<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 SEPTEMBER 30, 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 NOVEMBER 8, 1997
     COMMON STOCK, NO PAR VALUE                        4,592,962

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

                                      INDEX


                                                                    PAGE
                                                                    ----
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

<PAGE>

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

                                                       SEPTEMBER 30,  JUNE 30,
                                                           1997        1997
                                                       -----------  -----------
                                                       (UNAUDITED)     (NOTE)
                                    ASSETS

Current assets:
  Cash and cash equivalents                            $    11,031  $    10,273
  Short-term investments and marketable securities           1,991        1,319
  Accounts receivable, net of allowances of
   $164,000 and $71,000, respectively                        5,283        5,756
  Inventories (Note 2)                                      10,756        9,982
  Other current assets                                       1,281        1,116
                                                       -----------  -----------
                                                            30,342       28,446
                                                       -----------  -----------
Property and equipment                                       3,397        3,243
Property held under capital leases                               7            7
  Less, accumulated depreciation                              (973)        (841)
                                                       -----------  -----------
                                                             2,431        2,409
                                                       -----------  -----------
Other assets:
  Other assets                                                  60           67
                                                       -----------  -----------
                                                                60           67
                                                       -----------  -----------
                                                       $    32,833  $    30,922
                                                       -----------  -----------
                                                       -----------  -----------

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                     $     1,345  $     1,319
  Capital lease obligations maturing within one year             1            2
  Accrued income taxes (Note 3)                                302            -
  Accrued commissions and other expenses                     1,489          874
                                                       -----------  -----------
                                                             3,137        2,195
                                                       -----------  -----------
Long-term liabilities:
  Capital lease obligations, net of current maturities           1            1
  Other                                                         16           20
                                                       -----------  -----------
                                                                17           21
                                                       -----------  -----------
                                                             3,154        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; 4,669,399 and
   4,651,073 shares issued and outstanding, 
   respectively                                             20,552       20,440
  Additional paid in capital                                   352          285
  Unrealized losses on available for sale securities          (164)        (206)
  Retained earnings                                          8,939        8,187
                                                       -----------  -----------
                                                            29,679       28,706
                                                       -----------  -----------
Total Liabilities and Stockholders' Equity             $    32,833  $    30,922
                                                       -----------  -----------
                                                       -----------  -----------

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

                                       3

<PAGE>

                               SPORT-HALEY, INC.
                             STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                       
                                                THREE MONTHS ENDED
                                                   SEPTEMBER 30,
                                                 1997           1996
                                             -----------     -----------
                                             (UNAUDITED)     (UNAUDITED)


Net sales                                      $  6,835       $  6,266

Cost of goods sold                                4,258          3,646
                                               --------       -------- 
Gross profit                                      2,577          2,620

Selling, general and administrative expense       1,652          1,486
                                               --------       -------- 
Income from operations                              925          1,134

Other income (expense):
    Other income, net                               107            164
                                               --------       -------- 
Income before income taxes                        1,032          1,298

Provision for income taxes (Note 3)                 280            501
                                               --------       -------- 
Net income                                     $    752       $    797
                                               --------       -------- 
                                               --------       -------- 
Basic earnings per common share                $   0.16       $   0.18
                                               --------       -------- 
                                               --------       -------- 
Diluted earnings per common share              $   0.16       $   0.17
                                               --------       -------- 
                                               --------       -------- 


                                       4

<PAGE>

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

                                                    THREE MONTHS ENDED
                                                       SEPTEMBER 30,
                                                     1997          1996
                                                 -----------    -----------
                                                 (UNAUDITED)    (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                       $       752    $       797

Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                          132             81
  Amortization of investment premium                      17              -
  Allowance for doubtful accounts                         93             (3)
  Deferred rents                                           -              1
  Stock option compensation                               67              -
  Realized loss on investment                             52              -

(Increase) decrease in assets:
  Short-term investments to maturity                    (699)         1,489
  Accounts receivable                                    380            475
  Inventory                                             (774)          (900)
  Other current assets                                  (165)           (29)
  Other assets                                             7              -

(Increase) decrease in liabilities:
  Accounts payable                                        26           (827)
  Accrued commissions and other expenses                 615           (254)
  Accrued income taxes                                   302             21
  Other liabilities                                       (4)            (1)
                                                 -----------    -----------

  Net cash used by operating activities                  801            850
                                                 -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Principal payments on capital lease obligation          (1)            (1)
  Net proceeds from issuance of common stock             112             54
                                                 -----------    -----------
  Net cash provided by financing activities      $       111    $        53
                                                 -----------    -----------

                                       5

<PAGE>

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

                                                        THREE MONTHS ENDED
                                                           SEPTEMBER 30,
                                                        1997           1996
                                                     -----------    -----------
                                                     (UNAUDITED)    (UNAUDITED)

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of fixed assets                           $      (154)   $      (702)

  Disposal of assets                                           -            (15)
  Investment in "available to sell" securities, net            -           (651)
                                                     -----------    -----------
  Net cash used by investing activities                     (154)        (1,368)
                                                     -----------    -----------
  Net increase (decrease) in cash                            758           (465)

CASH AND CASH EQUIVALENTS, BEGINNING                      10,273          8,648
                                                     -----------    -----------
CASH AND CASH EQUIVALENTS, ENDING                    $    11,031    $     8,183
                                                     -----------    -----------
                                                     -----------    -----------

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

    Income taxes                                     $         4    $       466
                                                     -----------    -----------
                                                     -----------    -----------
    Interest                                         $         -    $         -
                                                     -----------    -----------
                                                     -----------    -----------


SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
     At September 30, 1997, the Company has unrealized holding losses on
     marketable securities of approximately $216,000 of which $52,000 is 
     reflected in the Company's Statements of Income at September 30, 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 September 30, 1997 consist of the following:

        Raw materials                                $ 5,898,768
        Finished goods                                 4,856,858
                                                     -----------
                                                     $10,755,626
                                                     -----------
                                                     -----------

NOTE 3  INCOME TAXES

        The components of the deferred tax asset and net deferred tax
        liability recognized in the accompanying balance sheet as of September
        30, 1997, are as follows:

                                                       Current    Long-Term
                                                       -------    ---------
        Deferred tax (liability)                       $     -    $(15,657)
        Deferred tax asset                              90,925           -
                                                       -------    --------
                                                       $90,925    $(15,657)
                                                       -------    --------
                                                       -------    --------

                                     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 September 30, 1997, as follows:

                                                             Tax Effect
                                              Difference  Current   Long-Term
                                              ----------  -------   ---------
        Loss on stock                          $206,022   $26,800   $       -
        Allowance for doubtful accounts         164,483    64,125           -
        Stock option compensation               233,773         -      91,171
        Accumulated depreciation                273,918         -    (106,828)
                                                          -------   ---------
                                                          $90,925   $ (15,657)
                                                          -------   ---------
                                                          -------   ---------

        The components of income tax expenses are as follows:

        Current:
          Federal                              $276,200
          State                                  42,800
                                               --------
                                                319,000
                                               --------
        Deferred:
          Federal                               (34,018)
          State                                  (5,273)
                                               --------
                                                (39,291)
                                               --------
                                               $279,709
                                               --------
                                               --------

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.  In October 1996, the Company's Board of
        Directors authorized an increase of an additional 150,000 common
        shares that the Company may repurchase thus bringing the total common
        shares authorized for repurchase under the plan to 300,000 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.  As of September 30, 1997, the Company has
        repurchased 160,000 shares of its common stock at a cost of
        approximately $1.991 million.

                                     8
<PAGE>

                               SPORT-HALEY, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 4  REPURCHASE OF COMMON STOCK  (continued)

        During October 1997, the Company's Board of Directors authorized
        another increase of an additional 150,000 common shares that the
        Company may repurchase thus bringing the total common shares
        authorized for repurchase to 450,000.  From October 1, 1997 through
        November 12, 1997, the Company repurchased an additional 170,000
        shares of its common stock.

NOTE 5  COMMON STOCK OPTIONS

        At September 30, 1997, the Company had 327,075 options outstanding to
        purchase common stock at prices ranging from $2.50 to $14.25, with
        expiration dates between March 15, 2002 and February 13, 2007.  During
        the three months ended September 30, 1997, option holders exercised
        and purchased 18,326 shares of the Company's common stock.  The
        Company realized gross proceeds of approximately $112,000.  During the
        quarter ending September 30, 1997, the Company cancelled 22,152
        options for individuals no longer covered under the Company's option
        plan.

        Included in the Company's first quarter net income is a charge of
        approximately $67,000 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 has been restated.

                                                    FOR THE PERIOD ENDED
                                                     SEPTEMBER 30, 1997
                                             ---------------------------------
                                               Net
                                              Income       Shares    Per Share
                                             --------    ---------   ---------
        BASIC EARNINGS PER SHARE
        Income available
         to common shareholders              $752,000    4,659,185    $  0.16
                                                                      -------
                                                                      -------
        Effect of Dilutive Securities
          Warrants                                          28,183
          Options                                          112,437
                                             --------    ---------
        Diluted Earnings Per Share           $752,000    4,799,805    $  0.16
                                             --------    ---------    -------
                                             --------    ---------    -------

                                     9
<PAGE>

                               SPORT-HALEY, INC.
                         NOTES TO FINANCIAL STATEMENTS

NOTE 6  EARNINGS PER SHARE (continued)

                                                    FOR THE PERIOD ENDED
                                                     SEPTEMBER 30, 1997
                                             ---------------------------------
                                               Net                   Per Share
                                              Income       Shares      Amount
                                             --------    ---------   ---------
        BASIC EARNINGS PER SHARE
          Income available
            to common shareholders           $797,000    4,424,144    $  0.18
                                                                      -------
                                                                      -------
        Effect of Diluted Securities
          Warrants                                          45,009
          Options                                          271,547
                                             --------    ---------
        Diluted Earnings Per Share           $797,000    4,740,700    $  0.17
                                             --------    ---------    -------
                                             --------    ---------    -------

NOTE 7  SUBSEQUENT EVENT

        On October 31, 1997, the Company renewed its line of credit agreement
        with a bank which permits borrowings of up to $10 million.  The new
        line of credit agreement expires November 5, 1999, and is
        collateralized by accounts receivable, inventories, machinery and
        equipment and general intangibles.  The interest rate on borrowings is
        at 1/2% below the bank's base rate with interest payable monthly.  At
        September 30, 1997 there were no borrowings outstanding on the line of
        credit.

                                     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 quarter ended September 30, 1997, current assets and current 
liabilities increased by approximately $1.896 million and $942,000, 
respectively.

For the three months ended September 30, 1997, the Company spent 
approximately $154,000 for property and equipment.  These expenditures relate 
to office furniture and equipment.

The Company received proceeds of approximately $112,000 from the exercise of 
stock options during the quarter ended September 30, 1997.  Stockholders' 
equity increased by approximately $973,000 for the quarter resulting 
primarily from net income of $752,000.

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 first quarter ended September 30, 1997, were approximately 
$6.8 million, an increase of approximately $570,000, or 9%, from net sales of 
$6.3 million for the same quarter in the prior fiscal year.  The increase in 
net sales is due to a combination of factors, including a wider distribution 
of the women's and men's product lines, and the Company's newly formed 
headwear line.

The Company's gross profit, as a percentage of net sales, declined to 38% 
from 42% but was approximately $2.6 million for the quarter ended September 
30, 1997, and for the same quarter in the prior fiscal year.

                                      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 
$166,000 or 11% for the first quarter ended September 30, 1997, from $1.5 
million for the same quarter in the prior fiscal year.  The increase can be 
attributed to commissions paid to independent sales representatives on higher 
sales volume, increased advertising and general administration expenditures.

Other income (expense) decreased by approximately $57,000 for the first 
fiscal quarter ended September 30, 1997 as compared to the same quarter in 
the prior fiscal year.  The decrease can be attributed to the write down in 
the carrying value of an investment held for sale.

Income before provision for income taxes decreased by approximately $266,000, 
or 20%, for the first fiscal quarter ended September 30, 1997, from $1.3 
million for the same quarter in the prior fiscal year.

The Company's effective tax rates for the quarters ended September 30, 1997 
and September 30, 1996 were approximately 27% and 38%, respectively.  The 
decrease in the effective rate for the current quarter was due to certain 
stock option tax deductions net of FASB 123-Accounting for Stock Based 
Compensation book deductions.

Net income decreased by approximately $45,000 or 6% for the first fiscal 
quarter ended September 30, 1997 from approximately $797,000 for the same 
quarter in the prior fiscal year.

Basic and diluted earnings per share was $.16 for the quarter ended September 
30, 1997.  This compares to basic and diluted earnings per share of $18 and 
$.17 per share for the same quarter in the prior fiscal year.

                                      12
<PAGE>

                               SPORT-HALEY, INC.
                                    PART II
                               OTHER INFORMATION
                                       

ITEM 1  LEGAL PROCEEDINGS -
        On August 28, 1997, the Company filed a complaint, titled SPORT-HALEY,
        INC. V.  NANCY HALEY, in the District Court, County of Jefferson,
        State of Colorado, relating to a consulting agreement (the
        "Agreement") entered into in May 1996 between the Company and Ms.
        Haley, a former officer, director and principal shareholder of the
        Company.  The Agreement provided for Ms. Haley to render certain
        consulting services and contained certain covenants by Ms. Haley which
        included, among others, a covenant not to compete during the term of
        the agreement and a covenant not to interfere with any business
        relationship of the Company.  The Agreement commenced June 1, 1996 and
        Ms. Haley terminated the Agreement in April 1997.  The Company alleges
        in its complaint that Ms. Haley breached the Agreement by forming a
        competing company while she was being paid by the Company as a
        consultant and by interfering and attempting to interfere with the
        Company's business relationship with its sales representatives.  The
        Company seeks such damages as may be proven at trial for breach of the
        Agreement, breach of duty of loyalty and interference with contracts
        as well as interest, costs and reasonable attorney's fees.  Ms. Haley,
        through counsel, has filed counter claims against the Company and has
        joined Robert G. Tomlinson, Chief Executive Officer of the Company, as
        a party to the action.

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: November 12, 1997             /s/ Robert G. Tomlinson
      -----------------             ----------------------------
                                    Robert G. Tomlinson
                                    Chief Executive Officer


Date: November 12, 1997             /s/ Steve S. Auger
      -----------------             ----------------------------
                                    Steve S. Auger
                                    Chief Accounting Officer


                                      14