(Unaudited)

1. Unaudited Interim Periods

In the opinion of the Company's management, all adjustments (all of which are normal and recurring) have been made which are necessary to fairly state the financial position of the Company as of November 2, 2002 and the results of its operations and cash flows for the thirteen-week periods and thirty-nine-week periods ended November 2, 2002 and November 3, 2001. The results of operations for the thirteen-week periods and thirty-nine-week periods ended November 2, 2002 and November 3, 2001 are not necessarily indicative of the results of operations that may be achieved for the entire year.

2. Definition of Fiscal Year

The Company has a 52-53 week year which ends on the Saturday closest to January 31. The period from February 3, 2002 through February 1, 2003, has been designated as 2002.

3. Impact of New Accounting Pronouncement

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that an impairment loss be recognized only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and that the measurement of any impairment loss be the difference between the carrying amount and the fair value of the asset. The Company adopted this new standard effective February 3, 2002, and the adoption of this new standard did not have a material impact on its consolidated financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This accounting treatment differs from the provisions of EITF 94-3, under which liabilities associated with exit or disposal activities were generally recognized upon the Company's commitment to, and communication of, an exit or disposal activity. This statement also states that fair value is the objective for initial measurement of the liability. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. The Company will adopt this new standard effective January 1, 2003 and management believes adoption of this new standard will not have a material impact on its consolidated financial position or results of operation.

4. Derivatives

The Company uses forward exchange contracts to reduce exposure to foreign currency fluctuations related to certain purchase commitments. The Company recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. The accounting for changes in fair value of a derivative depends on the intended use of the derivative and the vesting designation. The Company did not enter into any derivative contracts during the quarters or thirty-nine week periods ended November 2, 2002 or November 3, 2001.

5. Long-term Debt

The Company's credit agreement with Bank of America, N.A. ("BofA"), which expires in November 2003, provides a line of credit and a $3 million term note. The term note has quarterly principal payments of $250,000 which began on April 30, 2001. The borrowing base under the Company's primary line of credit is limited to $25 million and is secured by first priority liens upon substantially all of the Company's existing and future acquired assets including, but not limited to, accounts receivable, inventory, and property and equipment. The line of credit contains various financial and nonfinancial covenants which limit the Company's ability to incur indebtedness, merge, consolidate, acquire or sell assets; requires the Company to maintain a minimum tangible net worth of $16 million; limits the Company's capital expenditures to $4,000,000 annually; and requires the Company to satisfy a fixed charge coverage ratio of .75 to 1 for the quarter ended November 2, 2002. The Company was out of com pliance with the minimum tangible new worth covenant and the fixed charge coverage ratio covenant at November 2, 2002. At November 2, 2002 there was approximately $373,000 available under the BofA line.

On August 2, 2002, the Company entered into the Third Amendment to the credit agreement with BofA (the "Third Amendment"). The Third Amendment relaxed certain financial covenants of the Company with respect to the quarter ended August 3, 2002. In addition, the Third Amendment eliminated the Company's obligation to pay a fee in order to terminate the Loan and Security Agreement prior to its expiration. In return, the Company agreed to an increase in the rate of interest paid to Bank of America from the prime rate plus one percent (1%) to the prime rate plus two percent (2%), which further increased to the prime rate plus three percent (3%) on November 1, 2002. Finally, the Third Amendment contained certain other provisions relating to the Company's use of the proceeds from the sale of the Series 2002-A Preferred Stock (see Note 8 below).

The Company was not in compliance with the fixed-charge coverage ratio and the minimum tangible net worth covenants set forth in the agreement as of November 2, 2002 and does not expect to comply with such covenants for the period ending February 1, 2003. Accordingly, all of the indebtedness owed to BofA as of such date of $18.7 million has been classified as current in the Company's balance sheet on November 2, 2002. BofA has not asserted a default under the terms of Loan Agreement and has continued to advance funds to the Company under the revolving line of credit. BofA has agreed to forbear exercising default remedies as a result of the covenant noncompliance until December 31, 2002 to afford the Company time to obtain a new facility. The Company was in the process of negotiating a new banking facility subsequent to the end of the third quarter ended November 2, 2002 (see Note 9 below). Upon finalizing the new financing agreement, the Company expects to be in compliance with covena nts under the new agreement. However, there is no assurance that such new facility will be finalized.

6. Income Taxes

The Company has net operating loss carryforwards that can be used to offset future taxable income. The carryforwards begin to expire in 2021. As of November 2, 2002, the Company continues to maintain a valuation allowance due to uncertainty with respect to the future recoverability of these amounts.

7. Commitments and Contingencies

The Company is involved in various claims, administrative agency proceedings and litigation arising out of the normal conduct of its business. Although the ultimate outcome of such litigation cannot be predicted, the management of the Company, after discussions with counsel, believes that resulting liability, if any, will not have a material effect upon the Company's financial position or results of operations.

8. Preferred Stock

On August 2, 2002, the Company closed a definitive agreement for the purchase from the Company by Inter-Him N.V., Clark J. Hinkley, a director and the Chief Executive Officer of the Company, and three other directors of the Company, W. Howard Lester, William E. Haslam and Margaret A. Gilliam of 200,000 shares of a newly issued Series 2002-A Preferred Stock for a total purchase price of $4 million.

The Series 2002-A Preferred Stock is convertible into common stock at a fixed rate of $2.72 per share. Until converted, the Series 2002-A Preferred Stock is entitled to receive quarterly dividends that cumulate annually at a rate of 8% per annum, which would be reduced to 6% per annum if certain profitability targets are met. Dividends payable on October 1, 2002 and July 1, 2003 will be payable in additional shares of Series 2002-A Preferred Stock, and dividends payable on January 1, 2003 and April 1, 2003 will be payable in cash. After July 1, 2003, dividends will be payable in Series 2002-A Preferred Stock or cash as the holder may elect. Following the third anniversary of the original issuance date, the Series 2002-A Preferred Stock will be redeemable at the option of the Company at a price equal to the initial purchase price plus cumulated and accrued but unpaid dividends.

In connection with the closing of the sale of the Series 2002-A Preferred Stock, the Company's existing Series 2001-A Preferred Stock was amended by exchange for an Amended Series 2001-A Preferred Stock for purposes of integrating the voting rights of both series of the Company's preferred stock. Except for the amended voting rights, the terms of the Amended Series 2001-A Preferred Stock, including dividend and conversion rights, are unchanged. The Series 2002-A Preferred Stock ranks on parity with the Amended Series 2001-A Preferred Stock for purposes of dividends and distribution of assets on liquidation.

The holders of the Amended Series 2001-A Preferred Stock and the Series 2002-A Preferred Stock, voting together as a single class, have the right to designate a proportionate number of members of the Board of Directors equal as nearly as possible to the percentage of the Company's outstanding common stock represented by the Amended Series 2001-A Preferred Stock and the Series 2002-A Preferred Stock on an as-converted basis, which represents four members of the authorized seven member Board, up from the three members previously designated by the holders of the Series 2001-A Preferred Stock. The Amended Series 2001-A Preferred Stock and the Series 2002-A Preferred Stock also vote with the common stock on an as-converted basis for the election of the remaining directors and on all other matters on which the common stock votes. One designee of the Powell family stockholders, who collectively own 44.6% of the outstanding common stock, will continue to serve as one of the seven members of the Board.

For so long as the outstanding shares of Amended Series 2001-A Preferred Stock and Series 2002-A Preferred Stock in the aggregate continue to represent on an as-converted basis at least 10% of the outstanding common stock, the Company has agreed not to take certain actions without the prior approval of the holders of a majority of the combined outstanding Amended Series 2001-A Preferred Stock and Series 2002-A Preferred Stock, including amendment of the Company's Certificate of Incorporation or Bylaws, changes in the size of the Company's authorized Board of Directors, redemption of or payment of dividends with respect to common stock or other securities junior to the Amended Series 2001-A Preferred Stock and the Series 2002-A Preferred Stock, amendment or adoption of employee stock option or purchase plans, authorization of certain mergers or sales of substantially all of the Company's assets, entering into transactions with affiliates, and incurring indebtedness or making acquisitions or capital expenditures in excess of certain dollar amounts.

The holders of the Amended Series 2001-A Preferred Stock and the Series 2002-A Preferred Stock are entitled to registration rights with respect to the common stock issuable upon conversion of the Amended Series 2001-A Preferred Stock and the Series 2002-A Preferred Stock and to preemptive rights in connection with future sales of common stock or other equity securities by the Company.

Proceeds from the sale of the Series 2002-A Preferred Stock were used to provide capital for projects identified by the Company's Chief Executive Officer, Mr. Hinkley, and approved by the Board of Directors, as well as for general working capital needs of the Company. A substantial portion of the proceeds was also used to reduce debt levels.

Including the sale of the Series 2002-A Preferred Stock, Inter-Him, N.V. owns 44.7% of the Company's outstanding shares of common stock on an as-converted basis and has been a Schedule 13D filing shareholder of the Company since 1994. Mr. de Waal is also Vice Chairman of the board of directors of Saks, Inc., as well as Chairman of We International, B.V., which operates more than 350 fashion specialty stores in Europe.

9. Subsequent Event

Subsequent to the August 2, 2002 date of the Third Amendment to the BofA loan agreement (see note 5 above), the Company began seeking alternative sources of bank credit and received multiple proposals from various lenders. As of December 17, 2002, the Company is in the process of final negotiation and documentation of a new credit agreement with Wells Fargo Retail Finance, LLC ("WFRF") which is expected to replace the existing $25 million revolving credit line with BofA and substantially all of the BofA term loan balance of $1.25 million. The borrowings against this new line of credit are expected to be secured by substantially all of the Company's assets which consist primarily of inventory and accounts receivable, and will contain various financial and nonfinancial covenants which will limit the Company's ability to incur indebtedness, merge, consolidate, acquire or sell assets; will require the Company to maintain a minimum availability of $1 million; and will restrict capital ex penditures to $3 million annually. WFRF has requested that $3 million of the credit be secured by letters of credit or secured guaranties from certain of the Company's preferred shareholders who have indicated a willingness to provide such credit enhancements subject to further review of the Company's business plans and final documentation. WFRF is not contractually committed to provide any financing to the Company until the final terms of the loan documents are negotiated and executed and, accordingly, there is no assurance that the Company will be able finalize the WFRF loan transaction. If the Company is unable to conclude a loan transaction with WFRF or some other lender in the near future, it will need to renegotiate the terms of its existing indebtedness to BofA (or obtain relief from certain covenants), seek other sources of financing or restructure the Company's operations in order to continue to operate as a going concern, unless the Company's sales and profit margins significantly improve.

From time to time, the Company may publish forward-looking statements relating to certain matters including anticipated financial performance, business prospects, the future opening of stores, inventory levels, anticipated capital expenditures, and other matters. All statements other than statements of historical fact contained in this Form 10-Q or in any other report of the Company are forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of that safe harbor, the Company notes that a variety of factors, individually or in the aggregate, could cause the Company's actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements including, without limitation, the following: ability of the Company to successfully refinance its existing bank obligations, consumer spending trends and hab its; competition in the retail clothing segment; weather conditions in the Company's operating regions; laws and government regulations; general business and economic conditions; availability of capital; success of operating initiatives and marketing and promotional efforts; and changes in accounting policies. In addition, the Company disclaims any intent or obligation to update those forward-looking statements.

The following table sets forth for the periods indicated, the percentage of net sales represented by items in the Company's statement of earnings.

The following table reflects the sources of the changes in Company sales for the periods indicated.

The Company opened no new locations during the thirteen weeks ended November 2, 2002 or the thirteen weeks ended November 3, 2001. The Company had less clearance sale inventory in its retail stores and the outlets were transitioning to a more normalized merchandise mix after aggressive liquidation efforts of older units in the first half of the year which put pressure on sales causing a decline. Also contributing to the sales decline during the current quarter was the general economic slow down which affected many businesses in the apparel sector.

The Company opened no new locations during the thirty-nine weeks ended November 2, 2002 or the thirty-nine weeks ended November 3, 2001. The decline in total sales growth for the thirty-nine weeks ended November 2, 2002 was primarily due to the reduction in the number of warehouse sales during the first three quarters of 2002, as compared to the same period of 2001. This change in timing and frequency of events accounted for $3.4 million of the total sales decline for the current thirty-nine week period compared to the same period of the prior year. Comparable store sales declines for the thirty-nine week period ended November 2, 2002 are primarily attributable to lower sales in the Company's outlet stores as the Company aggressively liquidated older inventories at reduced retail prices.

The Company's gross margin was 31.4% for the third quarter of 2002, as compared to 22.8% in the same period of last year. This increase is primarily due to an increase in the gross margin in the full-price retail stores due to improved content and sell-through of new merchandise, as well as reduced purchase levels. Additionally, gross margins in the outlet stores began to return to more historical levels once the Company completed the aggressive liquidation of older inventory during the first half of the year. The gross margin also increased for the thirty-nine week period ended November 2, 2002 to 26.3% from 21.7% in the same period of last year. This year-to-date increase in the gross margin is attributable to the same reasons cited in the explanation of the quarter increase.

Selling, general and administrative expenses (including advertising and catalog production costs) increased 3.3 percentage points as a percent of sales from the third quarter of 2001 to the third quarter of 2002 and 2.8% of sales for the thirty-nine weeks ended November 2, 2002 as compared to the same period of the prior year. While these expenses increased as a percent of sales during both the quarter and year-to-date periods due to sales declines, they declined in the aggregate dollar amount by 5.9% and 5.4% for the quarter and year-to-date, respectively.

The average balance of total outstanding debt was $19,665,000 for the thirty-nine weeks ended November 2, 2002 compared to $23,740,000 for the same period of 2001. This decrease in average balances resulted from the sale of preferred stock in the amount of $4,000,000 on August 2, 2002 and the application of the proceeds of such sale to reduce debt. While interest expense as a percent of sales remained flat throughout all periods presented at approximately 1.5%, aggregate interest expense declined in both 2002 periods compared to the comparable 2001 periods.

The Company's primary needs for liquidity are to finance its inventories and revolving charge accounts, cover operating cash flow deficits and to invest in remodeling, fixtures and equipment. The Company has relied on its bank credit facility to meet these needs as well as proceeds from preferred stock investments of $6 million in February 2001 and $4 million in August 2002. The Company experienced deficit cash flows for the thirty-nine weeks ended November 2, 2002 and 2001 of $2,775,000 and $4,808,000, respectively. Although the Company experienced improvement in its cash flow in the 2002 period compared to 2001, its ability to achieve positive cash flows from operating activities depends on its ability to improve sales and profitability.

The Company's credit agreement with Bank of America, N.A. ("BofA") which expires in November 2003, provides a line of credit and a $3 million term note. The term note has quarterly principal payments of $250,000 which began on April 30, 2001. The borrowing base under the Company's primary line of credit is limited to $25 million and is secured by first priority liens upon substantially all of the Company's existing and future acquired assets including, but not limited to, accounts receivable, inventory, and property and equipment. The line of credit contains various financial and nonfinancial covenants which limit the Company's ability to incur indebtedness, merge, consolidate, acquire or sell assets; requires the Company to maintain a minimum tangible net worth of $16 million; limits the Company's capital expenditures to $4,000,000 annually; and requires the Company to satisfy a fixed charge coverage ratio of .75 to 1 for the quarter ended November 2, 2002.

On August 2, 2002, the Company entered into the Third Amendment to the credit agreement with BofA (the "Third Amendment"). The Third Amendment relaxed certain financial covenants of the Company with respect to the quarter ended August 3, 2002. In addition, the Third Amendment eliminated the Company's obligation to pay a fee in order to terminate the Loan and Security Agreement prior to its expiration. In return, the Company agreed to an increase in the rate of interest paid to BofA from the prime rate plus one percent (1%) to the prime rate plus two percent (2%), which further increased to the prime rate plus three percent (3%) on November 1, 2002.

At November 2, 2002 there was approximately $373,000 available under the BofA line. This line had an average balance of $15,577,000 and $17,369,000 for the thirty-nine weeks ended November 2, 2002 and November 3, 2001, respectively. During the thirty-nine weeks ended November 2, 2002 and November 3, 2001, this line of credit had a high balance of $18,478,000 and $21,458,000, respectively. The balance outstanding on November 2, 2002 was $17,434,000 compared to $21,141,000 on November 3, 2001.

The Company was not in compliance with the fixed-charge coverage ratio and the minimum tangible net worth covenants set forth in the BofA agreement as of November 2, 2002 and does not expect to comply with such covenants for the period ending February 1, 2003. Accordingly, all of the indebtedness owed to BofA as of such date of $18.7 million has been classified as current in the Company's balance sheet on November 2, 2002. BofA has not asserted a default under the terms of loan agreement and has continued to advance funds to the Company under the revolving line of credit. BofA has agreed to forbear exercising default remedies as a result of the covenant noncompliance until December 31, 2002 to afford the Company time to obtain a new facility. As described below, the Company was in the process of negotiating a new banking facility subsequent to the end of the third quarter ended November 2, 2002, but there is no assurance that such new facility will be finalized.

The Company considers the following as measures of liquidity and capital resources as of the dates indicated:

Subsequent to the August 2, 2002 date of the Third Amendment to the BofA loan agreement, the Company began seeking alternative sources of bank credit and received multiple proposals from various lenders. As of December 17, 2002, the Company was in the process of final negotiation and documentation of a new credit agreement with Wells Fargo Retail Finance, LLC ("WFRF") which is expected to replace the existing $25 million revolving credit line with BofA and substantially all of the BofA term loan balance of $1.25 million. The borrowings under this new line of credit are expected to be secured by substantially all of the Company's assets which consist primarily of inventory and accounts receivable, and will contain various financial and nonfinancial covenants which will limit the Company's ability to incur indebtedness, merge, consolidate, acquire or sell assets; will require the Company to maintain a minimum availability of $1 million; and will restrict capital expenditures to $3 million annually. WFRF has requested that $3 million of the credit be secured by letters of credit or secured guaranties from certain of the Company's preferred shareholders who have indicated a willingness to provide such credit enhancements subject to further review of the Company's business plans and final documentation. WFRF is not contractually committed to provide any financing to the Company until the final terms of the loan documents are negotiated and executed and, accordingly, there is no assurance that the Company will be able finalize the WFRF loan transaction. If the Company is unable to conclude a loan transaction with WFRF or some other lender in the near future, it will need to renegotiate the terms of its existing indebtedness to BofA (or obtain relief from certain covenants), seek other sources of financing or restructure the Company's operations in order to continue to operate as a going concern, unless the Company's sales and profit margin significantly improve.

The Company's business is subject to seasonal influences, with the major portion of sales realized during the fall season (third and fourth quarters) of each year, which includes the back-to-school and holiday selling seasons. In light of this pattern, selling, general and administrative expenses are typically higher as a percentage of sales during the spring season (first and second quarters) of each year.

Inflation affects the costs incurred by the Company in its purchase of merchandise and in certain components of its selling, general and administrative expenses. The Company attempts to offset the effects of inflation through price increases and control of expenses, although the Company's ability to increase prices is limited by competitive factors in its markets. Inflation has had no meaningful effect on the Company's operations.

The primary objective of this disclosure is to provide forward-looking quantitative and qualitative information about the Company's potential exposure to market risks. The term "market risk" for the Company refers to the risk of loss arising from adverse changes in interest rates and various foreign currencies. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. There have been no significant changes to this forward-looking information during the third quarter 2002 which would materially alter the Company's market risk exposures.

The Company's Chief Executive Officer and Chief Financial Officer (collectively, the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures. Based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report, such officers have concluded that the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in this report is accumulated and communicated to allow timely decisions regarding required disclosure.

The Certifying Officers also have indicated that there were no significant changes in the Company's internal controls or other factors that could significantly affect such controls subsequent to the date of their last evaluation.

ITEM 1. LEGAL PROCEEDINGS

The Company is from time to time involved in routine litigation incidental to the conduct of its business. As of this date, the Company is not a party to, nor is any of its property subject to, any material pending legal proceedings.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The rights of the holders of shares of Common Stock are subject to limitations and modifications by the terms of the Company's outstanding preferred stock. In August 2002, the Company issued shares of its Series 2002-A Preferred Stock and simultaneously amended in certain respects the terms of its previously outstanding Series 2001-A Preferred Stock by exchanging such series for a new series of Amended Series 2001-A Preferred Stock. The terms of such securities, including a description of the limitation on the rights of holders of Common Stock, is contained in the Company's Form 8-K dated August 2, 2002, which is incorporated herein by reference.

As described above, on August 2, 2002, the Company sold 200,000 shares of Series 2002-A Preferred Stock for $4,000,000 in cash to Inter-Him, N.V., W. Howard Lester, William E. Haslam, Clark J. Hinkley and Margaret Gilliam in a private placement in which no underwriters or brokers were involved. Simultaneously, the Company issued 328,484 shares of its Amended Series 2001-A Preferred Stock in exchange for 328,484 shares of previously issued Series 2001-A Preferred Stock. These securities were issued in reliance on the exemption from registration under the Securities Act of 1933 provided by Section 4(2) thereof. All of the purchasers were existing officers or directors or significant shareholders of the Company and all purchased for investment without a view to any distribution thereof.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As noted above under Item 2, the Company was not in compliance with certain of its covenants under its loan agreement with BofA as of November 2, 2002, but BofA had not at such date or as of December 17, 2002 asserted a default as a result of such noncompliance.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

1. Exhibits: The following exhibits are filed as part of this Form 10-Q:

1. Reports on Form 8-K: The Company filed a Form 8-K dated August 2, 2002, reporting under Item 5 the closing of the sale of its Series 2002-A Preferred Stock. No financial statements were filed with such report.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

HAROLD'S STORES, INC.

By: /s/ Clark J. Hinkley

Clark J. Hinkley

Chief Executive Officer

By: /s/ Jodi L. Taylor

Jodi L. Taylor

Chief Financial Officer

Date: December 17, 2002

I, Clark J. Hinkley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Harold's Stores, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were any significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: December 17, 2002

/s/ Clark J. Hinkley