<PAGE>

                       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 DECEMBER 31, 1998

                  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
             ---                  EXCHANGE ACT


                           COMMISSION FILE NO. 1-12888


                                SPORT-HALEY, INC.
        (Exact name of small business issuer as specified in its charter)

              COLORADO                                    84-1111669
         (State of other jurisdiction of                  (I.R.S. Employer
         incorporation or organization)                   Identification No.)

                   4600 E. 48TH AVENUE, DENVER, COLORADO 80216
                    (Address of principal executive offices)
                                 (303) 320-8800
                 (Issuer's telephone number including area code)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
   ---    ---

     State the number of shares outstanding in each of the issuer's classes of
common stock, as of the latest practicable date.

                  CLASS                        OUTSTANDING AT FEBRUARY 9, 1999
         COMMON STOCK, NO PAR VALUE                      4,408,362

     Transitional Small Business Disclosure Format (check one):
     Yes        No   X
         -----     -----
<PAGE>

                                      INDEX

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                        <C>
PART 1 - FINANCIAL INFORMATION


     ITEM 1 - FINANCIAL STATEMENTS

       CONSOLIDATED BALANCE SHEETS                                           3

       CONSOLIDATED STATEMENTS OF INCOME &
                  COMPREHENSIVE INCOME                                       4

       CONSOLIDATED STATEMENTS OF CASH FLOWS                                5-6

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          7-12

     ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS             13-14


PART II - OTHER INFORMATION                                                  15


SIGNATURES                                                                 16-17
</TABLE>

<PAGE>

                                SPORT-HALEY, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,              JUNE 30,
                                                                            1998                    1998
                                                                       -------------           -------------
                                                                        (UNAUDITED)                (NOTE)
<S>                                                                    <C>                     <C>
                                     ASSETS
Current assets:
     Cash and cash equivalents                                         $       5,792           $       6,502
     Short-term investments and marketable securities                             13                      13
     Accounts receivable, net of allowances of
       $57,000 and $155,000, respectively                                      5,442                   6,554
     Inventories                                                              17,399                  17,893
     Other current assets                                                      1,260                   1,403
                                                                       -------------           -------------
                                                                              29,906                  32,365
                                                                       -------------           -------------
Property and equipment                                                         4,275                   4,193
Property held under capital leases                                                 -                       7
     Less, accumulated depreciation                                           (1,415)                  1,455)
                                                                       --------------          --------------
                                                                               2,860                   2,745
                                                                       -------------           -------------
Other assets:
     Other assets                                                                139                     126
                                                                       -------------           -------------
                                                                       $      32,905           $      35,236
                                                                       -------------           -------------
                                                                       -------------           -------------

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                                  $         201           $       1,862
     Note payable                                                                600                     500
     Accrued income taxes                                                          -                     318
     Accrued commissions and other expenses                                      538                   1,027
                                                                       -------------           -------------
                                                                               1,339                   3,707
Long-term liabilities:
     Other                                                                         -                       4
                                                                       -------------           -------------

                                                                               1,339                   3,711
                                                                       -------------           -------------

Minority Interest                                                                (36)                     60
                                                                       --------------          -------------

Stockholders' 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; 4,408,362 and
       4,512,962 shares issued and outstanding, respectively                  17,324                  18,416
     Additional paid in capital                                                  728                     598
     Retained earnings                                                        13,550                  12,451
     Accumulated other comprehensive income                                        -                       -
                                                                       -------------           -------------
                                                                              31,602                  31,465
                                                                       -------------           -------------
Total Liabilities and Stockholders' Equity                             $      32,905           $      35,236
                                                                       -------------           -------------
                                                                       -------------           -------------
</TABLE>

            Note: Taken from the audited balance sheet at that date.

                                       3
<PAGE>

                                SPORT-HALEY, INC.
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED                  SIX MONTHS ENDED
                                                           DECEMBER 31,                        DECEMBER 31,
                                                      1998              1997               1998            1997
                                                   -----------       -----------        -----------     ----------
                                                   (UNAUDITED)       (UNAUDITED)        (UNAUDITED)     (UNAUDITED)
<S>                                                <C>               <C>                <C>             <C>
Net sales                                          $     5,640       $     6,464        $    13,136     $   13,299

Cost of goods sold                                       3,713             4,059              8,322          8,317
                                                   -----------       -----------        -----------     ----------

Gross profit                                             1,927             2,405              4,814          4,982

Selling, general and administrative expense              1,670             1,717              3,512          3,369
                                                   -----------       -----------        -----------     ----------

Income from operations                                     257               688              1,302          1,613

Other income (expense):
     Other income, net                                     112               193                231            352
                                                   -----------       -----------        -----------     ----------

Income before income taxes and
     minority interest                                     369               881              1,533          1,965


Minority interest income                                    85                 -                 98              -

Provision for income taxes                                 182                92                532            372
                                                   -----------       -----------        -----------     ----------

Net income                                                 272               789              1,099          1,593
                                                   -----------       -----------        -----------     ----------

Other comprehensive income:
      unrealized holding losses on
     available for sale securities                           -                 -                  -            (52)
                                                   -----------       -----------        -----------     ----------

Comprehensive income                               $       272       $       789        $     1,099     $    1,541
                                                   -----------       -----------        -----------     ----------
                                                   -----------       -----------        -----------     ----------

Basic earnings per common share                    $      0.07       $      0.17        $      0.25     $     0.33
                                                   -----------       -----------        -----------     ----------
                                                   -----------       -----------        -----------     ----------

Diluted earnings per common share                  $      0.07       $      0.17        $      0.25     $     0.33
                                                   -----------       -----------        -----------     ----------
                                                   -----------       -----------        -----------     ----------
</TABLE>

                                       4
<PAGE>

                                SPORT-HALEY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 SIX MONTHS ENDED
                                                                                    DECEMBER 31,
                                                                           1998                    1997
                                                                       -------------           -------------
                                                                        (UNAUDITED)             (UNAUDITED)
<S>                                                                    <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                             $       1,099           $       1,541
Adjustments to reconcile net income to net cash
     provided by operating activities:
     Depreciation and amortization                                               289                     274
     Amortization of investment premium                                            -                      26
     Deferred taxes, net                                                           8                       -
     Allowance for doubtful accounts                                              30                     (11)
     Stock option compensation                                                   131                     155
     Realized loss on investment                                                   -                      52

Cash provided (used) due to changes in assets and liabilities:
     Short-term investments to maturity                                            -                   1,319
     Accounts receivable                                                       1,112                     719
     Inventory                                                                   494                  (4,162)
     Other current assets                                                        133                    (150)
     Accounts payable                                                         (1,660)                   (366)
     Accrued commissions and other expenses                                     (489)                  1,258
     Accrued income taxes                                                       (317)                      -
     Other liabilities                                                            (4)                      -
     Minority interest                                                           (98)                      -
                                                                       -------------           -------------
     Net cash provided by operating activities                                   728                     655
                                                                       -------------           -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Advance on note payable                                                     100                       -
     Principal payments on capital lease obligation                                -                      (1)
     Net proceeds from issuance of common stock                                   46                     395
     Repurchase of common stock                                               (1,138)                 (2,488)
                                                                       --------------          -------------

     Net cash provided by financing activities                         $        (992)          $      (2,094)
                                                                       --------------          --------------
</TABLE>


                                       5
<PAGE>

                                SPORT-HALEY, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                 SIX MONTHS ENDED
                                                                                    DECEMBER 31,
                                                                           1998                    1997
                                                                       -------------           -------------
                                                                        (UNAUDITED)             (UNAUDITED)
<S>                                                                    <C>                     <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of fixed assets                                          $        (491)          $        (311)
     Disposal of assets                                                           45                      77
                                                                       -------------           -------------

     Net cash used by investing activities                                      (446)                   (234)
                                                                       --------------          --------------

     Net increase (decrease) in cash                                            (710)                 (1,673)

CASH AND CASH EQUIVALENTS, BEGINNING                                           6,502                  10,273
                                                                       -------------           -------------

CASH AND CASH EQUIVALENTS, ENDING                                      $       5,792           $       8,600
                                                                       -------------           -------------
                                                                       -------------           -------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for:

       Income taxes                                                    $         694           $         466
                                                                       -------------           -------------
                                                                       -------------           -------------

       Interest                                                        $          22           $           -
                                                                       -------------           -------------
                                                                       -------------           -------------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

At December 31, 1997, the Company has unrealized holding losses on marketable
securities of approximately $181,000 of which $52,000 has been charged off in
the Company's statement of income at December 31, 1997.


                                       6
<PAGE>

                                SPORT-HALEY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

          The consolidated 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 the financial statements
          prepared in accordance with generally accepted accounting
          principles 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.
          It is suggested that these financial statements be read in
          conjunction with the Company's annual consolidated financial
          statements dated June 30, 1998. While management believes the
          procedures followed in preparing these financial statements are
          reasonable, the accuracy of the amounts are, in some respects,
          dependent upon the facts that will exist, and procedures that
          will be accomplished by the Company later in the year.

          The management of the Company believes that the accompanying
          unaudited condensed consolidated financial statements prepared
          in conformity with generally accepted accounting principles,
          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 period
          presented.


NOTE 2    INVENTORIES

          Inventories at December 31, 1998 consist of the following:
<TABLE>
<CAPTION>
               <S>                                    <C>
               Raw materials                          $   5,856,851
               Finished goods                            11,542,073
                                                      -------------
                                                      $  17,398,924
                                                      -------------
                                                      -------------
</TABLE>

NOTE 3    INCOME TAXES

          The components of the deferred tax asset and net deferred tax
          liability recognized in the accompanying balance sheet as of
          December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                              Current           Long-Term
                                              -------           ----------
               <S>                         <C>                <C>
               Deferred tax (liability)    $           -      $           -
               Deferred tax asset                108,342             14,142
                                           -------------      -------------
                                           $     108,342      $      14,142
                                           -------------      -------------
                                           -------------      -------------
</TABLE>


                                       7
<PAGE>

                                SPORT-HALEY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3    INCOME TAXES (Continued)

          The types of temporary differences between the tax bases of
          assets and liabilities and the financial reporting amounts that
          give rise to a significant portion of the deferred tax liability
          and their appropriate tax effects at December 31, 1998 are as
          follows:

<TABLE>
<CAPTION>
                                                                        Tax Effect
                                                   Difference     Current      Long-Term
                                                   ----------     -------      ---------
               <S>                                 <C>            <C>          <C>
               Loss on stock                       $   221,153    $   86,200   $         -
               Allowance for doubtful accounts          56,774        22,142             -
               Stock option compensation               525,918             -       205,109
               Accumulated depreciation                489,660             -      (190,967)
                                                                  ----------   -----------
                                                                  $  108,342   $    14,142
                                                                  ----------   -----------
                                                                  ----------   -----------
</TABLE>


          The components of income tax expenses are as follows:

<TABLE>
<CAPTION>
               <S>                                <C>
               Current:
                  Federal                          $   466,600
                  State                                 73,800
                                                   -----------
                                                       540,400
                                                   -----------
               Deferred:
                  Federal                               (6,817)
                  State                                 (1,078)
                                                   -----------
                                                        (7,895)
                                                   -----------
                                                   $   532,505
                                                   -----------
                                                   -----------
</TABLE>

NOTE 4    REPURCHASE OF COMMON STOCK

          The repurchase of the Company's common stock is based upon the
          Board of Director's belief the Company's common stock is under
          priced given its earnings and prospects for future operations.
          The shares may be purchased from time to time in open market
          transactions at prevailing market prices. The Company has no
          commitment or obligation to purchase all or any portion of the
          shares. All shares purchased by the Company are canceled and
          returned to the status of authorized but unissued common stock.


                                       8
<PAGE>

                                SPORT-HALEY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 4    REPURCHASE OF COMMON STOCK (continued)


          During December 1994, the Company's Board of Directors
          authorized the repurchase of up to 150,000 shares of the
          Company's issued and outstanding common stock. Additionally the
          Board of Directors authorized increases of 150,000 common shares
          during October 1996 and 1997, respectively, that may be
          purchased, thus bringing the total common shares authorized for
          repurchase under the plan to 450,000 shares. During September
          1998, the Company's Board of Directors authorized another
          increase of an additional 400,000 common shares that the Company
          may repurchase thus bringing the total common shares authorized
          for repurchase to 850,000. Through December 31, 1998, the
          Company had repurchased a total of 572,000 shares of its common
          stock at a cost of approximately $5.8 million.


NOTE 5    COMMON STOCK OPTIONS

          At December 31, 1998, the Company had outstanding options to
          purchase 436,099 shares of common stock at prices ranging from
          $2.50 to $12.75, with expiration dates between March 15, 2002
          and August 10, 2008. During the three months ended December 31,
          1998, option holders exercised and purchased 5,108 shares of the
          Company's common stock. The Company realized gross proceeds of
          approximately $29,000.

          During October 1998, the Compensation Committee of the Board of
          Directors authorized the re-pricing of certain stock options,
          previously granted under the Company's stock option plan, that
          were deemed to be "out of the money" based upon the prevailing
          quoted market prices of the Company's common stock.

          Included in the Company's six months net income is a charge of
          approximately $131,000 which is a result of applying Statement
          of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK
          BASED COMPENSATION.


                                       9
<PAGE>

                               SPORT-HALEY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6    EARNINGS PER SHARE

          The Company has adopted the provisions of Statement of Financial
          Accounting Standards No. 128, EARNINGS PER SHARE, (SFAS No. 128)
          effective with the year ended June 30, 1998. SFAS No. 128
          requires the presentation of basic and diluted net income per
          common share. The following table provides a reconciliation of
          the numerator and denominator of basic and diluted net income
          per common share:

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED DECEMBER 31, 1998
                                                   --------------------------------------
                                                         Net
                                                       Income        Shares       Per Share
                                                       ------        ------       ---------
          <S>                                      <C>              <C>           <C>
          BASIC EARNINGS PER SHARE
              Income available
                 to common shareholders            $  271,000       4,425,208      $   0.07
                                                                                   --------
                                                                                   --------
          Effect of Dilutive Securities
              Warrants                                                      -
              Options, net of future tax benefit                            -
                                                   ----------       ---------
          DILUTED EARNINGS PER SHARE               $  271,000       4,425,208      $   0.07
                                                   ----------       ---------      --------
                                                   ----------       ---------      --------

<CAPTION>
                                                      SIX MONTHS ENDED DECEMBER 31, 1998
                                                   ---------------------------------------
                                                       Net
                                                     Income          Shares       Per Share
                                                     ------          ------       ---------
          <S>                                      <C>            <C>           <C>
          BASIC EARNINGS PER SHARE
              Income available
                 to common shareholders            $1,099,000       4,463,597      $   0.25
                                                   ----------       ---------      --------
          Effect of Dilutive Securities
              Warrants                                                      -
              Options, net of future tax benefit                            -
                                                   ----------       ---------
          DILUTED EARNINGS PER SHARE               $1,099,000       4,463,577      $   0.25
                                                   ----------       ---------      --------
                                                   ----------       ---------      --------
</TABLE>


                                      10
<PAGE>

                                SPORT-HALEY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6    EARNINGS PER SHARE (continued)


<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED DECEMBER 31, 1997
                                                   --------------------------------------
                                                       Net
                                                     Income        Shares       Per Share
                                                     ------        ------       ---------
          <S>                                      <C>            <C>           <C>
          BASIC EARNINGS PER SHARE
              Income available
                 to common shareholders            $  789,000     4,600,992      $   0.17
                                                                                 --------
                                                                                 --------
          Effect of Dilutive Securities
              Warrants                                               17,242
              Options, net of future tax benefit                     42,615
                                                   ----------     ---------
          DILUTED EARNINGS PER SHARE               $  789,000     4,660,849      $   0.17
                                                   ----------     ---------      --------
                                                   ----------     ---------      --------

<CAPTION>
                                                      SIX MONTHS ENDED DECEMBER 31, 1997
                                                   ---------------------------------------
                                                        Net
                                                      Income        Shares       Per Share
                                                      ------        ------       ---------
          <S>                                      <C>            <C>           <C>
          BASIC EARNINGS PER SHARE
              Income available
                 to common shareholders            $1,541,000     4,630,563      $   0.33
                                                                                 --------
                                                                                 --------
          Effect of Dilutive Securities
              Warrants                                               17,242
              Options, net of future tax benefit                     42,615
                                                   ----------     ---------

          DILUTED EARNINGS PER SHARE               $1,541,000     4,690,420     $    0.33
                                                   ----------     ---------     ---------
                                                   ----------     ---------     ---------
</TABLE>

NOTE 7    YEAR 2000 ISSUE

          The Company is cognizant of the issues associated with the
          programming code in existing computer systems as the year 2000
          approaches. The "Year 2000" problem is pervasive and complex, as
          virtually every computer operation will be affected in some way.
          Many currently installed computer systems and software products
          are coded to accept only two-digit entries in the date field.
          These date code fields will need to accept four digit entries to
          distinguish 21st century dates from 20th century dates. Systems
          not able to recognize the date correctly could generate
          erroneous data or fail.


                                      11
<PAGE>

                                SPORT-HALEY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7    YEAR 2000 ISSUE (continued)

          As a result, in slightly over one year computer systems and/or
          software used by the Company will need to be tested and
          upgraded, if necessary, to comply with such Year 2000
          requirements. The Company continues to address this issue to
          ensure the availability and integrity of its financial systems
          and the reliability of its operational systems and is presently
          evaluating and upgrading its software and hardware, so that its
          computer systems will function properly with respect to Year
          2000 and beyond. The costs associated with the Company's Year
          2000 initiative are charged to expense as incurred and are not
          material to its financial position and results of operations.
          The Company has initiated discussions with significant suppliers
          and financial institutions with whom the Company has a
          relationship, to ensure those parties have appropriate plans to
          remediate Year 2000 issues particularly where their systems
          interface with the Company's systems or otherwise impact its
          operations. The Company is assessing the extent to which its
          operations are vulnerable, should those organizations fail to
          properly remediate their computer systems.


                                      12
<PAGE>

                                SPORT-HALEY, INC.

                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


FINANCIAL CONDITION

The Company's financial position improved marginally as a result of ongoing
profitability. The Company intends to rely on cash generated from operations and
investments to finance its working capital requirements for at least the next 12
months. To the extent such amounts are insufficient to finance the Company's
working capital requirements, the Company may also make periodic borrowings
under its revolving line of credit.

During the six months ended December 31, 1998, current assets and current
liabilities decreased by approximately $2.5 million and $2.4 million,
respectively. The decreases are primarily attributable to the use of current
assets to reduce current liabilities.

For the six months ended December 31, 1998, the Company spent approximately
$491,000 for property and equipment. These expenditures were for office
furniture and equipment.

The Company received proceeds of approximately $46,000 from the exercise of
stock options during the six months ended December 31, 1998. Stockholders'
equity increased by approximately $137,000 for the six month period. Net income
increased stockholders' equity by approximately $1.1 million while the Company
expended approximately $1.1 million to repurchase 112,000 shares of its common
stock.


RESULTS OF OPERATIONS

The Company's business is seasonal in nature, and therefore the results for any
one or more quarters are not necessarily indicative of the annual results or
continuing trends.

Net sales for the quarter ended December 31, 1998, were approximately $5.6
million, a decrease of approximately $824,000, or 13%, from net sales of $6.5
million for the same quarter in the prior fiscal year. Net sales for the six
months ended December 31, 1998 were $13.1 million. This is a decrease of
$163,000 or 1%, over the same six month period of the prior fiscal year.
Management attributes the decrease in net sales for the quarter ended December
31, 1998 to slower sales to golf professional shops, many of which had larger
spring inventories remaining from prior purchases than in past years.

The Company's gross profit declined approximately $478,000 and $168,000 for the
three months and the six months ended December 31, 1998. Gross profit as a
percentage of sales declined to 34% from 37% for the quarter ended December 31,
1998, and remained at 37% for the six month periods ended December 31, 1998 and
1997.


                                      13
<PAGE>

                                SPORT-HALEY, INC.
                 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS (Continued)

Selling, general and administrative expenses decreased by approximately 
$47,000 or 3% for the quarter ended December 31, 1998, from $1.7 million for 
the same quarter in the prior fiscal year. For the six months ended December 
31, 1998, these costs increased by approximately $143,000, or 4% from $3.4 
million in the same six month period in the prior fiscal year. The decrease 
for the quarter ended December 31, 1998 reflects the efforts of the Company 
to reduce the costs associated with selling, general and administrative 
expenses. The increase for this six months can mainly be attributed to costs 
incurred related to the corporate sales program, less the reduced costs 
savings effect.

Other income decreased by approximately $81,000 and $121,000 for the three
months and the six months ended December 31, 1998 as compared to the same
quarter in the prior fiscal year. The decrease can be attributed to lower cash
balances available for investing, resulting in lower interest income. The lower
cash balances were the result of the Company's repurchase of its common stock on
the open market.

Income before provision for income taxes and minority interest decreased by
approximately $512,000, or 58%, for the quarter ended December 31, 1998, from
$881,000 for the same quarter in the prior fiscal year. Income before provisions
for income taxes decreased by approximately $432,000 or 22% for the six months
ended December 31, 1998, from $2.0 million in the same period in the prior
fiscal year.

The Company's effective tax rates for the quarters ended December 31, 1998 and
December 31, 1997 were approximately 40% and 10%, respectively. The effective
tax rates for the six month periods ended December 31, 1998 and 1997, were 33%
and 19%, respectively. The significant increase in the effective rate for the
current fiscal periods are primarily due to the reduction in certain stock
option tax deductions net of FASB 123-Accounting for Stock Based Compensation
book deductions.

Net income was $272,000 and $1.1 million for the three month and the six month
periods ended December 31, 1998. This represents a decrease of approximately
$517,000 or 66% and $442,000 or 29%, respectively, when compared to the same
three and six month periods in the prior fiscal year.

Earnings for the December 1998 fiscal quarter were effected by costs incurred
for the Company's new corporate sales program, less interest income, and a
higher effective tax rate.

The basic and diluted earnings per share were $.07 for the quarter ended
December 31, 1998. This compares to basic and diluted earnings per share of $.17
for the same quarter in the prior fiscal year. The six month basic and diluted
earnings per share at December 31, 1998 were $.25. This compares to basic and
diluted earnings per share of $.33 per share for the same six month period in
the prior fiscal year.


                                      14
<PAGE>

                                SPORT-HALEY, INC.
                                     PART II
                                OTHER INFORMATION



ITEM 1     LEGAL PROCEEDINGS - None

ITEM 2     CHANGES IN SECURITIES AND USE OF PROCEEDS- NONE

ITEM 3     DEFAULTS UPON SENIOR SECURITIES - NONE

ITEM 4     SUBMISSION TO MATTERS TO A VOTE OF SECURITY HOLDERS - NONE

ITEM 5     OTHER INFORMATION - NONE

ITEM 6     EXHIBITS AND REPORTS ON FORM 8-K

           (A)  EXHIBITS

             10.3.2    BUSINESS LOAN AGREEMENT, dated November 5, 1998, by and
                       between U.S. Bank National Association and the Company
                       and its 52% owned subsidiary B & L Sportswear, Inc.

             27        FINANCIAL DATA SCHEDULE

           (B)  REPORTS ON FORM 8-K - NONE


                                      15
<PAGE>

                                   SIGNATURES




In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.


                                             SPORT-HALEY, INC.
                                             (Registrant)



Date:     February 11, 1999                  /s/ Robert G. Tomlinson
          -----------------                  -----------------------
                                             Robert G. Tomlinson
                                             Chief Executive Officer


Date:     February 11, 1999                  /s/ Steve S. Auger
          -----------------                  ------------------
                                             Steve S. Auger
                                             Chief Accounting Officer


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