Overview

Historically, we were a specialty retailer in the consumer electronics and appliance industry serving small to medium-sized towns and communities. In addition, we have been an investor in various alternative energy entities beginning with synthetic fuel partnerships in 1998 and later ethanol production facilities beginning in 2006.

In fiscal year 2007 we began to evaluate strategic alternatives for our retail segment with a focus on closing unprofitable or marginally profitable retail stores and monetizing our retail-related real estate assets. Reflecting this focus, we sold approximately 60% of our owned retail and vacant stores in fiscal year 2007. In fiscal year 2008, we commenced an evaluation of a broad range of alternatives intended to derive value from the remaining retail operations and our real estate portfolio. Following a comprehensive analysis, late in fiscal year 2008 we leased 37 owned store locations to a third party. We also provided the lessee an option to purchase all of the properties being leased from REX during the first two years of the lease term. The lessee also reached an agreement to lease or sub lease two of our leased locations. We anticipate closing, in fiscal year 2009, the remainder of the retail locations the lessee does not take over from REX.

We currently have invested approximately $110 million in ethanol production entities and have interests in four ethanol entities, two of which we have a majority ownership interest in. We have no definitive plans, beyond our existing commitments of approximately $3 million, but will continue to consider additional investments in the alternative energy segment.

We plan to seek and evaluate various investment opportunities including energy related, agricultural and real estate. We can make no assurances that we will be successful in our efforts to find such opportunities.

Retail

As of January 31, 2009, we operated 90 stores in 30 states under the "REX" trade name. Our comparable store sales decreased 10.3% for fiscal year 2008, decreased 6.7% for fiscal year 2007, and increased 5.0% for fiscal year 2006. We believe our comparable store sales have recently been negatively affected by overall economic conditions, increased competition and rapid change in television technology, resulting in the loss of CRT, light engine and projection television sales. We consider a store to be comparable after it has been open six full fiscal quarters. Comparable store sales comparisons do not include sales of extended service contracts.

Our extended service contract revenues and sales commissions are deferred and amortized on a straight-line basis over the life of the contracts after the expiration of applicable manufacturers' warranty periods. Terms of coverage, including the manufacturers' warranty periods, are usually for periods of 12 to 60 months. Extended service contract revenues represented 5.6% of net sales and revenue for fiscal year 2008, 7.0% of net sales and revenue for fiscal year 2007 and 6.1% of net sales and revenue for fiscal year 2006. Service contract repair costs are charged to operations as incurred.

In fiscal year 2006, we entered the alternative energy industry by investing in several entities organized to construct and, subsequently operate, ethanol producing plants. We have invested in five entities, four of which we remain invested in as of January 31, 2009, utilizing both debt and equity investments. We sold our investment in Millennium during fiscal year 2007.

The following table is a summary of our ethanol investments (amounts in thousands, except operating capacity and ownership percentages):

                                               Operating
                                               Capacity
                                 Initial        Million
                                  Equity        Gallons      Ownership          Debt        Contingent
Entity                          Investment     Per Year      Percentage      Investment     Commitment
----------------------------   ------------   -----------   ------------    ------------   ------------

Levelland Hockley County
Ethanol, LLC                   $     16,500            40             56 %  $      5,516   $      3,000
Big River Resources, LLC             20,000           192             10 %             -              -
Patriot Renewable Fuels, LLC         16,000           100             23 %           933              -
One Earth Energy, LLC                50,765           100             74 %             -              -
                               -- ---------                                 -- ---------   -- ---------
Total                          $    103,265                                 $      6,449   $      3,000
                               -- ---------                                 -- ---------   -- ---------

Big River has begun construction of its second plant which has a design capacity of 100 million gallons of and 320,000 tons of DDG per year. The plant is located in Galva, Illinois and construction of the plant is expected to be completed by June 2009.

The Levelland Hockley and Patriot facilities became operational during fiscal year 2008. We expect the construction of the One Earth facility to be completed by June, 2009.

Investment in Synthetic Fuel Partnerships

In fiscal year 1998, we invested in two limited partnerships, Colona and Somerset, which owned facilities for the production synthetic fuel. The partnerships earned federal income tax credits under Section 29/45K of the Internal Revenue Code based on the tonnage and content of solid synthetic fuel produced and sold to unrelated parties. We sold our entire interests in the Colona and Somerset partnerships and received payments from the sales, on a quarterly basis, through 2007, subject to production levels. On September 5, 2002, we purchased an additional synthetic fuel facility in Gillette, Wyoming. We sold our membership interest in the entity that owned the Gillette facility on March 30, 2004 for $2,750,000 along with a secured contingent payment note. The plant was subsequently sold and during the third quarter of fiscal year 2006, we modified our agreement with the owners and operators of the synthetic fuel facility. Based on the terms of the modified agreement, we currently are not able to determine the likelihood and timing of collecting payments related to production occurring after September 30, 2006. Thus, we cannot currently determine the timing of income recognition, if any, related to production occurring subsequent to September 30, 2006.

We do not expect to receive income from our Colona and Somerset synthetic fuel investments for production beyond fiscal year 2008, as the Section 29/45K tax credit program expired on December 31, 2007. However, we may realize income from our Gillette synthetic fuel investment as payments for production subsequent to September 30, 2006 through December 31, 2007. We expect the payments, if any, to be made within the next three years. We have not recognized this income and will recognize income, if any, upon receipt of payments or upon our ability to reasonably assure ourselves of the timing and collectibility of the payments.

See Notes 4 and 17 of the Notes to the Consolidated Financial Statements for further discussion.

See Item 1A Risk Factors for further discussion of the risks involved with our synthetic fuel investments.

The following table sets forth, for the periods indicated, the relative percentages that certain income and expense items bear to net sales and revenue:

                                                           Years Ended January 31,
                                                      ---------------------------------
                                                        2009         2008        2007
                                                      ---------    --------    --------

 Net sales and revenue                                    100.0 %     100.0 %     100.0 %
 Cost of sales                                            (79.6 )     (70.1 )     (71.9 )
                                                      -- ------    - ------    - ------

 Gross profit                                              20.4        29.9        28.1
 Selling, general and administrative expenses             (23.3 )     (27.5 )     (27.8 )
 Interest income                                            0.8         2.9         1.2
 Interest expense                                          (1.4 )      (0.1 )      (0.5 )
 Loss on early termination of debt                            -        (0.3 )         -
 Gain on sale of real estate                                1.0         0.5         0.8
 Equity in income of unconsolidated ethanol
 affiliates                                                 0.4         0.8         0.2
 Realized investment gains                                    -        12.3           -
 Income from synthetic fuel investments                     0.3         3.6         5.3
 Losses on derivative financial instruments                (1.6 )      (1.3 )         -
                                                      -- ------    - ------    - ------
 (Loss) income from continuing operations before
 taxes and minority interest                               (3.4 )      20.8         7.3

 Benefit (provision) for income taxes                       1.0        (7.7 )      (2.4 )
 Minority interest in loss of consolidated
 subsidiaries                                               1.4         0.4           -
                                                      -- ------    - ------    - ------
 (Loss) income from continuing operations                  (1.0 )      13.5         4.9

 Loss from discontinued operations, net of tax             (0.6 )      (1.1 )         -
 Gain on disposal of discontinued operations, net
 of tax                                                     0.2         5.0         0.7
                                                      -- ------    - ------    - ------

 Net (loss) income                                         (1.4 )%     17.4 %       5.6 %
                                                      -- ------    - ------    - ------

Comparison of Fiscal Years Ended January 31, 2009 and 2008

Net Sales and Revenue - Net sales and revenue in fiscal year 2008 were $230.6 million, an 18.4% increase from $194.8 million in fiscal year 2007. This increase was primarily due to Levelland Hockley commencing production operations during fiscal year 2008. Levelland Hockley contributed $68.2 million of net sales and revenue during fiscal year 2008. This increase was partially offset by a decline in comparable retail store sales of 10.3%. We consider a retail store to be comparable after it has been open six full fiscal quarters. Comparable retail store sales do not include sales of extended service contracts. We closed 25 retail stores (23 of which were classified as discontinued operations for all periods presented) during fiscal year 2008 and 78 retail stores during fiscal year 2007. We did not open any new retail stores in fiscal years 2008 and 2007. We had 90 retail stores open at January 31, 2009 compared to 115 retail stores at January 31, 2008.

The television category negatively impacted comparable retail store sales by 6.0%. This resulted from gains in LCD and plasma television sales being more than offset by declines in light engine and traditional tube televisions. The appliance category negatively impacted comparable retail store sales by 2.3%. Declines in air conditioner and laundry product sales were the primary causes of the appliance category performance. The audio category negatively impacted comparable store sales by 1.0%. The audio category decline is consistent

The following table reflects the approximate percent of net sales and revenue for each product and service group for the periods presented:

                                         Fiscal Year
                              ---------------------------------

Product or Service Category     2008        2007        2006
---------------------------   ---------   ---------   ---------

Televisions                        39 %        56 %        55 %
Ethanol                            22           -           -
Appliances                         21          28          26
Distiller grains                    5           -           -
Audio                               3           4           7
Extended warranties                 5           6           5
Other                               5           6           7
                                - ---       - ---       - ---
Total                             100 %       100 %       100 %
                                - ---       - ---       - ---

Lease income was approximately $0.4 million in fiscal years 2008 and 2007. We expect lease income to increase by approximately $2.8 million on an annualized basis once Appliance Direct completes its transition of REX retail locations. See Note 13 of the Notes to the Consolidated Financial Statements for a further discussion of the Appliance Direct agreement.

Gross Profit- Gross profit was $47.1 million in fiscal year 2008, or 20.4% of net sales and revenue, versus $58.3 million for fiscal year 2007 or 29.9% of net sales and revenue. This represents a decrease of $11.2 million or 19.2%. Gross profit in fiscal year 2008 from our retail segment was 28.5% of retail segment sales compared to 29.9% for fiscal year 2007. Gross profit in fiscal year 2008 from our alternative energy segment was 1.2% of net sales and revenue. Gross profit from our alternative energy segment has been lower than expected, generally as a result of a decline in the spread between ethanol and grain prices. In general, corn and grain prices have increased more than ethanol prices. Lower merchandise sales in fiscal year 2008 were the primary cause of the gross profit dollar decline. In addition, extended service contracts contributed gross profit of $9.7 million in fiscal year 2008 compared to $11.0 million in fiscal year 2007. Our direct warranty repair costs were approximately 25% and 19% of extended service contract revenue in fiscal years 2008 and 2007, respectively. Warranty repair costs increased during fiscal year 2008 as there were generally lower levels of vendor support for defective merchandise during the current fiscal year.

Selling, General and Administrative Expenses - Selling, general and administrative expenses for fiscal year 2008 were $53.8 million, or 23.3% of net sales and revenue, consistent with the $53.7 million, or 27.6% of net sales and revenue, for fiscal year 2007. We incurred lower payroll expenses in fiscal year 2008 of $2.1 million as our accrual for variable incentive pay declined $2.1 million as a result of the current year decline in overall corporate profitability. We also had lower sales commission expense, which declined by $1.6 million, primarily a result of lower retail merchandise sales. We incurred severance and other payroll charges of approximately $2.8 million in connection with the anticipated Appliance Direct transaction and the planned exit of our retail operations. Other corporate payroll and related taxes declined by approximately $1.2 million as a result of lower levels of employment during fiscal year 2008. Our advertising expense decreased $1.0 million compared to fiscal year 2007 as we had fewer markets to serve after our store closings and we continued to emphasize cost control. Expenses at Levelland Hockley increased from $0.4 million in fiscal year 2007 to $2.0 million in fiscal year 2008. This increase is a result of Levelland Hockley commencing production operations during fiscal year 2008. For all of fiscal year 2007, Levelland Hockley was in the development stage. We recognized an impairment charge, in our alternative energy segment, of

Interest Income- Interest income decreased to $2.0 million for fiscal year 2008 from $5.7 million for fiscal year 2007. Approximately $1.6 million of the decrease results from lower yields earned on our excess cash in fiscal year 2008. We recognized $1.3 million of interest income in fiscal year 2007 from our ethanol investment in Millennium, which was sold in fiscal year 2007. We also had lower interest income from our consolidated ethanol entities of approximately $0.3 million, as excess cash was spent on the construction activities at Levelland Hockley and One Earth.

Interest Expense- Interest expense increased to $3.2 million for fiscal year 2008 from $0.2 million for fiscal year 2007. The increase in interest expense was primarily caused by the interest incurred on the Levelland Hockley credit facility subsequent to the commencement of operations at that plant. Prior to the commencement of operations at Levelland Hockley, related interest was capitalized. We capitalized $3.2 million in interest related to plant construction at Levelland Hockley and One Earth and our equity method investment in Patriot in fiscal year 2008. We capitalized $1.6 million of interest in fiscal year 2007.

Loss on Early Termination of Debt - During fiscal year 2007, we completed the early payoff of mortgages for 10 retail locations totaling approximately $7.1 million and modified the collateral securing the revolving line of credit. We incurred a charge of approximately $0.6 million related to this termination of debt.

Gain on Sale of Real Estate - During fiscal year 2008, we completed a transaction for the sale and leaseback of our Cheyenne, Wyoming distribution center under a three year lease term. A pre-tax gain classified as continuing operations, of approximately $1.6 million (net of expenses) resulted from this sale. We also deferred approximately $0.7 million of the gain at January 31, 2009, based upon the present value of the minimum lease payments, and will amortize this deferred gain as a reduction to lease expense over the lease term. The lease has been accounted for as an operating lease. We also sold vacant land adjacent to the Cheyenne, Wyoming distribution center for a gain of $0.7 million.

On April 30, 2007, we completed a transaction for the sale of 86 of our current and former retail store locations to KLAC REX, LLC ("Klac") for $74.5 million in cash, before selling expenses. We also entered into leases to leaseback 40 of the properties from Klac for initial lease terms expiring January 31, 2010, with renewal options for up to 15 additional years. Either REX or Klac had the right to terminate a lease after the initial six months of the initial lease term on 28 of the leases, of which 14 were terminated both in each of fiscal years 2008 and 2007. We also entered into license agreements with Klac for 15 of the properties that allowed us to occupy the properties for up to 90 days rent free. Upon the expiration of the license period, we vacated the 15 properties.

This transaction resulted in a gain (realized and deferred) of $14.8 million. We recognized a pre-tax gain on sale of real estate of $0.1 million and $8.0 million (net of expenses and losses) in fiscal years 2008 and 2007, respectively. We also recognized approximately $1.4 million of the deferred gain as a reduction of lease expense during fiscal years 2008 and 2007. We have a deferred gain of $3.9 million and $5.4 million at January 31, 2009 and 2008, respectively, based upon the present value of the remaining minimum lease payments. The deferred gain will be amortized as a reduction to lease expense over the lease periods or recognized as gain on disposal at the end of the lease period. The leases have been accounted for as operating leases.

Classification of Gain       2008      2007
-----------------------   -------   -------

Continuing Operations     $ 1,396   $ 2,168
Discontinued Operations        97     7,211
                          - -----   - -----

Total Pre-Tax Gain        $ 1,493   $ 9,379
                          - -----   - -----

The following table summarizes the components of the Klac sale and leaseback transaction as of January 31, 2009 (amounts in thousands):

                                Number
                                of            Deferred     Recognized
Property Category               Properties      Gain          Gain
-----------------------------   ----------   ----------   ------------

Vacated                             62       $        -   $      7,707
Leased until January 31, 2010       12            3,279            740
Leased until January 31, 2010
(2 month kickout clause)            12              654          2,425
                                ----------   -- -------   -- ---------
Total                               86       $    3,933   $     10,872
                                ----------   -- -------   -- ---------

Equity in Income of Unconsolidated Ethanol Affiliates - During fiscal years 2008 and 2007, we recognized income of $849,000 and $1,601,000, respectively from our equity investments in Big River and Patriot. Big River operates an ethanol facility with annual capacity of 92 million gallons. Patriot completed construction of its ethanol facility with annual capacity of 100 million gallons during the second quarter of fiscal year 2008. Income from Big River was $2,397,000 and $2,379,000 in fiscal years 2008 and 2007, respectively. We recorded a loss of $1,548,000 and $778,000 from Patriot in fiscal years 2008 and 2007, respectively.

Realized Investment Gains - On August 29, 2007, US BioEnergy Corporation ("US BioEnergy") completed the acquisition of Millennium. In connection with the acquisition, we received 3,693,858 shares of US BioEnergy common stock and approximately $4.8 million of cash as total consideration for our interest in Millennium based upon the conversion of our $14.0 million convertible secured promissory note, accrued interest and related purchase rights. We sold all of the US BioEnergy common stock during fiscal year 2007 and recorded a gain of $24.0 million related to the sale of our Millennium investment and subsequent holdings of US BioEnergy common stock and cash proceeds received from US BioEnergy.

Income from Synthetic Fuel Investments - Results for fiscal years 2008 and 2007 reflect the impact of our equity investment in two limited partnerships, Colona and Somerset, which produced synthetic fuels. The income recognized in fiscal year 2008 represents the estimated final settlements related to Colona and Somerset as all synthetic fuel production ceased during fiscal year 2007. We recognized income from the sales of our interests in Colona and Somerset equal to certain percentages of the Section 29/45K tax credits attributable to the ownership interest sold, subject to production levels. The Section 29/45K tax credit program expired on December 31, 2007. We do not anticipate additional income or loss from these sales.

We also sold our membership interest in the limited liability company that owned a synthetic fuel facility in Gillette, Wyoming. The plant was subsequently sold and during the third quarter of fiscal year 2006, we modified our agreement with the owners and operators of the synthetic fuel facility. Based on the terms of the modified agreement, we currently are not able to determine the likelihood and timing of collecting payments related to production occurring after September 30, 2006. Thus, we cannot currently determine the timing of

                                    Years Ended January 31,
                                -------------------------------
                                   2009              2008
                                -----------     ---------------
February 1, 1999 Colona sale    $       186     $         1,673
July 31, 2000 Colona sale               148               1,335
May 31, 2001 Colona sale                132               1,186
March 30, 2004 Gillette sale              -                   -
October 1, 2005 Somerset sale           225               2,751
                                --- -------     --- -----------
Total                           $       691     $         6,945
                                --- -------     --- -----------

Losses on Derivative Financial Instruments - We recognized unrealized and realized losses of $3.8 million and $2.6 million during fiscal years 2008 and 2007, respectively, related to forward starting interest rate swaps that Levelland Hockley and One Earth entered into during fiscal year 2007. During fiscal year 2008, Levelland Hockley's loss was $0.8 million and One Earth's loss was $3.0 million.

Income Taxes- Our effective tax rate was a benefit of 30.5% and a provision of 36.9% for fiscal years 2008 and 2007, respectively. Our effective tax rate increased, as the minority interest in loss of consolidated subsidiaries is presented in the income statement after income tax benefit or provision.

Minority Interest- Minority interest of $3.2 million represents the owners' (other than us) share of the loss of Levelland Hockley and One Earth. Minority interest of Levelland Hockley and One Earth was $2.3 million and $0.8 million, respectively during fiscal year 2008 and $0.5 million and $0.4 million, respectively during fiscal year 2007.

Loss/Income from Continuing Operations - As a result of the foregoing, loss from continuing operations was $2.3 million for fiscal year 2008 versus income of $26.4 million for fiscal year 2007.

Discontinued Operations - During fiscal year 2008, we closed 23 retail stores that were classified as discontinued operations. As a result of these retail stores and those closed in prior years, we had a loss from discontinued operations, net of tax benefit, of $1.4 million in fiscal year 2008 compared to $2.3 million in fiscal year 2007. We sold 6 retail store locations classified as discontinued operations in fiscal year 2008 compared to selling 71 properties in fiscal year 2007. As a result, we had a gain from disposal of discontinued operations, net of a tax provision, of $0.3 million in fiscal year 2008 compared to $9.8 million in fiscal year 2007.

Net Loss/Income- As a result of the foregoing, net loss was $3.3 million for fiscal year 2008 versus net income of $33.9 million for fiscal year 2007.

Business Segment Results

In addition to the information discussed above, the following sections discuss the results of operations for each of our business segments and corporate and other. As discussed in Note 18, our chief operating decision maker (as defined . . .