**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| **ý**                                         | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|----------------------------------------------------|----------------------------------------------------------------------------------------------|
|                                               |                                                                                         |
| **For the quarterly period ended  March 31, 2003** |
|                                               |                                                                                         |
| **o**                                              | **TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE  ACT**                         |
|                                               |                                                                                         |
| **Commission file no. 1-12888**                    |

 

**SPORT-HALEY, INC.**

(Exact name of smallbusiness issuer as specified in its charter)

 

| **COLORADO**                                                     |   | **84-1111669**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State of other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **4600 E. 48th Avenue, Denver,  Colorado  80216**           |
| (Address of principal  executive offices)                        |
|                                                             |   |                                  |
| **(303) 320-8800**                                               |
| (Issuer’s telephone  number including area code)            |

 

Indicate by check markwhether the registrant (1) filed all reports required to be filed by Section 13or 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 suchreports), and (2) has been subject to such filing requirements for the past 90 days:   Yes  ý     No  o

 

Indicate the number ofshares outstanding in each of the issuer’s classes of common stock, as of thelatest practicable date.

 

| **Class**                      |   | **Outstanding  at May 9, 2003** |
|--------------------------------|--------|---------------------------------|
| **Common Stock, no par value** |   | **2,444,585**                   |

 

 

----

 

**TABLE OF CONTENTS**

 
| **PART 1  – CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)** |
|-------------------------------------------------------------------|
|                                                              |
|                                                              | ITEM 1 | – | FINANCIAL STATEMENTS |
|                                                              |   |   |
|                                                              |   | BALANCE SHEETS |
|                                                              |   |   |
|                                                              |   | STATEMENTS OF OPERATIONS |
|                                                              |   |   |
|                                                              |   | STATEMENTS OF CASH FLOWS |
|                                                              |   |   |
|                                                              |   | NOTES TO FINANCIAL  STATEMENTS |
|                                                              |   |   |
|                                                              | ITEM 2 | - | MANAGEMENT’S DISCUSSION AND  ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|                                                              |   |
|                                                              | ITEM 4 | - |  CONTROLS AND PROCEDURES |
|                                                              |   |
| **PART II - OTHER INFORMATION**                                   |
|                                                              |   |
| **SIGNATURES**                                                    |
|                                                              |   |
| **CERTIFICATIONS**                                                |
|                                                                   |  |  |  |  |

 

----

 

**SPORT-HALEY, INC.**

**BALANCESHEETS**

 
|                                                                                                                            |   | **March 31,  2003** |       | **June 30,  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|--------------------|--------|
|                                                                                                                            |   | **(Unaudited)**     |       | (***)              |   |
|                                                                                                                            |   |                |       |               |   |
| **ASSETS**                                                                                                                      |   |                |       |               |   |
| Current assets:                                                                                                                 |   |                |       |               |   |
| Cash and cash  equivalents                                                                                                      |   | $                   | 3,753,000  |               | $      | 8,428,000 |   |
| Marketable  securities                                                                                                          |   | 2,508,000           |       | 1,099,000          |   |
| Accounts  receivable, net of allowances of $333,000 and $256,000, respectively                                                  |   | 4,772,000           |       | 4,135,000          |   |
| Inventories                                                                                                                     |   | 8,942,000           |       | 6,704,000          |   |
| Other current  assets                                                                                                           |   | 539,000             |       | 702,000            |   |
| Taxes receivable                                                                                                                |   | 112,000             |       | 1,071,000          |   |
| Deferred taxes                                                                                                                  |   | 351,000             |       | 380,000            |   |
| Total current  assets                                                                                                           |   | 20,977,000          |       | 22,519,000         |   |
|                                                                                                                            |   |                |       |               |   |
| Property and  equipment, net                                                                                                    |   | 969,000             |       | 787,000            |   |
| Deferred taxes                                                                                                                  |   | 247,000             |       | 197,000            |   |
| Other assets                                                                                                                    |   | 21,000              |       | 22,000             |   |
|                                                                                                                            |   |                |       |               |   |
| Total Assets                                                                                                                    |   | $                   | 22,214,000 |               | $      | 23,525,000 |   |
|                                                                                                                            |   |                |       |               |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                  |   |                |       |               |   |
|                                                                                                                            |   |                |       |               |   |
| Current  liabilities:                                                                                                           |   |                |       |               |   |
| Accounts payable                                                                                                                |   | $                   | 887,000    |               | $      | 1,129,000 |   |
| Accrued  commissions and other expenses                                                                                         |   | 536,000             |       | 624,000            |   |
| Total current  liabilities                                                                                                      |   | 1,423,000           |       | 1,753,000          |   |
|                                                                                                                            |   |                |       |               |   |
| Commitments and  Contingencies (Note 3)                                                                                         |   |                |       |               |   |
|                                                                                                                            |   |                |       |               |   |
| Shareholders’  equity:                                                                                                     |   |                |       |               |   |
|                                                                                                                            |   |                |       |               |   |
| Preferred stock,  no par value; 1,500,000 shares authorized; none issued and outstanding                                        |   | —              |       | —             |   |
| Common stock, no  par value; 15,000,000 shares authorized; 2,510,685 and 2,730,985 shares  issued and outstanding, respectively |   | 10,118,000          |       | 10,919,000         |   |
| Additional  paid-in capital                                                                                                     |   | 1,371,000           |       | 1,309,000          |   |
| Retained  earnings                                                                                                              |   | 9,302,000           |       | 9,544,000          |   |
| Total  shareholders’ equity                                                                                                |   | 20,791,000          |       | 21,772,000         |   |
|                                                                                                                            |   |                |       |               |   |
| Total  Liabilities and Shareholders’ Equity                                                                                |   | $                   | 22,214,000 |               | $      | 23,525,000 |   |

 

----

***  Taken from the audited balance sheet at thatdate.

 

See accompanying notes tofinancial statements.

 

3

----

 

**SPORT-HALEY, INC.**

**STATEMENTSOF OPERATIONS**

 
|                                                |   | **Three  Months Ended  March 31,** |      | **Nine  Months Ended  March 31,** |   |
|-----------------------------------------------------|--------|------------------------------------|-----------|-----------------------------------|--------|
|                                                |   | **2003**                           |      | **2002**                          |   | **2003** |   | **2002** |   |
|                                                |   | **(Unaudited)**                    |      | **(Unaudited)**                   |   | **(Unaudited)** |   | **(Unaudited)** |   |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Net sales                                           |   | $                                  | 5,504,000 |                              | $      | 4,364,000 |   | $ | 13,326,000 |   | $ | 11,908,000 |   |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Cost of goods  sold                                 |   | 3,215,000                          |      | 2,954,000                         |   | 8,001,000 |   | 7,842,000 |   |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Gross profit                                        |   | 2,289,000                          |      | 1,410,000                         |   | 5,325,000 |   | 4,066,000 |   |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Selling, general  and administrative expense        |   | 2,405,000                          |      | 2,086,000                         |   | 5,813,000 |   | 5,258,000 |   |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Loss from  operations                               |   | (116,000                           | )         | (676,000                          | )      | (488,000 | ) | (1,192,000 | ) |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Other income,  net                                  |   | (4,000                             | )         | 78,000                            |   | 101,000 |   | 296,000 |   |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Income (loss)  before provision for income taxes    |   | (120,000                           | )         | (598,000                          | )      | (387,000 | ) | (896,000 | ) |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Benefit from  income taxes                          |   | 41,000                             |      | 278,000                           |   | 145,000 |   | 352,000 |   |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Net income  (loss)                                  |   | $                                  | (79,000   | )                                 | $      | (320,000 | ) | $ | (242,000 | ) | $ | (544,000 | ) |
|                                                |   |                               |      |                              |   |   |   |   |   |
| Basic and  diluted earnings (loss) per common share |   | $                                  | (0.03     | )                                 | $      | (0.11 | ) | $ | (0.09 | ) | $ | (0.18 | ) |

 

See accompanying notes tofinancial statements.

 

4

----

 

**SPORT-HALEY, INC.**

**STATEMENTSOF CASH FLOWS**

 
|                                                                                              |   | **Nine  Months Ended  March 31,** |     |
|---------------------------------------------------------------------------------------------------|--------|-----------------------------------|----------|
|                                                                                              |   | **2003**                          |     | **2002** |   |
|                                                                                              |   | **(Unaudited)**                   |     | **(Unaudited)** |   |
|                                                                                              |   |                              |     |   |   |
| **Cash flows from operating  activities:**                                                        |   |                              |     |   |   |
| Net income  (loss)                                                                                |   | $                                 | (242,000 | ) | $ | (544,000 | ) |
|                                                                                              |   |                              |     |   |   |
| Adjustments to  reconcile net income (loss) to net cash provided (used) by operating  activities: |   |                              |     |   |   |
| Depreciation and  amortization                                                                    |   | 273,000                           |     | 411,000 |   |
| Deferred taxes  and other                                                                         |   | (22,000                           | )        | (86,000 | ) |
| Allowance for  doubtful accounts                                                                  |   | 269,000                           |     | 193,000 |   |
| Common stock  options                                                                             |   | 62,000                            |     | — |   |
| Loss on dispositions  of fixed assets                                                             |   | 20,000                            |     | — |   |
| Cash provided  (used) due to changes in assets and liabilities:                                   |   |                              |     |   |   |
| Accounts  receivable                                                                              |   | (905,000                          | )        | 1,064,000 |   |
| Inventories                                                                                       |   | (2,238,000                        | )        | 421,000 |   |
| Other assets                                                                                      |   | 150,000                           |     | (148,000 | ) |
| Income taxes  receivable                                                                          |   | 958,000                           |     | (88,000 | ) |
| Accounts payable                                                                                  |   | (242,000                          | )        | (7,000 | ) |
| Accrued  commissions and other expenses                                                           |   | (88,000                           | )        | (15,000 | ) |
|                                                                                              |   |                              |     |   |   |
| **Net cash provided (used) by  operating activities**                                             |   | (2,005,000                        | )        | 1,201,000 |   |
|                                                                                              |   |                              |     |   |   |
| **Cash flows from investing  activities:**                                                        |   |                              |     |   |   |
| Redemption of  held-to-maturity investments                                                       |   | 1,815,000                         |     | 2,474,000 |   |
| Purchases of  held-to-maturity investments                                                        |   | (3,210,000                        | )        | (2,447,000 | ) |
| Proceeds from  sales of fixed assets                                                              |   | 12,000                            |     | 96,000 |   |
| Purchases of  fixed assets                                                                        |   | (486,000                          | )        | (57,000 | ) |
|                                                                                              |   |                              |     |   |   |
| **Net cash provided (used) by  investing activities**                                             |   | (1,869,000                        | )        | 66,000 |   |
|                                                                                                   |        |                                   |          |  |  |  |  |

 

See accompanyingnotes to financial statements.

 

5

----

 
|                                                   |   | **Nine  Months Ended  March 31,** |      |
|--------------------------------------------------------|--------|-----------------------------------|-----------|
|                                                   |   | **2003**                          |      | **2002** |   |
|                                                   |   | **(Unaudited)**                   |      | **(Unaudited)** |   |
|                                                   |   |                              |      |   |   |
| **Cash flows from financing  activities:**             |   |                              |      |   |   |
| Net proceeds  from issuance of common stock            |   | $                                 | —    |   | $ | — |   |
| Repurchases of  common stock                           |   | (801,000                          | )         | (1,602,000 | ) |
|                                                   |   |                              |      |   |   |
| **Net cash used by financing  activities**             |   | (801,000                          | )         | (1,602,000 | ) |
|                                                   |   |                              |      |   |   |
| **Net decrease in cash and cash  equivalents**         |   | (4,675,000                        | )         | (335,000 | ) |
|                                                   |   |                              |      |   |   |
| **Cash and cash equivalents,  beginning**              |   | 8,428,000                         |      | 4,413,000 |   |
|                                                   |   |                              |      |   |   |
| **Cash and cash equivalents, ending**                  |   | $                                 | 3,753,000 |   | $ | 4,078,000 |   |
|                                                   |   |                              |      |   |   |
| **Supplemental disclosure of cash  flow information:** |   |                              |      |   |   |
|                                                   |   |                              |      |   |   |
| Cash received  during the period for:                  |   |                              |      |   |   |
| Income taxes                                           |   | $                                 | 1,066,000 |   | $ | 323,000 |   |
|                                                   |   |                              |      |   |   |
| Cash paid during  the period for:                      |   |                              |      |   |   |
| Income taxes                                           |   | $                                 | —    |   | $ | 145,000 |   |
|                                                   |   |                              |      |   |   |
| Interest                                               |   | $                                 | 9,000     |   | $ | 29,000 |   |

 

See accompanyingnotes to financial statements.

 

6

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**SPORT-HALEY, INC.**

**NOTESTO FINANCIAL STATEMENTS**

 
| **NOTE 1** | **CONDENSED  FINANCIAL STATEMENTS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|       | The financial statements included herein have been  prepared by Sport-Haley, Inc. (the “Company”) without audit, pursuant to the  rules and regulations of the Securities and Exchange Commission. Certain  information and footnote disclosures normally included in financial  statements prepared in accordance with generally accepted accounting principles  in the United States of America have been condensed or omitted as allowed by  such rules and regulations. The Company believes that the disclosures are  adequate to make the information presented not misleading. These financial  statements should be read in conjunction with the Company’s annual audited  consolidated financial statements dated June 30, 2002, included in the  Company’s annual report on Form 10-K as filed with the Securities and  Exchange Commission. The results for interim periods are not necessarily  indicative of results that may be expected for any other interim period or  for the full year. |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|       | The management of the Company believes that the  accompanying unaudited condensed financial statements prepared in conformity  with generally accepted accounting principles in the United States of  America, which require the use of management estimates, contain all  adjustments (including normal recurring adjustments) necessary to present  fairly the operations and cash flows for the periods presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|       | The consolidated quarterly unaudited and annual  audited financial statements for the fiscal year ended June 30, 2002 included  the accounts of Sport-Haley, Inc. and its former wholly-owned subsidiary,  B&L Sportswear, Inc. (the “Subsidiary”). All significant inter-company  accounts and transactions were eliminated from those consolidated financial  statements. The Subsidiary ceased business operations in August 2001 and was  liquidated in May 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **NOTE 2** | **INVENTORIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

 
|   |                                    |   | **March 31,  2003** |            | **June 30,  2002** |   |
|--------|-----------------------------------------|--------|---------------------|-----------------|--------------------|--------|
|   | Inventories consisted of the following: |   |                |            |               |   |
|   | Component                               |   | $                   |  552,000   |               | $      |  455,000 |   |
|   | Finished goods                          |   | 8,390,000           |            | 6,249,000          |   |
|   |                                    |   |                |            |               |   |
|   |                                    |   | $                   |  8,942,000 |               | $      |  6,704,000 |   |

 

7

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| **NOTE 3****   ** | **COMMITMENTS  AND CONTINGENCIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|----------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                             | At March 31, 2003, the Company had outstanding  letters of credit of approximately $980,000 that were issued to foreign  suppliers in accordance with finished goods inventory purchase commitments.                                                                                                                                                                                                                                                                                                                          |
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **NOTE 4**                       | **REPURCHASE  OF COMMON STOCK**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                             | In accordance with its  common stock repurchase plan, the Company may repurchase shares from time to  time in compliance with applicable Securities and Exchange Commission  regulations in open market transactions at prevailing market prices. The  Company has no commitment to repurchase all or any portion of the shares  authorized for repurchase. All shares repurchased by the Company are required  to be canceled and returned to the status of authorized but unissued common  stock.                           |
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                             | In October 2002 and March 2003, the Company  repurchased 70,500 and 149,800 shares of its common stock at cumulative costs  of approximately $245,000 and $556,000, respectively. In May 2003, the  Company repurchased 66,100 shares of its common stock at a cost of  approximately $250,000.                                                                                                                                                                                                                               |
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                             | Since the inception of the common stock repurchase  plan, the Company’s Board of Directors had authorized the repurchase of up to  2,820,000 shares of the Company’s issued and outstanding common stock. From  the inception of the repurchase plan in December 1994 through May 9, 2003,  the Company had repurchased a total of 2,512,800 shares of its common stock  at a cumulative cost of approximately $13,488,000. As of May 9, 2003, the net  number of shares authorized for repurchase totaled 307,200. |
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **NOTE 5****   ** | **COMMON  STOCK OPTIONS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                             | On January 20, 2003, the Compensation Committee of  the board of directors approved the granting to certain officers and  directors the options to purchase 400,000 shares of the Company’s common  stock at exercise prices of $2.71 per share, pursuant to the Company’s stock  option plan, which expired by its terms on February 28, 2003. The options  that were granted in January 2003 expire ten years after the date of  issuance.                                                                        |
|                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                             | At March 31, 2003, there were outstanding options to  purchase 1,286,457 shares of the Company’s common stock at prices ranging  from $2.50 to $9.78, with expiration dates between May 2003 and January 2013.  Option agreements issued in accordance with the stock option plan prior to  February 28, 2003’ will generally remain in force until the earlier of their  exercise, their expiration or the termination of an employment relationship  with the Company.                                            |

 

8

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|   | If the Company had accounted for its stock-based  compensation plan in accordance with Statements of Accounting Standards No.  123, *Accounting for Stock-Based  Compensation*, the Company’s net income (loss) and loss per common  share would have been reported as follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
|   |                                                      |   | **Nine  Months Ended March 31,** |           |
|--------|-----------------------------------------------------------|--------|----------------------------------|----------------|
|   |                                                      |   | **2003**                         |           | **2002** |   |
|   | Net income (loss),  as reported                           |   | $                                |  (242,000 | ) | $ |  (544,000 | ) |
|   | Pro forma stock  compensation expense, net of tax benefit |   | 117,000                          |           | — |   |
|   | Pro forma net  income (loss)                              |   | $                                |  (359,000 | ) | $ |  (544,000 | ) |
|   |                                                      |   |                             |           |   |   |
|   | Loss per common  share, basic and diluted                 |   |                             |           |   |   |
|   | As reported                                               |   | $                                |  (0.09    | ) | $ |  (0.18 | ) |
|   | Pro forma stock  compensation expense, net of tax benefit |   | 0.04                             |           | — |   |
|   | Pro forma                                                 |   | $                                |  (0.13    | ) | $ |  (0.18 | ) |

 
| **NOTE 6** | **EARNINGS  PER SHARE**                                                                                                                                                                                                                                                                                                                                                                                               |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       | The Company adopted the provisions of Statement of  Financial Accounting Standards No. 128 (SFAS No. 128), *Earnings per Share,*  effective with the year ended June 30, 1998. SFAS No. 128 requires the  presentation of basic and diluted earnings (loss) per common share. The  following table provides a reconciliation of the numerator and denominator of  basic and diluted earnings (loss) per common share: |

 
|   |                                   |   | **Three  Months ended March 31, 2003** |          |
|--------|----------------------------------------|--------|----------------------------------------|---------------|
|   |                                   |   | **Net  Income  (Loss)**                |          | **Weighted  Average Shares** |   | **Per Share** |   |
|   | Loss Per Common Share                  |   |                                   |          |   |   |   |   |
|   |                                   |   |                                   |          |   |   |   |   |
|   | Basic loss per  share                  |   | $                                      |  (79,000 | ) | 2,614,598 |   | $ |  (0.03 | ) |
|   |                                   |   |                                   |          |   |   |   |   |
|   | Effect of  dilutive securities options |   | —                                 |          | — |   | — |   |
|   |                                   |   |                                   |          |   |   |   |   |
|   | Diluted loss per  share                |   | $                                      |  (79,000 | ) | 2,614,598 |   | $ |  (0.03 | ) |

 

9

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|   |                                   |   | **Nine  Months ended March 31, 2003**  |           |
|--------|----------------------------------------|--------|----------------------------------------|----------------|
|   |                                   |   | **Net  Income  (Loss)**                |           | **Weighted  Average Shares** |   | **Per Share** |   |
|   | Loss Per Common  Share                 |   |                                   |           |   |   |   |   |
|   |                                   |   |                                   |           |   |   |   |   |
|   | Basic loss per  share                  |   | $                                      |  (242,000 | ) | 2,670,999 |   | $ |  (0.09 | ) |
|   |                                   |   |                                   |           |   |   |   |   |
|   | Effect of  dilutive securities options |   | —                                 |           | — |   | — |   |
|   |                                   |   |                                   |           |   |   |   |   |
|   | Diluted loss per  share                |   | $                                      |  (242,000 | ) | 2,670,999 |   | $ |  (0.09 | ) |
|   |                                   |   |                                   |           |   |   |   |   |
|   |                                   |   | **Three  Months ended March 31, 2002** |           |
|   |                                   |   | **Net  Income  (Loss)**                |           | **Weighted  Average Shares** |   | **Per Share** |   |
|   | Loss Per Common Share                  |   |                                   |           |   |   |   |   |
|   |                                   |   |                                   |           |   |   |   |   |
|   | Basic loss per  share                  |   | $                                      |  (320,000 | ) | 2,768,613 |   | $ |  (0.11 | ) |
|   |                                   |   |                                   |           |   |   |   |   |
|   | Effect of  dilutive securities options |   | —                                 |           | — |   | — |   |
|   |                                   |   |                                   |           |   |   |   |   |
|   | Diluted loss per  share                |   | $                                      |  (320,000 | ) | 2,768,613 |   | $ |  (0.11 | ) |
|   |                                   |   |                                   |           |   |   |   |   |
|   |                                   |   | **Nine  Months ended March 31, 2002**  |           |
|   |                                   |   | **Net  Income  (Loss)**                |           | **Weighted  Average Shares** |   | **Per Share** |   |
|   | Loss Per Common  Share                 |   |                                   |           |   |   |   |   |
|   |                                   |   |                                   |           |   |   |   |   |
|   | Basic loss per  share                  |   | $                                      |  (544,000 | ) | 3,006,710 |   | $ |  (0.18 | ) |
|   |                                   |   |                                   |           |   |   |   |   |
|   | Effect of  dilutive securities options |   | —                                 |           | — |   | — |   |
|   |                                   |   |                                   |           |   |   |   |   |
|   | Diluted loss per  share                |   | $                                      |  (544,000 | ) | 3,006,710 |   | $ |  (0.18 | ) |

 

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**SPORT-HALEY, INC.**

**ITEM2. MANAGEMENT’S****DISCUSSION AND ANALYSIS OF****FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

This Report on Form 10-Qcontains certain forward-looking statements. When used in this report, thewords “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,”“intend,” “believe” and similar expressions are intended to identifyforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934 regardingevents, conditions and financial trends including, without limitation, businessconditions and growth in the fashion golf apparel market and the generaleconomy, competitive factors, and price pressures in the high-end golf-apparelmarket; general economic conditions resulting from threats or acts of war orterrorism; risks associated with an increasing percentage of sales relating tolicensed apparel, such as the Ben Hogan® collections; inventory risks due toshifts in market and/or price erosion of purchased apparel, raw fabric andtrim; cost controls; changes in product mix; loss or reduced manufacturingcapacity of significant suppliers; loss or delay of shipments of finished goodsfrom foreign suppliers; and other risks or uncertainties detailed in otherSecurities and Exchange Commission (“SEC”) filings made by Sport-Haley. Suchstatements are based on management’s current expectations and are subject torisks, uncertainties and assumptions. Should one or more of these risks oruncertainties materialize, or should underlying assumptions prove incorrect,the actual plan of operations, business strategy, operating results andfinancial position of Sport-Haley could differ materially from those expressedin, or implied by, such forward-looking statements.

 

**CRITICAL ACCOUNTING POLICIES ANDESTIMATES**

 

The Company’s condensedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America, which requirethe Company to make estimates and judgments that affect the reported amounts ofassets, liabilities, revenues and expenses, and the related disclosures. Asummary of those significant accounting policies can be found in the Company’sNotes to the Consolidated Financial Statements included in its Report on 10-Kfor the year ended June 30, 2002, which was filed with the SEC on September 27,2002. The estimates used by managementare based upon the Company’s historical experiences combined with management’sunderstanding of current facts and circumstances. Certain of the Company’saccounting policies are considered critical as they are both important to theportrayal of the Company’s financial condition and the results of itsoperations and require significant or complex judgments on the part ofmanagement. Management believes that the following represent the criticalaccounting policies of the Company as described in Financial Reporting ReleaseNo. 60, “Cautionary Advice Regarding Disclosure About Critical AccountingPolicies,” which was issued by the Securities and Exchange Commission:inventories; deferred income taxes; allowance for doubtful accounts; and,allowance for sales returns.

 

Excessfinished goods inventories are a natural component of a seasonal apparelbusiness. The valuation of inventories involves complex judgments on the partof management. Management continually evaluates and balances the levels ofcurrent seasons’ inventories to meet market demands based upon salesprojections, current bookings for future deliveries and at-once business. Whilecertain finished goods items will sell out in any particular selling season,quantities of other finished goods items will remain at the end of each sellingseason. The Company markets previous seasons’ finished goods inventories atreduced wholesale prices. However, economic conditions and other factors maydepress sales prices for previous seasons’ finished goods inventories to lessthan historical costs.

 

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TheCompany’s management has significantly improved controls with respect to theamount of finished goods inventories that are anticipated to remain at the endof each selling season. While management believes that the Company’s processesproduce a fair valuation of inventories, detrimental changes in generaleconomic conditions or in the golf apparel industry could materially affectvaluation of the Company’s inventories.

 

Deferred income taxes arerecognized for the expected tax consequences in future years for differencesbetween the tax bases of assets and liabilities and their financial reportingamounts, based upon enacted tax laws and statutory tax rates applicable to theperiods in which the differences are expected to affect taxable income. The Company’ssignificant deferred tax assets are related to net operating loss carryforwardsfor state income tax purposes, a change in accounting methods for federalincome tax purposes, stock options compensation and an unrealized loss for taxpurposes on a common stock investment. The Company has established a valuationallowance to reduce deferred tax assets to the net amount expected to berecovered in future periods. The estimates for deferred tax assets and thecorresponding valuation allowance require management to exercise complexjudgments. Management periodically reviews and adjusts those estimates basedupon the most current information available. However, because therecoverability of deferred tax assets is directly dependent upon the futureoperating results of the Company, actual recoverability of deferred tax assetsmay differ materially from management’s estimates.

 

The Company’s allowancefor doubtful accounts reflects a reserve that reduces customer accountsreceivable to the net amount estimated to be collectible. Estimating the creditworthiness of customers and the recoverability of customer accounts requiresmanagement to exercise considerable judgment. In estimating uncollectibleamounts, management considers factors such as general economic andindustry-specific conditions, historical customer performance and anticipatedcustomer performance. While management considers the Company’s processes to beadequate to effectively quantify its exposure to doubtful accounts, changes ineconomic, industry or specific customer conditions may result in arecoverability of the Company’s doubtful accounts that materially differs frommanagement’s estimates.

 

The Company records itsallowance for sales returns as a net adjustment to customer accounts receivable.When recording an allowance, the net method reduces customer accountsreceivable and net sales by the estimated gross margin effect of theanticipated sales return. Generally, the Company’s selling terms precludereturn of its products subsequent to the sale. However, the Company hastraditionally maintained limited programs that offer some customers the rightto return certain finished goods items under predefined conditions and eachyear a small percentage of the Company’s customers refuse receipt ofmerchandise at the time of delivery. Management reviews historical data andconsiders factors such as general economic and industry-specific conditions andanticipated customer performance when evaluating the Company’s allowance forsales returns. Significant changes in general economic or industry conditionsmay yield sales returns that differ materially from management’s estimates.

 

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**FINANCIAL CONDITION**

 

The Company intends to rely on cash generated from operations andavailable cash on hand to finance its working capital requirements for at leastthe next 12 months. To the extent such amounts are insufficient to finance theCompany’s working capital requirements, the Company may also make periodic borrowingsunder its revolving line of credit. Working capital at March 31, 2003 wasapproximately $19,554,000 and $20,766,000 at June 30, 2002.

 

Cash and cash equivalents plus marketable securities decreased sinceJune 30, 2002 by approximately $3,266,000, to $6,261,000 from $9,527,000. Thedecrease in cash and cash equivalents primarily relates to the increase ininventories and the repurchases of common stock which are discussed in furtherdetail below. Net accounts receivable increased by approximately $637,000 to$4,772,000 at March 31, 2003 from $4,135,000 at June 30, 2002. Because themajority of the Company’s net sales for its third fiscal quarter (March 31)occur in the month of March, the Company’s net accounts receivable arehistorically higher at March 31 when compared with the previous June 30balance. Due to a combination of these factors, the factors discussed below andothers, during the nine months ended March 31, 2003, the Company’s operatingactivities used cash of approximately $2,005,000.

 

Since June 30, 2002, inventories increased by approximately $2,238,000to $8,942,000 at March 31, 2003 from $6,704,000 at June 30, 2002. A primarycomponent in the increase in inventories was an increase in Ben Hogan® finishedgoods inventories necessary to support the growing sales of Ben Hogan® apparelcollections. Ben Hogan® finished goods inventories totaled approximately$2,023,000 at March 31, 2003 and $728,000 at June 30, 2002. Another significantportion of the increase in inventories was attributable to pending deliveriesof ocean shipments of finished goods from foreign suppliers. Pending oceandeliveries of finished goods were approximately $662,000 at March 31, 2003 and$399,000 at June 30, 2002. The Company’s foreign suppliers generally deliver finishedgoods with shipping terms of free on board at the shipping location. Therefore,the Company’s reliance on foreign suppliers sustains the risk that theCompany’s revenues could be adversely affected if a foreign shipment orshipments were received late or lost. Some of the Company’s significantsuppliers are located in Asia. The spread of the SARS virus throughout portionsof Asia and the current political unrest in the Koreas pose risks thatshipments from such Asian suppliers could be delayed or lost. The Companymaintains insurance for risk of loss relating to goods shipped from its foreignand domestic suppliers. However, the Company’s significant reliance on foreignsuppliers sustains the risk that the Company may be left with inadequate orunsatisfactory recourse should the finished goods received from a foreignsupplier be nonconforming or should a foreign supplier fail to deliver finishedgoods due to a viral plague, political conflict or other unforeseencircumstances.

 

Taxes receivable decreased by approximately $959,000 since June 30,2002 to $112,000 at March 31, 2003, from $1,071,000. The decrease includesapproximately $1,066,000 in federal income tax refunds received during the ninemonths ended March 31, 2003.

 

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For the nine months ended March 31, 2003, the Company expendedapproximately $486,000 for the purchase of property and equipment, andapproximately $273,000 in depreciation and amortization was charged to currentoperations. In the current fiscal year, the Company has expended approximately$308,000 for new information systems hardware and software that managementexpects to be fully operational as of July 1, 2003. During the same nine-monthperiod, investing activities used cash of approximately $1,869,000, primarilydue to the purchases and redemptions of held-to-maturity federally insuredmarketable securities and other low-risk short-term investments.

 

Accounts payable and accrued expenses decreased by approximately$330,000 since June 30, 2002, to $1,423,000 at March 31, 2003, from $1,753,000.The decrease was comprised of an increase in accrued payroll expenses combinedwith decreases in trade accounts payable, accrued sales commissions and otherexpenses payable.

 

Total shareholders’ equity decreased by approximately $981,000 for thenine-month period. The decrease was attributable to a decrease in common stockdue to the repurchases, an increase in additional paid-in capital due to therecording of stock options compensation expense and a decrease in retainedearnings due to the net loss for the nine-month period. Book value per share atMarch 31, 2003 was approximately $8.28 per share, an increase of $0.31 pershare as compared with $7.97 at June 30, 2002.

 

**RESULTSOF OPERATIONS**

 

The Company’s business is seasonal in nature, with disproportionatelyhigher sales occurring from January through June, which are the Company’s thirdand fourth quarters of each fiscal year.

 

Net sales for the fiscal quarter and nine months ended March 31, 2003,were approximately $5,504,000 and $13,326,000, respectively, increases ofapproximately $1,140,000 or 26%, and $1,418,000 or 12%, from net sales ofapproximately $4,364,000 and $11,908,000 for the same periods in the priorfiscal year. Management attributes the increases in net sales to the continuedacceptance of Ben Hogan® apparel collections within upscale golf apparelmarkets. Net sales of Ben Hogan® apparel were approximately $2,754,000 and$319,000 for the nine months ended March 31, 2003 and 2002, respectively. Theoverall percentage of net sales relating to Ben Hogan® apparel is indicative ofthe Company’s efforts to increase revenues associated with the Spalding SportsWorldwide licensing agreement for such apparel. The increasing relativepercentage of sales relating to licensed apparel sustains a risk of loss,should the Spalding licensing agreement be terminated by either party. Duringthe nine months ended March 31, 2003, the sluggish USA economy continued tonegatively impact the travel and leisure markets within which the Companyoperates. Relatively soft economic conditions negatively impacted the Company’ssales for its first and second fiscal quarters. While the USA economy appearedto strengthen somewhat during the Company’s third fiscal quarter, the ensuingwar with Iraq further impacted the travel and leisure segments of the economy.Because the war with Iraq has detrimentally affected bookings for futuredeliveries, management has lowered the Company’s sales forecasts for its forthcomingfall selling season. The Company continues to concentrate its efforts onincreasing sales and creating new markets for both its HALEY® and Ben Hogan®products. Based upon bookings as of March 31, 2003 for shipments after thatdate, management expects the Company’s overall sales trend to flatten withinthe current fiscal year ending June 30, 2003.

 

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The Company’s gross profit, as a percentage of net sales, wasapproximately 42% and 40% for the quarter and nine months ended March 31, 2003,respectively, and 32% and 34% for the same periods in the prior fiscal year.The gross profit percentages are reflective of management’s successful effortsto source its finished apparel at competitive prices from foreign suppliers andto minimize closeout inventories that must be sold at reduced prices.

 

Selling, general and administrative expenses for the quarter endedMarch 31, 2003 increased by approximately $319,000, or 15%, to $2,405,000 from$2,086,000 for the same three-month period in the prior fiscal year. Whileselling, general and administrative costs increased comparatively for thequarter ended March 31, 2003, they decreased as a percentage of sales for thesame comparable period. Selling, general and administrative expenditures wereapproximately 44% of net sales for the quarter ended March 31, 2003, ascompared with 48% for the same period in the prior fiscal year. Selling,general and administrative expenses for the nine months ended March 31, 2003 increasedby approximately $555,000, or 1%, to $5,813,000 from $5,258,000 for the samenine-month period in the prior fiscal year. A majority of the increase wasattributable to selling, general and administrative expenses with respect toBen Hogan® apparel. Other contributing factors were increases in advertisingexpenses and bad debt expenses of approximately $140,000 and $75,000,respectively, in the nine-month comparative period. Management continuallysearches for ways to refine the Company’s business operations in order tooperate as efficiently as possible in continually difficult economicconditions.

 

Other income, net, decreased by approximately $82,000 and $195,000, or105% and 66%, respectively, to ($4,000) and $101,000 for the quarter and ninemonths ended March 31, 2003, from $78,000 and $296,000 for the same periods inthe prior fiscal year. The decreases were primarily attributable to differencesbetween the periods in the respective rates of interest earned on cash, cashequivalents and federally insured marketable securities.

 

Income (loss) before provision for income taxes improved byapproximately $478,000, or 80%, to ($120,000) for the fiscal quarter endedMarch 31, 2003, from ($598,000) for the same quarter in the prior fiscal year.Income (loss) before provision for income taxes improved by approximately$509,000, or 57%, to ($387,000) for the nine months ended March 31, 2003, from($896,000) for the same period in the prior fiscal year.

 

The Company’s effective tax rates for the nine months ended March 31,2003 and 2002 were 34% and 37%, respectively. The effective tax rate in anyfiscal period can vary significantly from the effective tax rate in anotherperiod due to differences between the recognition of certain transactions forfinancial versus tax purposes. Certain deductions recognized for tax purposesmay not be expensed for financial statement purposes, and certain expensesrecorded for financial statement purposes may not be deductible for taxpurposes.

 

Net income (loss) for the fiscal quarter ended March 31, 2003 wasapproximately ($79,000), an improvement of $241,000, or 75%, when compared with($320,000) for the same three-month period in the prior fiscal year. Net income(loss) for the nine months ended March 31, 2003 was approximately ($242,000),an improvement of $302,000, or 56%, when compared with ($544,000) for the samenine-month period in the prior fiscal year. The differences were primarily duethe comparative increases in net sales combined with the increases in gross margins.

 

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Both the basic and diluted earnings (loss) per share were ($0.03) and($0.09) for the fiscal quarter and nine months ended March 31, 2003,respectively. Both the basic and diluted earnings (loss) per share were ($0.11)and ($0.18) for the same periods in prior fiscal year.

 

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**SPORT-HALEY, INC.**

**ITEM4  CONTROLS****ANDPROCEDURES**

 

**(a) Evaluation of Disclosure Controls and Procedures**

 

The management of theCompany, including the Chief Executive Officer and the Chief Financial Officer,have conducted an evaluation of the effectiveness of the Company’s disclosurecontrols and procedures pursuant to Rule 13a-14 under the Securities ExchangeAct of 1934 as of a date (the “Evaluation Date”) within 90 days prior to thefiling date of this report. Based on that evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer concluded that, as of the EvaluationDate, the Company’s disclosure controls and procedures were effective inensuring that all material information relating to the Company required to befiled in this quarterly report has been made known to them in a timely manner.

 

**(b) Changes in Internal Controls**

 

There have been nosignificant changes made in the Company’s internal controls or in other factorsthat could significantly affect internal controls subsequent to the EvaluationDate.

 

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**SPORT-HALEY, INC.**

**PART II**

**OTHER INFORMATION**

 

**ITEM 1****                 LEGAL PROCEEDINGS**

 

As previously reported, a former shareholder commenced a putative classaction lawsuit against Sport-Haley and three of its officers and directors (the“Defendants”). The action, which seeks unspecified damages, alleges that theDefendants violated Section 10(b) of the Securities Exchange Act of 1934 (the“Exchange Act”), and Rule 10b-5 promulgated thereunder, by knowinglyoverstating Sport-Haley’s financial results, thereby causing Sport-Haley’sstock price to be artificially inflated. The complaint further alleges that theindividual Defendants are liable by virtue of being controlling persons ofSport-Haley, pursuant to Section 20(a) of the Exchange Act. The allegationsarise out of Sport-Haley’s restatements of its financial statements for thefiscal years ended June 30, 1999 and 1998, which Sport-Haley previouslyreported. The Court appointed a group of investors (the “Plaintiffs”), to actas lead plaintiffs in the action.

 

The Defendants believe that the action is without merit and intend tocontinue their vigorous defense of the lawsuit. As previously reported, inDecember 2001, the Defendants filed a motion to dismiss the action. In February2002, the Plaintiffs filed their first amended complaint, alleging the sameclaims. The Defendants moved to dismiss the first amended complaint in February2002. On March 25, 2003, the Court denied the Defendants’ motion to dismiss. Nodiscovery has been conducted in the case to date.  Based upon information that is currently available, management isnot able to estimate the amount of damages, if any, that might be awarded tothe Plaintiffs and the class if the action were certified by the court as aclass action and if the lawsuit were determined in favor of the Plaintiffs.

 

As previously reported, the staff of the United States Securities andExchange Commission (the “Commission”) advised Sport-Haley and its Chairman andformer Chief Executive Officer, Robert G. Tomlinson, that the staff plans torecommend to the Commission that an enforcement action should be taken againstSport-Haley and Mr. Tomlinson to obtain an injunction prohibiting futureviolations of certain provisions of the securities laws and possibly otherrelief. The staff’s planned recommendation primarily relates to errors in Sport-Haley’spreviously issued financial statements that Sport-Haley previously reportedwhen it restated its financial statements for fiscal years 1999 and 1998 andsubsequently corrected material financial information for the quarterly periodsof fiscal year 2000. Sport-Haley and Mr. Tomlinson provided the staff withwritten submissions setting forth legal and factual reasons why such an actionshould not be brought. Sport-Haley and Mr. Tomlinson do not know what action,if any, the staff will ultimately recommend to the Commission. If the staffrecommends that the Commission initiate an enforcement action, it is not knownwhether the Commission will accept the staff’s recommendation. Should theCommission bring such an action, Sport-Haley and Mr. Tomlinson intend tovigorously contest it. Based upon the information that is currently available,management does not believe that the impact, if any, of such an enforcementaction would have a material adverse effect upon Sport-Haley’s financialposition.

 

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As previously reported, Sport-Haley retained legal counsel to possiblypursue claims against its former auditors in connection with damages sufferedas a result of the restatements of its financial statements for the fiscalyears ended June 30, 1999 and 1998 and the corrections of material financialinformation for the quarterly periods of the fiscal year ended June 30, 2000.Further, counsel to the former auditors has advised Sport-Haley that the formerauditors may bring certain claims against Sport-Haley. Management believes thatthe claims threatened by Sport-Haley’s former auditors relate to allegations ofunpaid fees. Each party continues to deny any liability to the other party. Nolegal action has been filed by Sport-Haley or its former auditors that assertsany of these claims. As of March 31, 2003, the Company had incurredapproximately $534,000 in cumulative expenses related to the restatements ofits financial statements and material quarterly information noted above.

 

Sport-Haley is subject to various other legal proceedings and claimswhich arise in the ordinary course of its business. In the opinion ofmanagement, the amount of ultimate liability with respect to those actions willnot materially affect the financial position or results of operations ofSport-Haley.

 

**ITEM 4****                 SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

 

Sport-Haley, Inc. held its annual meeting ofshareholders on March 27, 2003. The following matters were considered andapproved by the shareholders:

 

A.            The following fivedirectors were elected to hold office for one-year terms or until theirsuccessors are elected and qualified:

 
|                 |   | **Votes  For** |   | **Votes  Against  or Withheld** |   | **Total  Voted** |   |
|----------------------|--------|----------------|--------|---------------------------------|--------|------------------|--------|
|                 |   |           |   |                            |   |             |   |
| Robert G.  Tomlinson |   | 2,293,722      |   | 54,875                          |   | 2,348,597        |   |
| Kevin M.  Tomlinson  |   | 2,294,097      |   | 54,500                          |   | 2,348,597        |   |
| Mark J.  Stevenson   |   | 2,294,097      |   | 54,500                          |   | 2,348,597        |   |
| Ronald J. Norick     |   | 2,294,097      |   | 54,500                          |   | 2,348,597        |   |
| James H. Everest     |   | 2,294,097      |   | 54,500                          |   | 2,348,597        |   |

 

B.              To ratifyappointment of Hein + Associates LLP as the independent certified publicaccountants for Sport-Haley, Inc.

 
| Votes For        |   | 2,344,727 |   |
|------------------|--------|-----------|--------|
| Votes Against    |   | 2,700     |   |
| Votes Abstaining |   | 1,170     |   |
| Total Voted      |   | 2,348,597 |   |

 

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**ITEM 5****                 OTHER INFORMATION**

 

On March 3 and 4, 2003, the Company repurchased 85,200 and 64,600shares of its common stock at net prices of $3.70 and $3.73 per share,respectively. On May 6, 2003, the Company repurchased 66,100 shares of itscommon stock at a net price of $3.75 per share. The shares were repurchased aspart of the Company’s previously disclosed repurchase program, which wasestablished in 1994. As of May 9, 2003, the net number of shares authorized forrepurchase totaled 307,200, or approximately 13% of the Company’s issued andoutstanding common stock as of that date. The Company may repurchase sharesfrom time to time in compliance with applicable Securities and ExchangeCommission regulations in open market transactions at prevailing market prices.The Company has no commitment to repurchase all or any portion of the sharesauthorized for repurchase.

 

**ITEM 6****                 EXHIBITS ANDREPORTS ON FORM 8-K**

 

(A)           EXHIBITS - NONE

 

(B)             REPORTS ON FORM 8-K -NONE

 

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**SIGNATURES**

 

In accordance withthe requirements of the Securities Exchange Act of 1934, the Registrant causedthis report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|   |         | **SPORT-HALEY,  INC.**  |
|--------|--------------|-------------------------|
|   |         | (Registrant)            |
|   |         |                    |
|   |         |                    |
| Date:  | May 15, 2003 |                    | /s/ Kevin M. Tomlinson |   |
|   |         | Kevin M. Tomlinson      |
|   |         | Chief Executive Officer |
|   |         |                    |
|   |         |                    |
| Date:  | May 15, 2003 |                    | /s/ Patrick W. Hurley |   |
|   |         | Patrick W. Hurley       |
|   |         | Chief Financial Officer |

 

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**CERTIFICATION**

 

I, Kevin M. Tomlinson,Chief Executive Officer of Sport-Haley, Inc., certify that:

 

1.               Ihave reviewed this quarterly report on Form 10-Q of Sport-Haley, Inc.;

 

2.               Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport; and

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report.

 

4.               Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

(a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

(b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c) presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

(a) allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b) any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.               Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

Date:    May 15, 2003

 

 
| /s/ Kevin M. Tomlinson  |   |
|-------------------------|--------|
| Kevin M. Tomlinson      |
| Chief Executive Officer |

 

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**CERTIFICATION**

 

I, Patrick W. Hurley,Chief Financial Officer of Sport-Haley, Inc., certify that:

 

1.               Ihave reviewed this quarterly report on Form 10-Q of Sport-Haley, Inc.;

 

2.               Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport; and

 

3.               Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report.

 

4.               Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

 

(a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

 

(b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

(c) presented inthis quarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

 

5.               Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

(a) allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

(b) any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.               Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

Date:    May 15, 2003

 

 
| /s/ Patrick W. Hurley   |   |
|-------------------------|--------|
| Patrick W. Hurley       |
| Chief Financial Officer |

 

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