<PAGE>

                         SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, D.C.  20549

                                    FORM 10-QSB

                 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                ---    OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997

                   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 10, 1998
     COMMON STOCK, NO PAR VALUE                        4,492,962

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


<PAGE>


                                       INDEX

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


     ITEM 1 - FINANCIAL STATEMENTS

          BALANCE SHEETS                                                  3

          STATEMENTS OF INCOME                                            4

          STATEMENTS OF CASH FLOWS                                       5-6

          NOTES TO FINANCIAL STATEMENTS                                  7-10

     ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
              FINANCIAL CONDITIONS AND RESULTS OPERATIONS               11-12


PART II - OTHER INFORMATION                                               13


SIGNATURE                                                                 14
</TABLE>

<PAGE>


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

<TABLE>
                                                        DECEMBER 31,   JUNE 30,
                                                            1997        1997
                                                        ------------   --------
                                                        (UNAUDITED)    (NOTE)
                                       ASSETS
<S>                                                      <C>          <C>
Current assets:
     Cash and cash equivalents                            $ 8,600      $10,273
     Short-term investments and marketable securities           -        1,319
     Accounts receivable, net of allowances of 
       $60,000 and $71,000, respectively                    5,049        5,756
     Inventories (Note 2)                                  14,143        9,982
     Other current assets                                   1,105        1,116
                                                          -------      -------
                                                           28,897       28,446
                                                          -------      -------
Property and equipment                                      3,536        3,243
Property held under capital leases                              7            7
     Less, accumulated depreciation                        (1,092)        (841)
                                                          -------      -------
                                                            2,451        2,409
                                                          -------      -------
Other assets:
     Other assets                                             153           67
                                                          -------      -------
                                                          $31,501     $ 30,922
                                                          -------      -------
                                                          -------      -------

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                        $522      $ 1,319
     Capital lease obligations maturing within one year         2            2
     Accrued income taxes (Note 3)                              -            -
     Accrued commissions and other expenses                 2,582          874
                                                          -------      -------
                                                            3,106        2,195
                                                          -------      -------
Long-term liabilities:
     Capital lease obligations, net of current maturities       -            1
     Other                                                     10           20
                                                          -------      -------
                                                               10           21
                                                          -------      -------
                                                            3,116        2,216
                                                          -------      -------
Stockholders' equity: (Note 4)
     Preferred stock, no par value; 1,500,000 shares 
       authorized; none issued and outstanding                  -            -
     Common stock, no par value; 
       15,000,000 shares authorized; 4,492,962 and
       4,651,073 shares issued and outstanding, 
       respectively                                        18,347       20,440
     Additional paid in capital                               440          285
     Unrealized losses on available for sale securities      (129)        (206)
     Retained earnings                                      9,727        8,187
                                                          -------      -------
                                                           28,385       28,706
                                                          -------      -------
Total Liabilities and Stockholders' Equity                $31,501     $ 30,922
                                                          -------      -------
                                                          -------      -------
</TABLE>

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


                                       3

<PAGE>

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

<TABLE>
                                                 THREE MONTHS ENDED        SIX MONTHS ENDED
                                                    DECEMBER 31,             DECEMBER 31,
                                                 1997         1996         1997         1996
                                              -----------  -----------  -----------  ----------  
                                              (UNAUDITED)  (UNAUDITED)  (UNAUDITED)  (UNAUDITED)  
<S>                                            <C>          <C>          <C>          <C>
Net sales                                      $    6,464   $    5,733   $   13,299   $   11,999  

Cost of goods sold                                  4,059        3,266        8,317        6,902
                                               ----------   ----------   ----------   ---------- 
Gross profit                                        2,405        2,467        4,982        5,097  

Selling, general and administrative expense         1,717        1,646        3,369        3,148  
                                               ----------   ----------   ----------   ---------- 
Income from operations                                688          821        1,613        1,949  

Other income (expense):
  Other income                                        193          289          352          459  
  Interest and other expense                            -            -          (52)           -  
                                               ----------   ----------   ----------   ---------- 
Income before income taxes                            881        1,110        1,913        2,408  

Provision for income taxes (Note 3)                    92          279          372          780  
                                               ----------   ----------   ----------   ---------- 
Net income                                     $      789   $      831   $    1,541   $    1,628  
                                               ----------   ----------   ----------   ---------- 
                                               ----------   ----------   ----------   ---------- 
Basic earnings per common share                $     0.17   $     0.19   $     0.33   $     0.37  
                                               ----------   ----------   ----------   ---------- 
                                               ----------   ----------   ----------   ---------- 
Diluted earnings per common share                    0.17         0.18         0.33         0.35  
                                               ----------   ----------   ----------   ---------- 
                                               ----------   ----------   ----------   ---------- 
</TABLE>


                                       4

<PAGE>

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

<TABLE>
                                                                SIX MONTHS ENDED
                                                                  DECEMBER 31,
                                                               1997         1996
                                                           -----------   ----------- 
                                                           (UNAUDITED)   (UNAUDITED)
<S>                                                        <C>           <C>

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                 $    1,541    $    1,628
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                                   274           198
  Depreciation recorded as prepaid expense                         (6)           (8)
  Deferred taxes, net                                               4             7
  (Decrease) increase in allowance for doubtful accounts           11            (7)
  Deferred stock option compensation                              155            50
  Deferred rents                                                    1             2

(Increase) decrease in assets:
  Short-term investments to maturity                            1,319         2,749
  Accounts receivable                                             719           297
  Inventory                                                    (4,162)       (3,324)
  Other current assets                                            (93)         (331)

(Increase) decrease in liabilities:
  Accounts payable                                               (366)         (683)
  Accrued commissions and other expenses                        1,258           231
  Accrued income taxes                                              -          (464)
                                                           ----------    ----------  
  Net cash provided by operating activities                       655           345
                                                           ----------    ----------  

CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on capital lease obligation                   (1)           (1)
  Net proceeds from issuance of common stock                      395           271
  Stock purchased and retired                                  (2,488)       (1,485)
                                                           ----------    ----------  
  Net cash provided by financing activities                $   (2,094)   $   (1,215)
                                                           ----------    ----------  
</TABLE>


                                       5
<PAGE>

                               SPORT-HALEY, INC.
                           STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
                                       
<TABLE>
                                                             SIX MONTHS ENDED
                                                               DECEMBER 31,
                                                             1997       1996
                                                         ----------- -----------
                                                         (UNAUDITED) (UNAUDITED)
<S>                                                      <C>         <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of fixed assets                             $  (311)     $  (814)
     Disposal of assets                                        77            -
     Investment in "available to sell" securities, net          -       (2,581)
                                                          -------      -------

     Net cash used by investing activities                   (234)      (3,395)
                                                          -------      -------

     Net increase (decrease) in cash                       (1,673)      (4,265)

CASH AND CASH EQUIVALENTS, BEGINNING                       10,273        8,648
                                                          -------      -------

CASH AND CASH EQUIVALENTS, ENDING                         $ 8,600      $ 4,383
                                                          -------      -------
                                                          -------      -------

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

     Income taxes                                         $   466      $ 1,352
                                                          -------      -------
                                                          -------      -------

     Interest                                             $     -      $     -
                                                          -------      -------
                                                          -------      -------
</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 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 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 financial statements dated June 30, 1997.  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 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, 1997 consist of the following:

<TABLE>
            <S>                                     <C>
            Raw materials                           $ 6,411,093
            Finished goods                            7,732,003
                                                    -----------
                                                    $14,143,096
                                                    -----------
                                                    -----------
</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, 1997, 
       are as follows:

<TABLE>
                                            Current      Long-Term 
                                            -------      ---------
              <S>                           <C>          <C>
              Deferred tax (liability)      $     -       $ (9,888)
              Deferred tax asset             50,037              -
                                            -------       --------
                                            $50,037       $ (9,888)
                                            -------       --------
                                            -------       --------
</TABLE>

                                       7
<PAGE>

                              SPORT-HALEY, INC.
                        NOTES TO 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, 1997, as follows:

<TABLE>
                                                              Tax Effect
                                           Difference    Current   Long-Term
                                           ----------    -------   ---------
          <S>                              <C>           <C>       <C>
          Loss on stock                     $206,022     $26,800   $       -
          Allowance for doubtful accounts     59,583      23,237           -
          Stock option compensation          320,856           -     125,134
          Accumulated depreciation           346,211           -    (135,022)
                                                         -------   ---------
                                                         $50,037   $  (9,888)
                                                         -------   ---------
                                                         -------   ---------
</TABLE>

       The components of income tax expenses are as follows:

<TABLE>
            <S>                   <C>
            Current:
              Federal             $325,400
              State                 51,275
                                  --------
                                   376,675
                                  --------
            Deferred:
              Federal               (3,871)
              State                   (611)
                                  --------
                                    (4,482)
                                  --------
                                  $372,193
                                  --------
                                  --------
</TABLE>

NOTE 4 REPURCHASE OF COMMON STOCK

       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 repurchased thus bringing the total 
       common shares authorized for repurchases under the plan to 450,000 
       shares.

       The repurchase of the Company's common stock is based upon the Board of
       Director's belief the Company's common stock is underpriced 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 
       will be cancelled and returned to the status of authorized but unissued 
       common stock. 

                                       8
<PAGE>

NOTE 4  REPURCHASE OF COMMON STOCK (continued)

        As of December 31, 1997, the Company has repurchased 380,000 shares
        of its common stock at a cost of approximately $4.479 million.  From
        January 1, 1998 through February 10, 1998 the Company repurchased an
        additional 20,000 shares of its common stock.

NOTE 5  COMMON STOCK OPTIONS

        At December 31, 1997, the Company had 422,075 options outstanding to
        purchase common stock at prices ranging from $2.50 to $14.25, with
        expiration dates between March 15, 2003 and November 13, 2007.
        During the six months ended December 31, 1997 the Company issued
        135,001 option shares.  Additionally, option holders exercised and
        purchased 53,326 shares of the Company's common stock and the Company
        realized gross proceeds of approximately $395,000 from the sale and
        exercise of these options.  During the six months ending December 31,
        1997, the Company cancelled 27,152 options for individuals no longer
        covered under the Company's option plan.

        Included in the Company's six month net income is a charge of
        approximately $155,000, which is a result of FASB 123-Accounting for
        Stock Based Compensation.

NOTE 6  EARNINGS PER SHARE

        The following tables reflect the Company's adoption of Financial
        Accounting Standards Statement No. 128, Earnings Per Share.
        Accordingly, the prior-period earnings per share have been restated.

<TABLE>
                                               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
                                                 --------   ---------     -----
                                                 --------   ---------     -----
</TABLE>


                                         9

<PAGE>


                                 SPORT-HALEY, INC.
                          NOTES TO FINANCIAL STATEMENTS




NOTE 6  EARNINGS PER SHARE (continued)


<TABLE>
                                                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>

<TABLE>
                                                 THREE MONTHS ENDED DECEMBER 31, 1996
                                                ---------------------------------------
                                                  Net
                                                 Income      Shares    Per Share Amount
                                                --------   ---------   ----------------
        <S>                                      <C>        <C>         <C>
        BASIC EARNINGS PER SHARE
          Income available
           to common shareholders               $831,000   4,353,580        $0.19
                                                                            -----
                                                                            -----
        Effect of Diluted Securities
          Warrants                                            44,576
          Options                                            255,020
                                                --------   ---------
        DILUTED EARNINGS PER SHARE              $831,000   4,653,176        $0.18
                                                --------   ---------        -----
                                                --------   ---------        -----
</TABLE>

<TABLE>
                                                   SIX MONTHS ENDED DECEMBER 31, 1996
                                               ----------------------------------------
                                                  Net
                                                 Income      Shares    Per Share Amount
                                               ----------  ---------   ----------------
        <S>                                      <C>        <C>         <C>
        BASIC EARNINGS PER SHARE
          Income available
           to common shareholders              $1,628,000  4,388,862         $0.37
                                                                             -----
                                                                             -----
        Effect of Diluted Securities
          Warrants                                            44,576
          Options                                            255,020
                                               ----------  ---------
        DILUTED EARNINGS PER SHARE             $1,628,000  4,688,458         $0.35
                                               ----------  ---------         -----
                                               ----------  ---------         -----
</TABLE>


                                             10

<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 continues to improve as a result of growth in
net sales, and increase in net income.  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, 1997, current assets and current
liabilities increased by approximately $451,000 and $911,000, respectively.

For the six months ended December 31, 1997, the Company spent approximately
$311,000 for property and equipment.  These expenditures were for office
furniture and equipment.

The Company received proceeds of approximately $395,000 from the exercise of
stock options and warrants during the six months ended December 31, 1997.
Stockholders' equity decreased by approximately $321,000 for the six month
period.  Net income increased stockholders' equity by approximately $1.5 million
while the Company expended approximately $2.5 million to repurchase 220,000
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 second quarter ended December 31, 1997, were approximately
$6.5 million, an increase of approximately $731,000, or 13%, from net sales of
$5.7 million for the same quarter in the prior fiscal year.  Net sales for the
six months ended December 31, 1997 were $13.3 million.   This is an increase of
$1.3 million or 11%, over the same six month period of fiscal 1997.

The Company's second quarter ended December 31, 1997 experienced lower than
expected sales and net income resulting from the continuing effect of the UPS
strike.  The effect of the UPS strike resulted in canceled sales orders and
increased returns and allowances from late shipments during the first quarter.
The UPS strike caused the delay in the shipment of raw materials to the
Company's manufacturers and the delivery of finished product to the Company.

The Company's gross profit declined approximately $62,000 and $115,000 for the
three months and the six months ended December 31, 1997.  Gross profit as a
percentage of sales declined to 37% from 43% and 37% from 42% for the three
months and six month periods, respectively.


                                       11

<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 increased by approximately $71,000
or 4% for the second quarter ended December 31, 1997, from $1.6 million for the
same quarter in the prior fiscal year.  For the six months ended December 31,
1997, these costs increased by approximately $221,000, or 7% from $3.1 million
in the same six month period in the prior fiscal year.  The increase for both
periods can be attributed to personnel additions necessary to handle increased
sales volume, commissions paid to independent sales representatives on higher
sales volume, increased advertising and general administration expenditures.

Other income (expense) decreased by approximately $96,000 and $159,000 for the
three months and the six months ended December 31, 1997 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, and the
write down in the carrying value of an investment held available for sale.

Income before provision for income taxes decreased by approximately $229,000, or
21%, for the second fiscal quarter ended December 31, 1997, from $1.1 million
for the same quarter in the prior fiscal year.  Income before provisions for
income taxes decreased by approximately $495,000 or 21% for the six months ended
December 31, 1997, from $2.4 million in the same period in the prior fiscal
year.

The Company's effective tax rates for the quarters ended December 31, 1997
and December 31, 1996 were approximately 10% and 25%, respectively.  The
effective tax rates for the six month periods ended December 31, 1997 and
1996, were 19% and 32%, respectively.  The decrease in the effective rate for
the fiscal 1998 periods are due to certain stock option tax deductions net of
FASB 123-Accounting for Stock Based Compensation book deductions.

For the three month and the six month periods ended December 31, 1997, net
income declined by approximately $42,000 or 5% and $87,000 or 5%, respectively,
when compared to the same three and the six month periods in the prior fiscal
year.

Both the basic and diluted earnings per share were $.17, respectively, for the
second quarter ended December 31, 1997.  This compares to basic and diluted
earnings per share of $.19 and $.18, respectively, for the same quarter in
fiscal 1997.  The six month basic and diluted earnings per share at December 31,
1997 were both $.33, respectively.  This compares to basic and diluted earnings
per share of $.37 and $.35 per share, respectively, for the same six month
period in fiscal 1997.


                                       12

<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

               27   FINANCIAL DATA SCHEDULE

          (B)  REPORTS ON FORM 8-K - 
               Form 8-K was filed on October 28, 1997, wherein the registrant's
               board of directors increased the total number of shares of common
               stock that the registrant may repurchase from 300,000 shares to 
               450,000 shares.




                                      13

<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 12, 1998                /s/ Robert G. Tomlinson
      -----------------                ---------------------------------------
                                       Robert G. Tomlinson
                                       Chief Executive Officer


Date: February 12, 1998                /s/ Steve S. Auger
      -----------------                ---------------------------------------
                                       Steve S. Auger
                                       Chief Accounting Officer







                                      14