================================================================================

                                  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 August 4, 2007

                                       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 jurisdiction of                                (IRS Employer
 incorporation or organization)                              Identification No.)


       5919 Maple Avenue
      Dallas, Texas 75235                                (214) 366-0600
--------------------------------------------------------------------------------
 (Address of principal executive                 (Registrant's telephone number,
       offices)(Zip Code)                              including area 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 a large accelerated filer, an
accelerated filer or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act)

Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (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 August 31, 2007, the registrant had 6,223,508 shares of Common Stock
outstanding.

================================================================================
<PAGE>
                      Harold's Stores, Inc. & Subsidiaries
                                    Index to
                          Quarterly Report on Form 10-Q
                       For the Period Ended August 4, 2007




Part I - FINANCIAL INFORMATION                                              Page
------------------------------                                              ----

Item 1.   Financial Statements

          Consolidated Balance Sheets -
              August 4, 2007 (unaudited) and February 3, 2007...............   3

          Consolidated Statements of Operations -
              Thirteen and Twenty-six Weeks ended August 4, 2007
              (unaudited) and July 29, 2006, (unaudited)....................   5

          Consolidated Statements of Cash Flows -
              Twenty-six Weeks ended August 4, 2007 (unaudited)
              and July 29, 2006, (unaudited)................................   6

          Notes to Interim Consolidated Financial Statements................   7

Item 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations...............................  17

Item 3.   Quantitative and Qualitative Disclosures About Market Risk........  25

Item 4.   Controls and Procedures...........................................  26



Part II - OTHER INFORMATION
---------------------------

Item 1.   Legal Proceedings.................................................  26

Item 1A.  Risk Factors......................................................  26

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.......  26

Item 3.   Defaults Upon Senior Securities...................................  26

Item 4.   Submission of Matters to a Vote of Security Holders...............  26

Item 5.   Other Information.................................................  26

Item 6.   Exhibits..........................................................  26

          Signatures........................................................  27


                                        2
<PAGE>
                                     PART I
                                     ------

ITEM 1.   FINANCIAL STATEMENTS

                     HAROLD'S STORES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                     ASSETS
                                 (In Thousands)


<TABLE><CAPTION>
                                                                  August 4,      February 3,
                                                                    2007            2007
                                                                ------------    ------------
                                                                 (Unaudited)
<S>                                                             <C>             <C>
Current assets:

  Cash and cash equivalents                                     $        889    $        979
  Trade accounts receivable, less allowance for doubtful
    accounts of $75 as of August 4, 2007 and February 3, 2007          5,162           6,074
  Note and other receivables                                               1               1
  Merchandise inventories                                             18,362          19,389
  Prepaid expenses                                                     2,006           2,136
                                                                ------------    ------------

  Total current assets                                                26,420          28,579
                                                                ------------    ------------

Property and equipment, at cost                                       42,456          44,078
Less accumulated depreciation and amortization                       (33,764)        (34,157)
                                                                ------------    ------------

  Net property and equipment                                           8,692           9,921
                                                                ------------    ------------

  Total assets                                                  $     35,112    $     38,500
                                                                ============    ============
</TABLE>


                 The accompanying notes are an integral part of
                 the interim consolidated financial statements.

                                        3
<PAGE>
                     HAROLD'S STORES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      LIABILITIES AND STOCKHOLDERS' DEFICIT
                        (In Thousands Except Share Data)
<TABLE><CAPTION>
                                                                                     August 4,      February 3,
                                                                                       2007            2007
                                                                                   ------------    ------------
                                                                                    (Unaudited)
<S>                                                                                <C>             <C>
Current liabilities:
  Accounts payable                                                                 $      7,493    $      9,765
  Redeemable gift certificates                                                              894           1,220
  Accrued payroll expenses and bonuses                                                      642             565
  Accrued rent expense                                                                      364             384
  Deferred gain on sale of building                                                          18              55
  Current maturities of long-term debt                                                   24,578          22,502
                                                                                   ------------    ------------
  Total current liabilities                                                              33,989          34,491
                                                                                   ------------    ------------

 Accrued rent expense, net of current                                                     3,921           4,527
 Stock warrant liability (See Note 8)                                                       847             818
 Long-term debt, net of current maturities (See Note 5)                                   8,510           7,583
                                                                                   ------------    ------------
  Total long-term liabilities                                                            13,278          12,928
                                                                                   ------------    ------------

  Total liabilities                                                                      47,267          47,419

Commitments and contingencies (See Note 7)

Convertible preferred stock of $.01 par value (See Note 8)
       Amended Series 2001-A,  authorized 500,000 shares, issued and outstanding
       342,653 as of August 4, 2007 and February 3, 2007                                  6,853           6,853

       Series 2002-A, authorized 300,000 shares, issued and outstanding 231,550
       as of August 4, 2007 and February 3, 2007                                          4,631           4,631

       Series 2003-A, authorized 100,000 shares, issued and outstanding 56,742
       as of August 4, 2007 and February 3, 2007                                          5,674           5,674

       Series 2006-A, authorized 75,000 shares, issued and outstanding 25,000
       as of August 4, 2007 and February 3, 2007                                          2,492           2,490

       Series 2006-B, authorized 15,000 shares as of August 4, 2007 and 25,000
       as of February 3, 2007, none issued and outstanding as of August 4, 2007
       and February 3, 2007                                                                  --              --

       Series 2007-A, authorized 5,000 shares as of August 4, 2007 and none as
       of February 3, 2007, issued and outstanding 2,000 as of August 4, 2007
       and none as of February 3, 2007                                                    1,987              --

       Series 2007-B, authorized 5,000 shares as of August 4, 2007 and none as
       of February 3, 2007, none issued and outstanding as of August 4, 2007
       and February 3, 2007                                                                  --              --

    2001-A and 2002-A entitled to $20.00 per share; 2003-A and 2006-A entitled
    to $100.00 per share; and 2006-B, 2007-A and 2007-B entitled to $1,000 per
    share; in each case plus accrued but unpaid dividends in the event of
    liquidation: aggregate liquidation value as of August 4, 2007 of $24,032,166
                                                                                   ------------    ------------
                                                                                         21,637          19,648
 Stockholders' deficit:
  Common stock of $.01 par value
  Authorized 25,000,000 shares; issued and outstanding 6,223,508 as of
       August 4, 2007 and February 3, 2007                                                   62              62
  Additional paid-in capital                                                             34,630          34,585
  Accumulated deficit                                                                   (68,482)        (63,212)
                                                                                   ------------    ------------
                                                                                        (33,790)        (28,565)
  Less:  Treasury  stock of 205 shares as of August 4, 2007 and February 3, 2007
       recorded at cost                                                                      (2)             (2)
                                                                                   ------------    ------------
   Total stockholders' deficit                                                          (33,792)        (28,567)
                                                                                   ------------    ------------

   Total liabilities and stockholders' deficit                                     $     35,112    $     38,500
                                                                                   ============    ============
</TABLE>

                 The accompanying notes are an integral part of
                 the interim consolidated financial statements.

                                        4
<PAGE>
                     HAROLD'S STORES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In Thousands Except Per Share Data)
<TABLE><CAPTION>
                                                           13 Weeks Ended                  26 Weeks Ended
                                                    ----------------------------    ----------------------------
                                                      August 4,       July 29,        August 4,       July 29,
                                                        2007            2006            2007            2006
                                                    ------------    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>             <C>
Sales                                               $     17,528    $     19,283    $     39,960    $     40,391

Costs and expenses:
  Costs of goods sold (including occupancy and
  central buying expenses, exclusive of items
  shown separately below)                                 14,386          16,541          28,320          29,952
                                                    ------------    ------------    ------------    ------------

       Gross margin                                        3,142           2,742          11,640          10,439

  Selling, general and administrative expenses             6,056           6,345          13,332          13,668

  Depreciation and amortization                              933             864           1,756           1,716
                                                    ------------    ------------    ------------    ------------

       Operating loss                                     (3,847)         (4,467)         (3,448)         (4,945)

  Interest expense                                           946             597           1,855           1,068

  Gain on sale of building                                   (18)            (18)            (37)            (36)
                                                    ------------    ------------    ------------    ------------

                                                             928             579           1,818           1,032
                                                    ------------    ------------    ------------    ------------

Loss before income taxes                                  (4,775)         (5,046)         (5,266)         (5,977)

Benefit for income taxes                                      --              --              --              --
                                                    ------------    ------------    ------------    ------------

Net loss                                            $     (4,775)   $     (5,046)   $     (5,266)   $     (5,977)
                                                    ============    ============    ============    ============


NET LOSS APPLICABLE TO COMMON STOCKHOLDERS:

Net loss                                            $     (4,775)   $     (5,046)   $     (5,266)   $     (5,977)

Less:  Preferred stock dividends and accretion of
  preferred stock issuance costs                             509             389             949             758
                                                    ------------    ------------    ------------    ------------

Net loss applicable to common stockholders          $     (5,284)   $     (5,435)   $     (6,215)   $     (6,735)
                                                    ============    ============    ============    ============

Net loss per common share:
  Basic                                             $      (0.85)   $      (0.87)   $      (1.00)   $      (1.08)
                                                    ============    ============    ============    ============
  Diluted                                           $      (0.85)   $      (0.87)   $      (1.00)   $      (1.08)
                                                    ============    ============    ============    ============
</TABLE>

                 The accompanying notes are an integral part of
                 the interim consolidated financial statements.

                                        5
<PAGE>
                     HAROLD'S STORES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)
                                   (Unaudited)
<TABLE><CAPTION>
                                                                       26 Weeks Ended
                                                                ----------------------------
                                                                  August 4,       July 29,
                                                                    2007            2006
                                                                ------------    ------------
<S>                                                             <C>             <C>
Cash flows from operating activities:
  Net loss                                                      $     (5,266)   $     (5,977)
  Adjustments to reconcile net loss to net cash used in
   operating activities:
   Depreciation and amortization                                       1,756           1,716
   Gain on sale of assets                                               (147)            (21)
   Recognition of deferred gain on sale of building                      (37)            (36)
   Losses on impaired assets                                             146
   Stock options expense                                                  44              --
   Stock warrants expense                                                135              --
   Changes in assets and liabilities:
      Decrease in trade and other accounts receivable                    912             861
      Decrease (increase) in merchandise inventories                   1,027          (1,950)
      Decrease in prepaid expenses                                       130              98
      Decrease in accounts payable                                    (2,272)         (1,506)
      Decrease in accrued expenses                                      (912)           (745)
                                                                ------------    ------------

Net cash used in operating activities                                 (4,484)         (7,560)
                                                                ------------    ------------

Cash flows from investing activities:
  Acquisition of property and equipment                                 (459)         (1,317)
  Proceeds from disposal of property and equipment                        --              21
  Payments received for notes receivable                                  --              10
                                                                ------------    ------------

Net cash used in investing activities                                   (459)         (1,286)
                                                                ------------    ------------

Cash flows from financing activities:
  Borrowings on long-term debt                                         1,000              --
  Payments on long-term debt                                            (165)            (78)
  Advances on revolving line of credit                                49,330          54,219
  Payments on revolving line of credit                               (47,297)        (47,535)
  Proceeds from issuance of preferred stock                            1,985           2,497
  Preferred stock dividends                                               --            (151)
                                                                ------------    ------------

Net cash provided by financing activities                              4,853           8,952
                                                                ------------    ------------

Net (decrease) increase in cash and cash equivalents                     (90)            106
Cash and cash equivalents at beginning of period                         979             636
                                                                ------------    ------------
Cash and cash equivalents at end of period                      $        889    $        742
                                                                ============    ============

Non-cash investing and financing activities:
  Preferred stock dividends paid in shares of preferred stock             --             385
  Equipment purchased under capital lease obligations                     29              --

Supplemental cash flow information:
  Cash paid for interest                                                 940             589
</TABLE>

                 The accompanying notes are an integral part of
                 the interim consolidated financial statements.

                                        6
<PAGE>
                     HAROLD'S STORES, INC. AND SUBSIDIARIES
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                        August 4, 2007 and July 29, 2006
                                   (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 4, 2007 and the results of its
operations and cash flows for the thirteen and twenty-six week periods ended
August 4, 2007 and July 29, 2006. The results of operations for the thirteen and
twenty-six week periods ended August 4, 2007 and July 29, 2006 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 3, 2007.

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 4, 2007 through February 2, 2008, has been
designated as 2007.

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.   Recent Accounting Pronouncements
     --------------------------------

     In July 2006, the Financial Accounting Standards Board issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." This
Interpretation sets forth a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This Interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The cumulative effect of adoption of FIN 48
did not result in any adjustment in the Company's liability for unrecognized
income tax benefits. There have been no significant changes to the total amount
of unrecognized tax benefits associated with uncertain tax positions during the
thirteen weeks ended August 4, 2007. Although the Company believes it has
adequately provided for all tax positions, amounts asserted by tax authorities
could be greater or less than the Company's accrued position. Accordingly, the
Company's provisions on federal, state and local tax-related matters to be
recorded in the future may change as revised estimates are made or the
underlying matters are settled or otherwise resolved. As of August 4, 2007, the
Company does not believe that its estimates, as otherwise provided for, on such
tax positions will significantly increase or decrease within the next twelve
months.

     In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements."
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS No. 157 does not require any new
fair value measurements; rather, it applies under other accounting
pronouncements that require or permit fair value measurements. The provisions of
SFAS No. 157 are to be applied prospectively as of the beginning of the fiscal
year in which it is initially applied, with any transition adjustment recognized
as a cumulative-effect adjustment to the opening balance of retained earnings.
The provisions of SFAS No. 157 are effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the standard but does not
anticipate the adoption of this standard will have a material impact on its 2007
financial statements.

                                        7
<PAGE>
     In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities--Including an Amendment of FASB
Statement No. 115" ("SFAS No. 159"). SFAS No. 159 allows companies the choice to
measure many financial instruments and certain other items at fair value. This
gives a company the opportunity to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The Company is currently reviewing the
impact of SFAS No. 159 but does not anticipate the adoption of this standard
will have a material impact on its 2007 financial statements.

5.   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. As discussed
below, in January 2006, the maximum available credit line was increased, and the
expiration date was extended to February 5, 2010. 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, which was reduced to $1.0 million in
January 2006 and reduced again to $500,000 in April 2007, and a maximum capital
expenditure covenant, established at $2.8 million for 2007. 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 August 4, 2007 was $24,259,000
which includes the $7 million outstanding under the bridge facility discussed
below. The Company's line of credit had an average balance of $23,743,000 and
$23,600,000 for the twenty-six weeks ended August 4, 2007 and July 29, 2006,
respectively. During the twenty-six weeks ended August 4, 2007, the WFRF line of
credit had a high balance of $26,007,000. At August 4, 2007 the Company's
availability under the WFRF line of credit was approximately $1,703,000 above
the minimum availability requirement of $500,000 and the average interest rate
on the credit line was 8.00%.

     In July 2003, 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 additional working capital. The full
$2 million was available for borrowing on July 15, 2003 and has been extended to
the Company by WFRF based upon a loan participation agreement between WFRF and
RonHow, LLC ("RonHow"), 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 and
preferred stock.

     In order to achieve additional liquidity, in January 2006, the Company
entered into an amendment to its existing credit facility with WFRF which
increased the Company's borrowing availability under the facility. The amendment
extended the term of the credit facility by three years, with a new expiration
of February 5, 2010. The amendment also increased the maximum revolver amount
from the lesser of $25 million or $22 million plus outstanding participant
advances to the lesser of $28 million or $22 million plus outstanding
participant advances. Additionally, the minimum required excess availability
under the credit facility was reduced from $1.35 million to $1.0 million.
Finally, the amendment provided for an increase of $3 million in the Company's
borrowing availability under the facility based upon an increase in the existing
loan participation agreement between WFRF and RonHow. 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 WFRF
credit facility agreement have not materially changed. RonHow'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 provided
it meets certain conditions, including, for payments of up to $2 million of
these advances, the maintenance of an average daily excess availability under
the credit facility of at least $1.5 million for the 30 days prior to and 30
days projected immediately following the repayment, and


                                        8
<PAGE>
for payments of the remaining amount of these advances, 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. In
consideration for RonHow's agreement to fund the Company's additional $3 million
in borrowing capacity under the credit facility, the Company granted to RonHow
the right to convert any of the incremental $3 million not repaid into shares of
a new series of authorized but unissued preferred stock, designated Series
2006-A Preferred Stock. The Series 2006-A Preferred Stock to be issued upon
conversion of this option will be convertible into shares of common stock at a
price of $0.87 per share, equal to the 20-day average closing price of the
Company's common stock for the period ending immediately before closing of the
loan amendment. Additionally, the Company began paying an additional 4% fee per
annum on the outstanding new participation amount up to $3 million, which
commenced January 24, 2006. This fee is in addition to the additional 4% fee per
annum which the Company will be obligated to pay on up to $2 million of the
outstanding participation amount funded by RonHow in April 2004 commencing on
March 1, 2006.

     In connection with the foregoing transactions, the Company and RonHow
agreed upon a new repayment priority for RonHow's participations in the credit
facility. Unless otherwise agreed to by the Company and RonHow at the time of
any repayment, any repayments of participations will be applied first to the
repayment of RonHow's first $2 million participation funded in July 2003, next
to the repayment of the RonHow's second $2 million participation funded in April
2004, and finally to the repayment of RonHow's new $3 million participation
funded on January 24, 2006. The parties amended the Option Agreement previously
executed on April 30, 2004, to document this agreement. As part of the foregoing
participation transaction, WFRF, RonHow and the Company entered into a letter of
understanding which established a framework for RonHow to obtain the right to
convert its aggregate $7 million participation in the Company's credit facility
into a subordinated loan to the Company, subject to the negotiation of mutually
acceptable definitive agreements. The Company has agreed that the options to
convert to preferred stock granted by the Company to RonHow to permit RonHow to
convert its new $3 million participation and its prior $2 million participation
funded in April 2004 would continue to apply to any such subordinated loan to
the extent such participations are converted.

     On August 31, 2006, the Company and RonHow entered into a $10 million
Subordinated Loan Agreement ("Loan Agreement") pursuant to which RonHow loaned
the Company $5.0 million (the "Loan"). The Loan is repayable at maturity on May
31, 2010 with interest payable monthly at the rate of 13.5% per year. $4.7
million of the Loan was used to pay down the principal balance of the Company's
existing indebtedness under its revolving credit facility with WFRF and the
$300,000 balance will be used as described below. The Company has the right to
reborrow under the WFRF credit facility in accordance with its terms. In
consideration of this Loan, the Company also issued to RonHow a 10-year warrant
to purchase up to 1,032 shares of a new series of preferred stock, designated
Series 2006-B Preferred Stock with a liquidation value of $1,000 per share, at a
purchase price of $0.01 per share, which will be vested ratably over the term of
the Loan and will become exercisable upon payment in full or in the event of
default under the Loan. These warrants were valued by an independent appraisal
firm engaged by the Company to provide such services. These warrants are
included in long-term liabilities on the Company's consolidated balance sheet.
See Note 5 for additional information. The Loan is also convertible into Series
2006-B Preferred Stock at the option of RonHow at the rate of $1,000 of
principal or accrued interest converted for each share of Series 2006-B
Preferred Stock. Under the terms of the Loan Agreement, RonHow also has the
option to advance an additional $5 million. The Loan is guaranteed by the
Company's subsidiaries and is secured by a security interest in all of the
Company's and its subsidiaries' personal property. RonHow's rights to the
collateral and to payment is subordinate to the Company's existing indebtedness
to WFRF pursuant to the terms of a Subordination and Intercreditor Agreement
between RonHow, WFRF and the Company.

                                        9
<PAGE>
     In connection with the Loan, the Company and WFRF entered into an amendment
to the existing credit facility to permit the new Loan from RonHow and to permit
the $300,000 of additional funds loaned by RonHow to be used, at the Company's
discretion and subject to certain conditions, for a transaction that would
reduce the number of record holders of the Company's common stock so that the
Company would no longer be required to file reports with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 (a
"De-registration Transaction"). If the Company determines not to do a
De-registration Transaction, the additional $300,000 will be used to pay down
the balance of the existing WFRF credit facility. Other than to permit the Loan
and the De-registration Transaction, there were no other material changes to the
WFRF credit facility terms. On June 5, 2007, the Company filed the necessary
reports with the Securities and Exchange Commission to commence this process of
De-registration. The Series 2006-B Preferred Stock issuable upon conversion of
the Loan or upon exercise of the warrant will be convertible into shares of
common stock at a price of $0.43 per share, equal to the 20-day average closing
price of the Company's common stock for the period ending immediately before
closing of the Loan. On April 3, 2007, RonHow loaned the Company an additional
$2 million under the Subordinated Loan Agreement and an additional $1 million on
May 2, 2007, bringing the aggregate amount outstanding to $10 million prior to
converting $2 million of this debt into 2007-A Preferred Stock during April
2007. See Note 8 for further discussion of this preferred stock transaction and
additional changes to the terms of the Loan Agreement.

     See Note 12 for additional funding received under the Subordinated Debt
Agreement.

     These transactions were approved by the Company's independent directors.

     The Company was in compliance with its debt covenants for the period ended
August 4, 2007. Although the Company's line of credit with WFRF does not expire
until February 2010, 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."

6.   Income Taxes
     ------------

     The Company's federal net operating losses ("NOL") of approximately $38.9
million will begin to expire in 2021. The Company also has state net operating
losses of approximately $37.5 million which begin to expire in 2007. During
2002, the Company increased its valuation allowance to fully provide for all
remaining deferred tax assets because the Company's recent history of operating
losses made the realization of these assets uncertain. The Company's valuation
allowance as of August 4, 2007 and February 3, 2007 is equal to 100% of its
deferred tax assets.

     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.

                                       10
<PAGE>
     The state tax rate decreased significantly during 2006 due to the Company's
increased loss position on both a consolidated and individual company basis.

     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, determined in 2004 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 taxable
losses, the cumulative excess annual limitation carryover to 2007 is
approximately $3.4 million.

7.   Legal Proceedings
     -----------------

     The Company is occasionally involved in various claims, administrative
agency proceedings and litigation arising out of the normal conduct of its
business. At August 4, 2007, there were no pending litigation matters.

8.   Preferred Stock and Warrants to Purchase Preferred Stock
     --------------------------------------------------------

     The Company has authorized 1,000,000 shares of preferred stock, par value
$.01 per share. This preferred stock may be issued in one or more series and the
terms and rights of such stock will be determined by the Board of Directors. As
of August 4, 2007, The Board had authorized seven series of preferred stock, the
Amended Series 2001-A Preferred Stock consisting of 500,000 shares, the 2002-A
Preferred Stock consisting of 300,000 shares, the 2003-A Preferred Stock
consisting of 100,000 shares, the 2006-A Preferred Stock consisting of 75,000
shares, the 2006-B Preferred Stock consisting of 15,000 shares, the 2007-A
Preferred Stock consisting of 5,000 shares, and the 2007-B Preferred Stock
consisting of 5,000 shares.

     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 15.6863 shares of common stock of the Company. 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 are payable 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. The preferred shares are 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 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 are payable in additional shares of

                                       11
<PAGE>
preferred stock or cash as the holder of the preferred stock may elect. 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. The Series 2003-A Preferred Stock 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 2002-A Preferred Stock.

     In consideration for RonHow's agreement to fund the Company's additional $3
million in borrowing capacity under the credit facility as described above, the
Company granted to RonHow the right to convert any of the incremental $3 million
not repaid into shares of a new series of authorized but unissued preferred
stock, designated Series 2006-A Preferred Stock. The Series 2006-A Preferred
Stock to be issued upon conversion of this option will be convertible into
shares of common stock at a price of $0.87 per share, equal to the 20-day
average closing price of the Company's common stock for the period ending
immediately before closing of the loan amendment.

     On June 1, 2006, the Company closed on a $2.5 million private equity
investment by RonHow. RonHow purchased an aggregate of 25,000 shares of a new
series of preferred stock, designated Series 2006-A Preferred Stock, at a
purchase price of $100.00 per share. The Series 2006-A Preferred Stock is
convertible into common stock at a fixed rate of $0.67 per share, and otherwise
provides rights and preferences substantially similar to the Company's existing
2002-A and 2003-A Preferred Stock.

     RonHow was granted a warrant to acquire shares of Series 2006-B Preferred
Stock in connection with the August 31, 2006 $5 million loan described above.
The fair value of this warrant was estimated to be $847,000 at August 4, 2007,
and was included in long-term liabilities. This debt discount related to this
warrant will be amortized over the term of the loan as interest expense using
the effective interest method. The shares of Series 2006-B Preferred Stock have
a stated value of $1,000 per share. Any outstanding shares of Series 2006-B
Preferred Stock will be entitled to receive quarterly dividends that cumulate
annually at a rate of 8% of the stated value per annum, which will be reduced to
6% of the stated value per annum if certain profitability targets are met.
Dividends payable on the first July 1 and October 1 following the original
issuance of Series 2006-B Preferred Stock will be payable in additional shares
of Series 2006-B Preferred Stock, while dividends payable on the first January 1
and April 1 following the original issuance of Series 2006-B Preferred Stock
will be payable in cash. After the first anniversary of the original issuance of
Series 2006-B Preferred Stock, dividends will be payable in additional shares of
Series 2006-B Preferred Stock or cash as the holder may elect. Following the
third anniversary of the original issuance date, the Series 2006-B Preferred
Stock will be redeemable at the option of the Company at a price equal to the
stated value plus cumulated and accrued but unpaid dividends.

     If and when issued, the Series 2006-B Preferred Stock will rank prior to
the Company's existing Amended Series 2001-A Preferred Stock, Series 2002-A
Preferred Stock, Series 2003-A Preferred Stock and Series 2006-A Preferred Stock
for purposes of dividends and distribution of assets on liquidation. The holders
of the Series 2006-B Preferred Stock, voting as a class, will have the right to
designate a proportionate number of members of the board of directors equal as
nearly as possible to the percentage of the Company's outstanding common stock
on an as-converted basis represented by the Series 2006-B Preferred Stock. The
Series 2006-B Preferred Stock will also vote with the common stock on an
as-converted basis for the election of the remaining directors and on all other
matters on which the common stock votes. In addition to the rights the holders
of Series 2006-B Preferred Stock will have to designate directors, the holders
of the Company's Amended Series 2001-A Preferred Stock and Series 2002-A
Preferred Stock, voting together as a single class, and the holders of the
Company's

                                       12
<PAGE>
Series 2003-A Preferred Stock and Series 2006-A Preferred Stock, voting
separately, also have similar rights to designate directors.

     Following the issuance of Series 2006-B Preferred Stock, if and for so long
as the outstanding shares of Series 2006-B Preferred Stock in the aggegate
represent on an as-converted basis at least 10% of the Company's outstanding
common stock, the Company may not take certain actions without the prior
approval of the holders of a majority of the outstanding Series 2006-B Preferred
Stock, including amendment of the Company's Certificate of Incorporation or
Bylaws, changes in the size of the Company's authorized board of directors,
redemption of or payment of dividends with respect to common stock or other
securities junior to the Series 2006-B Preferred Stock, amendment or adoption of
employee stock option or purchase plans, authorization of certain mergers or
sales of substantially all of the Company's assets, entering into transactions
with affiliates, and incurring indebtedness or making acquisitions or capital
expenditures in excess of certain dollar amounts. The holders of the Series
2006-B Preferred Stock are also expected to be entitled to registration rights
with respect to the common stock issuable upon conversion of the Series 2006-B
Preferred Stock and will be entitled to preemptive rights in connection with
future sales of common stock or other equity securities by the Company.

     On April 26, 2007, the Company completed the following transactions between
the Company and RonHow LLC as described below:

     -    RonHow and the Company amended the existing Subordinated Loan
          Agreement ("Loan Agreement") to increase the amount of the loan (the
          "Loan") to $12 million, to the extent advanced in the discretion of
          RonHow, plus any interest converted into principal as permitted under
          the terms of the Loan, and to increase the interest rate on the $2
          million advanced on April 3, 2007 and the additional $1 million
          advanced on April 26, 2007 (collectively, the "Additional Advance") to
          18% retroactively, to April 3, 2007.

     -    RonHow agreed to defer $1 million in cash interest payments on all of
          the outstanding principal of the Loan, which will be added to the
          principal of the Loan as permitted under the existing terms and be
          payable at maturity.

     -    RonHow converted $2 million of the existing Loan bearing interest at
          13.5% into a new series of preferred stock with $2 million of stated
          value, 2007-A Senior Preferred Stock, and cancelled the existing
          option to convert the same amount into existing Series 2006-B
          Preferred Stock, resulting in the Loan balance after the conversion
          being $5 million bearing interest at 13.5% and $3 million bearing
          interest at 18%.

     -    RonHow and the Company agreed that the Additional Advance and any
          accrued but unpaid interest will be convertible at RonHow's option
          into $3 million of stated value of another new series of preferred
          stock, 2007-B Senior Preferred Stock.

     Dividends on the new preferred stocks will accrue for the Series 2007-A at
13.5% of stated value and for the Series 2007-B at 18.0% of stated value, in
each case in the same manner as the Company's authorized Series 2006-B. RonHow
will have the option to elect whether each quarterly dividend is cumulated or
paid in cash or additional shares ("PIK"), or a combination of cash and PIK
shares. The shares will initially be convertible on the date such shares are
issued by the Company either directly, in the case of Series 2007-A, or, in the
case of Series 2007-B, pursuant to RonHow's exercise of its option to acquire
Series 2007-B. For PIK shares issued in lieu of cash dividends, the conversion
price will be 66.667% of the trailing 20-day average market price at time of
payment of such PIK shares. The 2007-A Preferred Stock is initially convertible
at $0.2357 per share. The Series 2007-A and Series 2007-B Senior Preferred Stock
will have equal priority, and will have priority over all other equity
securities of the Company, including other series of preferred stock
outstanding, as to dividends and proceeds upon liquidation, and will have voting
and other rights substantially identical to the existing Series 2006-B Preferred
Stock, including voting rights on an as-converted basis.

                                       13
<PAGE>
     Under the terms of a voting agreement between Inter-Him, N.V. (an entity
controlled by Mr. de Waal), Mr. Lester and Becky Casey (a former officer and
director of the Company and a member of the Powell family), Inter-Him, N.V. and
Mr. Lester agreed to vote their shares and the shares of any affiliate,
including RonHow, in favor of a director designated by Ms. Casey so long as the
Powell family owned on a fully-diluted basis, assuming full conversion of all
shares of preferred stock outstanding, at least 10% of the common stock of the
Company. The issuance of the Series 2007-A Preferred Stock resulted in the
Powell family's ownership falling below this 10% threshold which terminated Ms.
Casey's rights under this voting agreement. Accordingly, Ms. Casey no longer has
the right to designate a director.

     The Company also entered into an amendment to its existing loan agreement
with Wells Fargo Retail Finance II, LLC to permit the transactions described
above and to reduce the excess availability requirement from $1,000,000 to
$500,000, which provides the Company with an additional $500,000 in credit.

     In connection with the authorization of the Series 2007-A Preferred Stock,
the Company amended the existing Certificate of Designation of its Series 2006-A
Preferred Stock to reduce the number of authorized shares of Series 2006-B
Preferred Stock from 25,000 shares to 15,000 shares, to permit 5,000 shares to
be designated as Series 2007-A Senior Preferred Stock and 5,000 shares to be
designated as Series 2007-B Senior Preferred Stock. As of August 4, 2007, no
shares of Series 2006-B Preferred Stock and Series 2007-B Senior Preferred Stock
were outstanding.

     None of the 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.

     As a result of their ownership of the Company's outstanding preferred stock
which votes on an as-converted basis, Mssrs. Lester and de Waal, collectively,
have voting rights equal to 81.3% of the total shares entitled to vote.

     For an indefinite period which began on May 1, 2006, the Company's Board of
Directors has not authorized dividends to be paid on any series of preferred
stock either in cash or stock. During this period, dividends will cumulate. As
of August 4, 2007, approximately $2,374,000 of dividends had cumulated with
approximately $2,359,000 cumulating in additional shares of preferred stock and
approximately $15,000 cumulating in cash. In prior periods, these dividends were
paid in cash or stock on each applicable dividend payment date. See Note 8 for
discussion of the Company's stock warrants.

9.   Stock Options
     -------------

     Effective January 29, 2006, the Company adopted the provisions of Statement
of Financial Accounting Standard ("SFAS") No. 123R, "Share-Based Payment" ("SFAS
123R") using the modified prospective method. The stock-based compensation
expense for share-based awards recognized during the thirteen weeks ended August
4, 2007 and July 29, 2006 was approximately $22,000 and zero, respectively.

     The Company uses the Black-Scholes option-pricing model to value the
Company's stock options. Using this option-pricing model, the fair value of each
stock option award is estimated on the date of grant. The fair value of the
Company's stock option awards, which are subject to pro-rata vesting generally
over four years, is expensed on a straight-line basis over the vesting period of
the stock options. The expected volatility assumption is based on the historical
volatility of the Company's stock over a term equal to the expected term of the
option granted. The expected term of stock option awards granted is derived from
historical exercise experience. The expected term assumption incorporates the
contractual term of an option grant, which is ten years, as well as the vesting
period

                                       14
<PAGE>
of an award, which is generally pro-rata vesting over four years. The
risk-free interest rate is based on the implied yield on a U.S. Treasury
constant maturity with a remaining term equal to the expected term of the option
granted.

     The weighted average assumptions relating to the valuation of the Company's
stock options for the twenty-six weeks ended August 4, 2007 and July 29, 2006
were as follows:
                                                         26 Weeks Ended
                                                  ----------------------------
                                                    August 4,       July 29,
                                                      2007            2006
                                                  ------------    ------------
     Weighted average fair value of grants           $0.28           $0.46
     Expected volatility                             89.15%          81.30%
     Expected term (years)                               7               7
     Risk-free interest rate                          4.71%           5.18%
     Expected dividend yield                           N/A             N/A


     The following table presents a summary of the Company's stock options
activity for the twenty-six weeks ended August 4, 2007:

                                                      Number    Weighted Average
                                                    of Shares    Exercise Price
                                                  ------------    ------------

Outstanding, beginning of period                     3,331,746        $1.31
Granted                                                     --           --
Exercised                                                   --           --
Canceled or expired                                     33,050         7.61
                                                  ------------
Outstanding, end of period                           3,298,696        $1.25
                                                  ============
Exercisable at August 4, 2007                        1,725,664        $1.99
                                                  ============


10.  Revenue Recognition
     -------------------

     Sales from store locations represented approximately 94.0% and 93.5%of the
Company's total sales for the thirteen and twenty-six weeks, respectively, ended
August 4, 2007. This compares to store location sales of approximately 93.6% and
94.1% for the thirteen and twenty-six week periods, respectively, of the prior
year. These sales are recognized at the time of the customer's purchase. The
Company's direct catalog and internet sales represented about 6.0% and 6.5% of
the total sales for the thirteen and twenty-six weeks, respectively, ended
August 4, 2007. This compares to approximately 6.4% and 5.9% for the thirteen
and twenty-six week periods, respectively, of the prior year. These sales are
recognized at the time the order is shipped to the customer. Gift card sales are
recognized as revenue when the gift card is redeemed, not when it is sold.

11.  Earnings per Share
     ------------------

     Outstanding shares for purposes of basic and diluted earnings per share
were calculated as follows:

                                       15
<PAGE>
<TABLE><CAPTION>
                                                     13 Weeks Ended                 26 Weeks Ended
                                             ----------------------------    ----------------------------
                                               August 4,       July 29,        August 4,       July 29,
                                                 2007            2006            2007            2006
                                             ------------    ------------    ------------    ------------
                                                                    (in thousands)
<S>                                          <C>             <C>             <C>             <C>
Net loss applicable to common shareholders
- basic and diluted                          $     (5,284)   $     (5,435)   $     (6,215)   $     (6,735)
                                             ============    ============    ============    ============

Average common shares outstanding                   6,224           6,224           6,224           6,224

Effect of dilutive securities:
   Employee stock options                              --              --              --              --

   Convertible preferred stock                         --              --              --              --
                                             ------------    ------------    ------------    ------------

Diluted average common shares outstanding           6,224           6,224           6,224           6,224
                                             ============    ============    ============    ============

Net loss
   Basic                                     $      (0.85)   $      (0.87)   $      (1.00)   $      (1.08)
                                             ============    ============    ============    ============
   Diluted                                   $      (0.85)   $      (0.87)   $      (1.00)   $      (1.08)
                                             ============    ============    ============    ============
</TABLE>

     Approximately 3,298,696 shares and 1,852,656 shares for the thirteen weeks
ended August 4, 2007 and July 29, 2006, respectively, and approximately
3,298,696 shares and 1,852,656 shares for the twenty-six weeks ended August 4,
2007 and July 29, 2006, 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. Approximately 657,945 and 655,945 preferred
shares convertible into 24,260,526 and 15,775,163 common shares, respectively,
for the thirteen weeks ended August 4, 2007 and July 29, 2006, were not included
in the calculation of diluted earnings per average common share because the
effect of including those shares is anti-dilutive. Approximately 657,945 and
655,945 preferred shares convertible into 24,260,526 and 15,775,163 common
shares, respectively, for the twenty-six weeks ended August 4, 2007 and July 29,
2006, were not included in the calculation of diluted earnings per average
common share because the effect of including those shares is anti-dilutive.

12.  Subsequent Events
     -----------------

     On August 23, 2007, the Company's principal investor, RonHow, LLC, advanced
an additional $2 million under the existing Subordinated Loan Agreement,
bringing the total amount outstanding under the agreement to $10 million. It is
anticipated that another $2.4 million of funding under the agreement will be
completed once all necessary documentation is prepared.

     The Company owns one property, an outlet in Austin, Texas. In August 2007
the Company entered into an agreement to sell the property to an unrelated third
party. The agreement is subject to due diligence and closing periods. There can
be no assurance that the sale will be concluded. If the sale were to occur, the
Company would expect to continue to lease the facility for a predetermined
period and would receive approximately $1.3 million in proceeds, net of a
related mortgage obligation on the property. Such proceeds, if received, would
reduce the outstanding balance of the Company's line of credit with WFRF thereby
increasing available funds for business operations.

     Subsequent to the end of the second quarter 2007, the Company has had
further exchanges with the Securities and Exchange Commission regarding its
De-registration Transaction discussed in Note 5 above. This process continues to
progress and the Company believes it will be completed during the current fiscal
year.
                                       16
<PAGE>
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-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.
These risk factors are all described in the Company's annual report on Form 10-K
for the year ended February 3, 2007. 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.
<TABLE><CAPTION>
                                                      13 Weeks Ended                    26 Weeks Ended
                                              -----------------------------     -----------------------------
                                                August 4,        July 29,         August 4,        July 29,
                                                  2007             2006             2007             2006
                                              ------------     ------------     ------------     ------------
<S>                                           <C>              <C>              <C>              <C>
Sales                                                100.0%           100.0%           100.0%           100.0%
Costs of goods sold                                  (82.1)           (85.8)           (70.9)           (74.2)
                                              ------------     ------------     ------------     ------------

Gross margin (1)                                      17.9             14.2             29.1             25.8
Selling, general and administrative expenses         (34.5)           (32.9)           (33.4)           (33.8)
Depreciation and amortization                         (5.3)            (4.5)            (4.4)            (4.2)
                                              ------------     ------------     ------------     ------------
Operating (loss) income                              (21.9)           (23.2)            (8.7)           (12.2)

Interest expense                                      (5.4)            (3.1)            (4.6)            (2.6)
Gain on sale of building                               0.1              0.1              0.1              0.1
                                              ------------     ------------     ------------     ------------
                                                      (5.3)            (3.0)            (4.5)            (2.5)
                                              ------------     ------------     ------------     ------------
Loss before income taxes                             (27.2)           (26.2)           (13.2)           (14.7)
Provision for income taxes                              --               --               --               --
                                              ------------     ------------     ------------     ------------
Net loss                                             (27.2)%          (26.2)%          (13.2)%          (14.7)%
                                              ============     ============     ============     ============
</TABLE>

(1)  Second quarter is historically the Company's lowest gross margin quarter as
     it is traditionally a spring and summer clearance period. For this reason,
     more markdowns are generally taken during the second quarter than in the
     year-to-date period causing gross margin to be lower as a percentage of
     sales when compared to the year-to-date period.

                                       17
<PAGE>
     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.
<TABLE><CAPTION>
                                                      13 Weeks Ended                     26 Weeks Ended
                                              -----------------------------     -----------------------------
                                                August 4,        July 29,         August 4,        July 29,
                                                  2007             2006             2007             2006
                                              ------------     ------------     ------------     ------------
<S>                                           <C>              <C>              <C>              <C>
Sales (000's)                                       17,528           19,283           39,960           40,391
                                              ============     ============     ============     ============
Total sales (decrease) increase                       (9.2)%           (5.0)%           (1.1)%           (8.8)%
Change in comparable store sales
(52 week basis) (1)                                  (12.8)%           (9.4)%           (6.4)%          (13.3)%
Store locations:
Existing stores                                         43               42               43               41
Stores closed                                           --               --               --               --
New stores opened                                        1               --                1                1
                                              ------------     ------------     ------------     ------------
   Total stores at end of period                        44               42               44               42
                                              ============     ============     ============     ============
</TABLE>

(1)  The Company considers a store comparable if it has been open for 12 full
     months and has not changed its square footage by more than 20%. Closed and
     relocated stores are excluded from the comparable calculation beginning in
     the month in which the store is closed or relocated. Renovated stores are
     considered comparable as long as the store square footage does not change
     by more than 20%.

     One new outlet store was opened in Oklahoma City, Oklahoma during the
thirteen weeks ended August 4, 2007 and no stores were relocated or closed. No
stores were opened, relocated or closed during the thirteen weeks ended July 29,
2006. During the 26-week 2007 period, the Company opened one new outlet store in
Oklahoma City, Oklahoma, and no stores were relocated or closed. During the
26-week 2006 period, the Company opened one new store in Montgomery, Alabama and
no stores were relocated or closed.

     The decrease in comparable store sales for the thirteen weeks ended August
4, 2007 can be primarily attributed to three factors: strategically planned
lower spring and summer inventory levels, primarily in sale and clearance
merchandise, that did not achieve targeted sell through rates at full price or
clearance; reduced spending on marketing to the Company's core customers; and
the unseasonably cool and rainy weather in the Company's core markets of Texas
and Oklahoma that had a negative impact on summer merchandise sales. Direct
(internet and catalog) sales were approximately $1.0 million for the thirteen
weeks ended August 4, 2007, 16% below last year's level of $1.2 million for the
comparable reporting period, due to lower internet clearance sales.

     The sales decline for the twenty-six weeks ended August 4, 2007 is
primarily attributed to the reasons mentioned above. Direct (internet and
catalog) sales were approximately $2.6 million for the twenty-six weeks ended
August 4, 2007, approximately 8% above the levels of $2.4 million for the same
period of the prior year.

     Gross margin represents net sales less cost of products, merchandising
functions and store occupancy costs for retail stores. Cost of products and
merchandising consists primarily of product and operating costs (e.g., product
development, sourcing, inbound freight, merchandising, inventory control,
inspection, warehousing, internal transfer, purchasing and receiving costs,
inventory markdowns and occupancy costs for the Company's retail stores). The
Company's second quarter 2007 gross margin of 17.9% was an improvement from the
14.2% in the same period of last year. The gross margin for the twenty-six week
period August 4, 2007 increased to 29.1% from 25.8% during the same period of
the prior year. Gross margin increased during the thirteen and twenty-six week
periods due to fewer markdowns incurred to sell spring and summer merchandise,
principally due to lower initial purchase levels.

                                       18
<PAGE>
     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 34.5% of sales for the second quarter of 2007 compared to 32.9% for
the second quarter of 2006 and decreased slightly to 33.4% of sales for the
twenty-six weeks ended August 4, 2007 compared to 33.8% for the twenty-six weeks
ended July 29, 2006. Selling, general and administrative expenses were slightly
lower in the aggregate but were higher as a percentage of sales due to the sales
declines.

     Depreciation and amortization expense increased to 5.3% of sales for the
second quarter of 2007 from 4.5% for the second quarter of 2006 and increased to
4.4% for the twenty-six weeks ended August 4, 2007 from 4.2% for the twenty-six
weeks ended July 29, 2006. This increase is attributable to the adjustment to
write-down leasehold improvement balances of the Company's impaired locations.

     The average balance of total outstanding debt was $32,343,000 for the
twenty-six weeks ended August 4, 2007 compared to $24,839,000 for the same
period of 2006. This increase in average balances resulted principally from
additional long-term borrowing from the Company's preferred shareholders.
Interest expense increased as a percentage of sales due to a combination of the
Company's higher average debt balance and increased borrowing from preferred
shareholders at a higher interest rate. The weighted average interest rate on
the Company's WFRF indebtedness was 8.00% at August 4, 2007 compared to 7.54% at
July 29, 2006. The weighted average interest rate on the Company's subordinated
debt with RonHow was 15.19% at August 4, 2007 and did not exist at July 29,
2006. RonHow agreed to defer $1 million in cash interest payments on all of the
outstanding principal of the subordinated debt, which will be added to the
principal of the subordinated debt as permitted under the existing terms and be
payable at maturity.

     The Company reported a net loss applicable to common stockholders of
$5,284,000 or $0.85 per basic and diluted share during the second quarter of
2007 compared to a net loss of $5,435,000 or $0.87 per basic and diluted share
for the second quarter of last year. For the twenty-six weeks ended August 4,
2007, the Company reported a net loss applicable to common stockholders of
$6,215,000 or $1.00 per basic and diluted share compared to a net loss of
$6,735,000 or $1.08 per basic and diluted share for the same period last year.
The reduction in the current year loss is the result of an improvement in gross
margin and a slight reduction in operating expenses.

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, $5 million in February 2003, $2.5
million in June 2006 and $2 million in April 2007. The Company has also received
funding from loan participations made by significant shareholders in the amounts
of $2 million in 2003, $2 million in 2004 and $3 million in January 2006. The
Company also received proceeds of a subordinated loan of $5 million in September
2006, $2 million in January 2007, $2 million in March 2007 and $1 million in
April 2007. Of the $10 million lent to the Company under this subordinated loan,
$2 million was converted to a new Series 2007-A Senior Preferred Stock in April
2007. The Company experienced deficit operating cash flows of $4,484,000 for the
twenty-six weeks ended August 4, 2007 compared to deficit operating cash flows
of $7,560,000 for the twenty-six weeks ended July 29, 2006. This improvement in
cash flow is principally related to the decrease of the Company's inventories
for 2007 of $1,027,000 at August 4, 2007 compared to an

                                       19
<PAGE>
increase of $1,950,000 at July 29, 2006. The inventories declined due to planned
lower purchase levels and less ownership of prior season inventories. The lower
purchases were partially offset by a related decrease in accounts payable at
August 4, 2007 compared to July 29, 2006. See "Strategy and Liquidity Update"
below for additional information.

     The Company's ability to achieve positive cash flows from operating
activities depends on its ability to improve sales and gross margin which may
allow the Company to achieve a return to future operating 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, private equity investments and subordinated loans from its
principal shareholders, there can be no assurances that these, or any other
financing resources, will be available for future needs.

     Changes in the Company's investing activities relate primarily to the
capital expenditures incurred for the opening of stores in Montgomery, Alabama
and Atlanta, Georgia and progress billings on construction of a new store in
Little Rock, Arkansas during 2006. One new outlet was opened during the
twenty-six weeks ended August 4, 2007, and a major remodel of the Ft. Worth,
Texas store was completed. The budgeted capital expenditures for 2007 are
approximately $2.0 million which are expected to be used principally for a new
store location, one store relocation and existing store enhancements.

     The Company's original three-year credit facility with Wells Fargo Retail
Finance II, LLC, ("WFRF") was entered into on February 5, 2003. As discussed
below, in January 2006, the maximum available credit line was increased, and the
expiration date was extended to February 5, 2010. 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, which was reduced to $1.0 million in
January 2006 and reduced again to $500,000 in April 2007, and a maximum capital
expenditure covenant, established at $2.8 million for 2007. 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 August 4, 2007 was $24,259,000
which includes the $7 million outstanding under the bridge facility discussed
below. The Company's line of credit had an average balance of $23,743,000 and
$23,600,000 for the twenty-six weeks ended August 4, 2007 and July 29, 2006,
respectively. During the twenty-six weeks ended August 4, 2007, the WFRF line of
credit had a high balance of $26,007,000. At August 4, 2007 the Company's
availability under the WFRF line of credit was approximately $1,703,000 above
the minimum availability requirement of $500,000 and the average interest rate
on the credit line was 8.00%.

     In July 2003, 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 additional working capital. The full
$2 million was available for borrowing on July 15, 2003 and has been extended to
the Company by WFRF based upon a loan participation agreement between WFRF and
RonHow, LLC ("RonHow"), 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 and
preferred stock.

     In order to achieve additional liquidity, in January 2006, the Company
entered into an amendment to its existing credit facility with WFRF which
increased the Company's borrowing availability under the facility. The amendment
extended the term of the credit facility by three years, with a new expiration
of February 5, 2010. The amendment also increased the maximum revolver amount
from the lesser of $25 million or $22 million plus outstanding participant
advances to the lesser of $28 million or $22 million plus outstanding
participant advances. Additionally, the minimum required excess availability
under the credit facility was reduced from $1.35 million to $1.0 million.
Finally, the amendment provided for an increase of $3 million in the Company's
borrowing availability under the facility based upon an increase in the existing
loan participation agreement between WFRF

                                       20
<PAGE>
and RonHow. 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 WFRF credit facility agreement have not
materially changed. RonHow'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 provided it meets certain conditions, including, for
payments of up to $2 million of these advances, the maintenance of an average
daily excess availability under the credit facility of at least $1.5 million for
the 30 days prior to and 30 days projected immediately following the repayment,
and for payments of the remaining amount of these advances, 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. In
consideration for RonHow's agreement to fund the Company's additional $3 million
in borrowing capacity under the credit facility, the Company granted to RonHow
the right to convert any of the incremental $3 million not repaid into shares of
a new series of authorized but unissued preferred stock, designated Series
2006-A Preferred Stock. The Series 2006-A Preferred Stock to be issued upon
conversion of this option will be convertible into shares of common stock at a
price of $0.87 per share, equal to the 20-day average closing price of the
Company's common stock for the period ending immediately before closing of the
loan amendment. Additionally, the Company began paying an additional 4% fee per
annum on the outstanding new participation amount up to $3 million, which
commenced January 24, 2006. This fee is in addition to the additional 4% fee per
annum which the Company will be obligated to pay on up to $2 million of the
outstanding participation amount funded by RonHow in April 2004 commencing on
March 1, 2006.

     In connection with the foregoing transactions, the Company and RonHow
agreed upon a new repayment priority for RonHow's participations in the credit
facility. Unless otherwise agreed to by the Company and RonHow at the time of
any repayment, any repayments of participations will be applied first to the
repayment of RonHow's first $2 million participation funded in July 2003, next
to the repayment of the RonHow's second $2 million participation funded in April
2004, and finally to the repayment of RonHow's new $3 million participation
funded on January 24, 2006. The parties amended the Option Agreement previously
executed on April 30, 2004, to document this agreement. As part of the foregoing
participation transaction, WFRF, RonHow and the Company entered into a letter of
understanding which established a framework for RonHow to obtain the right to
convert its aggregate $7 million participation in the Company's credit facility
into a subordinated loan to the Company, subject to the negotiation of mutually
acceptable definitive agreements. The Company has agreed that the options to
convert to preferred stock granted by the Company to RonHow to permit RonHow to
convert its new $3 million participation and its prior $2 million participation
funded in April 2004 would continue to apply to any such subordinated loan to
the extent such participations are converted.

     On August 31, 2006, the Company and RonHow entered into a $10 million
Subordinated Loan Agreement ("Loan Agreement") pursuant to which RonHow loaned
the Company $5.0 million (the "Loan"). The Loan is repayable at maturity on May
31, 2010 with interest payable monthly at the rate of 13.5% per year. $4.7
million of the Loan was used to pay down the principal balance of the Company's
existing indebtedness under its revolving credit facility with WFRF and the
$300,000 balance will be used as described below. The Company has the right to
reborrow under the WFRF credit facility in accordance with its terms. In
consideration of this Loan, the Company also issued to RonHow a 10-year warrant
to purchase up to 1,032 shares of a new series of preferred stock, designated
Series 2006-B Preferred Stock with a liquidation value of $1,000 per share, at a
purchase price of $0.01 per share, which will be vested ratably over the term of
the Loan and will become exercisable upon payment in full or in the event of
default under the Loan. See Note 8 for further discussion of these warrants. The
Loan is also convertible into Series 2006-B Preferred Stock at the option of
RonHow at the rate of $1,000 of principal or accrued interest converted for each
share of Series 2006-B Preferred Stock. Under the terms of the Loan Agreement,
RonHow also has the option to advance an additional $5 million. The Loan is
guaranteed by the Company's subsidiaries and is

                                       21
<PAGE>
secured by a security interest in all of the Company's and its subsidiaries'
personal property. RonHow's rights to the collateral and to payment are
subordinate to the Company's existing indebtedness to WFRF pursuant to the terms
of a Subordination and Intercreditor Agreement between RonHow, WFRF and the
Company.

     In connection with the Loan, the Company and WFRF entered into an amendment
to the existing credit facility to permit the new Loan from RonHow and to permit
the $300,000 of additional funds loaned by RonHow to be used, at the Company's
discretion and subject to certain conditions, for a transaction that would
reduce the number of record holders of the Company's common stock so that the
Company would no longer be required to file reports with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934 (a
"De-registration Transaction"). If the Company determines not to do a
De-registration Transaction, the additional $300,000 will be used to pay down
the balance of the existing WFRF credit facility. Other than to permit the Loan
and the De-registration Transaction, there were no other material changes to the
WFRF credit facility terms. On June 5, 2007, the Company filed the necessary
reports with the Securities and Exchange Commission to commence this process of
De-registration. The Series 2006-B Preferred Stock issuable upon conversion of
the Loan or upon exercise of the warrant will be convertible into shares of
common stock at a price of $0.43 per share, equal to the 20-day average closing
price of the Company's common stock for the period ending immediately before
closing of the Loan. On April 3, 2007, RonHow loaned the Company an additional
$2 million under the Subordinated Loan Agreement and an additional $1 million on
May 2, 2007, bringing the aggregate amount outstanding to $10 million prior to
converting $2 million of this debt into 2007-A Preferred Stock during April
2007. In conjunction with these transactions, the Company entered into
amendments to the facility with the Company's primary lender, Wells Fargo Retail
Finance II, LLC ("WFRF"). WFRF agreed to reduce the block on daily excess
availability from $1 million to $500,000, effectively providing the Company with
an additional $500,000 of borrowing capacity.

     On August 23, 2007, the Company's principal investor, RonHow, LLC, advanced
an additional $2 million under the existing Subordinated Loan Agreement,
bringing the total amount outstanding under the agreement to $10 million. It is
expected that another $2.4 million of funding under the agreement will be
completed once all necessary documentation is prepared, which is estimated to be
by September 30, 2007.

     These transactions were approved by the Company's independent directors.

     The Company was in compliance with its debt covenants for the period ended
August 4, 2007. Although the Company's line of credit with WFRF does not expire
until February 2010, 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."

                                       22
<PAGE>
The Company considers the following as measures of liquidity and capital
resources as of the dates indicated:

                                              August 4,  February 3,  July 29,
                                                2007        2007        2006
                                              --------    --------    --------
Working capital (000's)                       $ (7,569)   $ (5,912)   $ (7,751)
Current ratio                                    .78:1       .83:1       .77:1
Ratio of working capital to total assets       (.22):1     (.15):1     (.22):1
Ratio of total debt to stockholders' deficit  (2.72):1    (3.37):1    (6.75):1

STRATEGY AND LIQUIDITY UPDATE

     In the Company's Form 10-Ka filing for the year ending February 3, 2007, a
Strategy and Liquidity Update was provided within Management's Discussion and
Analysis of Financial Condition and Results of Operation. The Company is
updating this disclosure as follows regarding key strategic initiatives that
have been undertaken to improve its financial results and liquidity.

     During the second quarter of 2007, the Company's total sales decreased 9.2%
over the same time during the prior year. For the first half of 2007, total
sales were down 1.1%. The second quarter was far more challenging than the first
quarter of 2007, which experienced an increase of 6.2% over the first quarter of
2006. It is believed that second quarter results were impacted by:

     o    Lower inventory levels, principally in the sale and clearance area. At
          the end of the second quarter, the Company owned 25% less units of
          spring and summer clearance merchandise. While the Company owned less
          inventory in first quarter as well, clearance and sale are not as
          meaningful to first quarter sales as second quarter which is a
          traditional clearance period. The Company planned lower purchase
          levels of spring and summer merchandise but did not achieve targeted
          sale through rates at either full price or clearance resulting in a
          decline in total and comparable store sales.
     o    Unseasonably cool and rainy weather in the Company's core markets of
          Texas and Oklahoma that had a negative impact on summer merchandise
          sales.
     o    Reduced spending on marketing to the Company's core customers. While
          marketing spending was down approximately 5% in the second quarter,
          efforts were undertaken to reach more customers but with a reduced
          mailing content to what the core customers would have received in the
          prior year.

     Despite the sales decreases, reported gross margin improved to 17.9% of
sales in second quarter 2007, from 14.2% in the prior year's second quarter. For
the 26-week period of 2007, reported gross margin increased to 29.1%, from 25.8%
in the prior year 26-week period. The Company's efforts to purchase quantities
of merchandise more appropriate to projected sales have been the primary
contributor to the gross margin improvement, combined with enhanced merchandise
content. In addition to gross margin improvement, the Company's selling, general
and administrative expenses declined approximately $300,000 in the aggregate for
both the thirteen and 26-week periods of 2007 due to cost control measures, as
compared to the comparable reporting period in 2006, although they were higher
as a percentage of sales due to the noted sales declines.

     As a result of the second quarter financial performance and the overall
retail climate, in August 2007, after the end of the quarter, the Company
implemented a corporate restructuring that is expected to achieve significant
annualized expense savings. This included the elimination of two executive
officer positions.

     Additionally, the Company took steps to enhance its working capital by
entering into additional financings with RonHow, LLC ("RonHow"). This is an
entity jointly owned by the Company's principal investors, Ronald de Waal and W.
Howard Lester. On August 23, 2007, RowHow advanced


                                       23
<PAGE>
an additional $2 million under its existing subordinated loan agreement with the
Company, bringing the total amount outstanding to $10 million. It is expected
that another $2.4 million of funding will be completed by September 30, 2007
once all necessary documentation has been prepared. All advances made during
2007 under the Subordinated Loan Agreement bear interest at an annual rate of
18.0%. Until the Company is able to restore its profitability, it will remain
dependent on RonHow for additional financing.

     The Company owns one property, an outlet in Austin, Texas. In August 2007
the Company entered into an agreement to sell the property to an unrelated third
party. The agreement is subject to due diligence and closing periods. There can
be no assurance that the sale will be concluded. If the sale were to occur, The
Company would expect to continue to lease the facility for a predetermined
period and would receive approximately $1.3 million in proceeds, net of a
related mortgage obligation on the property. Such proceeds, if received, would
reduce the outstanding balance of the Company's line of credit with WFRF thereby
increasing available funds for business operations.

     The Company believes that prior to 2007 its merchandise has been
over-assorted, leading to a confusing customer shopping experience, and that the
quantity of merchandise purchased has exceed our ability to sell at profitable
margins resulting in significant markdowns. The Company believes that in 2007
the number of items offered and the amount of inventory purchased has been
adjusted to more appropriate levels as part of a long-term strategic plan
expected to optimize in 2008.

     In October 2006, Ron Staffieri was hired as the Company's Chief Executive
Officer. Mr. Staffieri replaced interim leadership from the Company's Board of
Directors that had been in place since August 2005 when the prior CEO departed
the Company. Mr. Staffieri has extensive experience as a retail Chief Executive
Officer and President prior to joining the Company. Additionally, during April
2007 the Company hired Cherryl Sergeant to the position of Executive Vice
President and Chief Merchandising Officer. Ms. Sergeant has an extensive senior
apparel retail merchandising background.

     During 2007, the Company has opened a new outlet store in Oklahoma City,
Oklahoma, anticipates the relocation of a store in Houston, TX and plans to
close its store in Oakbrook Center in Chicago, IL and open a new store in
Rogers, AR. The Company believes that in addition to refining its merchandise
and related planning and allocation, it is also important to continually improve
the store base in an effort to return the Company to profitability.

     The Company owns one property, an outlet in Austin, Texas. In August 2007
the Company entered into an agreement to sell the property to an unrelated third
party. The agreement is subject to due diligence and closing periods. There can
be no assurance that the sale will be concluded. If the sale were to occur, the
Company would expect to continue to lease the operations for a predetermined
period and would receive approximately $1.3 million in proceeds net of a related
mortgage obligation on the property. Such proceeds, if received, would be used
to reduce the Company's line of credit with WFRF thereby increasing available
funds for business operations.

     If the Company can properly execute the initiatives outlined above, this
may result in improvement in operating performance in the future. No assurances
can be provided that the initiatives will result in improvement.

DEREGISTRATION TRANSACTION

     The Board of the Company has approved a proposed Deregistration Transaction
designed to reduce the number of the Company's shareholders of record below 300,
which will permit the Company to no longer file reports with the Securities and
Exchange Commission ("SEC"). The Board has determined that the costs of public
reporting and internal control compliance specifically due to

                                       24
<PAGE>
Sarbanes-Oxley are not warranted by any benefit to the Company and our
shareholders. In light of our current size and resources, the lack of analyst
coverage, the nominal price of our Common Stock and the limited trading activity
in shares of our Common Stock, the Board believes that the Company and our
shareholders receive little benefit from being a public reporting company. The
Board believes that it is in the Company's best interests to eliminate the
administrative and financial burdens associated with being and remaining a
public company.

     The Company has filed a preliminary proxy statement with the SEC relating
to the Deregistration Transaction and has responded to comment letters from the
SEC regarding the filing. Upon SEC approval of the filing, the Deregistration
Transaction will be considered at the annual meeting of shareholders at a date
yet to be determined. If approved at the annual meeting as currently proposed,
each shareholder owning less than 1,000 shares of common stock would receive
$0.30 per share and would no longer be a shareholder.

     Complete details of the proposal will be mailed to the shareholders at a
later date. Interested shareholder may also review the Company's preliminary
proxy statement and related Schedule 13E-3, which is available on the SEC's
website at www.sec.gov.

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 February 3, 2007.


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.

     During the first half of 2007, the Company's average debt levels increased
to $32,343,000 as compared to $24,839,000 for the same period of the prior year.
In addition, interest rates have increased from an average of 7.54% at July 29,
2006 to an average of 8.00% at August 4, 2007. The Company's most recent
borrowings have been at higher interest rates with $5 million of the investor
loan participation bearing interest at four percent above the bank's lending
rates and the most recent subordinated debt closed on April 26, 2007 bears an
interest rate of 18%.

                                       25
<PAGE>
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-15(e) and
15d-15(e)) as of the end of the period covered by this report. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in
reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuer's management, including its principal executive and
principal financial officers, or persons performing similar functions, as
appropriate to make timely decisions regarding required disclosures. 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.

     No change in the Company's internal control over financial reporting
occurred during the twenty-six week period ended August 4, 2007 that materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

                                     PART II
                                     -------

ITEM 1.  LEGAL PROCEEDINGS

     None.


ITEM 1A. RISK FACTORS

     There have been no material changes in the risk factors from those
disclosed in the Annual Report on Form 10-K for the year ending February 3,
2007.


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     Previously reported on Form 8-K.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     For the period from May 1, 2006 through an indefinite period, the Company's
Board of Directors have determined that no dividends will be paid on any series
of preferred stock either in cash or stock. During this period, dividends will
cumulate. As of September 18, 2007, approximately $2,374,000 of dividends had
cumulated with approximately $2,359,000 cumulating in additional shares of
preferred stock and approximately $15,000 cumulating in cash.


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

     None.


ITEM 5.  OTHER INFORMATION

     None.


ITEM 6.  EXHIBITS

     See the Exhibit Index accompanying this report.


                                       26
<PAGE>
                                   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/ Ronald S. Staffieri
                                            -----------------------------
                                            Ronald S. Staffieri
                                            Chief Executive Officer



                                        By: /s/ Jodi L. Taylor
                                            -----------------------------
                                            Jodi L. Taylor
                                            Chief Financial Officer


Date:  September 18, 2007














                                       27
<PAGE>
                                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).
4.7    Amendment to the Certificate of Designation of the Amended Series 2001-A
       Preferred Stock ($0.01 Par Value) of Harold's Stores, Inc., dated January
       24, 2006 (Incorporated by reference to Exhibit 4.3 to Form 8-K dated
       January 24, 2006).
4.8    Certificate of Designations of the Series 2006-A Preferred Stock
       (Incorporated by reference to Exhibit 4.4 to Form 8-K dated January 24,
       2006).
4.9    Amendment to the Certificate of Designation of the Series 2006-A
       Preferred Stock ($0.01 Par Value) of Harold's Stores, Inc., dated August
       31, 2006 (Incorporated by reference to Exhibit 4.1 to Form 8-K dated
       August 31, 2006).
4.10   Certificate of Correction to the Certificate of Designation of the Series
       2006-A Preferred Stock dated August 31, 2006 (Incorporated by reference
       to Exhibit 4.2 to Form 8-K dated August 31, 2006).
4.11   Certificate of Designations of the Series 2006-B Preferred Stock of
       Harold's Stores, Inc., dated August 31, 2006 (Incorporated by reference
       to Exhibit 4.3 to Form 8-K dated August 31, 2006).
4.12   Certificate of Amendment to Certificate of Designation of the Series
       2006-B Preferred Stock, dated April 26, 2007 (Incorporated by reference
       to Exhibit 4.1 to Form 8-K dated April 26, 2007).
4.13   Certificate of Designations of the Series 2007-A Senior Preferred Stock.,
       dated April 26, 2007 (Incorporated by reference to Exhibit 4.2 to Form
       8-K dated April 26, 2007).
4.14   Certificate of Designations of the Series 2007-B Senior Preferred Stock.,
       dated April 26, 2007 (Incorporated by reference to Exhibit 4.3 to Form
       8-K dated April 26, 2007).
10.1   Lease Agreement effective May 1, 1996 between Company and 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).


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<PAGE>
10.2   Amended and Restated Lease Agreement dated as of June 3, 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).
10.3   Amended and Restated Lease Agreement dated as of June 20, 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).
10.4*  2002 Performance and Equity Incentive Plan of Company. (Incorporated by
       reference to Definitive Proxy Statement dated May 17, 2002, for annual
       meeting of shareholders held on June 20, 2002.)
10.5*  Employment Agreement dated February 9, 2004 between Company and Clark
       Hinkley (Incorporated by reference to Exhibit 10.6 to Form 10-K for the
       year ended January 31, 2004).
10.6*  Stock Option Agreement dated February 23, 2001 between Company and Clark
       Hinkley (Incorporated by reference to Exhibit 10.12 to Form 10-K for the
       year ended February 3, 2001).
10.7*  First Amendment to Stock Option Agreement dated February 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).
10.8   Investor Rights Agreement dated February 28, 2001 between Company and
       Inter-Him N.V. (Incorporated by reference to Exhibit 10.2 to Form 8-K
       dated February 28, 2001).
10.9   Right of First Refusal Agreement dated February 28, 2001 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).
10.10  First Amendment to Investor Rights Agreement dated as of 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).
10.11  First Amendment to Right of First Refusal Agreement dated 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).
10.12  Second Amendment to Investor Rights Agreement dated as of February 5,
       2003, by and among Harold's Stores, Inc., Inter-Him N.V. and W. Howard
       Lester (Incorporated by reference to Exhibit 10.2 to Form 8-K dated
       February 4, 2003).
10.13  Loan and Security Agreement dated as 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 10.3 to Form 8-K dated February 4,
       2003).
10.14  Form of Indemnification Agreement between Company and members of its
       Board of Directors (Incorporated by reference to Exhibit 10.36 to Form
       10-K for the year ended February 1, 2003).
10.15  Form of Waiver of Claims and Covenant Not to Sue 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).
10.16  Amended and Restated Participation Agreement dated as of 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).

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<PAGE>
10.17  Assignment and Assumption of Lease Agreement and Third 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).

10.18  Option Agreement between Company and RONHOW LLC dated April 30, 2004
       (Incorporated by reference to Exhibit 10.30 to Form 10-K for the year
       ended January 31, 2004).
10.19  First Amendment to Loan and Security Agreement dated as 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).
10.20  Second Amendment to Loan and Security Agreement dated as 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).
10.21  Third Amendment to Loan and Security Agreement dated as of January 24,
       2006, by and among Wells Fargo Retail Finance II, LLC, Harold's Stores,
       Inc., Harold's Financial Corporation, Harold's Direct, Inc., Harold's
       Stores of Texas, L.P., and Harold's of Jackson, Inc. (Incorporated by
       reference to Exhibit 10.4 to Form 8-K dated January 24, 2006).
10.22  Second Amended and Restated Participation Agreement dated as of January
       24, 2006, by and between Wells Fargo Retail Finance II, LLC and RonHow,
       LLC (Incorporated by reference to Exhibit 10.6 to Form 8-K dated January
       24, 2006).
10.23  First Amendment to Option Agreement dated January 24, 2006 between
       RonHow, LLC and Harold's Stores, Inc. (Incorporated by reference to
       Exhibit 10.8 to Form 8-K dated January 24, 2006).
10.24  Option Agreement dated January 24, 2006 between RonHow, LLC and Harold's
       Stores, Inc. (Incorporated by reference to Exhibit 10.9 to Form 8-K dated
       January 24, 2006).
10.25  Letter of Understanding dated January 24, 2006 by and among Wells Fargo
       Retail Financce II, LLC, Harold's Stores, Inc. and RonHow, LLC
       (Incorporated by reference to Exhibit 10.10 to Form 8-K dated January 24,
       2006).
10.26  Series 2006-A Preferred Stock Purchase Agreement dated as of June 1,
       2006, 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 June
       1, 2006).
10.27  Third Amendment to Investor Rights Agreement dated as of June 1, 2006, 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 June 1,
       2006).
10.28  Amendment No. 4 to Loan and Security Agreement dated as of June 1, 2006,
       by and among Wells Fargo Retail Finance II, LLC, Harold's Stores, Inc.,
       Harold's Financial Corporation, Harold's Direct, Inc., Harold's Stores of
       Texas, L.P. and Harold's of Jackson, Inc. (Incorporated by Reference to
       Exhibit 10.3 to Form 8-K dated June 1, 2006).
10.29  Amendment No. 5 to Loan and Security Agreement dated as of August 31,
       2006, by and among Wells Fargo Retail Finance II, LLC, Harold's Stores,
       Inc., Harold's Financial Corporation, Harold's Direct, Inc., Harold's
       Stores of Texas, L.P., and Harold's of Jackson, Inc. (Incorporated by
       reference to Exhibit 10.1 to Form 8-K dated August 31, 2006).
10.30  Subordinated Loan Agreement dated August 31, 2006 between Harold's
       Stores, Inc. and RonHow LLC. (Incorporated by reference to Exhibit 10.3
       to Form 8-K dated August 31, 2006).

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<PAGE>
10.31  Subordinated Note dated August 31, 2006 in the principal amount of $10
       million from Harold's Stores, Inc. in favor of RonHow LLC (Incorporated
       by reference to Exhibit 10.4 to Form 8-K dated August 31, 2006).
10.32  Subordinated Security Agreement dated August 31, 2006 between Harold's
       Stores, Inc., Harold's Financial Corporation, Harold's Direct, Inc.,
       Harold's Stores of Texas, L.P., Harold's of Jackson, Inc., The Corner
       Properties, Inc., Harold's Limited Partners, Inc., HSTX, Inc. and RonHow
       LLC. (Incorporated by reference to Exhibit 10.5 to Form 8-K dated August
       31, 2006).
10.33  Subordination and Intercreditor Agreement dated August 31, 2006 between
       Harold's Store's Inc., Harold's Financial Corporation, Harold's Direct,
       Inc., Harold's Stores of Texas, L.P., Harold's of Jackson, Inc., The
       Corner Properties, Inc., Harold's Limited Partners, Inc., HSTX, Inc.,
       RonHow LLC and Wells Fargo Retail Finance II, LLC (Incorporated by
       reference to Exhibit 10.7 to Form 8-K dated August 31, 2006).
10.34  Option Agreement dated August 31, 2006, by and between RonHow, LLC and
       Harold's Stores, Inc. (Incorporated by reference to Exhibit 10.8 to Form
       8-K dated August 31, 2006).
10.35  Warrant Agreement dated August 31, 2006, by and between RonHow, LLC and
       Harold's Stores, Inc. (Incorporated by reference to Exhibit 10.9 to Form
       8-K dated August 31, 2006).
10.36  Employment Agreement dated October 6, 2006, between Harold's Stores, Inc.
       and Ronald S. Staffieri (Incorporated by reference to Exhibit 10.1 to
       Form 8-K dated October 6, 2006).
10.37  Stock Option Agreement dated October 6, 2006 between Harold's Stores,
       Inc. and Ronald Staffieri (Incorporated by reference to Exhibit 10.2 to
       Form 8-K dated October 6, 2006).
10.38  First Amendment to Subordination and Intercreditor Agreement by and among
       RonHow, LLC, Harold's Stores, Inc., Harold's Financial Corporation,
       Harold's Direct, Inc., Harold's Stores of Texas, L.P., Harold's of
       Jackson, Inc., The Corner Properties, Inc., Harold's DBO, Inc., Harold's
       Limited Partners, Inc., HSTX, Inc., and Wells Fargo Retail Finance II,
       LLC (Incorporated by reference to Exhibit 10.1 to Form 8-K dated April
       26, 2007).
10.39  Amended and Restated Subordinated Secured Promissory Note by Harold's
       Stores, Inc. in favor of RonHow, LLC (Incorporated by reference to
       Exhibit 10.2 to Form 8-K dated April 26, 2007).
10.40  Global Amendment and Reaffirmation of Subordinated Debt Documents by and
       among RonHow, LLC, Harold's Stores, Inc., Harold's Financial Corporation,
       Harold's Direct, Inc., Harold's Stores of Texas, L.P., Harold's of
       Jackson, Inc., The Corner Properties, Inc., Harold's DBO, Inc., Harold's
       Limited Partners, Inc., and HSTX, Inc. (Incorporated by reference to
       Exhibit 10.3 to Form 8-K dated April 26, 2007).
10.41  Amendment No. 6 to Loan and Security Agreement by and among Wells Fargo
       Retail Finance II, LLC, Harold's Stores, Inc, Harold's Financial
       Corporation, Harold's Direct, Inc., Harold's Stores of Texas, L.P. and
       Harold's of Jackson, Inc. (Incorporated by reference to Exhibit 10.4 to
       Form 8-K dated April 26, 2007).
10.42  Option Agreement by and between RonHow, LLC and Harold's Stores, Inc.
       (Incorporated by reference to Exhibit 10.6 to Form 8-K dated April 26,
       2007).
10.43  Amendment No. 1 to Option Agreements by and between RonHow, LLC and
       Harold's Stores, Inc. (Incorporated by reference to Exhibit 10.7 to Form
       8-K dated April 26, 2007).
10.44  Preferred Stock Purchase Agreement for Series 2007-A Senior Preferred
       Stock by and between RonHow, LLC and Harold's Stores, Inc. (Incorporated
       by reference to Exhibit 10.8 to Form 8-K dated April 26, 2007).
10.45  Fourth Amendment to Investor Rights Agreement by and among Inter-Him,
       N.V., W. Howard Lester RonHow, LLC and Harold's Stores, Inc.
       (Incorporated by reference to Exhibit 10.9 to Form 8-K dated April 26,
       2007).
22.1   Subsidiaries of Company (Incorporated by Reference to Exhibit 22.1 to
       Form 8-B Registration Statement, Registration No. 1-10892).

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<PAGE>
31.1   Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under
       the Securities Exchange Act of 1934
31.2   Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under
       the Securities Exchange Act of 1934
32.1   Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
       1350
32.2   Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
       1350





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* Constitutes a management contract or compensatory plan or arrangement required
  to be filed as an exhibit to this report.





























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