(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 August 2, 2003 and the results of its operations and cash flows for the thirteen-week periods and twenty-six-week periods ended August 2, 2003 and August 3, 2002. The results of operations for the thirteen-week periods and twenty-six-week periods ended August 2, 2003 and August 3, 2002 are not necessarily indicative of the results of operations that may be achieved for the entire year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended February 1, 2003.

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 2, 2003 through January 31, 2004, has been designated as 2003.

3. Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated.

4. Impact of New Accounting Pronouncement

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 adopted this new standard effective January 1, 2003. During the thirteen weeks ended May 3, 2003 the Company decided to close seven unprofitable store locations: Tampa, Florida; Memphis (Wolfchase), Tennessee; Phoenix, Arizona; Hillsboro, Te xas (outlet), San Marcos, Texas (outlet) and New River, Arizona (outlet). Five of these store locations were closed and 44 store personnel terminated during the thirteen weeks ended May 3, 2003. The two remaining store locations were closed by June 1, 2003. Twenty-three store personnel were terminated as a result of these two store closings. During 2002, the Company accelerated the amortization of the assets related to these stores (primarily leasehold improvements) so that they would be fully amortized at the expected date of closure. The approximate amount of accelerated amortization included in 2002 was $730,000. In addition to the seven stores mentioned above, a decision was made during the second quarter of 2003 to close one additional unprofitable store location in Skokie, Illinois. Four store personnel were terminated as a result of this store closing. During the first and second quarters of 2003, the Company recorded the exit costs associated with closing the stores of approximately $1.6 mill ion, consisting primarily of lease termination costs of approximately $1.2 million. These costs are included in store closing expenses in the accompanying consolidated statement of operations. The Company does not expect any additional significant costs associated with store closings. Of the $1.6 million in closing expenses, approximately $743,000 is included in accounts payable at the end of the second quarter 2003.

On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Instruments that are indexed to and potentially settled in an issuer's own shares that are not within the scope of SFAS 150 remain subject to existing guidance under EITF 00-14. SFAS No. 150 generally requires liability classification for two broad classes of financial instruments: 1. instruments that represent, or are indexed to, an obligation to buy back the issuer's shares, regardless whether the instrument is settled on a net-cash or gross physical basis, or 2.obligations that can be settled in shares but meet one of the following conditions; derive their value predominately from some other underlying obligation, have a fixed value, or have a value to the counterparty that moves in the opposite direction as the issuer's shares. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003. The adoption of this standard, beginning August 3, 2003, did not have a material impact on the Company's consolidated financial position.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" ("FIN 46"). FIN 46 requires the consolidation of entities in which an enterprise absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquir ed before February 1, 2003. FIN 46 may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. The Company adopted FIN 46 beginning August 3, 2003 with no material impact to the Company's financial position.

5. Long-term Debt

The Company's three-year credit facility with Wells Fargo Retail Finance II, LLC, ("WFRF") was entered into on February 5, 2003 and provides the Company with a maximum available credit limit of $22 million. This agreement expires in February, 2006. The credit facility is secured by substantially all assets of the Company and its subsidiaries and is subject to a borrowing base calculation based primarily on inventory and accounts receivable. The facility has two financial covenants, a minimum excess availability covenant of $1.35 million ($1 million in July through September) and a maximum capital expenditure covenant, established at $2 million for 2003. Interest rates under the facility are at Prime plus 0.5% or LIBOR plus 2.50%, with the ability to reduce the rate if the Company achieves certain financial criteria. As of the date of this report, the Company was in compliance with the covenants under the agreement. The balance outstanding on the Company's line of credit at August 2, 2003 was $16,768,000.

The Company has negotiated an increase of $2 million in its total borrowing availability under its existing credit facility with WFRF. The Company has obtained this increase in order to provide for additional working capital. The full $2 million was available for borrowing on July 15, 2003 and has been extended to the Company by Wells Fargo based upon a loan participation agreement between Wells Fargo and RonHow, LLC, an entity owned and controlled directly or indirectly by Ronald de Waal and W. Howard Lester. Mr. de Waal and Mr. Lester are both major beneficial owners of Company common stock, and Mr. Lester is also a director of the Company. Until November 15, 2003, RonHow, LLC, also has the option to further increase the credit to the Company by purchasing an additional participation of up to $1 million. Wells Fargo will continue to serve as the lending agent for the Company under the credit facility, and the principal covenants and conditions imposed upon the Company pursuant to th e Wells Fargo credit facility agreement have not materially changed. RonHow, LLC's right to repayment of any advances under the credit facility that are attributable to its participation is generally subordinate to the repayment rights of the other credit facility lenders. However, the Company may repay these advances after January 31, 2004, provided the Company meets certain conditions, including the maintenance of an average daily excess availability under the credit facility of at least $2.5 million for the 30 days prior to and 30 days projected immediately following the repayment. This average excess availability requirement is higher than the excess availability otherwise required of the Company under the credit facility.

From time to time, the Company may publish forward-looking statements relating to certain matters including anticipated financial performance, business prospects, the future opening or closing 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: the ability of the Company to generate cash flow from operations in amounts sufficient to meet debt o bligations and provide working capital and funds for growth, consumer spending trends and habits; 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 operations.

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

The Company opened no new locations during the twenty-six weeks ended August 2, 2003 and August 3, 2002 and closed eight locations during the twenty-six weeks ended August 2, 2003 compared to two store closing during the twenty-six weeks ended August 3, 2002. Despite these closings, the Company experienced an increase in total sales compared to the prior year period. The increase in total sales growth is primarily due to the favorable response of the Company's customers to spring and summer merchandise assortments. The Company also experienced a strong response to its direct mail contacts sent during the first half of 2003.

The Company's gross margin was 29.8% for the second quarter of 2003, as compared to 12.2% in the same period of last year. The gross margin also increased for the twenty-six week period ended August 2, 2003 to 29.4% from 23.8% in the same period of the prior year. These significant increases in the gross margin are primarily attributable to increasing comparative sales resulting from customer acceptance of the Company's merchandise assortments which also led to fewer markdowns. The Company's current inventory holdings are more current than last year, currently resulting in fewer markdowns.

Selling, general and administrative expenses (including advertising and catalog production costs) decreased 4.9 percentage points as a percent of sales for the second quarter of 2003 compared to the second quarter of 2002 and decreased 3.5 percentage points for the twenty-six weeks ended August 2, 2003 compared to the same period of the prior year. The decrease is principally a result of savings experienced due to the corporate restructuring in the fourth quarter of 2002 as well as leveraging of expenses due to the comparable store sales increases.

The Company reported a loss before income tax of $2,159,000 or $0.42 per share during the second quarter of 2003, as compared to a loss before income tax of $6,231,000 or $1.05 per share for the second quarter of last year. For the twenty-six week period ended August 2, 2003, the Company reported a loss before income tax of $4,348,000 or $0.83 per share compared to a loss before income tax of $6,926,000 or $1.19 per share for the same period of the prior year. Included in the results of the first half of 2003 are costs associated with the closing of eight unprofitable stores as discussed above, and losses associated with an event conducted to liquidate excess inventory. Operating losses in the first half of 2003 from the closed stores and the liquidation event were $1,187,000 and store closing expenses were $1,630,000.

The average balance of total outstanding debt was $18,478,000 for the twenty-six weeks ended August 2, 2003 compared to $20,587,000 for the same period of 2002. This decrease in average balances resulted principally from the sale of preferred stock in the amount of $5,000,000 in February 2003 and the application of the proceeds of such sale to reduce debt. Interest expense as a percent of sales declined in the first half of 2003 compared to the comparable 2002 period due to the reduction of debt mentioned above and the increase in sales.

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, $4 million in August 2002 and $5 million in February 2003. The Company experienced deficit cash flows of $3,900,000 for the twenty-six weeks ended August 2, 2003 compared to surplus cash flows of $2,341,000 for the twenty-six weeks ended August 3, 2002. This decline in cash flows is principally related to the receipt of an income tax receivable of $4,228,000 in the first half of 2002 but no such receipt in 2003. Also, the decrease in merchandise inventories for the first half of 2003 was only $955,000 compared to a decrease of $4,146,000 for the same period of the prior year. The Company's ability to achieve positive cash flows from operat ing activities depends on its ability to continue to improve sales and to return to profitability. Additionally, the Company may experience needs for additional capital. While the Company has been successful in covering cash flow deficits through line of credit borrowings and private equity investments from its principal shareholder, there can be no assurances that these, or any other financing resources will be available for future needs.

On February 5, 2003, the Company entered into a new three-year credit facility with Wells Fargo Retail Finance II, LLC, ("WFRF") providing the Company with maximum available credit of $22 million. This agreement expires in February 2006. The Wells Fargo credit facility replaced the Company's prior credit arrangement with Bank of America, N.A., which was paid off on February 5, 2003 in conjunction with the initial funding of the new credit facility. The new credit facility is secured by substantially all assets of the Company and its subsidiaries and is subject to a borrowing base calculation based primarily on inventory and accounts receivable. The facility has two financial covenants, a minimum excess availability covenant of $1.35 million ($1 million in July through September) and a maximum capital expenditure covenant, established at $2 million in 2003. Interest rates under the facility are at Prime plus 0.5% or LIBOR plus 2.50%, with the ability to reduce the rate if the Company achieves certain financial criteria. As of the date of this report, the Company was in compliance with all covenants under the agreement. The balance outstanding on the Company's line of credit at August 2, 2003 was $16,768,000.

The Company has negotiated an increase of $2 million in its total borrowing availability under its existing credit facility with WFRF. The Company has obtained this increase in order to provide for additional working capital. The full $2 million was available for borrowing on July 15, 2003 and has been extended to the Company by Wells Fargo based upon a loan participation agreement between Wells Fargo and RonHow, LLC, an entity owned and controlled directly or indirectly by Ronald de Waal and W. Howard Lester. Mr. de Waal and Mr. Lester are both major beneficial owners of Company common stock, and Mr. Lester is also a director of the Company. Until November 15, 2003, RonHow, LLC, also has the option to further increase the credit to the Company by purchasing an additional participation of up to $1 million. Wells Fargo will continue to serve as the lending agent for the Company under the credit facility, and the principal covenants and conditions imposed upon the Company pursuant to th e Wells Fargo credit facility agreement have not materially changed. RonHow, LLC's right to repayment of any advances under the credit facility that are attributable to its participation is generally subordinate to the repayment rights of the other credit facility lenders. However, the Company may repay these advances after January 31, 2004, provided the Company meets certain conditions, including the maintenance of an average daily excess availability under the credit facility of at least $2.5 million for the 30 days prior to and 30 days projected immediately following the repayment. This average excess availability requirement is higher than the excess availability otherwise required of the Company under the credit facility.

At August 2, 2003 there was approximately $3.3 million available under the WFRF line. The Company's credit line had an average balance of $16,648,000 and $16,235,000 for the twenty-six weeks ended August 2, 2003 and August 3, 2002, respectively. During the twenty-six weeks ended August 2, 2003, the WFRF line of credit had a high balance of $19,620,000. The balance outstanding on August 2, 2003 was $16,768,000. In 2002, there existed a term loan with a balance of $1,500,000 at August 3, 2002. The term loan was combined with the WFRF line of credit upon refinancing in February 2003.

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

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 second quarter of 2003 that would materially alter the Company's market risk exposures.

1. Evaluation of disclosure controls and procedures. The Company's Principal Executive Officer and Principal Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rule 240.13a-14(c)) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that the Company's current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.
2. Changes in internal controls over financial reporting. There were no changes in the Company's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 1. LEGAL PROCEEDINGS

See Note 6 to the financial statements included in this report for a description of pending legal proceedings.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

The 2003 Annual Meeting of Shareholders of the Company was held on June 19, 2003. The following matters were submitted to a vote of the Company's shareholders:

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

1. Exhibits: The following exhibits are filed as a part of this report:

1. Reports on Form 8-K: The Company filed a Form 8-K dated June 3, 2003, reporting under Item 9 a press release announcing its earnings and operating results for the quarterly period ended May 3, 2003. The Company also filed a Form 8-K dated July 10, 2003, reporting under Item 5 an amendment to its Loan and Security Agreement with Wells Fargo Retail Finance II LLC.

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: September 16, 2003