2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30,
2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to
__________
Commission File No. 1-10892
HAROLD'S STORES, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1308796
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
5919 Maple Avenue (214) 366-0600
Dallas, Texas 75235 (Registrant's telephone
(Address of principal number,
executive offices) including area code)
(Zip Code)
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 12 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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of May 31, 2005, the registrant had 6,222,308 shares of Common
Stock outstanding.
Harold's Stores, Inc. & Subsidiaries
Index to
Quarterly Report on Form 10-Q
For the Period Ended April 30, 2005
Part I - FINANCIAL INFORMATION Pag
e
Item Financial Statements
1.
Consolidated Balance Sheets - April 30, 2005 (unaudited) and 3
January 29, 2005
Consolidated Statements of Income -
Thirteen Weeks ended April 30, 2005 (unaudited) and May 1, 5
2004 (Restated), (unaudited)
Consolidated Statements of Cash Flows -
Thirteen Weeks ended April 30, 2005 (unaudited) and May 1, 6
2004 (Restated), (unaudited)
Notes to Interim Consolidated Financial Statements 7
Item Management's Discussion and Analysis of Financial Condition and 13
2. Results of Operations
Item Quantitative and Qualitative Disclosure About Market Risk 16
3.
Item Controls and Procedures 16
4.
Part II - OTHER INFORMATION
Item Legal Proceedings 17
1.
Item Unregistered Sales of Equity Securities and Use of Proceeds 17
2.
Item Defaults Upon Senior Securities 17
3.
Item Submission of Matters to a Vote of Security Holders 17
4.
Item Other Information 17
5.
Item Exhibits 17
6.
Signatures 7 21
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
April January
30, 29,
2005 2005
(Unaud
ited)
Current assets:
Cash and cash equivalents $ $
1,145 674
Trade accounts receivable, less
allowance for doubtful accounts 8,178 7,343
of $200 as of April 30 and
January 29
Note and other receivables 101 125
Merchandise inventories 22,415 20,123
Prepaid expenses 960 1,254
Total current assets 32,799 29,519
Property and equipment, at cost 44,459 44,211
Less accumulated depreciation (31,66 (30,66
and amortization 1) 5)
Net property and equipment 12,798 13,546
Total assets $45,59 $43,06
7 5
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
(In Thousands Except Share Data)
April January
30, 29,
2005 2005
(Unaud
ited)
Current liabilities:
Accounts payable $ $
5,645 7,116
Redeemable gift certificates 845 1,130
Accrued payroll expenses and 870 613
bonuses
Accrued rent expense 1,225 1,141
Current maturities of long-term 22,524 19,95
debt (See Note 6) 8
Total current liabilities 31,109 29,95
8
Accrued rent expense, net of 5,276 5,630
current maturities
Long-term debt, net of current 1,798 580
maturities
Total liabilities 38,183 36,16
8
Commitments and contingencies
(See Note 8)
Convertible preferred stock of
$.01 par value
Amended Series 2001-A,
authorized 600,000 shares,
issued and outstanding 337,461 6,749 6,725
as of April 30 and 336,231 as of
January 29
Series 2002-A, authorized
300,000 shares, issued and
outstanding 220,039 as of April 4,394 4,340
30 and 217,732 as of January 29
Series 2003-A, authorized
100,000 shares, issued and
outstanding 54,791 as of April 5,460 5,426
30 and 54,514 as of January 29
2001-A and 2002-A entitled to
$20.00 per share, and 2003-A
entitled to $100.00 per share,
in each case plus accrued but
unpaid dividends in liquidation
16,603 16,49
1
Stockholders' deficit:
Common stock of $.01 par value
Authorized 25,000,000 shares;
issued and outstanding 62 62
6,222,308 as of April 30 and
6,222,308 as of January 29
Additional paid-in capital 34,468 34,46
8
Accumulated deficit (43,71 (44,1
7) 22)
(9,187 (9,59
) 2)
Less: Treasury stock of 205 shares
as of April 30 and January 29 (2) (2)
recorded at cost
Total stockholders' deficit (9,189 (9,59
) 4)
Total liabilities and $45,59 $43,0
stockholders' deficit 7 65
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(Unaudited)
13 Weeks Ended
April May 1,
30, 2004
2005
(Restat
ed)
Sales $23,9 $24,1
65 69
Costs and expenses:
Costs of goods sold (including
occupancy and central buying
expenses, exclusive of items 14,46 14,87
shown separately below) 9 3
Selling, general and 7,401 7,258
administrative expenses
Depreciation and amortization 974 1,032
Interest expense 339 215
Total costs and expenses 23,18 23,37
3 8
Income before income taxes 782 791
Provision for income taxes - -
Net income $ $
782 791
NET INCOME APPLICABLE TO
COMMON STOCKHOLDERS:
Net income $ $
782 791
Less: Preferred stock
dividends and accretion of 377 540
preferred stock issuance
costs
Net income applicable to $ $
common stockholders 405 251
Net income per common share:
Basic $ $
0.07 0.04
Diluted $ $
0.04 0.04
HAROLD'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
13 Weeks Ended
April 30, May 1,
2005 2004
(Restate
d)
Cash flows from operating
activities:
Net income $ $
782 791
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 974 1,032
Gain on sale of assets (7) (5)
Changes in assets and
liabilities:
Increase in trade and other (836) (608)
accounts receivable
(Increase) decrease in (2,292) 214
merchandise inventories
Decrease (increase) in prepaid 294 (696)
expenses
Decrease in accounts payable (1,471) (818)
Decrease in accrued expenses (298) (315)
Net cash used in operating (2,854) (405)
activities
Cash flows from investing
activities:
Acquisition of property and (226) (270)
equipment
Proceeds from disposal of 7 5
property and equipment
Issuance of note receivable - (2)
Payments received for notes 24 6
receivable
Net cash used in investing (195) (261)
activities
Cash flows from financing
activities:
Borrowings on long-term debt 1,300 -
Payments on long-term debt (665) (61)
Advances on revolving line of 28,267 26,588
credit
Payments on revolving line of (25,118 (25,45
credit ) 6)
Proceeds from exercise of common - 5
stock options
Preferred stock dividends (264) (407)
Net cash provided by financing 3,520 669
activities
Increase in cash 471 3
Cash and cash equivalents at 674 1,118
beginning of period
Cash and cash equivalents at end $ $
of period 1,145 1,121
Non-cash investing and financing
activities:
Issuance of preferred stock in - 142
lieu of rent
Preferred stock dividends paid 99 114
in shares of preferred stock
HAROLD'S STORES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2005 and May 1, 2004
(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 April 30, 2005 and the results of its operations and cash
flows for the thirteen week periods ended April 30, 2005 and May
1, 2004. The results of operations for the thirteen week periods
ended April 30, 2005 and May 1, 2004 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
January 29, 2005.
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 January 30, 2005 through
January 28, 2006, has been designated as 2005.
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 Pronouncements
On December 16, 2004, the FASB issued FASB Statement No. 123
(revised 2004) ("SFAS 123(R)"), "Share-Based Payment", which must
be adopted by the Company no later than January 29, 2006. SFAS
123(R) requires an entity to recognize compensation expense in an
amount equal to the fair value of share-based payments granted to
employees. The Company will adopt SFAS 123(R) in the required
period and apply the standard using the modified prospective
method, which requires compensation expense to be recorded for
new and modified awards. For any unvested portion of previously
issued and outstanding awards, compensation expense is required
to be recorded based on the previously disclosed SFAS 123
methodology, and amounts. Prior periods presented are not
required to be restated. The Company is still assessing the
impact on its results of operations and financial position upon
the adoption of SFAS 123(R).
5. Restatement of Financial Statements
In light of a recent SEC clarification on lease accounting,
the Company re-evaluated its lease accounting practices and has
corrected the way it accounts for its leases, specifically the
accounting for operating leases with scheduled rent increases and
tenant allowances.
Under the requirements of FASB Technical Bulletin 85-3,
"Accounting for Operating Leases with Scheduled Rent Increases,"
rent expense should be amortized on a straight-line basis over
the term of the lease. In prior periods, the Company had
determined that the term of the lease begins on the commencement
date of the lease, which generally coincides with the store
opening date, instead of at the time the Company takes physical
possession of the property to start construction on leasehold
improvements. This had the effect of excluding the construction
period of the stores from the calculation of the period over
which rent is expensed. The Company has restated its previously
reported Consolidated Financial Statements to correct its
accounting for scheduled rent increases by including the
construction period.
In addition, under FASB Technical Bulletin 88-1, "Issues
Relating to Accounting for Leases," lease incentives such as
tenant allowances received from the landlord to cover
construction costs incurred by the Company should be reflected as
a deferred liability, amortized over the term of the lease and
reflected as a reduction to rent expense. The Company had
previously classified tenant allowances as a reduction to store
build out costs (leasehold improvements). As a result, it
reflected the amortization as a reduction to depreciation expense
instead of as a reduction to rent expense. The Company has
restated its previously reported Consolidated Financial
Statements to properly account for tenant allowances.
The restatement primarily resulted in a decrease to retained
earnings of $691,000 as of January 31, 2004 and an increase in
net earnings of $14,000 for the thirteen weeks ended May 1, 2004.
The majority of the adjustments relate to periods prior to 2003.
As a result of these restatements, the Company's financial
results for the thirteen weeks ended May 1, 2004 have been
adjusted as follows (in thousands, except per share data):
As As
Previous Restated
ly
Reported
May 1, May 1,
2004 Adjustme 2004
nts
Sales $24,169 - $24,169
Costs and expenses:
Cost of goods sold 15,137 (264) 14,873
Selling, general and 7,258 - 7,258
administrative expenses
Depreciation and 782 250 1,032
amortization
Interest expense 215 - 215
23,392 (14) 23,378
Income before income 777 14 791
taxes
Provision for income - - -
taxes
Net income $ 14 $
777 791
NET INCOME APPLICABLE TO
COMMON STOCKHOLDERS:
Net income $ 14 $
777 791
Less: Preferred stock
dividends and accretion 540 - 540
of preferred stock
issuance costs
Net income applicable to
common stockholders $ 14 $
237 251
Net income per common
share:
Basic $ 0.00 $
0.04 0.04
Diluted $ 0.00 $
0.04 0.04
6. Long-term Debt
The Company's original three-year credit facility with Wells
Fargo Retail Finance II, LLC, ("WFRF") was entered into on
February 5, 2003 and provided the Company with a maximum
available credit limit of $22 million. This agreement was
scheduled to expire in February 2006. As discussed below, on
April 29, 2004, the maximum available credit line was increased
to the lesser of $25 million or $22 million plus outstanding
participant advances, and the expiration date was extended to
February 5, 2007. 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 and a maximum capital expenditure covenant,
established at $2.75 million for 2005. 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. The balance outstanding on the Company's
line of credit at April 30, 2005 was $22,326,000 which includes
the $4 million outstanding under the bridge facility discussed
below. At April 30, 2005 the Company's availability under the
WFRF line of credit was approximately $4.2 million above the
minimum availability requirement of $1.35 million and the average
interest rate on the credit line was 5.63%.
Subsequent to securing the initial credit facility, the
Company negotiated an increase of $2 million in its total
borrowing availability under its existing credit facility with
WFRF. The Company 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 established in
July 2003 which is 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 the Company's common stock,
and Mr. Lester is also a director of the Company.
In order to achieve additional liquidity, on April 29, 2004,
the Company completed an amendment to the credit facility with
WFRF which increased the Company's borrowing availability under
the facility. The amendment increased the Company's maximum
inventory advance rate cap from 75% to 80% during non-peak times
and from 80% to 85% during peak times. Peak times were amended
to include the eight weeks prior to Easter and the eight weeks
prior to October 1. Additionally, the amendment extended the
term of the credit facility by one year, with a new expiration of
February 5, 2007. The amendment also increased the maximum
revolver amount from $22 million to the lesser of $25 million or
$22 million plus outstanding participant advances. Finally, the
amendment provided for an additional increase of $2 million in
the Company's borrowing availability under the facility based
upon an increase in the existing loan participation agreement
between WFRF and RonHow, LLC. WFRF 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 the WRFR 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
total $4 million participation is generally subordinate to the
repayment rights of the other credit facility lenders. However,
the Company may repay these advances provided it 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. The average excess availability
requirement is higher than the excess availability otherwise
required of the Company under the credit facility. If the
Company does not repay the new $2 million loan participation of
RonHow during the 18 months subsequent to April 29, 2004, RonHow
will have an option at that time to convert any of the
incremental $2 million not repaid into shares of authorized but
unissued 2003-A Preferred Stock, which will be convertible into
shares of common stock at a price of $2.524 per share, which was
the 20-day average closing price of the Company's common stock
for the period ending immediately before closing of the loan
amendment. Additionally, if the Company has not repaid the
initial $2 million of loan participation by February 2006, the
Company will pay an additional 4% fee per annum on the
outstanding participation amount up to $2 million. This
transaction was approved by the independent directors.
The Company was in compliance with its debt covenants for
the quarter ended April 30, 2005. Although the Company's line of
credit with WFRF does not expire until February 2007, the Company
has classified its borrowings under its line of credit as current
in its consolidated balance sheets due to the terms of its
agreement with the lender. Under the bank agreement, there is an
acceleration clause which potentially allows the bank to demand
immediate payment of all outstanding borrowings upon the
occurrence of a material adverse change in the Company's
operations or financial position. Determination of what
constitutes a material adverse change is at the discretion of the
bank, however, it is subject to reasonableness standards. In
addition, the Company is required to maintain a lock-box
agreement with the bank whereby all cash received is applied
against current borrowings. As a result of these items, the
Company is required to classify its line of credit borrowings as
current as proscribed by EITF 95-22, "Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit
Agreements that include both a Subjective Acceleration Clause and
a Lock-Box Arrangement."
7. Income Taxes
The Company's federal net operating losses of approximately
$21.6 million will begin to expire in 2021. The Company also has
state net operating losses of approximately $30.7 million which
begin to expire in 2005. The Company provides a valuation
allowance for all deferred tax assets because the Company's
recent history of operating losses made the realization of these
assets more unlikely than likely.
The ability of the Company to utilize net operating loss
carryforwards to reduce future federal taxable income and federal
income tax of the Company is subject to various limitations under
the Internal Revenue Code of 1986 ("the Code"), as amended. The
utilization of such carryforwards may be limited upon the
occurrence of certain ownership changes, including the issuance
or exercise of rights to acquire stock, the purchase or sale of
stock by 5% stockholders, as defined in the Treasury regulations,
and the offering of stock by the Company during any three-year
period resulting in an aggregate change of more than 50% in the
beneficial ownership of the Company.
In the event of an ownership change (as defined for income
tax purposes), Section 382 of the Code imposes an annual
limitation on the amount of a corporation's taxable income that
can be offset by these carryforwards. The limitation is
generally equal to the product of (i) the fair market value of
the equity of the Company multiplied by (ii) a percentage
approximately equivalent to the yield on long-term tax exempt
bonds during the month in which an ownership change occurs. The
Company's management, in consultation with its tax advisors, has
been assessing the impact its preferred stock issuances had on
the change in the beneficial ownership of the Company, and
whether or not such a change would impact the Company's ability
to utilize its net operating loss carryforwards ("NOLs"). After
thorough review, it was determined that a change in ownership had
occurred on October 1, 2002, and that this change resulted in a
limitation on the Company's ability to utilize its NOLs under
Section 382 of the Code. As a result of the limitation, the
Company may only utilize $1.0 million per year of its total
October 1, 2002 pre-change NOL of $12.5 million. Any portion of
the $1.0 million annual limitation not utilized in a particular
year may be carried over to the next year and added to that
year's limitation. Based on the Company's 2004 projected taxable
loss, the cumulative excess annual limitation carryover to 2005
is approximately $2.4 million. In 2005 the Company's total NOL
available for use is $12.6 million.
8. Commitments and Contingencies
The Company is occasionally involved in various claims,
administrative agency proceedings and litigation arising out of
the normal conduct of its business. At April 30, 2005, there
existed only one minor litigation matter. Although the ultimate
outcome of such litigation cannot be predicted, the management of
the Company, after discussions with counsel, believes that the
resulting liability, if any, will not have a material effect upon
the Company's financial position or results of operations.
9. Preferred Stock
On February 28, 2001, the Company executed a definitive
agreement to allow an investor to purchase from the Company
300,000 shares of convertible preferred stock for a total
purchase price of $6 million. Under this preferred stock
agreement, each of the 300,000 initially issued shares of
preferred stock is convertible into common stock of the Company
at a fixed rate of $1.275 per share. The preferred shares have
voting rights equal to the number of common shares into which
they may be converted. Until converted, the preferred stock is
entitled to receive quarterly dividends that cumulate annually at
a rate of 10% per annum, which are reduced to 8% per annum if the
Company's operating income for any fiscal year ending after
February 28, 2001 exceeds $4,735,000. Dividends were payable 50%
in cash and 50% in additional shares of preferred stock until
February 28, 2003 and thereafter are paid in additional shares of
preferred stock or cash as the holder of the preferred stock may
elect. Shares of preferred stock issued in respect of dividends
are convertible into common stock based upon an average market
price of the common stock as of the respective dividend dates.
These preferred shares are presently redeemable at the option of
the Company at a price equal to the initial purchase price plus
cumulated and accrued but unpaid dividends.
On August 2, 2002, the Company executed a definitive
agreement to allow a group of investors to purchase from the
Company 200,000 shares of Series 2002-A convertible preferred
stock for a total purchase price of $4 million. Under this
preferred stock agreement, each of the 200,000 initially issued
shares of preferred stock is convertible into common stock of the
Company at a fixed rate of $2.72 per share. The preferred shares
have voting rights equal to the number of common shares into
which they may be converted. Until converted, the preferred
stock is entitled to receive quarterly dividends that cumulate
annually at a rate of 8% per annum, which is reduced to 6% per
annum if certain profitability targets are met by the Company.
Dividends were payable 50% in cash and 50% in additional shares
of preferred stock until July 1, 2003 and thereafter are paid in
additional shares of preferred stock or cash as the holder of the
preferred stock may elect. Following the third anniversary of
the original issuance date, the Series 2002-A Preferred Stock is
redeemable at the option of the Company at a price equal to the
initial purchase price plus cumulated and accrued but unpaid
dividends.
On February 5, 2003, the Company closed on a $5 million
private equity investment by Inter-Him, N.V., of which Ronald de
Waal is a Managing Director, and W. Howard Lester, a director of
the Company (the "Investors"). The Investors purchased an
aggregate of 50,000 shares of a new series of preferred stock,
designated Series 2003-A Preferred Stock, at a purchase price of
$100.00 per share. Each of the 50,000 shares of Series 2003-A
Preferred Stock initially issued is convertible into common stock
at a fixed rate of $1.15 per share, and otherwise provides rights
and preferences substantially similar to the Company's existing
Series 2002-A Preferred Stock. The percentage ownership of
common stock on an as-converted basis by Inter-Him and Mr. de
Waal is approximately 51.3% (assuming conversion of all of the
Company's outstanding preferred stock). Dividends were payable
50% in cash and 50% in additional shares of preferred stock until
January 1, 2004, and thereafter are paid in additional shares of
preferred stock or cash as the holder of the preferred stock may
elect. Following the third anniversary of the original issuance
date, the Series 2003-A Preferred Stock is redeemable at the
option of the Company at a price equal to the initial purchase
price plus cumulated and accrued but unpaid dividends.
None of the Company's outstanding preferred shares are
included in the stockholders' equity section of the balance sheet
because the preferred shareholders have special voting rights
that empower them to elect a majority of the board of directors
and maintain effective control over the Company.
10. Stock Options
The Company follows the intrinsic value method of accounting
for common stock options to employees, in accordance with the
provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations.
Had the Company elected to recognize compensation expense based
on the fair value of the stock options granted as of their grant
date per the standards of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the
Company's 2005 and 2004 pro forma net income and pro forma net
income per share would have differed from the amounts actually
reported as shown in the table below. The pro forma amounts
shown reflect only options granted in 1995 through 2005.
Therefore, the full impact of calculating compensation cost for
stock options based on their fair value is not reflected in the
pro forma net income amounts presented because compensation cost
is reflected over the options' vesting period of up to ten years
and compensation cost for options granted prior to January 29,
1995 is not considered.
13 Weeks Ended
April May 1,
30, 2004
2005
(Restat
ed)
(In thousands,
except
per share data)
Net income applicable to common $405 $251
stockholders, as reported
Add:
Stock-based employee
compensation expense included - -
in reported net income
Deduct:
Stock-based employee
compensation expense determined 82 187
under fair value method for all
awards
Pro forma net income applicable $323 $ 64
to common stockholders
Net income per average common
share:
Basic, as reported $0.07 $0.04
Basic, pro forma $0.05 $0.01
Diluted, as reported $0.04 $0.04
Diluted, pro forma $0.02 $0.01
11. Revenue Recognition
Sales from store locations represented 96% of the Company's
total sales for the thirteen weeks ended April 30, 2005. These
sales are recognized at the time of the customer's purchase.
During the third quarter of 2003, the Company returned to the
direct channel business by offering direct response catalogs.
During the third quarter of 2004, the Company returned to the
internet commerce business by offering purchase options through
its web site. The sales related to these direct response
catalogs and internet transactions were approximately four
percent of total sales for the thirteen weeks ended April 30,
2005, and a return reserve was established for this revenue
stream beginning August 2003. Direct channel and internet sales
are recognized at the time the order is shipped to the customer.
All sales are net of returns and exclude sales tax. Gift card
sales are recognized as revenue when the gift card is redeemed,
not when it is sold.
12.
Earnings per Share
Outstanding shares for purposes of basic and diluted
earnings per share were calculated as follows:
13 Weeks Ended
April May 1,
30, 2004
2005
(Resta
ted)
(in thousands)
Net income applicable to
common stockholders - $405 $251
basic
Preferred stock dividends 363 -
Net income applicable to
common stockholders - $768 $251
diluted
Average common shares 6,222 6,212
outstanding
Effect of dilutive
securities:
Employee stock options 31 376
Convertible preferred 11,391 -
stock
Diluted average common 17,644 6,588
shares outstanding
Approximately 1,972,291 shares and 801,575 shares for the
thirteen weeks ended April 30, 2005 and May 1, 2004,
respectively, related to outstanding employee stock options, were
not included in the calculation of diluted earnings per average
common share because the effect of including those shares is anti-
dilutive as the exercise price of the stock options exceeded the
average common stock market price during the respective period.
For the thirteen weeks ended April 30, 2005, all preferred shares
convertible into common shares were included in the calculation
of diluted earnings per average common share. However,
approximately 598,519 preferred shares convertible into
11,226,772 common shares, for the thirteen weeks ended May 1,
2004 were not included in the calculation of diluted earnings per
average common share because the effect of including those shares
is anti-dilutive.
13. Reclassifications
Certain reclassifications have been made to the January 29,
2005 balances to conform to the April 30, 2005 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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-K 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 obligations and provide working capital and funds for
growth, consumer spending trends and habits; competition in the
retail clothing segment; the customary risks of purchasing
merchandise abroad, including longer lead times, higher initial
purchase commitments and foreign currency fluctuations; the
Company's ability to attract and retain qualified personnel;
weather conditions in the Company's operating regions; laws and
government regulations; general business and economic conditions;
availability of capital; the existence or absence of operating
initiatives, publicity, advertising and promotional efforts;
changes in accounting policies; and the ability of new management
to improve the Company's financial condition and performance. In
addition, the Company disclaims any intent or obligation to
update those forward-looking statements.
Overview
Harold's is a multi-channel specialty retailer of ladies'
and men's apparel, including accessories and footwear. Harold's
markets its merchandise through retail stores, catalogs and its
website at www.harolds.com.
Results of Operations
The following table sets forth for the periods indicated,
the percentage of net sales represented by items in the Company's
statements of operations.
13 Weeks Ended
April May 1,
30, 2004
2005
(Restat
ed)
Sales 100.0% 100.0%
Costs of goods sold (60.4) (61.5)
Selling, general and (30.8) (30.0)
administrative expenses
Depreciation and (4.1) (4.3)
amortization
Interest expense (1.4) (0.9)
Income before income taxes 3.3 3.3
Provision for income taxes - -
Net income 3.3% 3.3%
The following table reflects the sources of the changes in
Company sales for the periods indicated, with percentage changes
compared to the comparable period of the prior year.
13 Weeks Ended
April May 1,
30, 2004
2005
Sales (000's) 23,965 24,169
Total sales decrease (0.8)% (2.1)%
Change in comparable
store sales 0.1% 8.6%
(52 week basis)
Store locations:
Existing stores 41 42
Stores closed - (1)
New stores opened - -
Total stores at end of 41 41
period
The Company opened no new stores during the thirteen weeks
ended April 30, 2005 and May 1, 2004 and closed no stores for the
thirteen weeks ended April 30, 2005 compared to the thirteen
weeks ended May 1, 2004 in which one store was closed. The
Company currently has no plans to close additional stores. The
positive comparable store sales for the thirteen weeks ended
April 30, 2005 are primarily due to the favorable response by the
Company's customers to the merchandise assortments.
Gross margin represents net sales less cost of products and
merchandising. Cost of products and merchandising consists
primarily of product costs (e.g., product development, sourcing,
merchandising, inventory control, inventory acquisition costs and
inventory markdowns) and operating costs (e.g., occupancy costs
for the Company's retail stores). The Company's gross margin was
39.6% for the first quarter of 2005, as compared to 38.5% in the
same period of last year. The increase in gross margin is
primarily attributable to selling a larger percentage of
merchandise at full price due to less promotional activities.
Selling, general and administrative expenses consist
primarily of retail store selling costs, costs to produce, print
and distribute direct response catalogs, as well as corporate
administrative costs. Selling, general and administrative
expenses (including advertising and catalog production costs)
increased to 30.8% of sales for the first quarter of 2005
compared to 30.0% for the first quarter of 2004. The increase is
principally due to the production costs of the Company's Mother's
Day catalog which were expensed in the first quarter of 2005
compared to the second quarter of 2004. The timing shift
resulted from an earlier mailing date for the catalog in 2005
compared to 2004. The majority of the sales related to the
Mother's Day catalog are recognized in May of both 2005 and 2004.
For the first quarter of 2005, the Company reported net
income of $782,000 as compared to net income of $791,000 in the
same period of the previous year. After consideration of
preferred stock dividends and accretion of preferred stock
issuance costs, net income applicable to common stockholders for
the first quarter of 2005 was $405,000 or $0.04 per diluted
($0.07 per basic share), compared to $251,000 or $0.04 per
diluted and basic share, in the same period of the previous year.
The average balance of total outstanding debt was
$22,997,000 for the thirteen weeks ended April 30, 2005 compared
to $19,244,000 for the same period of 2004. This increase in
average balances resulted principally from the increase in
inventory levels from the same period of the prior year.
Inventory levels were higher because spring merchandise
commitments were greater in the first quarter of 2005 compared to
the same period of the prior year, and summer merchandise was
delivered earlier in 2005 compared to 2004.
Liquidity and Capital Resources
The Company's working capital needs arise primarily from the
need to support costs incurred in advance of revenue generation,
such as inventory acquisition and direct response catalog
development, production and mailing costs. Other liquidity needs
relate to the revolving customer charge accounts on the Company's
proprietary credit card, the need to cover operating cash flow
deficits and to invest in remodeling, fixtures and equipment.
The Company recognizes two selling seasons that correspond to the
fashion seasons. The spring season begins in January and ends in
July. The fall season begins in July and ends in January. 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
operating cash flows of $2,854,000 for the thirteen weeks ended
April 30, 2005 compared to deficit operating cash flows of
$405,000 for the thirteen weeks ended May 1, 2004. This decrease
in cash flows is principally related to the increase of the
Company's merchandise inventories and a decrease in accounts
payable compared to the same period of 2004. The Company's
ability to achieve positive cash flows from operating activities
depends on its ability to continue to improve sales and gross
margin which should allow the Company to sustain a 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 shareholders, there
can be no assurances that these, or any other financing resources
will be available for future needs.
The Company's original three-year credit facility with Wells
Fargo Retail Finance II, LLC, ("WFRF") was entered into on
February 5, 2003 and provided the Company with a maximum
available credit limit of $22 million. This agreement was
scheduled to expire in February 2006. As discussed below, on
April 29, 2004, the maximum available credit line was increased
to the lesser of $25 million or $22 million plus outstanding
participant advances, and the expiration date was extended to
February 5, 2007. 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 and a maximum capital expenditure covenant,
established at $2.75 million for 2005. 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. The balance outstanding on the Company's
line of credit at April 30, 2005 was approximately $22,326,000
which includes the $4 million outstanding under the bridge
facility discussed below. At April 30, 2005 the Company's
availability under the WFRF line of credit was approximately $4.2
million above the minimum availability requirement of $1.35
million and the average interest rate on the credit line was
5.63%.
Subsequent to securing the initial credit facility, the
Company negotiated an increase of $2 million in its total
borrowing availability under its existing credit facility with
WFRF. The Company 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 established in
July 2003 which is 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 the Company's common stock,
and Mr. Lester is also a director of the Company.
In order to achieve additional liquidity, on April 29, 2004,
the Company completed an amendment to the credit facility with
WFRF which increased the Company's borrowing availability under
the facility. The amendment increased the Company's maximum
inventory advance rate cap from 75% to 80% during non-peak times
and from 80% to 85% during peak times. Peak times were amended
to include the eight weeks prior to Easter and the eight weeks
prior to October 1. Additionally, the amendment extended the
term of the credit facility by one year, with a new expiration of
February 5, 2007. The amendment also increased the maximum
revolver amount from $22 million to the lesser of $25 million or
$22 million plus outstanding participant advances. Finally, the
amendment provided for an additional increase of $2 million in
the Company's borrowing availability under the facility based
upon an increase in the existing loan participation agreement
between WFRF and RonHow, LLC. WFRF 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 the WRFR 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
total $4 million participation is generally subordinate to the
repayment rights of the other credit facility lenders. However,
the Company may repay these advances provided it 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. The average excess availability
requirement is higher than the excess availability otherwise
required of the Company under the credit facility. If the
Company does not repay the new $2 million loan participation of
RonHow during the 18 months subsequent to April 29, 2004, RonHow
will have an option at that time to convert any of the
incremental $2 million not repaid into shares of authorized but
unissued 2003-A Preferred Stock, which will be convertible into
shares of common stock at a price of $2.524 per share, which was
the 20-day average closing price of the Company's common stock
for the period ending immediately before closing of the loan
amendment. Additionally, if the Company has not repaid the
initial $2 million of loan participation by February 2006, the
Company will pay an additional 4% fee per annum on the
outstanding participation amount up to $2 million. This
transaction was approved by the independent directors.
The Company was in compliance with its debt covenants for
the quarter ended April 30, 2005. Although the Company's line of
credit with WFRF does not expire until February 2007, the Company
has classified its borrowings under its line of credit as current
in its consolidated balance sheets due to the terms of its
agreement with the lender. Under the bank agreement, there is an
acceleration clause which potentially allows the bank to demand
immediate payment of all outstanding borrowings upon the
occurrence of a material adverse change in the Company's
operations or financial position. Determination of what
constitutes a material adverse change is at the discretion of the
bank, however, it is subject to reasonableness standards. In
addition, the Company is required to maintain a lock-box
agreement with the bank whereby all cash received is applied
against current borrowings. As a result of these items, the
Company is required to classify its line of credit borrowings as
current as proscribed by EITF 95-22, "Balance Sheet
Classification of Borrowings Outstanding under Revolving Credit
Agreements that include both a Subjective Acceleration Clause and
a Lock-Box Arrangement."
At April 30, 2005 the Company's availability under the WFRF
line of credit was approximately $4,173,000 million above the
minimum availability requirement of $1.35 million and the average
interest rate on the credit line was 5.63%. The Company's credit
line had an average balance of $21,223,000 and $17,678,000 for
the thirteen weeks ended April 30, 2005 and May 1, 2004,
respectively. During the thirteen weeks ended April 30, 2005,
the WFRF line of credit had a high balance of $22,746,000. The
balance outstanding on April 30, 2005 was $22,326,000.
The Company considers the following as measures of liquidity and
capital resources as of the dates indicated:
April January May 1,
30, 29, 2004
2005 2005
(Restat
ed)
Working capital (000's) $1,690 $(439) $966
(1)
Current ratio (1) 1.05:1 .99:1 1.04:1
Ratio of working capital .04:1 (.01): .02:1
to total assets (1) 1
Ratio of total debt to
stockholders' equity and 3.28:1 2.98:1 2.34:1
preferred stock (2)
( Long-term debt is classified as current to comply
1 with accounting pronouncement EITF 95-22. See Note 6
) to the Consolidated Financial Statements for more
information. If the debt under the Company's line of
credit was classified as long-term, working capital
would be $24,016, $18,739 and $18,718 in April 2005,
January 2005 and May 2004, respectively; current
ratio would be 3.73:1, 2.74:1 and 2.96:1 in April
2005, January 2005 and May 2004, respectively; and
working capital to total assets would be .53:1, .44:1
and .43:1 in April 2005, January 2005 and May 2004,
respectively. These calculations are considered non-
GAAP measures. These measures should not be
considered as an alternative to working capital or
other GAAP financial measurements as an indicator of
the Company's liquidity. Because the Company's line
of credit does not expire until February 2007,
management feels these measures are helpful to
investors.
( Preferred stock is treated as equity for this
2 calculation. This calculation is considered a non-
) GAAP measure. This measure should not be considered
as an alternative to the Company's ratio of debt to
equity or other GAAP financial measurements as an
indicator of the Company's liquidity. Although the
Company's preferred shareholders maintain effective
control over the Company, management believes showing
the preferred stock as stockholders' equity is
meaningful to investors.
Seasonality
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
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.
Critical Accounting Estimates and Commitments
There have been no material changes in the Company's
critical accounting estimates or in its commitments from those
disclosed in the company's Annual Report on Form 10-K for the
year ended January 29, 2005.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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 first
quarter of 2005 that would materially alter the Company's market
risk exposures.
ITEM 4. 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.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
On February 1, 2005, 1,230 shares of the Company's Amended
Series 2001-A Preferred Stock ("2001 Preferred") were issued as a
dividend to one of the existing holders of 2001 Preferred at his
election pursuant to the original terms of the 2001 Preferred.
Each share of 2001 Preferred issued in this dividend is
convertible into approximately 13.79 shares of Company common
stock.
On April 1, 2005, 2,307 shares of the Company's Series 2002-
A Preferred Stock ("2002 Preferred") were issued as a dividend to
two of the existing holders of 2002 Preferred at their election
pursuant to the original terms of the 2002 Preferred. Each share
of 2002 Preferred issued in this dividend is convertible into
approximately 16.00 shares of Company common stock.
Also, on April 1, 2005, 277 shares of the Company's Series
2003-A Preferred Stock ("2003 Preferred") were issued as a
dividend to one of the existing holders of the 2003 Preferred in
accordance with the original terms of the 2003 Preferred. Each
share of 2003 Preferred issued in this dividend is convertible
into approximately 80.00 shares of Company common stock.
Because the shares of 2001 Preferred, 2002 Preferred and
2003 Preferred described above were all issued as preferred stock
dividends in accordance with the original terms of each series,
the Company believes that no sale of securities has occurred
which would require the registration of such shares under the
Securities Act. However, even if the issuance of such shares is
deemed to be a sale for purposes of the Securities Act, the
Company believes the issuance of such shares was, in each case,
exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. These shares were issued without any
public solicitation to a limited group of investors, all of whom
are either directors of the Company or beneficially own in excess
of 10% of the Company's outstanding common stock and all of whom
acquired such shares for investment.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Effective April 25, 2005 the Company entered into an
agreement with Gerald Kucera to sell the Austin, Texas outlet
store location at a sales price of $2.5 million. The agreement
was amended on May 26, 2005 to extend the feasibility period
allowed the prospective buyer for due diligence. The feasibility
period is scheduled to end on June 27, 2005 and can be extended
by the buyer for an additional 15 days if certain procedures are
followed. There can be no assurances that this sale will be
concluded, as the buyer has the ability to cancel the contract
until the feasibility period has expired. If the sale of the
building were to close, the Company expects to record a gain on
the sale of the building of approximately $1.6 million.
Additionally, the Company would plan to relocate the outlet to
another leased space in the Austin area. Under the agreement
with Kucera, the Company has the ability to lease the existing
premises for a period of up to nine months after closing of the
sale.
ITEM 6. EXHIBITS
The following exhibits are filed as a part of this report:
No. Description
3.1 Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibit 3.1 to Form 10-K
for the year ended February 3, 2001).
3.2 By-laws of the Company (Incorporated by reference to
Exhibit 3.2 to Form 8-B Registration Statement,
Registration No. 1-10892).
4.1 Specimen Certificate for Common Stock (Incorporated by
reference to Exhibit 4.1 to Form S-1 Registration
Statement, Registration No. 33-15753).
4.2 Certificate of Elimination of Designations of the Series
2001-A Preferred Stock (Incorporated by reference to
Exhibit 4.1 to Form 8-K dated August 2, 2002).
4.3 Certificate of Designations of the Amended Series 2001-A
Preferred Stock (Incorporated by reference to Exhibit 4.2
to Form 8-K dated August 2, 2002).
4.4 Certificate of Designations of the Series 2002-A
Preferred Stock (Incorporated by reference to Exhibit 4.3
to Form 8-K dated August 2, 2002).
4.5 Amendment to the Certificate of Designation of the
Amended Series 2001-A Preferred Stock ($0.01 Par Value)
of Harold's Stores, Inc., dated February 4, 2003
(Incorporated by reference to Exhibit 4.1 to Form 8-K
dated February 4, 2003).
4.6 Certificate of Designations of the Series 2003-A
Preferred Stock (Incorporated by reference to Exhibit 4.2
to Form 8-K dated February 4, 2003).
10. Lease Agreement effective May 1, 1996 between Company and
1 Carousel Properties, Inc. (Campus Corner Store, Norman,
Oklahoma) (Incorporated by reference to Exhibit 10.7 to
Form S-2 Registration Statement, Registration No. 333-
04117) and amendment to Lease Agreement dated April 4,
2002. (Incorporated by reference to Exhibit 10.1 to Form
10-Q for the quarter ended May 4, 2002).
10. Amended and Restated Lease Agreement dated as of June 3,
2 1996 between Company and 329 Partners II Limited
Partnership (East Lindsey Warehouse Facility, Norman,
Oklahoma) (Incorporated by reference to Exhibit 10.13 to
Amendment No. 1 to Form S-2 Registration Statement,
Registration No. 333-04117).
10. Amended and Restated Lease Agreement dated as of June 20,
3 2001 between Company and 329 Partners II Limited
Partnership (Outlet Store, Norman, Oklahoma)
(Incorporated by reference to Exhibit 10.6 to Form 10-K
for the year ended February 2, 2002).
10. 2002 Performance and Equity Incentive Plan of Company.
4* (Incorporated by reference to Definitive Proxy Statement
dated May 17, 2002, for annual meeting of shareholders
held on June 20, 2002.
10. Employment Agreement dated February 9, 2004 between
5* Company and Hubert W. Mullins (Incorporated by reference
to Exhibit 10.5 to Form 10-K for the year ended January
31, 2004).
10. Employment Agreement dated February 9, 2004 between
6* Company and Clark Hinkley (Incorporated by reference to
Exhibit 10.6 to Form 10-K for the year ended January 31,
2004).
10. Stock Option Agreement dated February 23, 2001 between
7* Company and Clark Hinkley (Incorporated by reference to
Exhibit 10.12 to Form 10-K for the year ended February 3,
2001).
10. First Amendment to Stock Option Agreement dated February
8* 9, 2004 between Company and Clark Hinkley (Incorporated
by reference to Exhibit 10.8 to Form 10-K for the year
ended January 31, 2004).
10. Employment and Deferred Compensation Agreement dated
9* February 1, 1998 between Company and Harold G. Powell
(Incorporated by reference to Exhibit 10.25 to Form 10-Q
for quarter ended May 2, 1998).
10. First Amendment dated February 28, 2001 to Employment and
10* Deferred Compensation Agreement between Company and
Harold G. Powell (Incorporated by reference to Exhibit
10.17 to Form 10-K for the year ended February 3, 2001).
10. Series 2001-A Preferred Stock Purchase Agreement dated
11 February 23, 2001 between Company and Inter-Him N.V.
(Incorporated by reference to Exhibit 10.1 to Form 8-K
dated February 28, 2001).
10. Investor Rights Agreement dated February 28, 2001 between
12 Company and Inter-Him N.V. (Incorporated by reference to
Exhibit 10.2 to Form 8-K dated February 28, 2001).
10. Voting Agreement dated February 28, 2001 among Company,
13 Inter-Him N.V. and the other stockholders named therein
(Incorporated by reference to Exhibit 10.3 to Form 8-K
dated February 28, 2001).
10. Right of First Refusal Agreement dated February 28, 2001
14 among Company, Inter-Him N.V. and the other stockholders
named therein (Incorporated by reference to Exhibit 10.4
to Form 8-K dated February 28, 2001).
10. First Amended and Restated Stockholders Agreement dated
15 June 15, 1998 among certain stockholders of Company
(Incorporated by reference to Exhibit 10.2 to Form 10-Q
for quarter ended August 1, 1998).
10. First Amendment dated February 28, 2001 to First Amended
16 and Restated Stockholders Agreement among certain
stockholders of Company (Incorporated by reference to
Exhibit 10.6 to Form 8-K dated February 28, 2001).
10. Series 2002-A Preferred Stock Purchase Agreement dated as
17 of June 26, 2002, by and among Harold's Stores, Inc.,
Inter-Him, N.V., W. Howard Lester, William E. Haslam,
Clark J. Hinkley and Margaret A. Gilliam (Incorporated by
reference to Exhibit 10.1 to Form 8-K dated August 2,
2002).
10. First Amendment to Investor Rights Agreement dated as of
18 August 2, 2002, by and among Harold's Stores, Inc., Inter-
Him, N.V., W. Howard Lester, William E. Haslam, Clark J.
Hinkley and Margaret A. Gilliam (Incorporated by
reference to Exhibit 10.2 to Form 8-K dated August 2,
2002).
10. First Amendment to Right of First Refusal Agreement dated
19 as of August 2, 2002, by and among Harold's Stores, Inc.,
Inter-Him, N.V., W. Howard Lester, Harold G. Powell, Anna
M. Powell, Rebecca Powell Casey, H. Rainey Powell, Lisa
Powell Hunt, Clay M. Hunt and Arvest Trust Company, N.A.
(Incorporated by reference to Exhibit 10.3 to Form 8-K
dated August 2, 2002).
10. First Amendment to Voting Agreement dated as of August 2,
20 2002, by and among Harold's Stores, Inc., Inter-Him,
N.V., W. Howard Lester, William E. Haslam, Clark J.
Hinkley, Margaret A. Gilliam, Harold G. Powell, Anna M.
Powell, Rebecca Powell Casey, H. Rainey Powell, Lisa
Powell Hunt, Clay M. Hunt and Arvest Trust Company, N.A.
(Incorporated by reference to Exhibit 10.4 to Form 8-K
dated August 2, 2002).
10. Series 2003-A Preferred Stock Purchase Agreement dated as
21 of February 5, 2003, by and among Harold's Stores, Inc.,
Inter-Him N.V. and W. Howard Lester (Incorporated by
reference to Exhibit 10.1 to Form 8-K dated February 4,
2003).
10. Second Amendment to Investor Rights Agreement dated as of
22 February 5, 2003, by and among Harold's Stores, Inc.,
Inter-Him N.V. and W. Howard Lester (Incorporated by
reference to Exhibit 10.2 to Form 8-K dated February 4,
2003).
10. Loan and Security Agreement dated as of February 5, 2003,
23 by and among Wells Fargo Retail Finance, LLC, Harold's
Stores, Inc., Harold's Financial Corporation, Harold's
Direct, Inc., Harold's Stores of Texas, L.P., Harold's
Stores of Georgia, L.P., and Harold's of Jackson, Inc.
(Incorporated by reference to Exhibit 10.3 to Form 8-K
dated February 4, 2003).
10. Series 2003-A Preferred Stock Investment Agreement dated
24 as of February 4, 2003, by and between Harold's Stores,
Inc. and 329 Partners-II Limited Partnership
(Incorporated by reference to Exhibit 10.6 to Form 8-K
dated February 4, 2003).
10. Form of Indemnification Agreement between Company and
25 members of its Board of Directors (Incorporated by
reference to Exhibit 10.36 to Form 10-K for the year
ended February 1, 2003).
10. Form of Waiver of Claims and Covenant Not to Sue
26 Directors between principal shareholders of the Company
and members of the Company's Board of Directors
(Incorporated by reference to Exhibit 10.37 to Form 10-K
for the year ended February 1, 2003).
10. Participation Agreement dated as of July 10, 2003, by and
27 between Wells Fargo Retail Finance II, LLC and RonHow,
LLC (Incorporated by reference to Exhibit 10.3 to Form 8-
K dated July 10, 2003).
10. Amended and Restated Participation Agreement dated as of
28 April 29, 2004, by and between Wells Fargo Retail Finance
II, LLC and RonHow, LLC (Incorporated by reference to
Exhibit 10.28 to Form 10-K for the year ended January 31,
2004).
10. Assignment and Assumption of Lease Agreement and Third
29 Amendment to Lease Agreement dated October 1, 2003 by and
between Company and 329 Partners-II Limited Partnership
(Dallas Buying Office, Dallas, Texas) (Incorporated by
reference to Exhibit 10.1 to Form 10-Q dated November 1,
2003).
10. Option Agreement between Company and RONHOW LLC dated
30 April 30, 2004 (Incorporated by reference to Exhibit
10.30 to Form 10-K for the year ended January 31, 2004).
10. First Amendment to Loan and Security Agreement dated as
31 of February 5, 2003, by and among Wells Fargo Retail
Finance, LLC, Harold's Stores, Inc., Harold's Financial
Corporation, Harold's Direct, Inc., Harold's Stores of
Texas, L.P., Harold's Stores of Georgia, L.P., and
Harold's of Jackson, Inc. (Incorporated by reference to
Exhibit 10.31 to Form 10-K for the year ended January 31,
2004).
10. Second Amendment to Loan and Security Agreement dated as
32 of April 29, 2004, by and among Wells Fargo Retail
Finance, LLC, Harold's Stores, Inc., Harold's Financial
Corporation, Harold's Direct, Inc., Harold's Stores of
Texas, L.P., Harold's Stores of Georgia, L.P., and
Harold's of Jackson, Inc. (Incorporated by reference to
Exhibit 10.32 to Form 10-K for the year ended January 31,
2004).
22. Subsidiaries of Company (Incorporated by Reference to
1 Exhibit 22.1 to Form 8-B Registration Statement,
Registration No. 1-10892).
31. Certification of Chief Executive Officer Pursuant to
1 Rule 13a-14(a) under the Securities Exchange Act of 1934.
31. Certification of Chief Financial Officer Pursuant to
2 Rule 13a-14(a) under the Securities Exchange Act of 1934.
32. Certification of Chief Executive Officer Pursuant to 18
1 U.S.C. Section 1350.
32. Certification of Chief Financial Officer Pursuant to 18
2 U.S.C. Section 1350
___________________________
* Constitutes a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
report.
SIGNATURES
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/ Hugh Mullins
Hugh Mullins
President and Chief Executive Officer
By: /s/ Jodi L. Taylor
Jodi L. Taylor
Chief Financial Officer
Date: June 14, 2005
INDEX TO EXHIBITS
No. Description
3.1 Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibit 3.1 to Form 10-K
for the year ended February 3, 2001).
3.2 By-laws of the Company (Incorporated by reference to
Exhibit 3.2 to Form 8-B Registration Statement,
Registration No. 1-10892).
4.1 Specimen Certificate for Common Stock (Incorporated by
reference to Exhibit 4.1 to Form S-1 Registration
Statement, Registration No. 33-15753).
4.2 Certificate of Elimination of Designations of the Series
2001-A Preferred Stock (Incorporated by reference to
Exhibit 4.1 to Form 8-K dated August 2, 2002).
4.3 Certificate of Designations of the Amended Series 2001-A
Preferred Stock (Incorporated by reference to Exhibit 4.2
to Form 8-K dated August 2, 2002).
4.4 Certificate of Designations of the Series 2002-A
Preferred Stock (Incorporated by reference to Exhibit 4.3
to Form 8-K dated August 2, 2002).
4.5 Amendment to the Certificate of Designation of the
Amended Series 2001-A Preferred Stock ($0.01 Par Value)
of Harold's Stores, Inc., dated February 4, 2003
(Incorporated by reference to Exhibit 4.1 to Form 8-K
dated February 4, 2003).
4.6 Certificate of Designations of the Series 2003-A
Preferred Stock (Incorporated by reference to Exhibit 4.2
to Form 8-K dated February 4, 2003).
10. Lease Agreement effective May 1, 1996 between Company and
1 Carousel Properties, Inc. (Campus Corner Store, Norman,
Oklahoma) (Incorporated by reference to Exhibit 10.7 to
Form S-2 Registration Statement, Registration No. 333-
04117) and amendment to Lease Agreement dated April 4,
2002. (Incorporated by reference to Exhibit 10.1 to Form
10-Q for the quarter ended May 4, 2002).
10. Amended and Restated Lease Agreement dated as of June 3,
2 1996 between Company and 329 Partners II Limited
Partnership (East Lindsey Warehouse Facility, Norman,
Oklahoma) (Incorporated by reference to Exhibit 10.13 to
Amendment No. 1 to Form S-2 Registration Statement,
Registration No. 333-04117).
10. Amended and Restated Lease Agreement dated as of June 20,
3 2001 between Company and 329 Partners II Limited
Partnership (Outlet Store, Norman, Oklahoma)
(Incorporated by reference to Exhibit 10.6 to Form 10-K
for the year ended February 2, 2002).
10. 2002 Performance and Equity Incentive Plan of Company.
4* (Incorporated by reference to Definitive Proxy Statement
dated May 17, 2002, for annual meeting of shareholders
held on June 20, 2002.
10. Employment Agreement dated February 9, 2004 between
5* Company and Hubert W. Mullins (Incorporated by reference
to Exhibit 10.5 to Form 10-K for the year ended January
31, 2004).
10. Employment Agreement dated February 9, 2004 between
6* Company and Clark Hinkley (Incorporated by reference to
Exhibit 10.6 to Form 10-K for the year ended January 31,
2004).
10. Stock Option Agreement dated February 23, 2001 between
7* Company and Clark Hinkley (Incorporated by reference to
Exhibit 10.12 to Form 10-K for the year ended February 3,
2001).
10. First Amendment to Stock Option Agreement dated February
8* 9, 2004 between Company and Clark Hinkley (Incorporated
by reference to Exhibit 10.8 to Form 10-K for the year
ended January 31, 2004).
10. Employment and Deferred Compensation Agreement dated
9* February 1, 1998 between Company and Harold G. Powell
(Incorporated by reference to Exhibit 10.25 to Form 10-Q
for quarter ended May 2, 1998).
10. First Amendment dated February 28, 2001 to Employment and
10* Deferred Compensation Agreement between Company and
Harold G. Powell (Incorporated by reference to Exhibit
10.17 to Form 10-K for the year ended February 3, 2001).
10. Series 2001-A Preferred Stock Purchase Agreement dated
11 February 23, 2001 between Company and Inter-Him N.V.
(Incorporated by reference to Exhibit 10.1 to Form 8-K
dated February 28, 2001).
10. Investor Rights Agreement dated February 28, 2001 between
12 Company and Inter-Him N.V. (Incorporated by reference to
Exhibit 10.2 to Form 8-K dated February 28, 2001).
10. Voting Agreement dated February 28, 2001 among Company,
13 Inter-Him N.V. and the other stockholders named therein
(Incorporated by reference to Exhibit 10.3 to Form 8-K
dated February 28, 2001).
10. Right of First Refusal Agreement dated February 28, 2001
14 among Company, Inter-Him N.V. and the other stockholders
named therein (Incorporated by reference to Exhibit 10.4
to Form 8-K dated February 28, 2001).
10. First Amended and Restated Stockholders Agreement dated
15 June 15, 1998 among certain stockholders of Company
(Incorporated by reference to Exhibit 10.2 to Form 10-Q
for quarter ended August 1, 1998).
10. First Amendment dated February 28, 2001 to First Amended
16 and Restated Stockholders Agreement among certain
stockholders of Company (Incorporated by reference to
Exhibit 10.6 to Form 8-K dated February 28, 2001).
10. Series 2002-A Preferred Stock Purchase Agreement dated as
17 of June 26, 2002, by and among Harold's Stores, Inc.,
Inter-Him, N.V., W. Howard Lester, William E. Haslam,
Clark J. Hinkley and Margaret A. Gilliam (Incorporated by
reference to Exhibit 10.1 to Form 8-K dated August 2,
2002).
10. First Amendment to Investor Rights Agreement dated as of
18 August 2, 2002, by and among Harold's Stores, Inc., Inter-
Him, N.V., W. Howard Lester, William E. Haslam, Clark J.
Hinkley and Margaret A. Gilliam (Incorporated by
reference to Exhibit 10.2 to Form 8-K dated August 2,
2002).
10. First Amendment to Right of First Refusal Agreement dated
19 as of August 2, 2002, by and among Harold's Stores, Inc.,
Inter-Him, N.V., W. Howard Lester, Harold G. Powell, Anna
M. Powell, Rebecca Powell Casey, H. Rainey Powell, Lisa
Powell Hunt, Clay M. Hunt and Arvest Trust Company, N.A.
(Incorporated by reference to Exhibit 10.3 to Form 8-K
dated August 2, 2002).
10. First Amendment to Voting Agreement dated as of August 2,
20 2002, by and among Harold's Stores, Inc., Inter-Him,
N.V., W. Howard Lester, William E. Haslam, Clark J.
Hinkley, Margaret A. Gilliam, Harold G. Powell, Anna M.
Powell, Rebecca Powell Casey, H. Rainey Powell, Lisa
Powell Hunt, Clay M. Hunt and Arvest Trust Company, N.A.
(Incorporated by reference to Exhibit 10.4 to Form 8-K
dated August 2, 2002).
10. Series 2003-A Preferred Stock Purchase Agreement dated as
21 of February 5, 2003, by and among Harold's Stores, Inc.,
Inter-Him N.V. and W. Howard Lester (Incorporated by
reference to Exhibit 10.1 to Form 8-K dated February 4,
2003).
10. Second Amendment to Investor Rights Agreement dated as of
22 February 5, 2003, by and among Harold's Stores, Inc.,
Inter-Him N.V. and W. Howard Lester (Incorporated by
reference to Exhibit 10.2 to Form 8-K dated February 4,
2003).
10. Loan and Security Agreement dated as of February 5, 2003,
23 by and among Wells Fargo Retail Finance, LLC, Harold's
Stores, Inc., Harold's Financial Corporation, Harold's
Direct, Inc., Harold's Stores of Texas, L.P., Harold's
Stores of Georgia, L.P., and Harold's of Jackson, Inc.
(Incorporated by reference to Exhibit 10.3 to Form 8-K
dated February 4, 2003).
10. Series 2003-A Preferred Stock Investment Agreement dated
24 as of February 4, 2003, by and between Harold's Stores,
Inc. and 329 Partners-II Limited Partnership
(Incorporated by reference to Exhibit 10.6 to Form 8-K
dated February 4, 2003).
10. Form of Indemnification Agreement between Company and
25 members of its Board of Directors (Incorporated by
reference to Exhibit 10.36 to Form 10-K for the year
ended February 1, 2003).
10. Form of Waiver of Claims and Covenant Not to Sue
26 Directors between principal shareholders of the Company
and members of the Company's Board of Directors
(Incorporated by reference to Exhibit 10.37 to Form 10-K
for the year ended February 1, 2003).
10. Participation Agreement dated as of July 10, 2003, by and
27 between Wells Fargo Retail Finance II, LLC and RonHow,
LLC (Incorporated by reference to Exhibit 10.3 to Form 8-
K dated July 10, 2003).
10. Amended and Restated Participation Agreement dated as of
28 April 29, 2004, by and between Wells Fargo Retail Finance
II, LLC and RonHow, LLC (Incorporated by reference to
Exhibit 10.28 to Form 10-K for the year ended January 31,
2004).
10. Assignment and Assumption of Lease Agreement and Third
29 Amendment to Lease Agreement dated October 1, 2003 by and
between Company and 329 Partners-II Limited Partnership
(Dallas Buying Office, Dallas, Texas) (Incorporated by
reference to Exhibit 10.1 to Form 10-Q dated November 1,
2003).
10. Option Agreement between Company and RONHOW LLC dated
30 April 30, 2004 (Incorporated by reference to Exhibit
10.30 to Form 10-K for the year ended January 31, 2004).
10. First Amendment to Loan and Security Agreement dated as
31 of February 5, 2003, by and among Wells Fargo Retail
Finance, LLC, Harold's Stores, Inc., Harold's Financial
Corporation, Harold's Direct, Inc., Harold's Stores of
Texas, L.P., Harold's Stores of Georgia, L.P., and
Harold's of Jackson, Inc. (Incorporated by reference to
Exhibit 10.31 to Form 10-K for the year ended January 31,
2004).
10. Second Amendment to Loan and Security Agreement dated as
32 of April 29, 2004, by and among Wells Fargo Retail
Finance, LLC, Harold's Stores, Inc., Harold's Financial
Corporation, Harold's Direct, Inc., Harold's Stores of
Texas, L.P., Harold's Stores of Georgia, L.P., and
Harold's of Jackson, Inc. (Incorporated by reference to
Exhibit 10.32 to Form 10-K for the year ended January 31,
2004).
22. Subsidiaries of Company (Incorporated by Reference to
1 Exhibit 22.1 to Form 8-B Registration Statement,
Registration No. 1-10892).
31. Certification of Chief Executive Officer Pursuant to
1 Rule 13a-14(a) under the Securities Exchange Act of 1934.
31. Certification of Chief Financial Officer Pursuant to
2 Rule 13a-14(a) under the Securities Exchange Act of 1934.
32. Certification of Chief Executive Officer Pursuant to 18
1 U.S.C. Section 1350.
32. Certification of Chief Financial Officer Pursuant to 18
2 U.S.C. Section 1350
___________________________
* Constitutes a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
report.