of Security Holders...............   13

PART II
Item 5.  Market for Registrant's Common Equity and Related Stockholder
           Matters.........................................................   14
Item 6.  Selected Financial Data...........................................   15
Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations.......................................   17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........   25
Item 8.  Financial Statements and Supplementary Data.......................   26
Item 9.  Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure........................................   49

PART III
Item 10. Directors and Executive Officers of the Registrant................   50
Item 11. Executive Compensation............................................   50
Item 12. Security Ownership of Certain Beneficial Owners and Management....   50
Item 13. Certain Relationships and Related Transactions....................   50

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...   51
</Table>


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                                     PART I

Forward-looking Statements

Certain written and oral statements set forth below or made by Hastings or with
the approval of an authorized executive officer of the company constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The words "believe," "expect," "intend,"
"anticipate," "project," "will" and similar expressions identify forward-looking
statements, which generally are not historical in nature. All statements which
address operating performance, events or developments that we expect or
anticipate will occur in the future including statements relating to the
business, expansion, merchandising and marketing strategies of Hastings,
industry projections or forecasts, effects of the adoption of Statement of
Financial Accounting Standards Nos. 137, 138, 142 and 144, the impact on our
financial statements of any adjustment to fair value of interest rate swaps, the
outcome of securities litigation, inflation, effect of critical accounting
policies including lower of cost or market for inventory adjustments, the
returns process, rental video amortization and our store closing reserve and
statements expressing general optimism about future operating results are
forward-looking statements. Such statements are based upon company management's
current estimates, assumptions and expectations, which are based on information
available at the time of the disclosure, and are subject to a number of factors
and uncertainties, including, but not limited to, whether our assumptions turn
out to be correct, our inability to attain such estimates and expectations, a
downturn in market conditions in any industry relating to the products we
inventory, sell or rent, the effects of or changes in economic conditions in the
U.S. and or the markets in which we operate our superstores, our success in
forecasting customer demand for products, and legal proceedings (see discussion
of Legal Proceedings in Part I, Item 3 of this Form 10-K for the fiscal year
ended January 31, 2002 and subsequent SEC filings) any of which could cause
actual results to differ materially from those described herein. We undertake no
obligation to affirm, publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.

ITEM 1. BUSINESS

General

Hastings Entertainment, Inc. is a leading multimedia entertainment retailer that
combines the sale of books, music, software, periodicals, videocassettes, video
games, DVDs, used products including CDs, DVDs and video games, video game
consoles and DVD players with the rental of videocassettes, video games, DVDs,
video game consoles and DVD players in a superstore format. As of March 28,
2002, we operated 141 superstores in small- to medium-sized markets located in
21 states, primarily in the Western and Midwestern United States. We also
operate a multimedia entertainment e-commerce Web site offering a broad
selection of books, music, software, videocassettes, video games and DVDs. See
note 14 to the consolidated financial statements for more information regarding
our operating segments, retail stores and Internet operations. We operate three
wholly owned subsidiaries; Hastings Properties, Inc., Hastings Internet, Inc.
and Hastings College Stores, Inc. References herein to fiscal years are to the
twelve-month periods, which end in January of each following calendar year. For
example, the twelve-month period ended January 31, 2002 is referred to as fiscal
2001.

On March 7, 2000, we announced that our fourth quarter and fiscal 1999 results
(and the previous four fiscal years' results) would be negatively impacted by
certain accounting adjustments. All such adjustments were reflected in the
fiscal 1999 Annual Report on Form 10-K. See "Item 3. Legal Proceedings" for a
description of litigation matters which followed the announcement of the
restatement.

Industry Overview

Music. According to the Recording Industry Association of America ("RIAA"),
music shipments by manufacturers to retailers decreased 4.1% to $13.7 billion in
2001 compared to $14.3 billion in 2000. In addition, the dollar value of
shipments for the industry mainstay, the full-length CD, decreased 2.3% to $12.9
billion in 2001 compared to $13.2 billion in 2000. RIAA attributed this decline
in large part to online piracy and CD-burning. According to an RIAA commissioned
survey, 23% of music consumers surveyed confirmed they are forgoing purchases of
music because they are downloading and or copying their music for free to a CD
or a portable MP3 player. In the survey, over 50%


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of those that have downloaded music for free have made copies of it. This
compares to 13% just two years ago. Supporting this increase, the study found
ownership of CD burners has nearly tripled since 1999. According to the
International Federation of the Phonographic Industry, global piracy costs the
recording industry over $4 billion per year. Shipments of cassettes declined
sharply during 2001 to $363 million, down 41.9% from 2000, as the format
continued to lose favor with music consumers.

Books. Sales in 2001 for the book industry grew only 0.1% to $25.4 billion
according to the Association of American Publishers. The majority of the book
industry segments declined on a percentage basis in 2001 with children's
hardcover books exhibiting the largest percentage decline at 22.7%, following
the release of Harry Potter and the Goblet of Fire in 2000. However, the
children's paperback segment increased 17.9% in 2001 on the strong performance
of Potter books in paperback and tie-ins to the Lord of the Rings movie.

Rental Video. According to Paul Kagan Associates ("Kagan"), consumer spending on
rental video increased 1.2% to $8.4 billion in 2001 from $8.3 billion in 2000.
Of the $8.4 billion, 54%, or $4.5 billion, was generated by revenue sharing
titles, up from 48% in 2000. DVD continued its accelerated acceptance rate as
DVD households increased over 80% to 23.6 million, up from 13.1 million in 2000.
Kagan estimates that the number of DVD households could hit 66.6 million by
2005. Revenue generated by VHS declined approximately 12% during 2001 primarily
as a result of the growth of DVD. Kagan projects this trend to continue despite
an almost 90% penetration rate of VCRs in United States households.

Although Kagan expects that rental video revenues will decline as a percent of
overall at-home consumer spending, we believe that the DVD format, with its
superior picture and sound quality and extra features such as outtakes, director
commentary and scene selection, will drive continued growth in the industry. We
also believe rental video will continue to be a favored entertainment medium for
millions of consumers due to its relatively inexpensive price point, broad
selection of new release and catalog (older) movies and ability for "viewer
control" of the experience, i.e., start, stop, fast-forward, pause and rewind.

Business Strategy

Our goal is to enhance our position as a leading multimedia entertainment
retailer in small- to medium-sized communities by expanding and remodeling
existing superstores, opening new superstores in selected markets and offering
our products through the Internet. Each element of our business strategy is
designed to build consumer awareness of the Hastings concept and achieve high
levels of customer loyalty and repeat business. The key elements of this
strategy are the following:

Superior Multimedia Concept. Our superstores present a wide variety of products
tailored to local preferences in a dynamic and comfortable store atmosphere with
exceptional service. Our superstores average approximately 20,000 square feet,
with our new superstores generally ranging in size from 12,000 to 25,000 square
feet. Our superstores offer customers an extensive product assortment consisting
of approximately 17,000 to 60,000 book, 9,000 to 30,000 music, 1,000 to 2,000
software, 2,000 to 3,000 periodical, 4,000 to 13,000 video, and 1,000 to 4,000
complementary and accessory titles for sale. We also offer approximately 3,000
to 12,000 used CD, videocassette, DVD and video game titles for sale. In
addition, customers can select from 5,000 to 10,000 DVD titles for sale and rent
and 12,000 to 20,000 videocassette, DVD and video game selections for rent.
Although the superstores' core product assortment tends to be similar, the
merchandise mix of each of our superstores is tailored to accommodate the
particular demographic profile of the local market in which the superstore
operates through the utilization of our proprietary purchasing and inventory
management systems. We believe that our multimedia format reduces our reliance
on and exposure to any particular entertainment segment and enables us to
promptly add exciting new entertainment categories to our product line.

Small to Medium-Sized Market Superstore Focus. We target small- to medium-sized
markets with populations of generally less than 50,000 where our extensive
product selection, low pricing strategy, efficient operations and superior
customer service enable us to become the market's destination entertainment
store. We believe that the small- to medium-sized markets where we operate the
majority of our superstores present an opportunity to profitably operate and
expand our unique entertainment superstore format. In our opinion, these markets
typically are underserved by existing book, music or video stores, and our
competition generally is locally-owned or national-chain specialty stores


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and general merchandise retailers. We base our merchandising strategy for our
superstores on an in-depth understanding of our customers and our individual
markets. We strive to optimize each superstore's merchandise selection by using
our proprietary information systems to analyze the sales history, anticipated
demand and demographics of each superstore's market. In addition, we utilize
flexible layouts that enable each superstore to arrange our products according
to local interests and to customize the layout in response to new customer
preferences and product lines.

Customer-Oriented Superstore Format. We design our superstores to provide an
easy-to-shop, open store atmosphere by offering major product categories in a
"store-within-a-store" format. Most of our superstores utilize
product-affinities positioned together around a wide racetrack aisle or
three-across departments (books, music and video) that are designed to allow
customers to view the entire superstore. This store configuration produces
significant cross-marketing opportunities among the various entertainment
departments, which we believe results in higher transaction volumes and impulse
purchases. To encourage browsing and the perception of Hastings as a community
gathering place, we have incorporated amenities in many superstores, such as
chairs for reading, a broad selection of gourmet coffee and tea, soft drinks and
snacks, music auditioning stations, interactive information kiosks, telephones
for free local calls, children's play areas and in-store promotional events.

Cost-Effective Operations. We are committed to controlling costs in every aspect
of our operations while maintaining our customer-oriented philosophy. From 1993
to 1997, we spent $12.8 million to develop and implement proprietary
information, purchasing, distribution and inventory control systems that
position us to continue to grow profitably. These systems enable us to respond
actively to customers' changing desires and to rapid shifts in local and
national market conditions. Our 146,000 square-foot distribution center, which
adjoins our corporate offices in Amarillo, Texas, provides us with improved
store in-stocks, efficient product cross-docking and centralized returns
processing.

Low Pricing. Our pricing strategy at our superstores is to offer value to our
customers by maintaining prices that are competitive with or lower than the
lowest prices charged by other retailers in the market. We determine our prices
on a market-by-market basis, depending on the level of competition and other
market-specific considerations. We believe that our low pricing structure
results in part from (i) our ability to purchase directly from publishers,
studios and manufacturers as opposed to purchasing from distributors, (ii) our
proprietary information systems, improvements to which will enable management to
make more precise and targeted purchases and pricing for each superstore, and
(iii) our consistent focus on maintaining low occupancy and operating costs.

Used Products. Since 1994, we have bought or traded for customer's CDs to sell
as used product and leverage the value of our CD offering. With additional
used-purchasing options, this business now accounts for approximately 10% of our
total music business, generally represents higher margins than new front-line
CDs and drives customer loyalty. During fiscal 2001, revenue generated from the
sale of used DVDs began to accelerate as the DVD medium became more popular with
the consumer. The same process of purchasing used CDs is being applied to used
DVDs and we are excited about the prospect for continued growth in this and
other used product business, including video games. We believe our multimedia
superstore concept will enhance our offering of used products allowing the
customer to choose between a new or a less expensive used copy of the same
title.

Internet. In May 1999, we launched our new e-commerce Internet Web site,
www.gohastings.com. Our site enables customers to electronically access more
than 800,000 new and used entertainment products and unique, contemporary gifts
and toys. The site features exceptional product and pricing offers, search and
auditioning capabilities, and digital downloading of music selections. The Web
site is designed to fully integrate into a store kiosk to leverage both the
physical and digital shopping experience. The site also features a newly
designed investor relations section including links to company press releases,
SEC filings and a useful list of frequently asked questions.

Expansion Strategy

We plan to increase our growth rate in fiscal 2002 by opening approximately
seven superstores while continuing our ongoing store expansion and remodeling
programs for our existing superstores. In addition, we anticipate the closing of
two superstores during fiscal 2002 bringing our total superstore count to
approximately 146 by the end of the fiscal year. We have identified numerous
potential locations for future superstores in under-served, small- to
medium-sized markets that meet our new-market criteria. We believe that with our
current information systems and distribution


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capabilities, our infrastructure can support our anticipated rate of expansion
and growth for at least the next several years.

Merchandising Strategy

We are a leading multimedia entertainment retailer that combines the sale of
books, music, software, periodicals, videocassettes, video games, DVDs, used
products including CDs, DVDs and video games, video game consoles and DVD
players with the rental of videocassettes, video games, DVDs, video game
consoles and DVD players in a superstore format. By offering a broad array of
products within several distinct but complementary categories, we strive to
appeal to a wide range of customers and position our superstores as destination
entertainment stores in our targeted small- to medium-sized markets.

Superstore Product Selection. Although all Hastings superstores carry a similar
core product assortment, the merchandise mix of book, music, software,
videocassette and video game selections of each superstore is tailored
continually to accommodate the particular demographic profile and demand of the
local market in which the superstore operates. We accomplish this customization
through our proprietary purchasing, inventory, selection and pricing management
systems. The purchasing system analyzes historic consumer purchasing patterns at
each individual superstore to forecast customer demand for new releases and
anticipate seasonal changes in demand. In addition, our inventory management
process continually monitors product sales and videocassette rentals to identify
slow-moving books, music, software and sale videocassettes, DVD and video games
for return to vendors and rental videocassettes, DVD and video games for sale to
customers as previous viewed items or transfer to other superstores. Our pricing
management system allows us to identify slow moving products and initiate an
automated-progressive markdown program to enhance sell-through while maximizing
margin at each subsequent price reduction. It also automatically implements the
price change by printing new tags at the store.

Our superstores offer customers an extensive product assortment consisting of
approximately 17,000 to 60,000 book, 9,000 to 30,000 music, 1,000 to 2,000
software, 2,000 to 3,000 periodical, 4,000 to 13,000 video, and 1,000 to 4,000
complementary and accessory titles for sale. We also offer approximately 3,000
to 12,000 used CD, videocassette, DVD and video game titles for sale. In
addition, customers can select from 5,000 to 10,000 DVD titles for sale and rent
and 12,000 to 20,000 videocassette, DVD and video game selections for rent. New
releases and special offerings in each entertainment product category are
prominently displayed and arranged by product category.

In addition to our primary product lines, we continually add new product
offerings to better serve our customers. Products for sale in these categories
include promotional t-shirts, licensed plush toys, portable electronics,
consumer electronics including DVD players and video game consoles, musical
instruments, sheet music, greeting cards, audio books and consumables, including
soft drinks, coffee, popcorn and candy. Accessory items for sale include blank
videocassettes and CDs, video cleaning equipment and audiocassette and CD
carrying cases. Many of these products generate impulse purchases and produce
higher margins. The rental of videocassette, video game and DVD players is
provided as a service to Hastings customers.

Marketing Strategy

Low Pricing. Our pricing strategy at our superstores is to offer value to our
customers by maintaining prices that are competitive with or lower than the
lowest prices charged by other retailers in the market. We determine our prices
on a market-by-market basis, depending on the level of competition and other
market-specific considerations. We believe that our low pricing structure
results in part from (i) our ability to purchase directly from publishers,
studios and manufacturers as opposed to purchasing from distributors, (ii) our
proprietary information systems that enable management to make more precise and
targeted purchases for each superstore, and (iii) our consistent focus on
maintaining low occupancy and operating costs.

Customer Service. We are committed to providing the highest level of customer
service to increase customer loyalty. We devote significant resources to
associate training and measuring customer satisfaction. All Hastings superstore
associates undergo training when hired and are required to participate in
frequent training programs. Our ongoing customer service program, "Quality
Service Everytime," empowers every superstore associate to utilize our flexible
return and refund policies to resolve any customer problem. We believe that
these programs, together with our low


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pricing strategy and superstore amenities, such as reading chairs, complementary
gourmet coffee or full coffee bar, and free local telephone calls to permit
customers to confirm their entertainment selections with family and friends, are
important components of the customer service we provide.

Advertising/Promotion. We participate in cooperative advertising programs and
merchandise display allowance programs offered by our vendors. Our advertising
programs are market-focused and introduce new products to our markets with price
competitiveness, extensive product assortment and comfortable atmosphere of our
superstores. We benefit from market display allowances provided by vendors
because of our superstores' high traffic volume and our effective display
implementation. Our strongest and most economical advertising vehicle has been
the FSI (Free Standing Insert) for newspapers. Following an increase in its
usage during 2001, we anticipate an additional increase of approximately 20% in
the number of FSIs being utilized during 2002. In addition to FSIs, we utilize
direct mail and radio along with in-store point-of-sale promotional materials to
communicate with our customers.

Information System

Our information system is built upon a multi-tiered, distributed processing
architecture and was designed using client/server technology. All locations are
connected using a wide-area network that allows interchange of current
information. The primary components of the information system are as follows:

New Release Allocation. Our buyers use the new release allocation system to
purchase new release products for the superstores and have the ability within
the system to utilize up to nine different methods of forecasting demand. By
using store-specific sales history, factoring in specific market traits,
applying sales curves for similar titles or groups of products and minimizing
subjectivity and human emotion for a transaction, the system customizes
purchases for each individual superstore to satisfy customer demand. The process
provides the flexibility to allow store management to anticipate customer needs,
including tracking missed sales and factoring in regional influences. We believe
that the new release allocation system enables us to increase revenues by having
the optimum levels and selection of products available in each superstore at the
appropriate time to satisfy customers' entertainment needs.

Rental Video Asset Purchasing System. Our rental video asset purchasing system
uses store-specific performance on individual rental videocassette titles to
anticipate customer demand for new release rental videocassettes. The system
analyzes the first eight weeks' performance of a similar title and factors in
the effect of such influences as seasonal trends, box office draw and prominence
of the movie's cast to customize an optimum inventory for each individual
superstore. The system also allows for the customized purchasing of other
catalog rental video assets on an individual store basis, additional copy depth
requirements under revenue-sharing agreements and timely sell-off of previously
viewed tapes. We believe that our rental video asset purchasing system allows us
to efficiently plan and stock each superstore's rental video asset inventory,
thereby improving performance and reducing exposure from excess inventory.

Store Replenishment. Store replenishment covers three main areas for controlling
a superstore's inventory.

    Selection Management. Selection management constantly analyzes
    store-specific sales, traits and seasonal trends to determine title
    selection and inventory levels for each individual superstore. By
    forecasting annual sales of products and consolidating recommendations from
    store management, the system enables us to identify overstocked or
    understocked items and to prompt required store actions and optimize
    inventory levels. The system tailors each store's individual inventory to
    the market, utilizing over 2,000 product categories, configurations and
    product status.

    Model Stock Calculation/Ordering. Model stock calculation uses
    store-specific sales, seasonal trends and sophisticated curve fitting to
    forecast orders. It also accounts for turnaround time from a vendor or our
    distribution center and tracks historical missed sales to adjust orders to
    adequately fulfill sales potential. Orders are currently calculated on a
    weekly basis and transmitted by all superstores to the corporate office to
    establish a source vendor for the product.

    Inventory Management. Inventory management systems interface with other
    store systems and accommodate electronic receiving and returns to maintain
    perpetual inventory information. Cycle counting procedures allow us to


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    perform all physical inventory functions, including the counting of each
    superstore's inventory up to four times per year. The system provides
    feedback to assist in researching variance.

Store Systems. Each superstore has a dedicated server within the store for
processing information connected through a wide area network. This connectivity
provides consolidation of individual transactions and allows store management
and corporate office associates easy access to the information needed to make
informed decisions. Transactions at the store are summarized and used to assist
in staff scheduling, loss prevention and inventory control. All point of sale
transactions utilize scanning technology allowing for maximum customer
efficiency at checkout. We also utilize an automated system for scheduling store
management and sales associates. This system was developed to assist in
controlling personnel costs while maintaining desired levels of customer service
by preventing over-scheduling or under-scheduling sales, stocking and customer
service associates.

Accounting. Our financial accounting software has a flexible, open-systems
architecture. We prepare a variety of daily management reports covering store
and corporate performance. Detailed financial information for each superstore,
as well as for the distribution center and the corporate office, are generated
on a monthly basis. Our payroll, accounts payable, cash control, financial
planning and state and local tax functions are performed in-house.

Warehouse Management. Our warehouse management systems provide support for
high-volume retail transactions, including shipments, receipts and returns to
vendors. Software to perform these functions was customized through a joint
effort of our purchasing, distribution and information systems departments. The
warehouse system, using "real-time" inputs for total process coordination,
incorporates exact cube sizes of product containers, utilizing flow-through
racks and technologically advanced conveyor systems.

Distribution and Suppliers

Our distribution center is located in a 146,000 square foot facility adjacent to
our corporate headquarters in Amarillo, Texas. This central location and the
local labor pool enable us to realize relatively low transportation and labor
costs. The distribution center is utilized primarily for receiving, storing and
distributing approximately 21,000 products offered in substantially every
superstore. The distribution center also is used in distributing large
purchases, including forward buys, closeouts and other bulk purchases. In
addition, the distribution facility is used to receive, recycle, process and
ship items to be returned to manufacturers and distributors, as well as to
transfer and redistribute videocassettes among our superstores. This facility
currently provides inventory to all Hastings superstores and is designed to
support our anticipated rate of expansion and growth for at least the next
several years. We ship products weekly to each Hastings superstore, facilitating
quick and responsive inventory replenishment. Approximately 23% of our total
product, based on store receipts, is distributed through the distribution
center. Approximately 77% of our total product is shipped directly from the
vendors to the superstores. We outsource all product transportation from our
distribution center to various freight companies.

Our information systems and corporate infrastructure facilitate our ability to
purchase products directly from manufacturers, which contributes to our low
pricing structure. In fiscal 2001, we purchased the majority of our products
directly from manufacturers, rather than through distributors. Our top three
suppliers accounted for approximately 22% of total products purchased during
fiscal 2001. While selections from a particular artist or author generally are
produced by a single manufacturer, we strive to maintain supplier relationships
that can provide alternate sources of supply. In general, products we purchase
are returnable to the supplying vendor. Refer to "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation -
General" for a description of our returns process.

Store Operations

Most of our superstores employ one store manager and one or more assistant store
managers. Store managers and assistant store managers are responsible for the
execution of all operational, merchandising and marketing strategies for the
superstore in which they work. Superstores also generally have department
managers, who are individually responsible for their respective book, music,
software, video, customer service and stocking departments within each
superstore. Hastings superstores are generally open daily from 10:00 a.m. to
11:00 p.m. However, several superstores


                                       9
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are open 9:00 a.m. to 11:00 p.m. or 10:00 a.m. to 10:00 p.m. The only days our
superstores are closed are Thanksgiving and Christmas.

Competition

The entertainment retail industry is highly competitive. We compete with a wide
variety of book retailers, music retailers, software retailers, Internet
retailers and retailers that rent or sell videocassettes, including independent
single store operations, local multi-store operators, regional and national
chains, as well as supermarkets, pharmacies, convenience stores, bookstores,
mass merchants, mail order operations, warehouse clubs, record clubs, other
retailers and various non-commercial sources such as libraries. With regard to
our videocassette sales and rental video products in particular, we compete with
cable, satellite and pay-per-view cable television systems. In addition,
continuing technological advances that enhance the ability of consumers to shop
at home or access, produce and print written works or record music digitally by
home computer through the Internet or telephonic transmission could provide more
serious competition to us in the future.

We compete in most of our markets with either national entertainment retailers
or significant retailers of general merchandise or both. We compete in our sale
of books with retailers such as Barnes & Noble, Inc., Books-A-Million, Inc.,
Borders Group, Inc., Walden Books and B. Dalton Bookseller. We compete in our
sale of music with music retailers, such as The Wherehouse, Inc., and Transworld
Entertainment and consumer electronics stores, including Best Buy and Circuit
City. Our principal competitors in the sale and rental of videocassettes are
Blockbuster, Inc., Hollywood Entertainment Corp. and Movie Gallery, Inc. In
addition, we compete in the sale of books, music and videocassettes and the
rental of videocassettes and video games with local entertainment retailers and
significant retailers of general merchandise, such as Wal-Mart. Retailers such
as Amazon.com, Inc. and Barnes & Noble, Inc., continue to increase their retail
sales of entertainment products, such as books and music, via the Internet. We
compete with other entertainment retailers on the basis of title selection, the
number of copies of popular selections available, store location, visibility and
pricing.

Trademarks and Servicemarks

We believe our trademarks and servicemarks, including the servicemarks "Hastings
Books Music Video," and "Hastings, Your Entertainment Superstore" have
significant value and are important to our marketing efforts. We have registered
"Hastings Books Music Video" as a servicemark with the United States Patent and
Trademark Office and are in the process of registering "Hastings, Your
Entertainment Superstore." We maintain a policy of pursuing registration of our
principal marks and opposing any infringement of our marks.

Associates

We refer to our employees as associates because of the critical role they play
in the success of each Hastings superstore and the Company as a whole. As of
January 31, 2002, we employed approximately 6,264 associates; of which 2,036 are
full-time and 4,228 are part-time associates. Of this number, approximately
5,755 were employed at retail superstores, 172 were employed at our distribution
center and 296 were employed at our corporate offices. None of our associates
are represented by a labor union or are subject to a collective bargaining
agreement. We believe that our relations with our associates are good.


                                       10
<PAGE>


Executive Officers of the Company

The following is certain information concerning the executive officers of
Hastings Entertainment, Inc.

<Table>
<Caption>
Name                    Age    Position
----                    ---    --------
<S>                     <C>    <C>
John H. Marmaduke        54    Chairman of the Board, President and Chief
                                 Executive Officer

Robert A. Berman         52    Vice President of Store Operations

Dan Crow                 55    Vice President of Finance and Chief Financial
                                 Officer

James S. Hicks           45    Vice President of Purchasing

Alan Van Ongevalle       34    Vice President of Marketing

Michael J. Woods         40    Vice President and Chief Information Officer
</Table>

All executive officers are chosen by the Board of Directors and serve at the
Board's discretion. Set forth below is information concerning the business
experience of our executive officers.

JOHN H. MARMADUKE, age 54, has served as President and Chief Executive Officer
of the Company since July 1976 and as Chairman of the Board since October 1993.
Mr. Marmaduke served as President of the Company's former parent company,
Western Merchandisers, Inc. ("Western"), from 1982 through June 1994, including
the years 1991 through 1994 when Western was a division of Wal-Mart. Mr.
Marmaduke also serves on the board of directors of the Video Software Dealers
Association (VSDA). Mr. Marmaduke has been active in the entertainment retailing
industry with the Company and its predecessor company for over 30 years.

ROBERT A. BERMAN, age 52, has served the Company as Vice President of Store
Operations since January 1997. From June 1995 to January 1997, Mr. Berman was
self-employed in the financial services industry. From January 1989 to June
1995, Mr. Berman served as Vice President and Senior Vice President of Store
Operations for Builders Square, Inc., a chain of 185 building material
superstores. At Builders Square, Inc., Mr. Berman was responsible for store
operations, store planning and design, purchasing and construction.

DAN CROW, age 55, has served as Vice President of Finance and Chief Financial
Officer of the Company since October 2000. From July of 2000 to October 2000,
Mr. Crow served as Vice President of Finance. Mr. Crow is a member of the
American Institute of Certified Public Accountants and the Financial Executives
International and has served as Chief Financial Officer of various retail
companies including Discount Auto Parts, Inc., Scotty's, Inc. and Lil' Things,
Inc. since 1984.

JAMES S. HICKS, age 45, has served as Vice President of Purchasing of the
Company since August of 1999. From August 1997 to August 1999, Mr. Hicks served
as the Senior Director of Purchasing and from April 1994 to August 1997, was the
Director of Purchasing. He was a District Leader for the Company from July of
1984 to April 1994. From October 1982 to July 1984, Mr. Hicks served as a
company troubleshooter and from April 1982 to October 1982 was a store manager.
Mr. Hicks began his career with Hastings in August 1981 as a manager trainee.
Prior to joining the Company, Mr. Hicks was the Regional Credit Manager for
Liquid Carbonics Corporation, a gas distributor and manufacturer headquartered
in Houston.

ALAN VAN ONGEVALLE, age 34, has served as Vice President of Marketing since May
2000. From August 1999 to May 2000, Mr. Van Ongevalle served as the Senior
Director of Marketing and as Director of Advertising from September 1998 to
August 1999. Mr. Van Ongevalle joined Hastings in November 1992 and held various
store operation management positions including Store Manager, Director of New
Stores and the Southern Kansas area through September 1998.

MICHAEL J. WOODS, age 40, has served as Vice President of Information Systems of
the Company since October 1992. From August 1990 to October 1992, Mr. Woods
served as Director of Microsystems for the Company, focusing on store systems
development. From October 1989 to August 1990, Mr. Woods served as a programming
specialist and analyst for the Company.


                                       11
<PAGE>


ITEM 2. PROPERTIES

As of January 31, 2002, we operated 142 superstores in 21 states located as
indicated in the following table:

<Table>
<Caption>
          NAME OF STATE                             NUMBER OF SUPERSTORES
          -------------                             ---------------------
<S>                                                 <C>
          Alabama..................................          1
          Arkansas.................................         11
          Arizona..................................          7
          Colorado.................................          3
          Georgia..................................          1
          Idaho....................................          8
          Illinois.................................          2
          Indiana..................................          1
          Iowa.....................................          2
          Kansas...................................         10
          Kentucky.................................          1
          Missouri.................................          7
          Montana..................................          5
          Nebraska.................................          4
          New Mexico...............................         13
          Oklahoma.................................         12
          Tennessee................................          4
          Texas....................................         38
          Utah.....................................          2
          Washington...............................          7
          Wyoming..................................          3
                                                         -----
          Total....................................        142
</Table>

Currently, we lease sites for all of our superstores. These sites typically are
located in pre-existing, stand-alone buildings or strip shopping centers. Our
primary market areas are small- and medium-sized communities with populations
generally less than 50,000. We have developed a systematic approach using our
site selection criteria to evaluate and identify potential sites for new
superstores. Key demographic criteria for superstores include community
population, community and regional retail sales, personal and household
disposable income levels, education levels, median age, and proximity of
colleges or universities. Other site selection factors include current
competition in the community, visibility, available parking, ease of access and
other neighbor tenants. To maintain low occupancy costs, we typically
concentrate on leasing existing locations that have been operated previously by
other retailers.

We actively manage our existing superstores and from time to time close
under-performing stores. During fiscal 2001, we closed five superstores and
during fiscal 2000, we closed six superstores and one college bookstore.

The terms of our superstore leases vary considerably. We strive to maintain
maximum location flexibility by entering into leases with short initial terms
and multiple short-term extension options. We have been able to enter into
leases with these terms in part because we generally bear a substantial portion
of the cost of preparing the site for a superstore. The following table sets
forth as of January 31, 2002 the number of superstores that have current lease
terms that will expire during each of the following fiscal years and the
associated number of superstores for which we have options to extend the lease
term:

<Table>
<Caption>
                                              NUMBER OF SUPERSTORES     OPTIONS
                                              ---------------------     -------
<S>                                           <C>                       <C>
         Fiscal Year 2002..................             9                   5
         Fiscal Year 2003..................            18                   17
         Fiscal Year 2004..................            19                   18
         Fiscal Year 2005..................            14                   13
         Fiscal Year 2006..................            12                   12
         Thereafter........................            70                   67
                                                     ----                 ----
         Total.............................           142                  132
</Table>


                                       12
<PAGE>

We have not experienced any significant difficulty renewing or extending leases
on a satisfactory basis.

Our headquarters and distribution center are located in Amarillo, Texas in a
leased facility consisting of approximately 44,500 square feet for office space
and 146,000 square feet for the distribution center. The leases for this
property terminate in September 2003, and we have the option to renew these
leases through March 2015.

ITEM 3. LEGAL PROCEEDINGS

In 2000, we restated our consolidated financial statements for the first three
quarters of fiscal 1999 and the prior four fiscal years. Following our initial
announcement in March 2000 of the requirement for such restatements, six
purported class action lawsuits were filed in the United States District Court
for the Northern District of Texas against us and certain of our current and
former directors and officers asserting various claims under Sections 10(b) and
20(a) of the Securities Exchange Act of 1934. Although four of the lawsuits were
originally filed in the Dallas Division of the Northern District of Texas, all
of the five pending actions have been transferred to the Amarillo Division of
the Northern District and have been consolidated. One of the Section 10(b) and
20(a) lawsuits filed in the Dallas Division was voluntarily dismissed. On May
15, 2000, a lawsuit was filed in the United States District Court for the
Northern District of Texas against us, our current and former directors and
officers at the time of our June 1998 initial public offering and three
underwriters, Salomon Smith Barney, A.G. Edwards & Sons, Inc. and Furman Selz,
LLC asserting various claims under Sections 11, 12(2) and 15 of the Securities
Act of 1933. Motions to dismiss these actions were filed by us and, on September
25, 2001, were denied by the Court. Discovery and class certification
proceedings are going forward in both actions.

None of the pending complaints specify the amount of damages sought. Although it
is not feasible to predict or determine the final outcome of the proceedings or
to estimate the potential range of loss with respect to these matters, an
adverse outcome with respect to such proceedings could have a material adverse
impact on our financial position, results of operations and cash flows.

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

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

No matters were submitted to a vote of the security holders during the fourth
quarter of fiscal 2001.


                                       13
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our Common Stock trades on The Nasdaq National Market (Nasdaq) under the symbol
"HAST."

The following table sets forth, for the fiscal periods indicated, the high and
low closing market prices of our Common Stock as reported on Nasdaq within the
two most recent fiscal years.

<Table>
<Caption>
                                                    HIGH        LOW
                                                  -------     -------
<S>                                               <C>         <C>
         2001:
         First Quarter .......................... $ 2.750     $ 1.750
         Second Quarter ......................... $ 3.200     $ 2.390
         Third Quarter .......................... $ 8.280     $ 2.880
         Fourth Quarter ......................... $ 8.270     $ 4.000

         2000:
         First Quarter .......................... $ 4.188     $ 2.438
         Second Quarter ......................... $ 4.688     $ 1.250
         Third Quarter .......................... $ 3.375     $ 2.250
         Fourth Quarter ......................... $ 2.625     $ 1.375
</Table>

As of March 28, 2002, there were approximately 450 holders of record of our
Common Stock.

The payment of dividends is within the discretion of the Board of Directors and
will depend on our earnings, capital requirements, and the operating and
financial condition, among other factors. Our current revolving credit facility
restricts the payment of dividends. In view of such restrictions, it is unlikely
that we will pay a dividend in the foreseeable future.

The information required by this item regarding disclosure of equity
compensation plan information will be set forth in our Proxy Statement for our
2002 Annual Meeting of Shareholders, to be filed within 120 days after the end
of fiscal 2001, under the heading "Compensation Plans," which information is
incorporated herein by reference.


                                       14
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial and operating data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and our consolidated financial statements
and the notes thereto that appear elsewhere in this report.

<Table>
<Caption>

                                                                                    Fiscal Year
                                                     ----------------------------------------------------------------------
(In thousands, except per share and squarefoot data)    2001           2000           1999           1998           1997
                                                     ----------     ----------     ----------     ----------     ----------
<S>                                                  <C>            <C>            <C>            <C>            <C>
INCOME STATEMENT DATA:
Merchandise revenue                                  $  379,322     $  370,512     $  364,041     $  320,162     $  283,026
Rental video revenue                                     92,462         87,691         81,384         78,904         74,656
                                                     ----------     ----------     ----------     ----------     ----------
Total revenues                                          471,784        458,203        445,425        399,066        357,682
Merchandise cost of revenue                             280,060        280,459        270,113        235,915        211,467
Rental video cost of revenue(1)                          41,498         38,022         32,139         49,069         25,904
                                                     ----------     ----------     ----------     ----------     ----------
Total cost of revenues                                  321,558        318,481        302,252        284,984        237,371
Gross profit                                            150,226        139,722        143,173        114,082        120,311
Selling, general and administrative
  expenses(2)(3)                                        144,189        148,967        141,513        116,521        108,434
Pre-opening expenses                                        182             33          1,681          1,474          1,071
                                                     ----------     ----------     ----------     ----------     ----------
Operating income (loss)                                   5,855         (9,278)           (21)        (3,913)        10,806
Interest expense, net                                    (2,090)        (3,485)        (3,708)        (3,727)        (4,228)
Gain (loss) on sale of mall stores(4)                        --             --             --            454          1,734
Other, net                                                  252            197            205            232            139
                                                     ----------     ----------     ----------     ----------     ----------
Income (Loss) before income taxes                         4,017        (12,566)        (3,524)        (6,954)         8,451
Income tax expense (benefit)(5)                              --          2,034         (1,359)        (2,649)         3,347
                                                     ----------     ----------     ----------     ----------     ----------
Net income (loss)                                    $    4,017     $  (14,600)    $   (2,165)    $   (4,305)    $    5,104
                                                     ==========     ==========     ==========     ==========     ==========
Basic income (loss) per share                        $     0.34     $    (1.25)    $    (0.19)    $    (0.41)    $     0.60
                                                     ==========     ==========     ==========     ==========     ==========
Diluted income (loss) per share                      $     0.34     $    (1.25)    $    (0.19)    $    (0.41)    $     0.58
                                                     ==========     ==========     ==========     ==========     ==========

Weighted-average common shares outstanding -
  basic                                                  11,742         11,645         11,621         10,436          8,520

Weighted-average common shares outstanding -
  diluted                                                11,898         11,645         11,621         10,436          8,736

OTHER DATA:
Depreciation(1)(6)                                   $   35,466     $   33,155     $   31,626     $   55,331     $   33,606
Capital expenditures(7)                              $   46,495     $   30,482     $   47,427     $   42,568     $   55,753

STORE DATA:
Total selling square footage at end
  of period                                           2,727,446      2,759,735      2,829,269      2,385,432      2,078,264
Comparable-store revenues increase(8)                       4.7%           0.1%           4.0%           5.5%           7.0%
</Table>

<Table>
<Caption>
                                                                                     January 31,
                                                       ----------------------------------------------------------------------
                                                          2002           2001           2000           1999           1998
                                                       ----------     ----------     ----------     ----------     ----------
<S>                                                    <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
Working capital                                        $   49,912     $   46,567     $   67,295     $   64,866     $   29,500
Total assets                                              229,851        213,484        247,933        233,479        217,948
Total long-term debt, including current
  maturities on capital lease obligations                  33,432         29,610         54,260         44,979         51,612
Total shareholders' equity                                 77,344         75,791         90,091         91,869         51,971
</Table>


                                       15
<PAGE>

(1)      We adopted a new, accelerated method of amortizing our rental video
         assets in the fourth quarter of fiscal 1998. The adoption of the new
         amortization method was accounted for as a change in accounting
         estimate effected by a change in accounting principle and, accordingly,
         we recorded a non-cash, non-recurring, pre-tax charge of $18.5 million
         in rental video cost of revenues in the fourth quarter of fiscal 1998,
         increasing net loss and diluted loss per share for fiscal 1998 by $11.5
         million and $1.10 per share, respectively.

(2)      We recorded pre-tax charges of approximately $1.5 million, $6.5 million
         and $5.1 million in fiscal years 2001, 2000 and 1999, respectively,
         related to the cost associated with closing superstores. See Note 5 to
         the consolidated financial statements for further discussion. As a
         result of these charges, fiscal years 2001, 2000 and 1999 net losses
         were increased by $1.5 million, $6.5 million and $3.1 million and
         $0.13, $0.56 and $0.27 per diluted share, respectively.

(3)      In fiscal 2000, we recorded $2.7 million in accounting and legal fees
         associated with the restatement of the first three quarters of fiscal
         1999 and the prior four fiscal years as described in "Item 3. Legal
         Proceedings", and "Item 8. Financial Statements and Supplementary
         Data." As a result of these fees, fiscal year 2000 net losses were
         increased by $2.7 million and $0.23 per share.

(4)      In fiscal 1996, we established a reserve of $2.5 million ($1.6 million
         after-tax charge) to cover potential losses related to certain mall
         store leases that were sold prior to fiscal 1995 to Camelot Music,
         Inc., which filed for bankruptcy protection in August 1996. In fiscal
         1997, the reserve was reduced to $0.5 million, and $1.7 million was
         included in Gain on sale of mall stores. In fiscal 1998, we were
         released from any contingent liability on the remaining leases by order
         of a bankruptcy court. Accordingly, the Company reduced the remaining
         $0.5 million reserve to zero as of January 31, 1999, thereby decreasing
         net loss and diluted loss per share for fiscal 1998 by $0.3 million and
         $.03 per share, respectively.

(5)      Due to cumulative losses incurred in recent years, the balance of the
         net deferred tax asset currently does not meet the criteria for
         recognition under Statement of Financial Accounting Standards No. 109.
         As a result, the balance of the net deferred tax asset was reserved for
         during fiscal 2000. No income tax expense was recorded related to
         income for fiscal year ending January 31, 2002 as these amounts were
         recognized as a reduction of the deferred income tax benefit valuation
         allowance.

(6)      Includes amounts associated with our rental video cost amortization.

(7)      Includes procurement of rental video assets.

(8)      Stores open a minimum of 60 weeks.


                                       16
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with our consolidated
financial statements and the related notes thereto and "Item 6. Selected
Financial Data" appearing elsewhere in this Annual Report.

General

Hastings Entertainment is a leading multimedia entertainment retailer that
combines the sale of books, music, software, periodicals, videocassettes, video
games, DVDs, used products including CDs, DVDs and video games, video game
consoles and DVD players with the rental of videocassettes, video games, DVDs,
video game consoles and DVD players in a superstore and Internet Web site
format. As of January 31, 2002, we operated 142 superstores averaging
approximately 20,000 square feet in small- to medium-sized markets located in 21
states, primarily in the Western and Midwestern United States. Each of the
superstores is wholly owned by the Company and operates under the name of
Hastings.

Our operating strategy is to enhance our position as a multimedia entertainment
retailer by expanding and remodeling existing superstores, opening new
superstores in selected markets, and offering our products through our Internet
Web site. References herein to fiscal years are to the twelve-month periods that
end in January of the following calendar year. For example, the twelve-month
period ended January 31, 2002 is referred to as fiscal 2001.

Critical Accounting Policies

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

Lower of Cost or Market for Merchandise Inventory. Our merchandise inventories
are recorded at the lower of standard cost or market. As with any retailer,
economic conditions, cyclical customer demand and changes in purchasing or
distribution can affect the carrying value of inventory. As circumstances
warrant, we record lower of cost or market ("LCM") inventory adjustments. In
some instances, these adjustments can have a material effect on the financial
results of an annual or interim period. In order to determine such adjustments,
we evaluate the age, inventory turns and estimated fair value of merchandise
inventory by product category and record any adjustment if estimated fair value
is below cost. Through merchandising and an automated-progressive markdown
program, we quickly take the steps necessary to increase the sell-off of slower
moving merchandise to eliminate or lessen the effect of any LCM adjustment.

Returns Process. In general, merchandise inventory owned by us is returnable
based upon return agreements with our merchandise vendors. We continually return
merchandise to vendors based on, among other factors, current and projected
sales trends, overstock situations, authorized return timelines or change in
product offerings. At the end of any reporting period, there is inventory that
has been returned to vendors or in the process of being returned to vendors for
which accruals are required. These costs can include freight, valuation and
quantity differences, and other fees charged by a vendor. In order to
appropriately match the costs associated with the return of merchandise with the
process of returning the product, we utilize an allowance for cost of inventory
returns (the "Allowance"). To accrue for such costs and estimate the Allowance,
we utilize historical experience adjusted for significant estimated or
contractual modifications. Certain adjustments to the Allowance can have a
material effect on the financial results of an annual or interim period. In
addition, we recognize that some portion of our inventory in superstores will
eventually be returned to a vendor based on the factors mentioned above. We
accrue return costs for these future returns on the same basis as product being
returned or in the process of being returned to a vendor. We continually
evaluate the returns process and initiate improvements as needed.


                                       17
<PAGE>

Rental Video Cost Amortization. In late fiscal 1998, we completed a series of
direct revenue-sharing agreements with major studios, the majority of which were
amended in fiscals 2001 and 2000, under which we acquired approximately 40% of
our rental video asset units during fiscal 2001. We anticipate that our
involvement in revenue-sharing agreements will be similar to that of fiscal year
2001 in future periods. Revenue sharing allows us to acquire rental video assets
at a lower up-front capital cost than traditional buying arrangements. We then
share with studios a percentage of the actual net rental revenues generated over
a contractually determined period of time. The increased access to additional
copies of new releases under revenue-sharing agreements will allow customer
demand for new releases to be satisfied over a shorter period of time at a time
when the new releases are most popular. We expense revenue-sharing payments as
revenues are recognized under the terms of the specific contracts with supplying
studios. The capitalized cost of all rental video assets acquired for a fixed
price is being amortized on an accelerated basis over six months to a salvage
value of $4 per unit, except for rental video assets purchased for the initial
stock of a new superstore, which are being amortized on a straight line basis
over 36 months to a salvage value of $4.

Certain events, including a downturn in the rental video industry, as a whole or
the markets within which we operate our superstores, further consolidation of
rental video retailers, substantial change in customer demand and change in the
mix of rental video revenues, could effect the salvage value we have assigned to
our rental video assets. Such effect could result in a material reduction of the
carrying value of our rental video assets and have a material impact on the
financial results of an annual or interim period. In particular, the growth of
the DVD market and the shift of consumer purchases from VHS (videocassettes) to
DVD could result in a decrease in the salvage value of rental videos. At some
point during the rental cycle, a VHS item, as with DVD and games, is available
for purchase by a customer as a previously viewed tape ("PVT"). Our current
experience is that the amount received for the PVT is significantly higher than
our salvage value of that item in our rental inventory. Based in part on this
factor and turns of PVT, we believe our estimate of salvage value is accurate.

Store Closing Reserve. As with any retailer, from time to time, and in the
normal course of business, we evaluate our store base to determine if a need to
close or relocate a store(s) is present. Management will evaluate, among other
factors, current and future profitability, market trends, age of store and lease
status. Upon the appropriate executive approval to close a location, we record
charges related to the costs of store closings or relocations. The primary
expense items associated with these charges relate to the net present value of
minimum lease payments (the present value of remaining lease payments under an
active lease) and the write-off of leasehold improvements and other assets not
remaining in our possession at the time the location is closed or relocated. The
amount recorded can fluctuate based on the age of the closing location, term and
remaining years of the lease and the number of stores being closed or relocated.
These charges can have a material effect on the financial results of an annual
or interim period. Although we actively pursue sublease tenants on all closed or
relocated locations, we do not record any estimated sublease income as an offset
to any of charge until a sublease agreement is executed. We evaluate all of our
stores on a quarterly basis to ascertain any need for impairment of assets or to
commence closing proceedings.


                                       18
<PAGE>
Results of Operations

The following tables present our statement of operations data, expressed as a
percentage of revenue, and the number of superstores open at the end of period
for the three most recent fiscal years.

<Table>
<Caption>
                                                         Fiscal Year
                                               --------------------------------
                                                2001         2000         1999
                                               ------       ------       ------
<S>                                            <C>          <C>          <C>
Merchandise revenue                              80.4%        80.9%        81.7%
Rental video revenue                             19.6         19.1         18.3
                                               ------       ------       ------
     Total revenues                             100.0        100.0        100.0
Merchandise cost of revenue                      73.8         75.7         74.2
Rental video cost of revenue                     44.9         43.4         39.5
                                               ------       ------       ------
     Total cost of revenues                      68.2         69.5         67.9
     Gross profit                                31.8         30.5         32.1
Selling, general and administrative expenses     30.6         32.5         31.7
Pre-opening expenses                              0.0          0.0          0.4
                                               ------       ------       ------
                                                 30.6         32.5         32.1
                                               ------       ------       ------
Operating income (loss)                           1.2         (2.0)         0.0
Other income (expense):
   Interest expense                              (0.4)        (0.8)        (0.8)
   Other, net                                     0.1          0.0          0.0
                                               ------       ------       ------
                                                 (0.3)        (0.8)        (0.8)
                                               ------       ------       ------
     Income (Loss) before income taxes            0.9         (2.8)        (0.8)
Income tax expense (benefit)                       --          0.4         (0.3)
                                               ------       ------       ------
     Net income (loss)                            0.9%        (3.2)%       (0.5)%
                                               ======       ======       ======
</Table>


<Table>
<Caption>
                                             Fiscal Year
                                   ------------------------------
                                    2001        2000        1999
                                   ------      ------      ------
<S>                                <C>          <C>        <C>
Hastings Superstores:
Beginning number of stores            142         147         129
Openings                                5           1          20
Closings*                              (5)         (6)         (2)
                                   ------      ------      ------
Ending number of stores               142         142         147
                                   ======      ======      ======
</Table>

* Excludes one additional superstore closed in February 2002.

Fiscal 2001 Compared to Fiscal 2000

Revenues. Total revenues for the fiscal year ending January 31, 2002 were $471.8
million, up $13.6 million, or 3.0%, from $458.2 million for the fiscal year
ending January 31, 2001 primarily due to an increase in total comparable-store
revenue ("Comps") of 4.7% for the year. Elements of total Comps are as follows:

                      Merchandise Comps     4.3%
                      Rental video Comps    6.4%
                      Total Comps           4.7%

The Comp increases in merchandise and rental were partially offset by the
operation of three fewer superstores throughout fiscal 2001 compared to fiscal
2000. Total merchandise revenues increased $8.8 million, or 2.4% for fiscal 2001
to $379.3 million from $370.5 million for fiscal 2000. The increase in
merchandise Comps was driven primarily


                                       19
<PAGE>

by year-over-year increases of 73% and 114% in total sales of DVDs and video
games, respectively. Comp increases were partially offset by a decline in music
Comps of (3.5%) due primarily to the current malaise of the music industry,
which overall experienced a decline of (4.1%) in total music shipments for 2001.
Book Comps for the year increased slightly at 0.3%. Total rental video revenues
for fiscal 2001 increased $4.8 million, or 5.4% to $92.5 million compared to
$87.7 million for the prior year primarily due to an increase in rentals of DVD
titles of 140% year over year.

Gross Profit. For fiscal 2001, total gross profit increased 7.5% to $150.2
million, or 31.8% of total revenues, from $139.7, or 30.5% of total revenues for
fiscal 2000.

Merchandise gross profit for fiscal 2001, as a percent of merchandise revenue,
increased to 26.2% compared to 24.3% for fiscal 2000 due primarily to:

(i)      a reduction in the costs associated with the return of product of
         approximately $5.9 million for fiscal 2001 which is attributable to
         improvements made in the product return process during fiscal 2001 that
         lowered the cost per dollar of return; and

(ii)     lower product costs of approximately $1.5 million as a result of a
         movement in our inventory selection toward higher margin products
         particularly related to books.

Partially offsetting these increases in merchandise gross profit was an increase
of approximately $1.6 million in the costs of operating our distribution center.
During fiscal 2001, we implemented a strategy to increase the flow of certain
higher turning inventory items through our distribution center. This program
enables us to have a better in-stock position for our customers. For the year,
the volume of shipments from our distribution center to our superstores
increased approximately 42% when compared to fiscal 2000, which resulted in
significantly higher operating costs.

Rental video gross profit for fiscal 2001, as a percent of rental video revenue,
decreased to 55.1% compared to 56.6% for fiscal 2000 due primarily to:

(i)      an increase of approximately $1.6 million in depreciation expenses as
         we procured a higher level of video games and DVD to meet increasing
         demand. A large portion of these purchases were for catalog rental
         product which exhibit slower turns than a new release title; and

(ii)     an increase of approximately $0.8 million in costs associated with the
         distribution of rental videos primarily due to increased overhead costs
         as we processed a greater number of rental assets through our
         distribution center.

Partially offsetting these decreases in rental video gross profit was an
increase in margin of approximately $0.7 million on the rental of revenue
sharing titles due to improved terms on agreements with studios. Additionally, a
higher percentage of non-revenue sharing titles, which generally reflect higher
margins, helped to offset the decreases listed above.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A"), including store and corporate labor and other
overhead costs, for fiscal 2001 decreased 3.1% to $144.2 million, or 30.6% of
total revenues, from $149.0 million, or 32.5% of total revenues last year. This
substantial decrease was primarily the result of a higher level of expenses
recorded during the prior year including:

(i)      $2.7 million in accounting and legal fees associated with the
         restatement of the first three quarters of fiscal 1999 and the prior
         four fiscal years. These fees did not recur during fiscal 2001;

(ii)     asset impairment charges of $1.4 million comprised of $1.0 million in
         writedowns of leasehold improvements included in three underperforming
         superstores and $.4 million in writedowns of certain assets of the
         Company's Internet segment were recorded during fiscal 2000. This
         compares to a $0.7 million writedown of leasehold improvements for two
         underperforming superstores in fiscal 2001. Although these superstores
         continued to operate, such charges were recorded as projected cash
         flows from these operations were not sufficient to realize the book
         value of the specific assets; and


                                       20
<PAGE>

(iii)    we recorded net expenses of $6.5 million in fiscal 2000 associated with
         the closure of two superstores during the fourth quarter of fiscal 2000
         and an additional four superstores approved for closure prior to year
         end of fiscal 2000. This compared to net expenses of $1.5 million
         related to two underperforming superstores which were approved for
         closure during fiscal 2001, one of which was closed during the fourth
         quarter of fiscal 2001 and the other closed in February 2002. Such
         expenses are comprised of accruals for the net present value of future
         minimum lease payments, the write-off of leasehold improvements, and
         other related costs.

Partially offsetting the decreases in SG&A expense listed above was an increase
in net advertising costs of approximately $1.8 million year-over-year. The
higher expense was the result of a planned increase in targeted advertising
expenditures during fiscal 2001 to increase customer traffic.

Pre-opening Expenses. Pre-opening expenses were $0.2 million for fiscal 2001, as
we opened five superstores during the year. For fiscal 2000, pre-opening
expenses totaled $33,000 with the opening of one new superstore. Pre-opening
expenses include human resource costs, travel, rent, advertising, supplies and
certain other costs incurred prior to a superstore's opening.

Interest Expense. For the year, interest expense decreased 40.0% to $2.1
million, or 0.4% of total revenues, from $3.5 million, or 0.8% of total revenues
for last year. This reduction was primarily due to lower interest rates as well
as a lower average outstanding borrowing during the current year compared to
last year.

Income Taxes. Income tax expense for the fiscal years 2001 and 2000 was zero and
$2.0 million, respectively. No income tax expense was recorded related to income
for fiscal 2001 due to the reversal of a portion of the valuation allowance
related to the net deferred tax asset established in the fourth quarter of
fiscal 2000.

Net Income (Loss). We recorded net income of $4.0 million, or $0.34 per diluted
share for fiscal year 2001 compared to a net loss of ($14.6) million or ($1.25)
per share reported for fiscal year 2000.

Fiscal 2000 Compared to Fiscal 1999

Revenues. Total revenues for fiscal year 2000 increased 2.9% to $458.2 million
from $445.4 million for fiscal year 1999. The revenue growth consisted of a 1.8%
increase in merchandise revenues and a 7.7% increase in rental video revenue and
was primarily due to the number of new superstores opened in fiscal 1999 that
were open for a full year during fiscal 2000. Comps for fiscal 2000 were 0.1%
and are detailed as follows:

                  Merchandise Comps        (0.4)%
                  Rental Video Comps        2.1%
                  Total Comps               0.1%

Sale video, driven by sales of DVDs, previously viewed videocassettes, and video
games exhibited the largest percentage growth year-over-year with declines in
music revenues, as a result of general weakness in the industry, and book
revenues, as a result of inventory management issues.

Gross Profit. Total gross profit, as a percent of total revenue, declined from
32.1% in fiscal 1999 to 30.5% in fiscal 2000 as a result of a series of factors
as follows:

(i)      During the first quarter of fiscal 2000, management determined a need
         to improve inventory turns in order to enhance cash flow, reduce
         markdown expense, and enhance our inventory offering. Our resulting
         implementation of an initiative to permanently improve inventory turns
         generated an increase in the volume of returns to vendors and markdowns
         as well as compressed the timing of these returns resulting in higher
         fees per return based on the pricing agreements with our vendors. This
         negatively impacted gross profit by a $3.1 million increase in the cost
         associated with the return of product;

(ii)     Lower than anticipated sales volume for certain products in the first
         three quarters of fiscal 2000 resulted in management's decision to
         increase the markdown frequency on certain products to stimulate sales,
         increase


                                       21
<PAGE>

         inventory turnover and improve cash flows. Such retail price markdowns
         increased approximately $3.3 million resulting in lower merchandise
         margins;

(iii)    Margins were also adversely affected by an increase in freight costs of
         $1.0 million for the year ended January 31, 2001 due to freight
         carriers adding fuel surcharges of 4% to 8%; and

(iv)     As circumstances warrant, due to changing market conditions or specific
         transactions, we record lower of cost or market inventory adjustments.
         Such inventory adjustments increased $1.4 million from $5.6 million in
         fiscal 1999 to $7.0 million in fiscal 2000. This increase was primarily
         a result of our entering into a barter transaction with a third party
         during fiscal 1999, for which we recorded an asset related to the
         barter credit in the amount of $0.9 million. During the third quarter
         of fiscal 2000, the barter company ceased operations and no longer
         appeared to be a going concern. Consequently, we deemed the entire
         credit to be fully impaired, which resulted in a charge to income of
         $0.9 million in the third quarter of fiscal 2000.

Also contributing to the overall decrease in margin was a decline in rental
video margin of approximately $3.6 million primarily as a result of an increase
in rental video revenue subject to revenue-sharing agreements with studios as a
percent of total rental video revenue, which has lower profit margins.

Offsetting the declines in margin outlined above was a $2.5 million decline in
the amount of promotional coupons redeemed during fiscal 2000 over fiscal 1999
and a reduction in shrinkage of approximately $1.9 million resulting from an
increased focus on loss prevention. In addition, we experienced an increase in
discounts on product purchase prices due to more advantageous buying and
improved seasonal terms from our vendors during the year.

Selling, General and Administrative Expenses. SG&A expenses increased to $149.0
million or 32.5% of total revenues in fiscal 2000 from $141.5 million or 31.7%
in fiscal 1999. The increase was primarily the result of (1) $2.7 million in
accounting and legal fees associated with the restatement of the first three
quarters of fiscal 1999 and the prior four fiscal years and (2) collective asset
impairment charges of $1.4 million comprised of $1.0 million in writedowns of
leasehold improvements included in three underperforming superstores and $.4
million in writedowns of certain assets of the Company's Internet segment. Such
charges were recorded as projected cash flows from these operations were not
sufficient to realize the book value of the specific assets.

Additionally, during fiscal 2000, we recorded net expenses of $6.5 million
associated with the closure of two superstores during the fourth quarter and an
additional four superstores approved for closure prior to year end. Such
expenses are comprised of accruals for the net present value of future minimum
lease payments, the write-off of leasehold improvements, and other related
costs. During fiscal 1999, we recorded expenses of $5.1 million related to the
closure of six superstores and one college bookstore.

Pre-opening Expenses. Pre-opening expenses were $33,000 for the year ending
January 31, 2001, as we opened one superstore during the year. For the year
ending January 31, 2000, pre-opening expenses totaled $1.7 million with the
opening of 20 new superstores. Pre-opening expenses include human resource
costs, travel, rent, advertising, supplies and certain other costs incurred
prior to a superstore's opening.

Interest Expense. Despite a higher interest rate environment, our overall
interest expense declined approximately $0.2 million to $3.5 million in fiscal
2000 compared to $3.7 million in fiscal 1999 primarily due to a lower average
balance of long-term debt.

Income Taxes. Due to cumulative losses incurred in recent years, the current
balance of the net deferred tax asset does not meet the criteria for recognition
under SFAS 109. As a result, we fully reserved the balance of the net deferred
tax asset of $7.3 million. We recorded income tax expense of $2.0 million
primarily as the result of the provision for the valuation allowance partially
offset by the tax benefit derived from the loss generated in fiscal 2000.

Net Loss. For fiscal year 2000, we incurred a net loss of $14.6 million, or
$1.25 per share, compared to a net loss of $2.2 million, or $0.19 per share for
fiscal 1999.


                                       22
<PAGE>
Liquidity and Capital Resources

We generate cash from operations exclusively from the sale of merchandise and
the rental of video products and we have substantial operating cash flow because
most of our revenue is received in cash and cash equivalents. Other than our
principal capital requirements arising from the purchase, warehousing and
merchandising of inventory and rental videos, opening new superstores and
expanding existing superstores and updating existing and implementing new
information systems technology, we have no anticipated material capital
commitments. Our primary sources of working capital are cash flow from operating
activities, trade credit from vendors and borrowings under our revolving credit
facility (the "Facility"). We believe our cash flow from operations and
borrowings under the Facility will be sufficient to fund our ongoing operations,
new superstores and superstore expansions through fiscal 2002.

Consolidated Cash Flows

     Operating Activities. Net cash flows from operating activities decreased
     $7.0 million, or 13.3% to $45.3 million in fiscal 2001 from $52.3 million
     in fiscal 2000. The most significant reason for the decrease was the
     difference in the change of inventory assets between the two fiscal years.
     In fiscal 2000, as part of our strategic plan, we decreased our merchandise
     inventory by approximately $21.4 million. Approximately $15 million of this
     decline was the result of our initiative to increase cash flow and
     inventory turns by reducing our inventory. The remaining decrease in
     inventory was due to added controls on purchasing, markdown management and
     improved sell-through. During fiscal 2001, we experienced an increase in
     inventory assets of approximately $17.6 million, of which approximately
     $14.3 million resulted from cash transactions. The remainder was company
     owned rental inventory transferred to merchandise for sale as previously
     viewed product. The increase in inventory was due primarily to the opening
     of five new superstores and the expansion of seven superstores.
     Additionally, we purchased and sold a higher level of DVD and video game
     product during fiscal 2001 contributing to the increase in inventory.
     Partially offsetting the change in inventory was an increase of $18.6
     million in net income (loss) as we recorded net income of $4.0 million in
     fiscal 2001 compared to a net loss of ($14.6) million in fiscal 2000 and a
     positive difference in the change of trade accounts payable and other
     accrued expenses of $11.8 million resulting primarily from increased
     purchases of inventory coupled with an increase in accounts payable days in
     fiscal 2001 compared to fiscal 2000.

     Investing Activities. Net cash used in investing activities increased $16.0
     million, or 52.5%, from $30.5 million in fiscal 2000 to $46.5 million in
     fiscal 2001. This increase was due primarily to the opening of five new
     superstores and the expansion of seven superstores during fiscal 2001
     compared to the opening of one new superstore and the expansion of five
     superstores during fiscal 2000. Additionally, purchases of rental video
     assets increased during fiscal 2001 due to new and expanded superstore
     activity and increased purchases of DVD and video games to meet customer
     demand. Our capital expenditures include store equipment and fixtures,
     expanding and remodeling existing superstores, upgrading and implementation
     of information systems technology and the purchase of rental video assets.

     Financing Activities. Cash provided by or used in financing activities is
     primarily associated with borrowings and payments made under the Facility.
     Cash provided by financing activities increased $25.8 million to $1.2
     million in fiscal 2001 compared to cash used in financing activities of
     $24.6 million in fiscal 2000. The primary reason for this increase was due
     to fiscal 2000 activity. During fiscal 2000, with an increase in cash flow
     from operations and decrease in capital expenditures, we decreased our
     overall debt balances by approximately $24.7 million to $29.6 million as of
     January 31, 2001 from $54.3 million as of January 31, 2000, eliminating our
     term debt by paying off our Senior Notes and reducing the level of our
     revolving credit borrowings.

     On September 18, 2001 we announced a stock repurchase program of up to $5.0
     million of our common stock. As of January 31, 2002, a total of 618,500
     shares had been purchased at a cost of approximately $3.0 million, for an
     average cost of $4.88 per share.


                                       23
<PAGE>
Capital Structure. On August 29, 2000, we entered into a three-year syndicated,
secured Loan and Security Agreement with Fleet Retail Finance, Inc. and The CIT
Group/Business Credit, Inc. The initial proceeds from the Facility were used to
terminate and prepay fully the total amounts outstanding under our prior
revolving credit facility with Bank of America and a consortium of banks and our
Series A Senior Notes (the "Senior Notes") with a financial institution. The
amount outstanding under the Facility is limited by a borrowing base predicated
on eligible inventory, as defined, and certain rental video assets, net of
accumulated depreciation less specifically defined reserves and is limited to a
ceiling of $70 million, which increases to $80 million between October 15 and
December 15 of each year of the Facility, less a $10 million availability
reserve. The Facility bears interest based on the prevailing prime rate or LIBOR
plus 2.00% at our option. The borrowing base under the Facility is limited to an
advance rate of 65% of eligible inventory and certain rental video assets net of
accumulated amortization less specifically defined reserves which could be
adjusted to reduce availability under the Facility. The Facility contains no
financial covenants, restricts the payment of dividends and includes certain
other debt and acquisition limitations, allows for the repurchase of up to $7.5
million of our common stock and requires a minimum availability of $10 million
at all times. The Facility is secured by substantially all of the assets of the
company and our subsidiaries and is guaranteed by each of our three consolidated
subsidiaries. The Facility expires on August 29, 2003. At January 31, 2002, we
had $20.7 million in excess availability, after the $10 million availability
reserve, under the Facility.

At January 31, 2002 and 2001, we had borrowings outstanding of $32.2 million and
$28.3 million under the Facility, respectively. The average rate of interest
being charged under the Facility was 6.1% and 8.4% at January 31, 2002 and 2001,
respectively.

We entered into two interest rate swaps, one in November and one in December
2001, with a financial institution in order to obtain a fixed interest rate on a
portion of our outstanding floating rate debt thereby reducing our exposure to
interest rate volatility. The notional value of each swap is $10 million of our
revolving credit facility at fixed interest rates of 2.65% and 2.47%,
respectively, for one year. We have designated the interest rate swaps as
hedging instruments. At January 31, 2002, the fair value of the interest rate
swaps was not significant.

Seasonality and Inflation

As is the case with many retailers, a significant portion of our revenues, and
an even greater portion of our operating profit, is generated in the fourth
fiscal quarter, which includes the Christmas selling season. As a result, a
substantial portion of our annual earnings has been, and will continue to be,
dependent on the results of this quarter. We experience reduced rentals of video
activity in the spring because customers spend more time outdoors. Major world
or sporting events, such as the Super Bowl, the Olympic Games or the World
Series, also have a temporary adverse effect on revenues. Future operating
results may be affected by many factors, including variations in the number and
timing of superstore openings, the number and popularity of new book, music and
videocassette titles, the cost of the new release or "best renter" titles,
changes in comparable-store revenues, competition, marketing programs, increases
in the minimum wage, weather, special or unusual events, and other factors that
may affect our operations.

We do not believe that inflation has materially impacted net income during the
past three years. Substantial increases in costs and expenses could have a
significant impact on our operating results to the extent such increases are not
passed along to customers.

Recent Accounting Pronouncements

In the first quarter of fiscal 2002, we adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which was amended by SFAS No. 137 and SFAS No. 138.
This statement establishes accounting and reporting guidelines for derivatives
and requires us to record all derivatives as assets or liabilities on the
balance sheet at fair value. Our use of derivatives is limited to interest rate
swaps which we have designated as hedging instruments. At January 31, 2002, the
fair value of the interest rate swaps was not significant, and therefore, the
adoption of SFAS No. 133 has not had a material impact on our consolidated
balance sheets or our statements of operations, shareholders' equity and cash
flows.

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets, effective


                                       24
<PAGE>

for fiscal years beginning after December 15, 2001. Under the new rules,
goodwill will no longer be amortized but will be subject to annual impairment
tests in accordance with the Statements. Other intangible assets will continue
to be amortized over their useful lives. We will apply the new rules on
accounting for goodwill and other intangible assets beginning in the first
quarter of fiscal 2002. We will test goodwill for impairment using the two-step
process prescribed in Statement 142. The first step is a screen for potential
impairment, while the second step measures the amount of the impairment, if any.
Prior to July 31, 2002, we expect to perform the first of the required
impairment tests of goodwill based on its carrying value at January 31, 2002.
Any impairment charge resulting from these transitional tests will be reflected
as the cumulative effect of a change in accounting principle in the first
quarter of fiscal 2002. We have not yet determined what the effect of these
tests will be; however, application of the Statements is not expected to have a
material impact on our consolidated financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. SFAS 144 is effective for fiscal years beginning after
December 15, 2001. We adopted SFAS 144 as of February 1, 2002 and such adoption
did not have a significant impact on our financial position and results of
operations.


       ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the ordinary course of our business, we are exposed to certain market risks,
primarily changes in interest rates. Our exposure to interest rate risk consists
of variable rate debt based on the lenders base rate or LIBOR plus a specified
percentage at our option. The annual impact on our results of operations of a
100 basis point interest rate change on the January 31, 2002 outstanding balance
of the variable rate debt would be approximately $0.3 million. After an
assessment of these risks to our operations, we believe that the primary market
risk exposures (within the meaning of Regulation S-K Item 305) are not material
and are not expected to have any material adverse impact on our financial
position, results of operations or cash flows for the next fiscal year. In
addition, we do not believe changes in the fair value of the interest rate swaps
entered into in November 2001 and December 2001 with notional amounts of $10
million each will be material.


                                       25
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          HASTINGS ENTERTAINMENT, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE

<Table>
<Caption>
                                                                       PAGE
                                                                       ----
<S>                                                                    <C>
Independent Auditors' Reports                                           27

Consolidated Balance Sheets as of January 31, 2002 and 2001             29

Consolidated Statements of Operations
      for the years ended January 31, 2002, 2001 and 2000               30

Consolidated Statements of Shareholders' Equity
      for the years ended January 31, 2002, 2001 and 2000               31

Consolidated Statements of Cash Flows
      for years ended January 31, 2002, 2001 and 2000                   32

Notes to Consolidated Financial Statements                              33


SCHEDULE

Financial Statement Schedule - The Financial Statement Schedule
filed as part of this report is listed under Part IV, Item 14.
Exhibits, Financial Statement Schedules and Reports on Form 8-K.        53
</Table>


                                       26
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors
Hastings Entertainment, Inc.

We have audited the accompanying consolidated balance sheets of Hastings
Entertainment, Inc. and subsidiaries as of January 31, 2002 and 2001, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the two years then ended. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hastings
Entertainment, Inc. and subsidiaries at January 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.


                                                   /s/ Ernst & Young LLP

Fort Worth, Texas
March 22, 2002


                                       27
<PAGE>

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Shareholders
Hastings Entertainment, Inc.:

We have audited the consolidated statements of operations, shareholders' equity,
and cash flows for the year ended January 31, 2000 of Hastings Entertainment,
Inc. and subsidiaries. We also have audited the related financial statement
schedule for the year ended January 31, 2000. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations of Hastings
Entertainment, Inc. and subsidiaries and their cash flows for the year ended
January 31, 2000, in conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein for the year ended January 31, 2000.



                                                 /S/ KPMG LLP

Dallas, Texas
June 13, 2000


                                       28

<PAGE>

                  HASTINGS ENTERTAINMENT, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                            January 31, 2002 and 2001
                        (In thousands, except share data)

<Table>
<Caption>
                                                                                         JANUARY 31,
                                                                                 --------------------------
                                                                                    2001            2000
                                                                                 ----------      ----------
<S>                                                                              <C>             <C>
                                     ASSETS
Current assets
  Cash                                                                           $    4,319      $    4,257
  Merchandise inventories, net                                                      148,265         130,676
  Income taxes receivable                                                             5,377           7,759
  Other current assets                                                                5,331           5,461
                                                                                 ----------      ----------
      Total current assets                                                          163,292         148,153
Property and equipment, net                                                          64,811          65,319
Deferred income taxes, net of valuation allowance (note 8)                            1,091              --
Intangible assets, net                                                                  646              --
Other assets                                                                             11              12
                                                                                 ----------      ----------
                                                                                 $  229,851      $  213,484
                                                                                 ==========      ==========
                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Current maturities on capital lease obligations                                $      169      $      154
  Trade accounts payable                                                             86,722          70,534
  Accrued expenses & other current liabilities                                       26,489          30,898
                                                                                 ----------      ----------
      Total current liabilities                                                     113,380         101,586
Long-term debt, excluding current maturities on capital lease obligations            33,263          29,456
Other liabilities                                                                     5,864           6,651

Commitments and contingencies                                                            --              --

Shareholders' equity:
  Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued              --              --
  Common stock, $.01 par value; 75,000,000 shares authorized;
    11,918,035 shares in 2001 and 11,751,850 shares in 2000 issued;
    11,304,022 shares in 2001 and 11,751,850 shares in 2000 outstanding                 119             117
Additional paid-in capital                                                           36,850          36,323
Retained earnings                                                                    43,368          39,351
Treasury stock, at cost                                                              (2,993)             --
                                                                                 ----------      ----------
                                                                                     77,344          75,791
                                                                                 ----------      ----------
                                                                                 $  229,851      $  213,484
                                                                                 ==========      ==========
</Table>


          See accompanying notes to consolidated financial statements.


                                       29
<PAGE>


                  HASTINGS ENTERTAINMENT, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                   Years Ended January 31, 2002, 2001 and 2000
                      (In thousands, except per share data)

<Table>
<Caption>
                                                                       Fiscal Year
                                                       ------------------------------------------
                                                          2001            2000            1999
                                                       ----------      ----------      ----------
<S>                                                    <C>             <C>             <C>
Merchandise revenue                                    $  379,322      $  370,512      $  364,041
Rental video revenue                                       92,462          87,691          81,384
                                                       ----------      ----------      ----------
      Total revenues                                      471,784         458,203         445,425

Merchandise cost of revenue                               280,060         280,459         270,113
Rental video cost of revenue                               41,498          38,022          32,139
                                                       ----------      ----------      ----------
      Total cost of revenues                              321,558         318,481         302,252
                                                       ----------      ----------      ----------

      Gross profit                                        150,226         139,722         143,173

Selling, general and administrative expenses              144,189         148,967         141,513
Pre-opening expenses                                          182              33           1,681
                                                       ----------      ----------      ----------

      Operating income (loss)                               5,855          (9,278)            (21)

Other income (expense):
  Interest expense                                         (2,090)         (3,485)         (3,708)
  Other, net                                                  252             197             205
                                                       ----------      ----------      ----------

      Income (Loss) before income taxes                     4,017         (12,566)         (3,524)

Income tax expense (benefit)                                   --           2,034          (1,359)
                                                       ----------      ----------      ----------
      Net income (loss)                                $    4,017      $  (14,600)     $   (2,165)
                                                       ==========      ==========      ==========
Basic income (loss) per share                          $     0.34      $    (1.25)     $    (0.19)
                                                       ==========      ==========      ==========
Diluted income (loss) per share                        $     0.34      $    (1.25)     $    (0.19)
                                                       ==========      ==========      ==========
Weighted-average common shares outstanding:
Basic                                                      11,742          11,645          11,621
Dilutive effect of stock options                              156              --              --
                                                       ----------      ----------      ----------
Diluted                                                    11,898          11,645          11,621
                                                       ==========      ==========      ==========
</Table>


          See accompanying notes to consolidated financial statements.


                                       30
<PAGE>

                  HASTINGS ENTERTAINMENT, INC. AND SUBSIDIARIES
                 Consolidated Statements of Shareholders' Equity
                   Years ended January 31, 2002, 2001 and 2000
                        (In thousands, except share data)

<Table>
<Caption>
                                        COMMON STOCK      ADDITIONAL                   TREASURY STOCK          TOTAL
                                    -------------------    PAID-IN      RETAINED     ------------------    SHAREHOLDERS'
                                      SHARES     AMOUNT    CAPITAL      EARNINGS     SHARES     AMOUNT         EQUITY
                                    ----------   ------   ----------    --------     -------    -------    -------------
<S>                                 <C>          <C>      <C>           <C>          <C>        <C>        <C>
Balances at January 31, 1999        11,736,923   $  117   $   37,783    $ 56,116     183,755    $(2,147)   $      91,869
Issuance of treasury stock to
  directors                                 --       --          (39)         --      (3,893)       163              124
Receipt of treasury shares upon
  exercise of stock options                 --       --           --          --      65,454       (996)            (996)
Exercise of stock options,
  including tax benefits of
  $0.3 million                              --       --         (342)         --    (137,366)     1,601            1,259
Net loss                                    --       --           --      (2,165)         --         --           (2,165)
                                    ----------   ------   ----------    --------     -------    -------    -------------

Balances at January 31, 2000        11,736,923   $  117   $   37,402    $ 53,951     107,950    $(1,379)          90,091
Issuance of treasury stock to
  directors                                 --       --         (152)         --     (13,672)       186               34
Issuance of stock to employees          14,927       --         (310)         --     (44,278)       513              203
Exercise of stock options                   --       --         (617)         --     (50,000)       680               63
Net loss                                    --       --           --     (14,600)         --         --          (14,600)
                                    ----------   ------   ----------    --------     -------    -------    -------------

Balances at January 31, 2001        11,751,850   $  117   $   36,323    $ 39,351          --        $--           75,791
Issuance of stock to employees          63,655        1          166          --          --         --              167
Purchase of treasury stock                  --       --           --          --         619     (3,017)          (3,017)
Exercise of stock options              102,530        1          361          --          (5)        24              386
Net income                                  --       --           --       4,017          --         --            4,017
                                    ----------   ------   ----------    --------     -------    -------    -------------
Balances at January 31, 2002        11,918,035   $  119   $   36,850    $ 43,368         614    $(2,993)   $      77,344
                                    ==========   ======   ==========    ========     =======    =======    =============
</Table>


          See accompanying notes to consolidated financial statements.


                                       31

<PAGE>
                  HASTINGS ENTERTAINMENT, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                   Years ended January 31, 2002, 2001 and 2000
                             (Dollars in thousands)
<Table>
<Caption>
                                                                                        FISCAL YEAR
                                                                         ------------------------------------------
                                                                            2001            2000            1999
                                                                         ----------      ----------      ----------
<S>                                                                      <C>             <C>             <C>
Cash flows from operating activities:
     Net income (loss)                                                   $    4,017      $  (14,600)     $   (2,165)
     Adjustments to reconcile net income (loss) to net cash provided
        by operating activities:
           Depreciation and amortization expense                             35,466          33,155          31,626
           Loss on rental videos lost, stolen and defective                   5,179           1,877           4,068
           Loss on disposal of non-rental video assets                        1,615           3,375           3,272
           Deferred income tax                                                   --           3,681          (2,541)
           Non-cash compensation                                                115             235             124
           Changes in operating assets and liabilities:
              Merchandise inventories                                       (14,291)         21,389          (2,464)
              Other current assets                                              129            (492)           (462)
              Trade accounts payable and accrued expenses                    11,776           3,112           3,897
              Income taxes receivable                                         1,828          (1,487)            243
              Other assets and liabilities, net                                (520)          2,055           3,917
                                                                         ----------      ----------      ----------
                 Net cash provided by operating activities                   45,314          52,300          39,515
                                                                         ----------      ----------      ----------
Cash flows from investing activities:
     Purchases of property and equipment                                    (45,328)        (30,482)        (47,427)
     Purchases of retail locations                                           (1,167)             --              --
                                                                         ----------      ----------      ----------
                 Net cash used in investing activities                      (46,495)        (30,482)        (47,427)
                                                                         ----------      ----------      ----------
Cash flows from financing activities:
     Borrowings under revolving credit facility                             505,135         296,867         267,950
     Repayments under revolving credit facility                            (501,159)       (311,041)       (253,350)
     Payments under long-term debt and capital lease obligations               (154)        (10,476)         (5,319)
     Purchase of treasury stock                                              (3,019)             --              --
     Proceeds from exercise of stock options                                    440              63             263
                                                                         ----------      ----------      ----------
                 Net cash provided by (used in) financing activities          1,243         (24,587)          9,544
                                                                         ----------      ----------      ----------

Net increase (decrease) in cash                                                  62          (2,769)          1,632
Cash at beginning of year                                                     4,257           7,026           5,394
                                                                         ----------      ----------      ----------
Cash at end of year                                                      $    4,319      $    4,257      $    7,026
                                                                         ==========      ==========      ==========
</Table>


          See accompanying notes to consolidated financial statements.


                                       32
<PAGE>


                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


(1)    OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       (a)    GENERAL

              Hastings Entertainment, Inc. and subsidiaries (the "Company")
              operates a chain of retail superstores in 21 states, primarily in
              the Western and Midwestern United States, with revenues
              originating from the sale of music, books, software, periodicals,
              videocassette, video game and DVD products and the rental of
              videocassettes, video games and DVDs.

       (b)    BASIS OF CONSOLIDATION

              The consolidated financial statements present the results of
              Hastings Entertainment, Inc. and its subsidiaries. All significant
              intercompany transactions and balances have been eliminated in
              consolidation.

              The Company's fiscal years ended January 31, 2002, 2001 and 2000
              are referred to as fiscal 2001, 2000 and 1999, respectively.

       (c)    REVENUE RECOGNITION

              Merchandise and rental video revenue are recognized at the point
              of sale or rental or at the time merchandise is shipped to the
              customer. Additionally, revenues are presented net of returns and
              exclude all taxes. An allowance has been established to provide
              for projected merchandise returns.

              Gift card liabilities are recorded at the time of sale with the
              costs of designing, printing and distributing the cards recorded
              as expense as incurred. The liability is relieved and revenue is
              recognized upon redemption of the gift cards.

       (d)    CASH AND CASH EQUIVALENTS

              The Company considers all short-term investments with original
              maturities of three months or less (primarily money market mutual
              funds) to be cash equivalents.

       (e)    MERCHANDISE INVENTORIES

              Merchandise inventories are recorded at the lower of standard cost
              (which approximates the first-in, first-out (FIFO method)) or
              market.

       (f)    PROPERTY AND EQUIPMENT

              Property and equipment, excluding rental video assets (see note
              3), are recorded at cost and depreciated using the straight-line
              method. Furniture, fixtures, equipment and software are
              depreciated over their estimated useful lives of 3 to 5 years.
              Leasehold improvements are amortized over the shorter of the
              related lease term or their estimated useful lives.

              Property recorded pursuant to capital lease obligations is stated
              at the present value of the minimum lease payments at the
              inception of each lease, not in excess of fair value, and
              amortized on a straight-line basis over the related lease term.

              The Company reviews long-lived assets for impairment whenever
              events or changes in circumstances indicate that the carrying
              amount of an asset may not be recoverable. Recoverability of
              assets to be held and used is measured by a comparison of the
              carrying amount of the asset to future net cash flows expected to
              be generated by the asset. If such assets are considered to be
              impaired, the impairment to be recognized is measured by the
              amount by which the carrying amount of the assets exceeds the fair
              value of the assets. Assets to be disposed of are reported at the
              lower of the carrying amount or fair value less costs to sell.


                                       33
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


       (g)    INCOME TAXES

              Income taxes are accounted for under the asset and liability
              method.

       (h)    FINANCIAL INSTRUMENTS

              The carrying amount of long-term debt approximates fair value as
              of January 31, 2002 and 2001 due to the instruments bearing
              interest at market rates. The carrying amount of accounts payable
              approximates fair value because of its short maturity period.

              The Company entered into two interest rate swaps, one in November
              and one in December 2001, with a financial institution in order to
              obtain a fixed interest rate on a portion of the Company's
              outstanding floating rate debt thereby reducing its exposure to
              interest rate volatility. The notional value of each swap is $10
              million of the Company's revolving credit facility at fixed
              interest rates of 2.65% and 2.47%, respectively, for one year. The
              Company has designated the interest rate swaps as hedging
              instruments. At January 31, 2002, the fair value of the interest
              rate swaps was not significant.

       (i)    STOCK OPTION PLANS

              The Company accounts for its stock option plans in accordance with
              the provisions of Accounting Principles Board Opinion No. 25 (APB
              25), Accounting for Stock Issued to Employees, and related
              interpretations. Compensation expense is recorded on the date of
              grant only if the market price of the underlying stock exceeds the
              exercise price. Under Statement of Financial Accounting Standards
              No. 123 (SFAS 123), Accounting for Stock-based Compensation, the
              Company may elect to recognize expense for stock-based
              compensation based on the fair value of the awards, or continue to
              account for stock-based compensation under APB 25 and disclose in
              the financial statements the effects of SFAS 123 as if the
              recognition provisions were adopted. The Company has elected to
              continue to apply the provisions of APB 25 and provide the pro
              forma disclosure provisions of SFAS 123.

       (j)    ADVERTISING COSTS

              Advertising costs for newspaper, television and other media are
              expensed as incurred. Gross advertising expenses for the fiscal
              years 2001, 2000, and 1999 were $9.2 million, $5.9 million and
              $4.4 million, respectively.

       (k)    PRE-OPENING COSTS

              Pre-opening expenses include human resource costs, travel, rent,
              advertising, supplies and certain other costs incurred prior to a
              superstore's opening and are expensed as incurred.

       (l)    INCOME (LOSS) PER SHARE

              Basic income (loss) per share is computed by dividing net loss by
              the weighted-average number of common shares outstanding during
              the period. Diluted income (loss) per share is similarly computed,
              but includes the effect, when dilutive, of the Company's weighted
              average number of stock options outstanding.

       (m)    USE OF MANAGEMENT ESTIMATES

              The preparation of the financial statements in conformity with
              generally accepted accounting principles requires management to
              make estimates and assumptions that affect the reported amounts of
              assets and liabilities and disclosure of contingent assets and
              liabilities at the date of the financial statements and the
              reported amounts of revenues and expenses during the reporting
              period. Actual results could differ from those estimates.


                                       34

<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


       (n)    IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

              In the first quarter of fiscal 2002, the Company adopted Statement
              of Financial Accounting Standards ("SFAS") No. 133, "Accounting
              for Derivative Instruments and Hedging Activities," which was
              amended by SFAS No. 137 and SFAS No. 138. This statement
              establishes accounting and reporting guidelines for derivatives
              and requires the Company to record all derivatives as assets or
              liabilities on the balance sheet at fair value. The Company's use
              of derivatives is limited to interest rate swaps which the Company
              has designated as hedging instruments. At January 31, 2002, the
              fair value of the interest rate swaps was not significant, and
              therefore, the adoption of SFAS No. 133 has not had a material
              impact on the Company's consolidated balance sheets or its
              statements of operations, shareholders' equity and cash flows.

              In June 2001, the Financial Accounting Standards Board ("FASB")
              issued Statements of Financial Accounting Standards ("SFAS") No.
              141, Business Combinations, and No. 142, Goodwill and Other
              Intangible Assets (the "Statements"), effective for fiscal years
              beginning after December 15, 2001. Under the new rules, goodwill
              will no longer be amortized but will be subject to annual
              impairment tests in accordance with the Statements. Other
              intangible assets will continue to be amortized over their useful
              lives. The Company will apply the new rules on accounting for
              goodwill and other intangible assets beginning in the first
              quarter of fiscal 2002. The Company will test goodwill for
              impairment using the two-step process prescribed in Statement
              142. The first step is a screen for potential impairment, while
              the second step measures the amount of the impairment, if any.
              Prior to July 31, 2002, the Company expects to perform the first
              of the required impairment tests of goodwill based on its
              carrying value at January 31, 2002. Any impairment charge
              resulting from these transitional tests will be reflected as the
              cumulative effect of a change in accounting principle in the
              first quarter of fiscal 2002. The Company has not yet determined
              what the effect of these tests will be, however, application of
              the Statements is not expected to have a material impact on its
              consolidated financial position or results of operations.

              In August 2001, the FASB issued SFAS No. 144, Accounting for the
              Impairment or Disposal of Long-Lived Assets, which addresses
              financial accounting and reporting for the impairment or disposal
              of long-lived assets and supersedes SFAS No. 121, Accounting for
              the Impairment of Long-Lived Assets and for Long-Lived Assets to
              be Disposed Of, and the accounting and reporting provisions of
              APB Opinion No. 30, Reporting the Results of Operations for a
              disposal of a segment of a business. SFAS 144 is effective for
              fiscal years beginning after December 15, 2001. The Company
              adopted SFAS 144 as of February 1, 2002 and such adoption did not
              have a significant impact on the Company's financial position and
              results of operations.


                                       35
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


(2)    MERCHANDISE INVENTORIES

       Merchandise inventories consisted of the following:

<Table>
<Caption>
                                                          2001         2000
                                                        --------     --------
<S>                                                     <C>          <C>
             Books                                      $ 52,870     $ 53,757
             Music                                        50,523       45,231
             Videos                                       26,714       20,919
             Other                                        22,558       14,219
                                                        --------     --------
                                                         152,665      134,126
               Less allowance for inventory shrinkage
                 and obsolescence                          4,400        3,450
                                                        --------     --------
                                                        $148,265     $130,676
                                                        ========     ========
</Table>

       During fiscal 2001 and 2000, the Company purchased approximately 22% and
       25%, respectively, of all products (defined herein as merchandise
       inventories and rental videos) from three suppliers.

(3)    PROPERTY AND EQUIPMENT

       Property and equipment consists of the following :

<Table>
<Caption>
                                                           2001         2000
                                                        ---------    ---------
<S>                                                     <C>          <C>
             Rental videos                              $ 52,917     $  53,670
             Furniture, equipment and software            84,609        75,066
             Leasehold improvements                       49,803        47,464
             Property under capital leases                 2,126         2,126
                                                        --------     ---------
                                                         189,455       178,326
               Less accumulated depreciation and
                 amortization                            124,644       113,007
                                                        --------     ---------
                                                        $ 64,811     $  65,319
                                                        ========     =========
</Table>

       Accumulated depreciation and amortization of property and equipment
       includes $1.4 million and $1.2 million of accumulated amortization of
       equipment under capital leases at January 31, 2002 and 2001,
       respectively.

       During the fourth quarter of fiscal 2001 and 2000, the Company's retail
       store segment recorded pre-tax charges of $0.7 million and $1.0 million,
       respectively. These charges are included in selling, general and
       administrative expenses and are related to the impairment of leasehold
       improvements for two superstores in fiscal 2001 and three superstores in
       fiscal 2000. Such charges were recorded in accordance with SFAS 121,
       "Impairment of Long Lived Assets." These superstores continue to operate
       but did not project cash flow amounts sufficient to recover the book
       value of the specific assets. Other amounts for impaired assets were
       recognized in connection with the closing of superstores. Please refer to
       Note 5 for a description of these amounts.

       Also during fiscal 2001, the Company's Internet segment recorded a $0.4
       million pre-tax charge included in selling, general and administrative
       expenses related to the impairment of information systems equipment and
       development costs in accordance with SFAS 121, "Impairment of Long Lived
       Assets." The Internet segment will continue to operate but did not
       project cash flow amounts sufficient to recover the book value of the
       specific assets.


                                       36
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


(4)    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

       Accrued expenses and other current liabilities consisted of the
       following:

<Table>
<Caption>
                                                            2001         2000
                                                          --------     --------
<S>                                                       <C>          <C>
       Allowance for cost of inventory returns            $  5,128     $  7,543
       Deferred gift card revenue                            9,012        7,659
       Store closing reserve                                 5,932        6,605
       Salaries, vacation and bonus                          4,283        4,388
       Other                                                 2,134        4,703
                                                          --------     --------
          Total                                           $ 26,489     $ 30,898
                                                          ========     ========
</Table>

       Merchandise inventories that are not sold can normally be returned to the
       suppliers. The allowance for cost of inventory returns represents
       estimated costs related to merchandise returned or to be returned to
       suppliers for which credit is pending. Because the amount of credit to be
       received requires estimates, it is reasonably possible that the Company's
       estimate of the ultimate settlement with its suppliers may change in the
       near term.

(5)    STORE CLOSING RESERVE

       From time to time and in the normal course of business, the Company
       evaluates its superstore base to determine if a need to close a
       superstore(s) is present. Management will evaluate, among other factors,
       current and future profitability, market trends, age of store and lease
       status.

       Included in accrued expenses and other liabilities at January 31, 2002
       and 2001 are accruals of $5.9 million and $6.6 million, respectively, for
       the net present value of future minimum lease payments and other costs
       attributable to closed or relocated superstores, net of estimated
       sublease income. Charges related to superstore closings in fiscal 2001
       amounted to approximately $1.5 million, of which $1.0 million was
       recorded in the fourth quarter. Contained in the $1.5 million were $0.6
       million in accruals for the net present value of minimum lease payments
       related to two underperforming superstores which were approved for
       closure during fiscal 2001, one of which was closed during the fourth
       quarter of fiscal 2001 and the other closed in February 2002, and seven
       superstores that were relocated during the year. Additionally, fiscal
       2001 charges included $0.9 million for the write-off of leasehold
       improvements and other assets related to these closings and relocations.
       The fourth quarter charge of $1.0 million included $0.3 million in
       accruals for the net present value of future minimum lease payments for
       two relocated superstores and $0.7 million for the write-off of leasehold
       improvements and other assets for superstores closed or relocated during
       the fourth quarter.

       Charges related to superstore closings in fiscal 2000 amounted to $6.5
       million, of which $3.4 million was recorded in the fourth quarter.
       Contained in the $6.5 million were $4.6 million in accruals for the net
       present value of minimum lease payments related to the closing of two
       underperforming superstores closed in the fourth quarter and four
       underperforming superstores that management had approved for closure in
       the fourth quarter that was closed by the end of the second quarter of
       fiscal 2001. Additionally, fiscal 2000 charges included $1.6 million for
       the write-off of leasehold improvements and $0.3 million of other related
       costs. The fourth quarter charge of $3.4 million included $1.9 million in
       accruals for the net present value of future minimum lease payments, $1.3
       million in write-offs of leasehold improvements and $0.2 million of other
       related costs.

       Offsetting these fiscal 2000 charges were changes in estimates in the
       store closing reserve of $1.6 million, of which $0.8 million was recorded
       in the fourth quarter of fiscal 2000, as a result of negotiating early
       buy-outs of certain lease liabilities and sublease activities for certain
       closed superstores.

       In fiscal 1999, charges related to superstore closings were $5.1 million,
       which was all recorded during the fourth quarter. Contained in the $5.1
       million was $2.5 million in accruals for the net present value of minimum
       lease payments related to the closing of two underperforming superstores
       closed at January 31, 2000 and four underperforming superstores that
       management had approved for closure in the fourth quarter that

                                       37
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


       were closed by the end of the first quarter of fiscal 2000. Additionally,
       charges included $2.3 million for the write-off of leasehold improvements
       and $0.3 million of other related costs.

       The following table provides a rollforward of reserves that were
       established for these charges for fiscal 2001, 2000 and 1999:

<Table>
<Caption>
                                   FUTURE LEASE
                                     PAYMENTS       OTHER COSTS       TOTAL
                                   ------------     -----------     ----------
<S>                                      <C>              <C>             <C>
Balance at January 31, 1999        $    1,581      $       --      $    1,581
  Additions to provision                2,500             300           2,800
  Cash outlay                            (409)             --            (409)
                                   ----------      ----------      ----------
Balance at January 31, 2000        $    3,672      $      300      $    3,972

Additions to provision                  4,617             272           4,889
  Changes in estimates                 (1,571)             --          (1,571)
  Cash outlay                            (368)           (317)           (685)
                                   ----------      ----------      ----------
Balance at January 31, 2001        $    6,350      $      255      $    6,605

  Additions to provision                  662              --             662
  Changes in estimates                    108              --             108
  Cash outlay                          (1,201)           (242)         (1,443)
                                   ----------      ----------      ----------
Balance at January 31, 2002        $    5,919      $       13      $    5,932
                                   ==========      ==========      ==========
</Table>

       Payments during the next five years that are to be charged against the
       reserve are expected to be approximately $1.2 million per year. Other
       costs were charged against the reserve in fiscal 2001 as incurred.

(6)    LONG-TERM DEBT

       Long-term debt and capitalized lease obligations consisted of the
       following:

<Table>
<Caption>
                                                           2001         2000
                                                         --------     --------
<S>                                                      <C>          <C>
       Revolving credit facility                         $ 32,234     $ 28,258
       Capitalized lease obligations                        1,198        1,352
                                                         --------     --------
                                                           33,432       29,610
               Less current maturities                        169          154
                                                         --------     --------
                                                         $ 33,263     $ 29,456
                                                         ========     ========
</Table>

       On August 29, 2000, the Company entered into a three-year syndicated,
       secured Loan and Security Agreement with Fleet Retail Finance, Inc. and
       The CIT Group/Business Credit, Inc (the "Facility"). The initial proceeds
       from the Facility were used by the Company to terminate and prepay fully
       the total amounts outstanding under a prior revolving credit facility
       with Bank of America and a consortium of banks and its Series A Senior
       Notes (the "Senior Notes") with a financial institution. The amount
       outstanding under the Facility is limited by a borrowing base predicated
       on eligible inventory, as defined, and certain rental video assets, net
       of accumulated depreciation less specifically defined reserves and is
       limited to a ceiling of $70 million, which increases to $80 million
       between October 15 and December 15 of each year of the Facility, less a
       $10 million availability reserve. The Facility bears interest based on
       the prevailing prime rate or LIBOR plus 2.00% at the Company's option.
       The borrowing base under the Facility is limited to an advance rate of
       65% of eligible inventory and certain rental video assets net of
       accumulated amortization less specifically defined reserves which could
       be adjusted to reduce availability under the Facility. The Facility
       contains no financial covenants, restricts the payment of dividends and
       includes certain other debt and acquisition limitations, allows for the
       repurchase of up to $7.5 million of the Company's common stock and
       requires a minimum availability of $10 million at all times. The Facility
       is secured by substantially all


                                       38
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


       of the assets of the Company and its subsidiaries and is guaranteed by
       each of the Company's three consolidated subsidiaries. The Facility
       expires on August 29, 2003. At January 31, 2002, the Company had $20.7
       million in excess availability after the $10 million availability
       reserve, under the Facility.

       At January 31, 2002 and 2001, the Company had borrowings outstanding of
       $32.2 million and $28.3 million under the Facility, respectively. The
       average rate of interest being charged under the Facility was 6.1% and
       8.4% at January 31, 2002 and 2001, respectively.

       The Company entered into two interest rate swaps, one in November and one
       in December 2001, with a financial institution in order to obtain a fixed
       interest rate on a portion of the Company's outstanding floating rate
       debt thereby reducing its exposure to interest rate volatility. The
       notional value of each swap is $10 million of the Company's revolving
       credit facility at fixed interest rates of 2.65% and 2.47%, respectively,
       for one year. The Company has designated the interest rate swaps as
       hedging instruments. At January 31, 2002, the fair value of the interest
       rate swaps was not significant.

       The capitalized lease obligations represent two leases on certain retail
       space with initial terms of 15 years.

       The aggregate maturities of long-term debt and capitalized lease
       obligations for years subsequent to fiscal 2001 are as follows:

<Table>
<S>                                               <C>
            2002                                  $     169
            2003                                     32,427
            2004                                        221
            2005                                        243
            2006                                        195
         Thereafter                                     177
                                                   --------
                                                   $ 33,432
                                                   ========
</Table>

(7)    LEASES

       The Company leases retail space under operating leases with terms ranging
       from three to fifteen years, with certain leases containing renewal
       options. Lease agreements generally provide for minimum rentals. Some
       leases also include additional contingent rental amounts based upon
       specified percentages of sales above predetermined levels. Rental expense
       for operating leases consists of the following:

<Table>
<Caption>
                                       2001            2000             1999
                                    ----------      ----------      ----------
<S>                                 <C>             <C>             <C>
       Minimum rentals              $   16,619      $   16,783      $   15,444
       Contingent rentals                1,519           1,595           1,728
       Less sublease income               (381)           (324)           (279)
                                    ----------      ----------      ----------
               Rental expense       $   17,757      $   18,054      $   16,893
                                    ==========      ==========      ==========
</Table>


                                       39
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


       Future minimum lease payments under non-cancelable operating leases and
       the present value of future minimum capital lease payments as of January
       31, 2002 are:

<Table>
<Caption>
                                                        CAPITAL      OPERATING
                                                        LEASES         LEASES
                                                        -------      ---------
<S>                                                     <C>          <C>
       2002                                             $  259       $ 15,597
       2003                                                268         14,174
       2004                                                280         12,117
       2005                                                283         10,433
       2006                                                216          9,168
       Thereafter                                          190         19,363
                                                        ------       --------
             Total minimum lease payments                1,496         80,852
       Less net present value of sublease income                          630
                                                                     --------
             Net minimum lease payments under
               operating leases                                      $ 80,222
                                                                     ========
       Less amount representing imputed interest           298
                                                        ------
             Total obligations under capital leases      1,198
         Less current principal maturities of
           capital lease obligations                       169
                                                        ------
             Obligations under capital leases,
               Excluding current maturities             $1,029
                                                        ======
</Table>

       A director of the Company is a limited partner in various limited
       partnerships that lease land and improvements to the Company under
       certain lease agreements. During fiscal 2001, 2000 and 1999, the Company
       made lease payments of $0.6 million each year to these partnerships.

(8)    INCOME TAXES

       Income tax expense (benefit) consists of the following:

<Table>
<Caption>
                                            2001          2000          1999
                                          --------      --------      --------
<S>                                       <C>           <C>           <C>
       Current federal                    $    283      $ (1,075)     $  1,214
       Current state and local                   8          (573)          (32)
       Deferred federal                       (264)        3,130        (2,156)
       Deferred state and local                (27)          552          (385)
                                          --------      --------      --------
                                          $     --      $  2,034      $ (1,359)
                                          ========      ========      ========
</Table>


                                       40
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


       The difference between expected income tax expense (computed by applying
       the statutory rate of 38.5% to income before income taxes) and actual
       income tax expense (benefit) is as follows:

<Table>
<Caption>
                                                      2001      2000      1999
                                                    -------   -------   -------
<S>                                                 <C>       <C>       <C>
       Computed "expected" tax benefit              $ 1,406   $(4,272)  $(1,198)
       State and local income taxes, net of
           federal income tax effect                    141      (566)     (275)
       Permanent differences                            185        --        --
       Changes in valuation allowance and other      (1,732)    6,872       114
                                                    -------   -------   -------
                                                    $    --   $ 2,034   $(1,359)
                                                    =======   =======   =======
</Table>

       The tax effects of temporary differences that give rise to significant
       portions of the deferred tax assets and deferred tax liabilities are
       presented below:

<Table>
<Caption>
                                                             2001       2000
                                                           --------   --------
<S>                                                        <C>        <C>
       Deferred tax assets:
         Gift cards                                        $    694   $    590
         Abandoned leases                                     2,279      3,296
         Deferred rent                                          589        573
         Compensated absences                                   405        559
         Deferred compensation                                  400        400
         Deferred lease incentives                              554        566
         Inventories                                             --      1,226
         Property and equipment, principally due to
           different depreciation methods for
           financial reporting and income tax
           purposes                                             942        491
         Other                                                1,227         --
                                                           --------   --------
               Total deferred tax assets                      7,090      7,701
         Valuation allowance of deferred tax assets
                                                              5,591      7,323
                                                           --------   --------
       Deferred tax assets net of valuation allowance
                                                              1,499       (378)
       Deferred tax liabilities:
         Inventories                                            408         --
         Property and equipment                                  --         --
         Other                                                   --       (378)
                                                           --------   --------
               Total deferred tax liabilities                   408       (378)
                                                           --------   --------
               Net deferred tax assets                     $  1,091   $     --
                                                           ========   ========
</Table>

       During fiscal 2000, the Company reviewed the net deferred tax asset under
       the provisions set forth in Statement of Financial Accounting Standards
       No. 109, "Accounting for Income Taxes" (SFAS 109). While the Company
       believes the entire deferred tax asset will be realized by future
       operating results, due to cumulative losses incurred in recent years, the
       current balance of the net deferred tax asset did not meet the criteria
       for recognition under SFAS 109. As a result, no income tax expense was
       recorded related to income for fiscal year ending January 31, 2002 as
       these amounts were recognized as a reduction of the deferred income tax
       asset valuation allowance. At January 31, 2002 and 2001, the balance of
       the valuation allowance was $5.6 million and $7.3 million, respectively.


                                       41
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


(9)    INCOME (LOSS) PER SHARE

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

<Table>
<Caption>
                                            Fiscal Year Ended January 31,
                                         -----------------------------------
                                           2002         2001          2000
                                         --------     --------      --------
<S>                                      <C>          <C>           <C>
       Net income (loss)                 $  4,017     $(14,600)     $ (2,165)
                                         ========     ========      ========

       Average shares outstanding:
         Basic                             11,742       11,645        11,621
             Effect of stock options          156           --            --
                                         --------     --------      --------
         Diluted                           11,898       11,645        11,621
                                         ========     ========      ========

       Income (Loss) per share:
         Basic                           $   0.34     $  (1.25)     $  (0.19)
                                         ========     ========      ========

         Diluted                         $   0.34     $  (1.25)     $  (0.19)
                                         ========     ========      ========
</Table>

       Options to purchase 521,974 shares of Common Stock at exercise prices
       ranging from $4.30 per share to $14.03 per share outstanding at January
       31, 2002; 1,087,083 shares of Common Stock at exercise prices ranging
       from $1.27 per share to $14.03 per share outstanding at January 31, 2001;
       and 1,813,965 shares of Common Stock at exercise prices ranging from
       $5.25 per share to $15.00 per share outstanding at January 31, 2000, were
       not included in the computation of diluted income (loss) per share
       because their inclusion would have been antidilutive.

(10)   401k AND ASOP

       Since February 1, 2001, the Company's 401k plan permits full-time
       employees who have attained age 21 and part-time employees who have
       worked a minimum of 1,000 hours in a year and have attained age 21 to
       participate in the Company's 401k plan and elect to contribute up to 25
       percent of their salary, subject to federal limitations, to the plan.
       Employer contributions include a quarterly guaranteed match of 25% of
       employee contributions up to a maximum of 6% deferral of compensation and
       is allocated solely to those employees who are participating in the plan
       and are employed on the last day of the plan quarter. Also included is a
       discretionary match based on specific criteria reviewed every fiscal
       six-month period by the Company and approved by the Board of Directors.
       This discretionary match is allocated solely to those employees who are
       participating in the plan and are employed on the last day of the
       six-month period. Prior to February 1, 2001, employees who had attained
       age 21 were eligible to participate in the Company's 401k plan and could
       elect to contribute up to 15 percent of their salary, subject to federal
       limitations, to the plan. Employer contributions were a discretionary
       match determined by the Company and allocated solely to those employees
       who were participating in the plan, had completed one year of service and
       were employed on the last day of the plan year. Amounts expensed related
       to the plan were $0.1 million, $0.4 million and $0.2 million during
       fiscal 2001, 2000 and 1999, respectively.

       The Company's Associate Stock Ownership Plan (ASOP) permits employees who
       have attained age 21 and completed one year of service and 1,000 hours in
       12 consecutive months for part-time associates, to participate in the
       ASOP. Employer contributions are determined at the discretion of the
       Company. The Board of Directors has determined that the level of
       contributions will be made based on attaining operational profit goals as
       set by the Board of Directors. The contribution is based on a percentage
       of participants' eligible compensation. Amounts expensed related to the
       Plan were $0.2 million, $0.4 million and $0.3 million during fiscal 2001,
       2000 and 1999, respectively. Common shares held by the ASOP were 271,368,
       199,269 and 124,410 at January 31, 2002, 2001 and 2000, respectively.


                                       42
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


(11)   SHAREHOLDERS' EQUITY

       The Company has four stock option plans: the 1991 and 1994 Stock Option
       Plans, the 1996 Incentive Stock Plan and the Outside Directors Plan (for
       non-employee directors). A total of 505,900 shares may be granted under
       each of the 1991 and 1994 Stock Option Plans, 632,375 shares may be
       granted under the 1996 Incentive Stock Plan, and 101,180 shares may be
       granted under the Outside Directors Plan.

       The 1991 and 1994 Stock Option Plans and the 1996 Incentive Stock Plan
       authorize the award of both incentive stock options and non-qualified
       stock options to purchase common stock to officers, other associates and
       directors of the Company. The exercise price per share of incentive stock
       options may not be less than the market price of the Company's common
       stock on the date the option is granted. The exercise price per share of
       non-qualified stock options is determined by the Board of Directors, or a
       committee thereof. The term of each option is determined by the Board of
       Directors and generally will not exceed ten years from the date of grant.
       In general, each option award vests at 20% per year over five years.

       The 1996 Incentive Stock Plan also authorizes the granting of stock
       appreciation rights, restricted stock, dividend equivalent rights, stock
       awards, and other stock-based awards to officers, other associates,
       directors, and consultants of the Company. There have been no grants of
       these awards under this plan.

       The Company has a management stock purchase plan that authorizes the
       issuance of up to 227,655 shares of common stock, pursuant to agreements
       providing for the purchase of restricted stock units (RSU's). The cost of
       each RSU is equal to 75% of the fair market value of the common stock of
       the Company on the date the RSU is awarded. During fiscal years 2001,
       2000 and 1999, there were 1,104, 3,881 and 6,830 RSU's awarded under the
       Plan, respectively. The Company recorded approximately $2,000, $8,800 and
       $52,000 of compensation expense at the time the RSU's were awarded for
       fiscal year 2001, 2000 and 1999, respectively. As of January 31, 2002,
       2001 and 2000, there were 10,193, 13,576 and 11,654 RSU's outstanding
       under the plan, respectively.

       On October 2, 2000, the Company exchanged restricted stock for
       outstanding options granted to associates having an exercise price of
       $9.00 or more per share. The ratio of restricted stock issued in the
       exchange varied with the option exercise price of the outstanding options
       but in the aggregate was approximately 1:4. Options beneficially owned by
       the Chief Executive Officer and the Directors of the Company were
       excluded from the exchange. As a result of the exchange, 122,269 shares
       of restricted stock were issued and options for 504,694 shares were
       cancelled and returned to the Company's 1991, 1994 and 1996 Stock Option
       Plans. Rights in the restricted stock vested 50% on January 31, 2001 and
       50% on April 30, 2001. The restricted stock is subject to restrictions
       and may be resold only in accordance with Rule 144 under the Securities
       Exchange Act of 1934 or other applicable exemption. In connection with
       the exchange, the Company recognized $0.2 million in compensation expense
       in fiscal 2000.


                                       43
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


       A summary of information with respect to all stock option plans is as
       follows:

<Table>
<Caption>
                                                                      WEIGHTED-
                                                                       AVERAGE
                                                                      EXERCISE
                                                                       PRICE
                                                          OPTIONS   (IN DOLLARS)
                                                         ----------   ---------
<S>                                                      <C>         <C>
Outstanding at January 31, 1999                          1,916,684    $   10.80
    Granted                                                372,540         9.52
    Exercised                                             (137,366)        7.61
    Forfeited and expired                                 (337,893)       11.39
                                                        ----------    ---------

Outstanding at January 31, 2000                          1,813,965        10.67
    Granted                                                569,376         3.20
    Exercised                                              (50,000)        1.27
    Forfeited and expired                               (1,246,258)       10.50
                                                        ----------    ---------

Outstanding at January 31, 2001                          1,087,083         7.39
    Granted                                                678,344         2.91
    Exercised                                             (107,017)        4.40
    Forfeited and expired                                  (63,125)        7.66
                                                        ----------    ---------

Outstanding at January 31, 2002                          1,595,285    $    5.68
                                                        ==========    =========

Reserved and available for grant at January 31, 2002       547,384

</Table>

       At January 31, 2002, the options outstanding and options exercisable, and
       their related weighted-average exercise price, and the weighted-average
       remaining contractual life for the ranges of exercise prices are shown in
       the table below.

<Table>
<Caption>
                                                                  WEIGHTED-AVERAGE  WEIGHTED-AVERAGE
                                                                   EXERCISE PRICE      REMAINING
                                                     OPTIONS        (IN DOLLARS)    CONTRACTUAL LIFE
                                                    ---------     ----------------  ----------------
<S>                                                 <C>           <C>               <C>
       RANGE: $1.27 TO $4.99

       Options outstanding at January 31, 2002      1,075,841       $    3.09          8.57 years
       Options exercisable at January 31, 2002        112,959       $    3.13

       RANGE: $5.00 TO $9.99

       Options outstanding at January 31, 2002         40,384       $    7.81          2.76 years
       Options exercisable at January 31, 2002         32,794       $    7.54

       PRICE: $10.00 TO $14.03

       Options outstanding at January 31, 2002        479,060       $   11.31          4.84 years
       Options exercisable at January 31, 2002        470,070       $   11.28
</Table>

       At January 31, 2002, 2001 and 2000, the number of options exercisable was
       615,823, 523,716 and 1,067,915, respectively, and the weighted-average
       exercise price of those options was $9.59, $10.84 and $10.57,
       respectively.

       The Company applies APB 25 and related interpretations in accounting for
       its Plans. Since the Company generally grants stock options, except for
       RSUs as described above, with an exercise price equal to or greater than
       the current market price of the stock on the grant date, compensation
       expense is not recorded. Had the Company determined compensation cost
       based on the fair value at the date of grant for its stock options under


                                       44
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


       SFAS 123, the Company's net income (loss) and income (loss) per share
       would have been changed as set forth in pro forma amounts indicated
       below:

<Table>
<Caption>
                                       2001         2000          1999
                                     --------     --------      --------
<S>                                  <C>          <C>           <C>
       Net income (loss):
           As reported               $  4,017     $(14,600)     $ (2,165)
           Pro forma                    3,851      (15,143)       (3,419)

       Income (Loss) per share:
           As reported - basic           0.34        (1.25)        (0.19)
           As reported - diluted         0.34        (1.25)        (0.19)
           Pro forma - basic             0.33        (1.30)        (0.29)
           Pro forma - diluted           0.32        (1.30)        (0.29)
</Table>

       The per share weighted-average exercise price and the per share
       weighted-average minimum and fair value of stock options at the date of
       grant, using the Black-Scholes option-pricing model for SFAS 123
       disclosure purposes, is as follows (in dollars):

<Table>
<Caption>
                                 EXERCISE PRICE               FAIR VALUE
                            ------------------------   ------------------------
                              2001     2000     1999     2001     2000     1999
                            ------   ------   ------   ------   ------   ------
<S>                         <C>      <C>      <C>      <C>      <C>      <C>
Options granted at
  market price              $ 2.90   $ 3.21   $ 9.54   $ 1.98   $ 1.98   $ 6.41

Options granted at prices
  exceeding market price    $ 3.30   $ 0.00   $12.00   $ 0.06   $ 0.00   $ 0.31

Options granted at prices
  below market price        $ 1.81   $ 2.27   $ 7.62   $ 1.54   $ 1.52   $ 5.71

Total options granted       $ 2.91   $ 3.20   $ 9.52   $ 1.96   $ 1.98   $ 6.19
</Table>

       The following assumptions were used in the calculation:

<Table>
<Caption>
                                           2001            2000          1999
                                         ---------       --------      --------
<S>                                      <C>             <C>           <C>
       Expected dividend yield           $   --             --            --
       Risk-free interest rate              6.17%          5.07%         6.62%
       Expected life in years              3 to 10        3 to 10       3 to 10
       Volatility                            .82            .60           .58
</Table>

(12)   SUPPLEMENTAL CASH FLOW INFORMATION

       Cash payments for interest during fiscal 2001, 2000 and 1999 totaled $2.1
       million, $3.2 million and $3.6 million, respectively. Cash payments for
       income taxes during fiscal 2001, 2000 and 1999 totaled $0.5 million, $0.2
       million and $0.7 million, respectively.

(13)   LITIGATION AND CONTINGENCIES

       The Company's employees are covered under a self-insured health plan.
       Claims in excess of $100,000 per employee are insured by a managing
       underwriter. Estimated claims incurred but not reported have been accrued
       in the accompanying financial statements. Health insurance expense during
       fiscal 2001, 2000 and 1999 was $2.8 million, $2.2 million and $2.0
       million, respectively.

       The Company is partially self-insured for workers' compensation. Claims
       in excess of $100,000 per accident and $1.1 million in the aggregate
       annually are insured by an insurance company. Estimated claims and claims
       incurred but not paid have been accrued in the accompanying consolidated
       financial statements. Workers'


                                       45
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


       compensation expense during fiscal 2001, 2000 and 1999 was $0.5 million,
       $0.4 million and $0.3 million, respectively.

       In 2000, the Company restated its consolidated financial statements for
       the first three quarters of fiscal 1999 and the prior four fiscal years.
       Following the Company's initial announcement in March 2000 of the
       requirement for such restatements, six purported class action lawsuits
       were filed in the United States District Court for the Northern District
       of Texas against the Company and certain of the current and former
       directors and officers of the Company asserting various claims under
       Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Although
       four of the lawsuits were originally filed in the Dallas Division of the
       Northern District of Texas, all of the five pending actions have been
       transferred to the Amarillo Division of the Northern District and have
       been consolidated. One of the Section 10(b) and 20(a) lawsuits filed in
       the Dallas Division was voluntarily dismissed. On May 15, 2000, a lawsuit
       was filed in the United States District Court for the Northern District
       of Texas against the Company, its current and former directors and
       officers at the time of the Company's June 1998 initial public offering
       and three underwriters, Salomon Smith Barney, A.G. Edwards & Sons, Inc.
       and Furman Selz, LLC asserting various claims under Sections 11, 12(2)
       and 15 of the Securities Act of 1933. Motions to dismiss these actions
       were filed by the Company and, on September 25, 2001, were denied by the
       Court. Discovery and class certification proceedings are going forward in
       both actions.

       None of the pending complaints specify the amount of damages sought.
       Although it is not feasible to predict or determine the final outcome of
       the proceedings or to estimate the potential range of loss with respect
       to these matters, an adverse outcome with respect to such proceedings
       could have a material adverse impact on the Company's financial position,
       results of operations and cash flows.

       The Company is also involved in various other claims and legal actions
       arising in the ordinary course of business. In the opinion of management,
       the ultimate disposition of these matters will not have a material
       adverse effect on the Company's financial position, results of operations
       and cash flows.


                                       46
<PAGE>

                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


(14)   SEGMENT DISCLOSURES

       The Company has two operating segments, retail stores and Internet
       operations. Our chief operating decision maker, as that term is defined
       in the relevant accounting standard, regularly reviews financial
       information about each of the above operating segments for assessing
       performance and allocating resources. Revenue for retail stores is
       derived from the sale of merchandise and rental of videocassettes, video
       games and DVDs. Revenue for Internet operations is derived solely from
       the sale of merchandise. Segment information regarding our retail stores
       and Internet operations for fiscal years 2001, 2000 and 1999 is presented
       below.

<Table>
<Caption>
       FISCAL YEAR 2001                   RETAIL        INTERNET
                                          STORES       OPERATIONS     TOTAL
                                         --------      ----------   --------
<S>                                      <C>           <C>          <C>
       Total revenue                     $471,618          166      $471,784
       Depreciation and amortization       35,189          277        35,466
       Operating income (loss)              6,810         (955)        5,855
       Total assets                       229,383          468       229,851
       Capital expenditures                46,490            5        46,495
</Table>

<Table>
<Caption>
       FISCAL YEAR 2000                   RETAIL        INTERNET
                                          STORES       OPERATIONS     TOTAL
                                         --------      ----------   --------
<S>                                      <C>           <C>          <C>
       Total revenue                     $458,021          182      $458,203
       Depreciation and amortization       32,759          396        33,155
       Operating loss                      (7,287)      (1,991)       (9,278)
       Total assets                       212,679          805       213,484
       Capital expenditures                29,803          679        30,482
</Table>

<Table>
<Caption>
       FISCAL YEAR 1999                   RETAIL        INTERNET
                                          STORES       OPERATIONS     TOTAL
                                         --------      ----------   --------
<S>                                      <C>           <C>          <C>
       Total revenue                     $445,280         145      $445,425
       Depreciation and amortization       31,367         259        31,626
       Operating income (loss)              1,712      (1,733)          (21)
       Total assets                       246,858       1,075       247,933
       Capital expenditures                46,604         823        47,427
</Table>


                                       47
<PAGE>
                  Hastings Entertainment, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements
                            January 31, 2002 and 2001
(Tabular amounts in thousands, except per share data or unless otherwise noted)


(15)   INTERIM FINANCIAL RESULTS (UNAUDITED)

<Table>
<Caption>
FISCAL YEAR 2001:                                                             QUARTER
                                                       ------------------------------------------------------
                                                         First          Second         Third         Fourth
                                                       ---------      ---------      ---------      ---------
<S>                                                    <C>            <C>            <C>            <C>
Total revenues                                         $ 109,140      $ 110,129      $ 103,201      $ 149,314
Total cost of revenues                                    76,013         74,059         71,107        100,379
Selling, general and administrative expenses(a)           33,293         34,807         37,089         39,000
Pre-opening expenses                                          --             34             47            101
Operating income (loss)                                     (166)         1,229         (5,042)         9,834
Interest (expense) and other income, net                    (601)          (446)          (475)          (316)
Income (Loss) before taxes                                  (767)           783         (5,517)         9,518
Income tax expense (benefit)(b)                               --             --             --             --
Net income (loss)                                           (767)           783         (5,517)         9,518

Basic income (loss) per share                          $   (0.07)     $    0.07      $   (0.46)     $    0.82
Diluted income (loss) per share                        $   (0.07)     $    0.07      $   (0.46)     $    0.80
</Table>

<Table>
<Caption>
FISCAL YEAR 2000:                                                             QUARTER
                                                       ------------------------------------------------------
                                                         First          Second         Third          Fourth
                                                       ---------      ---------      ---------      ---------
<S>                                                    <C>            <C>            <C>            <C>
Total revenues                                         $ 110,085      $ 106,771      $ 100,080      $ 141,267
Total cost of revenues                                    75,215         74,020         73,984         95,262
Selling, general and administrative expenses(a)(c)        34,694         35,621         37,318         41,334
Pre-opening expenses                                           2             (2)            33             --
Operating income (loss)                                      174         (2,868)       (11,255)         4,671
Interest (expense) and other income, net                    (920)          (824)          (772)          (773)
Income (Loss) before taxes                                  (746)        (3,692)       (12,027)         3,897
Income tax expense (benefit)(b)                             (284)        (1,402)            --          3,720
Net income (loss)                                           (462)        (2,290)       (12,027)           177

Basic income (loss) per share                          $   (0.04)     $   (0.20)     $   (1.03)     $    0.02
Diluted income (loss) per share                        $   (0.04)     $   (0.20)     $   (1.03)     $    0.02
</Table>

(a)  The Company recorded pre-tax charges of approximately $0.5 million and $1.0
     million in the third and fourth quarter of fiscal year 2001. These charges
     related to the closing of superstores as described in Note 5.

(b)  During the third and fourth quarter of fiscal 2000, the Company reviewed
     the net deferred tax asset under the provisions set forth in Statement of
     Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
     109). Due to cumulative losses incurred in recent years, the current
     balance of the net deferred tax asset did not meet the criteria for
     recognition under SFAS 109. As a result, the Company recorded no income tax
     benefit in the third quarter and recorded a valuation allowance of $3.7
     million during the fourth quarter of fiscal 2000 to fully reserve the
     balance of the net deferred tax asset. No income tax expense was recorded
     related to income for fiscal year ending January 31, 2002 as these amounts
     were recognized as a reduction of the deferred income tax benefit valuation
     allowance.

(c)  The Company recorded pre-tax charges of approximately $3.1 million and $3.4
     million in the third and fourth quarter of fiscal year 2000. These charges
     related to the closing of superstores as described in Note 5.


                                       48
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On September 22, 2000, with the recommendation of the Audit Committee and
approval of the Board of Directors, we dismissed KPMG, LLP (KPMG) as our
independent auditors. On October 19, 2000, we engaged Ernst and Young LLP as our
independent auditors. We filed reports on Form 8-K with the Securities and
Exchange Commission on September 29, 2000 and October 24, 2000 as a result of
these events, respectively.


                                       49
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item will be set forth in our Proxy Statement
for our 2002 Annual Meeting of Shareholders, to be filed within 120 days after
the end of fiscal 2001 (our "Proxy Statement"), under the heading "Proposal No.
1: Election of Three Directors," which information is incorporated herein by
reference. The information required by this item regarding compliance with
Section 16(a) of the Securities Exchange Act of 1934 will be set forth in our
Proxy Statement under the heading "Compliance with Section 16(a) of the
Securities Exchange Act of 1934," which is incorporated herein by reference. The
information required by this item regarding our executive officers is set forth
under the heading "Executive Officers of the Company" in Part I of this Form
10-K, which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be set forth in our Proxy Statement
under the headings "Executive Compensation," "Executive Compensation - Director
Compensation," "Executive Compensation - Employee Contracts and Change of
Control Arrangements," and "Executive Compensation - Compensation Committee
Interlocks and Insider Participation," which information is incorporated herein
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item will be set forth in our Proxy Statement
under the heading "Security Ownership of Certain Beneficial Owners and
Management," which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item will be set forth in our Proxy Statement
under the heading "Certain Relationships and Related Transactions," which
information is incorporated herein by reference.


                                       50
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1. The following consolidated financial statements of the Company
        are included in Part II, Item 8:

<Table>
<S>                                                                           <C>
          Independent Auditors' Reports.....................................  27
          Consolidated Balance Sheets as of January 31, 2002 and 2001.......  29
          Consolidated Statements of Operations for the years ended
            January 31, 2002, 2001 and 2000.................................  30
          Consolidated Statements of Shareholders' Equity for the years
            ended January 31, 2002, 2001 and 2000...........................  31
          Consolidated Statements of Cash Flows for the years ended
            January 31, 2002, 2001 and 2000.................................  32
          Notes to Consolidated Financial Statements........................  33

     2. The following financial statement schedules and other information
        required to be filed by Items 8 and 14(d) of Form 10-K are
        included in Part IV:

          Schedule II - Valuation and Qualifying Accounts...................  53
</Table>

     All other schedules are omitted because they are not applicable, not
     required or the required information is included in the Consolidated
     Financial Statements and notes thereto.

     3. The following exhibits are filed herewith or incorporated by reference
        as indicated as required by Item 601 of Regulation S-K. The exhibits
        designated by an asterisk are management contracts and/or compensatory
        plans or arrangements required to be filed as exhibits to this report.

<Table>
<Caption>
Exhibit
Number                              Description
-------                             -----------
<S>         <C>  <C>
    3.1     (1)  Third Restated Articles of Incorporation of the Company.

    3.2     (1)  Amended and Restated Bylaws of the Company.

    4.1     (1)  Specimen of Certificate of Common Stock of the Company.

    4.2     (1)  Third Restated Articles of Incorporation of the Company (see
                 3.1 above).

    4.3     (1)  Amended and Restated Bylaws of the Company (see 3.2 above).

   10.1     (1)  Form of Indemnification Agreement by and between the Company
                 and its directors and executive officers.

   10.2  *  (1)  Hastings Amended 1996 Incentive Stock Plan.

   10.3  *  (1)  Hastings 1994 Stock Option Plan.

   10.4  *  (1)  Hastings 1991 Stock Option Plan.

   10.5  *  (1)  Hastings Entertainment, Inc. Associates' 401(k) Plan and Trust.

   10.6  *  (1)  Hastings Employee Stock Ownership Plan Trust Agreement.

   10.7  *  (1)  Chief Executive Officer Stock Option , as amended.

   10.8  *  (1)  Corporate Officer Incentive Plan.

   10.9  *  (1)  Management Stock Purchase Plan.

  10.10  *  (1)  Management Incentive Plan.

  10.11  *  (1)  Salary Incentive Plan.

  10.12  *  (1)  Hastings Entertainment, Inc. Stock Option Plan for Outside
                 Directors.

  10.13  *  (4)  Agreement dated January 31, 2001 between John H. Marmaduke and
                 the Company

  10.14     (1)  Lease Agreement, dated August 3, 1994, as amended, between Omni
                 Capital Corporation and the Company, for warehouse space
                 located at Sunset Center in Amarillo, Texas.

  10.15     (1)  Lease Agreement, dated May 28, 1992, between the City of
                 Amarillo and the Company for space located at 1900 W. 7th
                 Avenue in Amarillo, Texas.

  10.16  *  (1)  Stock Grant Plan for Outside Directors.
</Table>


                                       51
<PAGE>
<Table>
<S>         <C>  <C>
  10.17  *  (1)  Form of Employment Agreement by and between the Company and
                 certain of its executives.

  10.18     (2)  Amended Lease Agreement, dated October 13, 1999, between Omni
                 Capital Corporation and the Company, for office space located
                 at Sunset Center in Amarillo, Texas.

  10.19     (3)  Loan and Security Agreement dated August 29, 2000 between
                 Hastings Entertainment, Inc. and Fleet Retail Finance, Inc.,
                 Agent.

  10.20     (5)  International Swap Dealers Association, Inc. Master Agreement
                 between Hastings Entertainment, Inc. and Fleet National Bank

   21.1     (1)  Subsidiaries of the Company.

   23.1     (5)  Consent of Ernst and Young LLP

   23.2     (5)  Consent of KPMG LLP

   24.1     (5)  Powers of Attorney (included on signature page)
</Table>

----------

     (1)  Previously filed as an exhibit to the Company's Registration Statement
          on Form S-1 (File No. 333-47969) and with a corresponding exhibit
          number herein and are incorporated herein by reference.

     (2)  Previously filed as an exhibit to the Company's Annual Report on Form
          10-K, as amended, for the fiscal year ended January 31, 2000, and
          incorporated herein by reference.

     (3)  Previously filed as an exhibit to the Company's Quarterly Report on
          Form 10-Q, as amended, for the quarterly period ended July 31, 2000,
          and incorporated herein by reference.

     (4)  Previously filed as an exhibit to the Company's Annual Report on Form
          10-K for the fiscal year ended January 31, 2001, and incorporated
          herein by reference.

     (5)  Filed herewith.


(b) Reports on Form 8-K

    (i)  On January 31, 2002, the Company filed a current report on Form 8-K
         reporting, under "Item 5. Other Information," the appointment of Daryl
         Lansdale and Ann Lieff to its board of directors. In addition, the
         Company announced the resignation of Craig Lentzsch from its board of
         directors.


                                       52
<PAGE>

Financial Statement Schedule II -

                          HASTINGS ENTERTAINMENT, INC.
                 Valuation and Qualifying Accounts and Reserves
                   Years Ended January 31, 2002, 2001 and 2000
                             (Amounts in thousands)


<Table>
<Caption>
                                                                      FISCAL YEAR
                                                        ------------------------------------
                                                          2001          2000          1999
                                                        --------      --------      --------
<S>                                                     <C>           <C>           <C>
Reserves deducted from assets:
Allowance for shrinkage and inventory obsolescence:
   Balance at the beginning of period                   $  3,533      $  2,544      $  2,146
   Additions charged to costs and expenses                14,308        14,698        11,958
   Deductions for write-offs                             (13,261)      (13,709)      (11,560)
                                                        --------      --------      --------
   Balance at end of period                             $  4,580      $  3,533      $  2,544
                                                        ========      ========      ========

Reserves added to liabilities:
Allowance for costs of inventory returns:
   Balance at the beginning of period                   $  7,543      $  9,463      $ 11,418
   Additions charged to costs and expenses(1)              3,858        10,247         7,170
   Deductions for write-offs                              (6,273)      (12,167)       (9,125)
                                                        --------      --------      --------
   Balance at end of period                             $  5,128      $  7,543      $  9,463
                                                        ========      ========      ========
</Table>

(1)  Total returns expense was $6.3 million, $12.2 million and $9.1 million for
     the fiscal years 2001, 2000 and 1999, respectively. The table does not
     include the cost of operating our return center ($1.8 million, $2.0 million
     and $1.9 million for the fiscal years 2001, 2000 and 1999, respectively),
     which is recorded directly to returns expense.


                                       53
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, on behalf of the registrant, thereunto duly
authorized:

                                HASTINGS ENTERTAINMENT, INC.


DATE: April 10, 2002            By: /s/ Dan Crow
                                    --------------------------------------------
                                    Dan Crow
                                    Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


                                POWER OF ATTORNEY

Each person whose signature appears below hereby authorizes and constitutes John
H. Marmaduke and Dan Crow, and each of them singly, his true and lawful
attorneys-in-fact with full power of substitution and redistribution, for him
and in his name, place and stead, in any and all capacities to sign and file any
and all amendments to this report with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, and he
hereby ratifies and confirms all that said attorneys-in-fact or any of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<Table>
<Caption>
Signature                     Title                                                           Date
---------                     -----                                                           ----
<S>                           <C>                                                             <C>
/s/ John H. Marmaduke         Chairman of the Board, President and Chief Executive Officer    April 5, 2002
------------------------      (Principal Executive Officer)
John H. Marmaduke

/s/ Gaines L. Godfrey         Director                                                        April 5, 2002
------------------------
Gaines L. Godfrey

/s/ Peter A. Dallas           Director                                                        April 5, 2002
------------------------
Peter A. Dallas

/s/ Stephen S. Marmaduke      Director                                                        April 5, 2002
------------------------
Stephen S. Marmaduke

/s/ Jeffrey G. Shrader        Director                                                        April 5, 2002
------------------------
Jeffrey G. Shrader

/s/ Ron G. Stegall            Director                                                        April 3, 2002
------------------------
Ron G. Stegall

/s/ Daryl L. Lansdale         Director                                                        April 5, 2002
------------------------
Daryl L. Lansdale

/s/ Ann S. Lieff              Director                                                        April 5, 2002
------------------------
Ann S. Lieff
</Table>


                                       54
<PAGE>
                                 EXHIBIT INDEX


<Table>
<Caption>
Exhibit
Number                              Description
-------                             -----------
<S>         <C>  <C>
    3.1     (1)  Third Restated Articles of Incorporation of the Company.

    3.2     (1)  Amended and Restated Bylaws of the Company.

    4.1     (1)  Specimen of Certificate of Common Stock of the Company.

    4.2     (1)  Third Restated Articles of Incorporation of the Company (see
                 3.1 above).

    4.3     (1)  Amended and Restated Bylaws of the Company (see 3.2 above).

   10.1     (1)  Form of Indemnification Agreement by and between the Company
                 and its directors and executive officers.

   10.2  *  (1)  Hastings Amended 1996 Incentive Stock Plan.

   10.3  *  (1)  Hastings 1994 Stock Option Plan.

   10.4  *  (1)  Hastings 1991 Stock Option Plan.

   10.5  *  (1)  Hastings Entertainment, Inc. Associates' 401(k) Plan and Trust.

   10.6  *  (1)  Hastings Employee Stock Ownership Plan Trust Agreement.

   10.7  *  (1)  Chief Executive Officer Stock Option , as amended.

   10.8  *  (1)  Corporate Officer Incentive Plan.

   10.9  *  (1)  Management Stock Purchase Plan.

  10.10  *  (1)  Management Incentive Plan.

  10.11  *  (1)  Salary Incentive Plan.

  10.12  *  (1)  Hastings Entertainment, Inc. Stock Option Plan for Outside
                 Directors.

  10.13  *  (4)  Agreement dated January 31, 2001 between John H. Marmaduke and
                 the Company

  10.14     (1)  Lease Agreement, dated August 3, 1994, as amended, between Omni
                 Capital Corporation and the Company, for warehouse space
                 located at Sunset Center in Amarillo, Texas.

  10.15     (1)  Lease Agreement, dated May 28, 1992, between the City of
                 Amarillo and the Company for space located at 1900 W. 7th
                 Avenue in Amarillo, Texas.

  10.16  *  (1)  Stock Grant Plan for Outside Directors.

  10.17  *  (1)  Form of Employment Agreement by and between the Company and
                 certain of its executives.

  10.18     (2)  Amended Lease Agreement, dated October 13, 1999, between Omni
                 Capital Corporation and the Company, for office space located
                 at Sunset Center in Amarillo, Texas.

  10.19     (3)  Loan and Security Agreement dated August 29, 2000 between
                 Hastings Entertainment, Inc. and Fleet Retail Finance, Inc.,
                 Agent.

  10.20     (5)  International Swap Dealers Association, Inc. Master Agreement
                 between Hastings Entertainment, Inc. and Fleet National Bank

   21.1     (1)  Subsidiaries of the Company.

   23.1     (5)  Consent of Ernst and Young LLP

   23.2     (5)  Consent of KPMG LLP

   24.1     (5)  Powers of Attorney (included on signature page)
</Table>

----------

     (1)  Previously filed as an exhibit to the Company's Registration Statement
          on Form S-1 (File No. 333-47969) and with a corresponding exhibit
          number herein and are incorporated herein by reference.

     (2)  Previously filed as an exhibit to the Company's Annual Report on Form
          10-K, as amended, for the fiscal year ended January 31, 2000, and
          incorporated herein by reference.

     (3)  Previously filed as an exhibit to the Company's Quarterly Report on
          Form 10-Q, as amended, for the quarterly period ended July 31, 2000,
          and incorporated herein by reference.

     (4)  Previously filed as an exhibit to the Company's Annual Report on Form
          10-K for the fiscal year ended January 31, 2001, and incorporated
          herein by reference.

     (5)  Filed herewith.