**SECURITIES AND EXCHANGE COMMISSION**

 

**WASHINGTON, D.C.  20549**

 

**FORM 10-Q**

 

| **ý** |   | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|--------|----------------------------------------------------------------------------------------------|
|       |   |                                                                                         |
|       |   | **For the quarterly period ended December 31, 2003**                                         |
|       |   |                                                                                         |
| **o**      |   | **TRANSITION REPORT UNDER SECTION 13  OR 15(d) OF THE EXCHANGE ACT**                         |

 

 

**Commission file no.1-12888**

 

 

**SPORT-HALEY, INC.**

(Exact name of small business issuer asspecified in its charter)

 

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

 

**4600 E. 48th Avenue,Denver, Colorado  80216**

(Address of principal executive offices)

 

**(303) 320-8800**

(Issuer’s telephone number including area code)

 

 

Indicate by check mark whether the registrant (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days: Yes  ý  No  o

 

Indicateby check mark whether the registrant is an accelerated filer (as defined inRule 12b-2 of the Exchange Act:  Yes  o  No  ý

 

Indicate the number of shares outstanding in each of the issuer’sclasses of common stock, as of the latest practicable date.

 

| **Class**                      |   | **Outstanding  at February 9, 2004** |
|--------------------------------|--------|--------------------------------------|
| **Common Stock, no par value** |   | **2,450,252**                        |

 

 

----

 

**TABLE OF CONTENTS**

 

 
| **PART 1 – FINANCIAL INFORMATION (UNAUDITED)** |          |
|-----------------------------------------------------|---------------|
|                                                |          |   |   |
|                                                | ITEM 1 – | FINANCIAL  STATEMENTS |   |
|                                                |          |   |   |
|                                                |          | BALANCE  SHEETS |   |
|                                                |          |   |   |
|                                                |          | STATEMENTS OF OPERATIONS |   |
|                                                |          |   |   |
|                                                |          | STATEMENTS OF CASH FLOWS |   |
|                                                |          |   |   |
|                                                |          | NOTES TO FINANCIAL STATEMENTS |   |
|                                                |          |   |   |
|                                                | ITEM 2 – | MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |   |
|                                                |          |   |   |
|                                                | ITEM 4 – | CONTROLS AND PROCEDURES |   |
|                                                |          |
| **PART II – OTHER INFORMATION**                |          |
|                                                |          |
|                                                | ITEM 1        | LEGAL PROCEEDINGS |   |
|                                                |          |   |   |
|                                                | ITEM 5        | OTHER INFORMATION |   |
|                                                |          |   |   |
|                                                | ITEM 6        | EXHIBITS AND REPORTS ON FORM 8-K |   |
|                                                |          |   |   |
| **SIGNATURES**                                      |          |
|                                                |          |
| **CERTIFICATIONS**                                  |          |

 

----

 

**SPORT-HALEY,INC.**

**BALANCE SHEETS**

 
|                                                                                                                            |   | **December  31,  2003** |       | **June 30,  2003** |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------------------|--------|
|                                                                                                                            |   | **(Unaudited)**         |       | **(***)**          |   |
|                                                                                                                            |   |                    |       |               |   |
| **ASSETS**                                                                                                                      |   |                    |       |               |   |
| Current assets:                                                                                                                 |   |                    |       |               |   |
| Cash and cash equivalents                                                                                                       |   | $                       | 3,810,000  |               | $      | 4,304,000 |   |
| Marketable securities                                                                                                           |   | 2,264,000               |       | 2,181,000          |   |
| Accounts receivable, net of allowances of  $487,000 and $542,000, respectively                                                  |   | 3,733,000               |       | 4,719,000          |   |
| Inventories                                                                                                                     |   | 9,478,000               |       | 7,828,000          |   |
| Other current assets                                                                                                            |   | 775,000                 |       | 737,000            |   |
| Taxes receivable                                                                                                                |   | 120,000                 |       | 120,000            |   |
| Deferred taxes                                                                                                                  |   | 350,000                 |       | 409,000            |   |
| Total current assets                                                                                                            |   | 20,530,000              |       | 20,298,000         |   |
|                                                                                                                            |   |                    |       |               |   |
| Property and equipment, net                                                                                                     |   | 1,100,000               |       | 1,014,000          |   |
| Deferred taxes                                                                                                                  |   | 348,000                 |       | 217,000            |   |
| Other assets                                                                                                                    |   | 15,000                  |       | 16,000             |   |
|                                                                                                                            |   |                    |       |               |   |
| Total Assets                                                                                                                    |   | $                       | 21,993,000 |               | $      | 21,545,000 |   |
|                                                                                                                            |   |                    |       |               |   |
|                                                                                                                            |   |                    |       |               |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                   |   |                    |       |               |   |
|                                                                                                                            |   |                    |       |               |   |
| Current liabilities:                                                                                                            |   |                    |       |               |   |
| Accounts payable                                                                                                                |   | $                       | 1,154,000  |               | $      | 669,000 |   |
| Accrued commissions and other expenses                                                                                          |   | 482,000                 |       | 449,000            |   |
| Total current liabilities                                                                                                       |   | 1,636,000               |       | 1,118,000          |   |
|                                                                                                                            |   |                    |       |               |   |
| Commitments and Contingencies (Note 3)                                                                                          |   | —                  |       | —             |   |
|                                                                                                                            |   |                    |       |               |   |
| Shareholders’ equity:                                                                                                      |   |                    |       |               |   |
| Preferred stock, no par value; 1,500,000  shares authorized; none issued and outstanding                                        |   | —                  |       | —             |   |
| Common stock, no par value; 15,000,000  shares authorized; 2,450,252 and 2,444,585 shares issued and outstanding,  respectively |   | 9,886,000               |       | 9,868,000          |   |
| Additional paid-in capital                                                                                                      |   | 1,465,000               |       | 1,403,000          |   |
| Retained earnings                                                                                                               |   | 9,006,000               |       | 9,156,000          |   |
| Total shareholders’ equity                                                                                                 |   | 20,357,000              |       | 20,427,000         |   |
|                                                                                                                            |   |                    |       |               |   |
| Total Liabilities and Shareholders’ Equity                                                                                 |   | $                       | 21,993,000 |               | $      | 21,545,000 |   |

 

----

*** Taken from the audited balance sheet at that date.

 

See accompanying notes to financialstatements.

 

3

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**SPORT-HALEY,INC.**

**STATEMENTSOF OPERATIONS**

 
|                                                |   | **Three  Months Ended  December 31,** |      | **Six Months  Ended  December 31,** |   |
|-----------------------------------------------------|--------|---------------------------------------|-----------|-------------------------------------|--------|
|                                                |   | **2003**                              |      | **2002**                            |   | **2003** |   | **2002** |   |
|                                                |   | **(Unaudited)**                       |      | **(Unaudited)**                     |   | **(Unaudited)** |   | **(Unaudited)** |   |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| Net sales                                           |   | $                                     | 4,763,000 |                                | $      | 4,041,000 |   | $ | 9,075,000 |   | $ | 7,822,000 |   |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| Cost of goods sold                                  |   | 2,905,000                             |      | 2,483,000                           |   | 5,577,000 |   | 4,786,000 |   |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| Gross profit                                        |   | 1,858,000                             |      | 1,558,000                           |   | 3,498,000 |   | 3,036,000 |   |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| Selling, general and administrative  expenses       |   | 1,901,000                             |      | 1,618,000                           |   | 3,846,000 |   | 3,408,000 |   |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| Loss from operations                                |   | (43,000                               | )         | (60,000                             | )      | (348,000 | ) | (372,000 | ) |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| Other income, net                                   |   | 71,000                                |      | 62,000                              |   | 125,000 |   | 105,000 |   |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| Income (loss) before provision for income  taxes    |   | 28,000                                |      | 2,000                               |   | (223,000 | ) | (267,000 | ) |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| (Provision for) benefit from income taxes           |   | (17,000                               | )         | 8,000                               |   | 73,000 |   | 104,000 |   |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| Net income (loss)                                   |   | $                                     | 11,000    |                                | $      | 10,000 |   | $ | (150,000 | ) | $ | (163,000 | ) |
|                                                |   |                                  |      |                                |   |   |   |   |   |
| Basic and diluted earnings (loss) per  common share |   | $                                     | 0.01      |                                | $      | 0.00 |   | $ | (0.06 | ) | $ | (0.06 | ) |

 

See accompanying notes to financialstatements.

 

4

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**SPORT-HALEY,INC.**

**STATEMENTSOF CASH FLOWS**

 
|                                                                         |   | **Six Months  Ended  December 31,** |     |
|------------------------------------------------------------------------------|--------|-------------------------------------|----------|
|                                                                         |   | **2003**                            |     | **2002** |   |
|                                                                         |   | **(Unaudited)**                     |     | **(Unaudited)** |   |
|                                                                         |   |                                |     |   |   |
| **Cash flows from operating activities:**                                    |   |                                |     |   |   |
| Net loss                                                                     |   | $                                   | (150,000 | ) | $ | (163,000 | ) |
|                                                                         |   |                                |     |   |   |
| Adjustments to reconcile net loss to net  cash used in operating activities: |   |                                |     |   |   |
| Depreciation and amortization                                                |   | 149,000                             |     | 180,000 |   |
| Deferred taxes and other                                                     |   | (73,000                             | )        | 2,000 |   |
| Allowance for doubtful accounts                                              |   | 60,000                              |     | 99,000 |   |
| Gain on sale of fixed assets                                                 |   | —                              |     | (2,000 | ) |
| Common stock option                                                          |   | 63,000                              |     | — |   |
| Cash provided (used) due to changes in  assets and liabilities:              |   |                                |     |   |   |
| Accounts receivable                                                          |   | 926,000                             |     | 772,000 |   |
| Inventories                                                                  |   | (1,650,000                          | )        | (1,852,000 | ) |
| Other assets                                                                 |   | (22,000                             | )        | (69,000 | ) |
| Income taxes receivable                                                      |   | —                              |     | 976,000 |   |
| Accounts payable                                                             |   | 485,000                             |     | 188,000 |   |
| Accrued commissions and other expenses                                       |   | 33,000                              |     | (198,000 | ) |
|                                                                         |   |                                |     |   |   |
| **Net cash used by operating activities**                                    |   | (179,000                            | )        | (67,000 | ) |
|                                                                         |   |                                |     |   |   |
| **Cash flows from investing activities:**                                    |   |                                |     |   |   |
| Redemption of held-to-maturity investments                                   |   | 1,653,000                           |     | 150,000 |   |
| Purchases of held-to-maturity investments                                    |   | (1,752,000                          | )        | (2,334,000 | ) |
| Sales of fixed assets                                                        |   | —                              |     | 2,000 |   |
| Purchase of fixed assets                                                     |   | (234,000                            | )        | (231,000 | ) |
|                                                                         |   |                                |     |   |   |
| **Net cash used by investing activities**                                    |   | (333,000                            | )        | (2,413,000 | ) |
|                                                                              |        |                                     |          |  |  |  |  |

 

See accompanying notes to financialstatements.

 

5

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|                                                  |   | **Six Months  Ended  December 31,** |      |
|-------------------------------------------------------|--------|-------------------------------------|-----------|
|                                                  |   | **2003**                            |      | **2002** |   |
|                                                  |   | **(Unaudited)**                     |      | **(Unaudited)** |   |
|                                                  |   |                                |      |   |   |
| **Cash flows from financing activities:**             |   |                                |      |   |   |
| Net proceeds from issuance of common stock            |   | $                                   | 18,000    |   | $ | — |   |
| Repurchase of common stock                            |   | —                              |      | (245,000 | ) |
|                                                  |   |                                |      |   |   |
| **Net cash provided (used) by financing activities**  |   | 18,000                              |      | (245,000 | ) |
|                                                  |   |                                |      |   |   |
| **Net decrease in cash and cash equivalents**         |   | (494,000                            | )         | (2,725,000 | ) |
|                                                  |   |                                |      |   |   |
| **Cash and cash equivalents, beginning**              |   | 4,304,000                           |      | 8,428,000 |   |
|                                                  |   |                                |      |   |   |
| **Cash and cash equivalents, ending**                 |   | $                                   | 3,810,000 |   | $ | 5,703,000 |   |
|                                                  |   |                                |      |   |   |
| **Supplemental disclosure of cash flow information:** |   |                                |      |   |   |
|                                                  |   |                                |      |   |   |
| Cash received during the period for: Income  taxes    |   | $                                   | —    |   | $ | 1,066,000 |   |
|                                                  |   |                                |      |   |   |
| Cash paid during the period for: Income  taxes        |   | $                                   | —    |   | $ | — |   |
|                                                  |   |                                |      |   |   |
| Interest                                              |   | $                                   | —    |   | $ | 9,000 |   |

 

See accompanying notes to financialstatements.

 

6

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**SPORT-HALEY,INC.**

**NOTES TO FINANCIAL STATEMENTS**

 

**NOTE 1****                CONDENSEDFINANCIAL STATEMENTS**

 

The financialstatements included herein have been prepared by Sport-Haley, Inc. (the“Company”) without audit, pursuant to the rules and regulations of theSecurities and Exchange Commission. Certain information and footnotedisclosures normally included in financial statements prepared in accordancewith generally accepted accounting principles in the United States of Americahave been condensed or omitted as allowed by such rules and regulations. TheCompany believes that the disclosures are adequate to make the informationpresented not misleading. These financial statements should be read inconjunction with the Company’s annual audited financial statements dated June30, 2003, included in the Company’s annual report on Form 10-K as filed withthe Securities and Exchange Commission. The results for interim periods are notnecessarily indicative of results that may be expected for any other interimperiod or for the full year.

 

The managementof the Company believes that the accompanying unaudited condensed financialstatements prepared in conformity with generally accepted accounting principlesin the United States of America, which require the use of management estimates,contain all adjustments (including normal recurring adjustments) necessary topresent fairly the operations and cash flows for the periods presented.

 

 

**NOTE 2****                 INVENTORIES**

 
|                                     |   | **December  31,  2003** |      | **June 30,  2003** |   |
|------------------------------------------|--------|-------------------------|-----------|--------------------|--------|
| Inventories consisted of  the following: |   |                    |      |               |   |
| Component                                |   | $                       | 595,000   |               | $      | 673,000 |   |
| Finished goods                           |   | 8,883,000               |      | 7,155,000          |   |
|                                     |   |                    |      |               |   |
|                                     |   | $                       | 9,478,000 |               | $      | 7,828,000 |   |

 

 

**NOTE 3****                 COMMITMENTSAND CONTINGENCIES**

 

At December 31, 2003, the Company hadapproximately $2,501,000 in outstanding letters of credit that were issued toforeign suppliers in accordance with finished goods inventory purchasecommitments.

 

7

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As previously reported, a former shareholder commenced a putative classaction lawsuit against Sport-Haley and three of its officers and directors (the“Defendants”). Pursuant to a settlement conference, on November 7, 2003, and aMemorandum of Understanding dated December 16, 2003, the parties to the classaction reached a preliminary agreement to settle the action against allparties, subject to court approval and other contingencies. On January 23,2004, the parties entered into, and filed with the court, a Stipulation ofSettlement which more particularly describes the parties’ agreement. Also onJanuary 23, 2004, the Plaintiffs’ filed a motion with the court for preliminaryapproval of the proposed settlement. If the court grants preliminary approvalof the proposed settlement, notice of the class action and the proposedsettlement will be sent to the class and the court will schedule and conduct ahearing to consider the settlement and any objections, if any. Under thecontemplated settlement, the Defendants will pay to the class a total of$1,000,000, from which will be deducted certain administrative costs and awardsmade to the named Plaintiffs and to Plaintiffs’ counsel for attorneys’ fees andcosts. The settlement amount is expected to be derived from proceeds of theDefendants’ liability insurance coverage. Although the Defendants believe thatit is probable that the parties will complete formal documentation of thesettlement agreement, and that the settlement will be approved by the court,there can be no assurance that completion of the settlement or court approvalwill occur. In the event that the settlement is not completed, the litigationwill continue. The Defendants continue to maintain that they have meritoriousdefenses to the class action claims, but have agreed to the settlement forpractical and other reasons. The Defendants have incurred significant costs andexpenses, including the uses of Company resources and executive time, defendingthe class action. Of those expenses, a considerable portion is not recoverableby applicable insurance. If the settlement is not completed and approved, suchunrecoverable expenses may continue to negatively impact the Company’sfinancial position and the results of its operations.

 

 

**NOTE 4****                 REPURCHASEOF COMMON STOCK**

 

As of December 31, 2003, the Company’s Boardof Directors had authorized the repurchase of up to 2,820,000 shares of theCompany’s issued and outstanding common stock. The shares may be repurchasedfrom time to time in open market transactions at prevailing market prices orprivately negotiated transactions. The Company has no commitment to repurchaseall or any portion of the shares. All shares repurchased by the Company arerequired to be canceled and returned to the status of authorized but unissuedcommon stock.

 

From the inception of the repurchase plan through December 31, 2003,the Company had repurchased a total of 2,512,800 shares of its common stock ata cumulative cost of approximately $13,488,000.

 

8

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**NOTE 5****                 COMMONSTOCK OPTIONS**

 

The Company’s Stock Option Plan (the “Plan”)expired by its terms on February 28, 2003. Option agreements that were issuedin accordance with the Plan prior to February 28, 2003, generally remain inforce until the earlier of their exercise, the termination of a grantee’semployment or other relationship with the Company or expiration by their terms.

 

At December 31, 2003, there were outstandingoptions to purchase 1,195,447 shares of the Company’s common stock at exerciseprices ranging from $3.00 to $9.78 per share and expiration dates betweenJanuary 2004 and January 2013.

 

If the Company had accounted for its stock-based compensation plan inaccordance with Statements of Accounting Standards No. 123, *Accounting for Stock-Based Compensation*,the Company’s net loss and loss per common share would have been reported asfollows:

 
|                                                                                 |   | **Six Months  Ended December 30,** |     |
|--------------------------------------------------------------------------------------|--------|------------------------------------|----------|
|                                                                                 |   | **2003**                           |     | **2002** |   |
| Net loss - as reported                                                               |   | $                                  | (150,000 | ) | $ | (163,000 | ) |
| Effect of employee stock-based compensation included  in reported net loss           |   | 39,000                             |     | — |   |
| Effect of employee stock-based compensation per SFAS  123                            |   | (133,000                           | )        | (81,000 | ) |
| Net loss applicable to common stock - pro forma                                      |   | $                                  | (244,000 | ) | $ | (244,000 | ) |
|                                                                                 |   |                               |     |   |   |
| Basic and Diluted:                                                                   |   |                               |     |   |   |
| Loss per share - as reported                                                         |   | $                                  | (0.06    | ) | $ | (0.06 | ) |
| Per share effect of employee stock-based  compensation included in reported net loss |   | 0.02                               |     | 0.00 |   |
| Per share effect of employee stock-based  compensation per SFAS 123                  |   | (0.06                              | )        | (0.03 | ) |
| Loss per share applicable to common stock - pro  forma                               |   | $                                  | (0.10    | ) | $ | (0.09 | ) |

 

9

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**NOTE 6****                 EARNINGSPER SHARE**

 

The Companyadopted the provisions of Statement of Financial Accounting Standards No. 128(SFAS No. 128), *Earnings per Share,* effective with the year ended June 30,1998. SFAS No. 128 requires the presentation of basic and diluted earnings(loss) per common share. The following table provides a reconciliation of thenumerator and denominator of basic and diluted earnings (loss) per commonshare:

 
|                                  |   | **Three  Months ended December 31, 2003** |   |
|---------------------------------------|--------|-------------------------------------------|--------|
|                                  |   | **Net  Income  (Loss)**                   |   | **Weighted  Average  Shares** |   | **Per Share** |   |
| Earnings Per  Common Share            |   |                                      |   |   |   |   |   |
|                                  |   |                                      |   |   |   |   |   |
| Basic earnings per share              |   | $                                         | 11,000 |   | 2,445,078 |   | $ | 0.01 |   |
|                                  |   |                                      |   |   |   |   |   |
| Effect of dilutive securities options |   | —                                    |   | 260,433 |   | (0.01 | ) |
|                                  |   |                                      |   |   |   |   |   |
| Diluted loss per share                |   | $                                         | 11,000 |   | 2,705,511 |   | $ | 0.00 |   |

 
|                                  |   | **Six Months  ended December 31, 2003** |     |
|---------------------------------------|--------|-----------------------------------------|----------|
|                                  |   | **Net  Income  (Loss)**                 |     | **Weighted  Average  Shares** |   | **Per Share** |   |
| Loss Per Common Share                 |   |                                    |     |   |   |   |   |
|                                  |   |                                    |     |   |   |   |   |
| Basic loss per share                  |   | $                                       | (150,000 | ) | 2,444,831 |   | $ | (0.06 | ) |
|                                  |   |                                    |     |   |   |   |   |
| Effect of dilutive securities options |   | —                                  |     | — |   | — |   |
|                                  |   |                                    |     |   |   |   |   |
| Diluted loss per share                |   | $                                       | (150,000 | ) | 2,444,831 |   | $ | (0.06 | ) |

 

10

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|                                  |   | **Three  Months ended December 31, 2002** |   |
|---------------------------------------|--------|-------------------------------------------|--------|
|                                  |   | **Net  Income  (Loss)**                   |   | **Weighted  Average  Shares** |   | **Per Share** |   |
| Earnings Per Common Share             |   |                                      |   |   |   |   |   |
|                                  |   |                                      |   |   |   |   |   |
| Basic earnings per share              |   | $                                         | 10,000 |   | 2,666,186 |   | $ | 0.00 |   |
|                                  |   |                                      |   |   |   |   |   |
| Effect of dilutive securities options |   | —                                    |   | 43,369 |   | — |   |
|                                  |   |                                      |   |   |   |   |   |
| Diluted earnings per share            |   | $                                         | 10,000 |   | 2,709,555 |   | $ | 0.00 |   |

 
|                                  |   | **Six Months  ended December 31, 2002** |     |
|---------------------------------------|--------|-----------------------------------------|----------|
|                                  |   | **Net  Income  (Loss)**                 |     | **Weighted  Average  Shares** |   | **Per Share** |   |
| Loss Per Common Share                 |   |                                    |     |   |   |   |   |
|                                  |   |                                    |     |   |   |   |   |
| Basic loss per share                  |   | $                                       | (163,000 | ) | 2,698,586 |   | $ | (0.06 | ) |
|                                  |   |                                    |     |   |   |   |   |
| Effect of dilutive securities options |   | —                                  |     | — |   | — |   |
|                                  |   |                                    |     |   |   |   |   |
| Diluted loss per share                |   | $                                       | (163,000 | ) | 2,698,586 |   | $ | (0.06 | ) |

 

11

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**SPORT-HALEY,INC.**

**ITEM 2****MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

This Report on Form 10-Q contains certain forward-looking statements.When used in this report, the words “may,” “will,” “expect,” “anticipate,”“continue,” “estimate,” “project,” “intend,” “believe” and similar expressionsare intended to identify forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933 and Section 21E of the SecuritiesExchange Act of 1934 regarding events, conditions and financial trendsincluding, without limitation, business conditions and growth in the fashiongolf apparel market and the general economy, competitive factors, and pricepressures in the high-end golf-apparel market; general economic conditionsresulting from threats or acts of war or terrorism; risks associated with anincreasing percentage of sales relating to licensed apparel, such as the BenHogan® collections; inventory risks due to shifts in market and/or priceerosion of purchased apparel, raw fabric and trim; cost controls; changes inproduct mix; loss or reduced manufacturing capacity of significant suppliers;loss or delay of shipments of finished goods from foreign suppliers; and otherrisks or uncertainties detailed in other Securities and Exchange Commission(“SEC”) filings made by Sport-Haley. Such statements are based on management’scurrent expectations and are subject to risks, uncertainties and assumptions.Should one or more of these risks or uncertainties materialize, or shouldunderlying assumptions prove incorrect, the actual plan of operations, businessstrategies, operating results and financial position of Sport-Haley coulddiffer materially from those expressed in, or implied by, such forward-lookingstatements.

 

##### **CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

The Company’s condensed financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America, which require the Company to make estimates and judgments thataffect the reported amounts of assets, liabilities, revenues and expenses, andthe related disclosures. A summary of those significant accounting policies canbe found in the Company’s Notes to the Consolidated Financial Statementsincluded in its Report on 10-K for the year ended June 30, 2003, which wasfiled with the SEC on September 29, 2003. The estimates used by management are based upon the Company’s historicalexperiences combined with management’s understanding of current facts andcircumstances. Certain of the Company’s accounting policies are consideredcritical as they are both important to the portrayal of the Company’s financialcondition and the results of its operations and require significant or complexjudgments on the part of management. Management believes that the followingrepresent the critical accounting policies of the Company: inventories;deferred income taxes; allowance for doubtful accounts; and, allowance forsales returns.

 

Excess finished goods inventories are anatural component of a seasonal apparel business. The valuation of inventoriesinvolves complex judgments on the part of management. Management continuallyevaluates and balances the levels of current seasons’ inventories to meetmarket demands based upon sales projections, current bookings for futuredeliveries and at-once business. While certain finished goods items will sellout in any particular selling season, quantities of other finished goods itemswill remain at the end of each selling season. The Company markets previousseasons’ finished goods inventories at reduced wholesale prices. However,economic conditions and other factors may depress sales prices for previousseasons’ finished goods inventories to less than historical costs.

 

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The Company currently performs an evaluationof obsolescence and other impairments of its inventories quarterly. The Companyevaluated obsolescence of its finished goods inventories and increased itsreserves for inventory obsolescence by approximately $133,000 during the fiscalquarter ended December 31, 2003. While management believes that the Company’sprocesses produce a fair valuation of inventories, detrimental changes ingeneral economic conditions or in the golf apparel industry could materiallyaffect valuation of the Company’s inventories.

 

Deferred income taxes are recognized for the expected tax consequencesin future years for differences between the tax bases of assets and liabilitiesand their financial reporting amounts, based upon enacted tax laws andstatutory tax rates applicable to the periods in which the differences areexpected to affect taxable income. The Company’s significant deferred taxassets are related to net operating loss carryforwards for federal and stateincome tax purposes, a change in accounting methods for federal income taxpurposes, stock options compensation and an unrealized loss for tax purposes ona common stock investment. The Company has established a valuation allowance toreduce deferred tax assets to the net amount expected to be recovered in futureperiods. The estimates for deferred tax assets and the corresponding valuationallowance require management to exercise complex judgments. Managementperiodically reviews and adjusts those estimates based upon the most currentinformation available. However, because the recoverability of deferred taxassets is directly dependent upon the future operating results of the Company,actual recoverability of deferred tax assets may differ materially frommanagement’s estimates.

 

The Company’s allowance for doubtful accounts reflects a reserve thatreduces customer accounts receivable to the net amount estimated to becollectible. Estimating the credit worthiness of customers and therecoverability of customer accounts requires management to exerciseconsiderable judgment. In estimating uncollectible amounts, managementconsiders factors such as general economic and industry-specific conditions,historical customer performance and anticipated customer performance. Whilemanagement considers the Company’s processes to be adequate to effectivelyquantify its exposure to doubtful accounts, changes in economic, industry orspecific customer conditions may result in a recoverability of the Company’sdoubtful accounts that materially differs from management’s estimates.

 

The Company records its allowance for sales returns as a net adjustmentto customer accounts receivable. When recording an allowance, the net methodreduces customer accounts receivable and net sales by the estimated grossmargin effect of the anticipated sales return. Generally, the Company’s sellingterms preclude return of its products subsequent to the sale. However, theCompany has traditionally maintained limited programs that offer some customersthe right to return certain finished goods items under predefined conditions,and the percentage of the Company’s customers that refuse receipt ofmerchandise at the time of delivery has increased in recent periods. Managementreviews historical data and considers factors such as general economic andindustry-specific conditions and anticipated customer performance whenevaluating the Company’s allowance for sales returns. Significant changes ingeneral economic or industry conditions may yield sales returns that differmaterially from management’s estimates.

 

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### **FINANCIAL CONDITION**

 

The Company intends to rely on cash generatedfrom operations and available cash on hand to finance its working capitalrequirements for at least the next 12 months. To the extent such amounts areinsufficient to finance the Company’s working capital requirements, the Companymay also make periodic borrowings under its revolving line of credit. Cash andcash equivalents plus marketable securities decreased since June 30, 2003 byapproximately $411,000, to $6,074,000 at December 31, 2003 from $6,485,000 atJune 30, 2003. Working capital was approximately $18,894,000 and $19,180,000 atDecember 31, 2003 and June 30, 2003, respectively.

 

Net accounts receivable decreased byapproximately $986,000 to $3,733,000 at December 31, 2003, from $4,719,000 atJune 30, 2003. Because net sales for the Company’s second fiscal quarter(December 31) are normally less than net sales for its fourth fiscal quarter(June 30), the Company’s net accounts receivable are historically lower atDecember 31 when compared with the previous June 30 balance.

 

Inventories increased by approximately$1,650,000 to $9,478,000 at December 31, 2003, from $7,828,000 at June 30,2003. The approximately 20% increase in inventories primarily consisted ofcomparative increases in: (a) pending deliveries of ocean shipments of finishedgoods from foreign suppliers; (b) closeout inventories of prior seasons’women’s apparel; and, (c) Ben Hogan® apparel collections. Pending oceandeliveries of finished goods approximated $2,501,000 at December 31, 2003, and$195,000 at June 30, 2003. Management believes that closeout inventories ofprior seasons’ women’s apparel increased primarily because the war in Iraqimpacted late Spring 2003 bookings and spring sales of HALEY® women’s apparelgreater than it impacted bookings and sales of men’s apparel during the sameperiod. During slow economic periods, wholesale buyers of golf apparel are morehesitant to order women’s products than to order men’s products. The Companywas significantly impacted by the reduced Spring 2003 bookings, because whilethe golf apparel market is generally comprised of 80% men’s products and 20%women’s products, the Company’s sales of HALEY® apparel are generally comprisedof 30% men’s products and 70% women’s products. Management revised its inventoryrequirements and adjusted reorder quantities for the Spring 2003 sellingseason, when possible, to minimize the excess inventories relating to thatspring selling season. The increase in Ben Hogan® finished goods inventorieswas necessary to support the continued increase in sales of Ben Hogan® apparelcollections. As discussed above in“Critical Accounting Policies and Estimates,” management evaluated obsolescenceof its finished goods inventories and increased its reserves for inventoryobsolescence by approximately $133,000 during the fiscal quarter ended December31, 2003.

 

The Company’s continued reliance on foreignsuppliers sustains the risk that the Company’s revenues could be adverselyaffected if a foreign shipment or shipments were received late or lost. TheCompany maintains insurance for risk of loss relating to goods shipped from itsforeign and domestic suppliers. However, the Company’s predominant relianceupon foreign suppliers, and significant reliance on two separate foreignsuppliers, also sustains the risk that the Company would be left withinadequate or unsatisfactory recourse should the goods received from a foreignsupplier be nonconforming.

 

Due to a combination of several factors,during the six months ended December 31, 2003, the Company’s operatingactivities used cash of approximately $179,000.

 

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For the six months ended December 31, 2003,the Company expended approximately $234,000 for the purchase of property andequipment, and approximately $149,000 in depreciation and amortization wascharged to current operations. A significant component of the property andequipment purchases included continued implementation costs for newcomprehensive operations software that the Company began utilizing in January2004. During the six-month period ended December 31, 2003, investing activitiesused cash of approximately $333,000, comprised of the fixed asset purchasescombined with purchases and redemptions of held-to-maturity federally insuredmarketable securities.

 

Accounts payable and accrued expensesincreased by approximately $518,000 since June 30, 2003. The net increase incurrent liabilities was primarily related to the accrued costs of in-transitocean shipments of finished goods inventories. As of December 31, 2003, theaccrued costs of in-transit inventories increased by approximately $817,000since June 30, 2003. The Company’s other trade accounts and sales-relatedpayables are generally lower at the end of its second fiscal quarter, whencompared with the previous June 30 balances each year. Decreases in commissionsand other sales-related payables at the end of the second fiscal quartercompare with the lower comparative sales volumes typically recorded during theCompany’s second (December 31) fiscal quarter as compared with its fourth (June30) fiscal quarter.

 

Total shareholders’ equity decreased byapproximately $70,000 for the six-month period. The decrease was primarilycomprised of the net loss for the six-month period combined with the equityeffect of stock-based compensation expense for the same period. Book value pershare decreased by $0.05 to approximately $8.31 per share at December 31, 2003,as compared with $8.36 per share at June 30, 2003.

 

**RESULTSOF OPERATIONS**

 

The Company’s business is seasonal in nature,with disproportionately higher sales occurring from January through June, whichcomprise the Company’s third and fourth quarters of each fiscal year.

 

Net sales for the fiscal quarter and sixmonths ended December 31, 2003, were approximately $4,763,000 and $9,075,000,respectively, increases of approximately $722,000 or 18%, and $1,253,000 or16%, from net sales of approximately $4,041,000 and $7,822,000 for the sameperiods in the prior fiscal year. Management attributes the increases in netsales to the continued growth of Ben Hogan® apparel collections within upscalegolf apparel markets. Net sales of Ben Hogan® apparel were approximately$2,736,000 and $1,466,000 for the six months ended December 31, 2003, and 2002,respectively. The percentage of net sales relating to Ben Hogan® apparel isindicative of the Company’s efforts to increase revenues in accordance with thelicensing agreement the Company maintains with The Top Flite Golf Company (“TopFlite”) for such apparel. The trend indicating an increasing relativepercentage of the Company’s sales related to licensed apparel sustains a riskof loss, should the licensing agreement with Top Flite be terminated by eitherparty. The Company continues to direct its marketing efforts with the goals ofincreasing sales within established distribution channels and creating newmarkets for both its HALEY® and Ben Hogan® products, as well as creatingdistribution channels for Top Flite® apparel lines. Management expects tointroduce the initial lines of Top Flite® apparel at or near June 30,2004.  Based upon bookings as ofDecember 31, 2003 for shipments after that date, management expects theCompany’s overall sales trend to continue to improve within the current fiscalyear, when compared with the prior fiscal year.

 

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The Company’s grossprofit, as a percentage of net sales, was approximately 39% for the quarter andsix months ended December 31, 2003, respectively, and 39% for the same periodsin the prior fiscal year. The gross profit percentages are reflective ofmanagement’s successful efforts to source its finished apparel at competitiveprices from foreign suppliers and to maximize revenues with respect to closeoutinventories that must be sold at reduced prices. The 39% gross profit wasachieved even while the Company recorded approximately $133,000 in inventoryobsolescence charges during the fiscal quarter ended December 31, 2003.

 

Selling, general andadministrative expenses for the quarter ended December 31, 2003, increased byapproximately $283,000, or 17%, to $1,901,000 from $1,618,000 for the samethree-month period in the prior fiscal year. Selling, general andadministrative expenses for the six months ended December 31, 2003, increasedby approximately $438,000, or 13%, to $3,846,000 from $3,408,000 for the samesix-month period in the prior fiscal year. The increases were primarilyattributable to sales commissions due to independent sales representatives,royalties due to Top-Flite and other expenses related to the respectivecomparative increases in sales for the three-month and six-month periods. Salescommissions increased by approximately $130,000 and $211,000 for the quarterand six-month period, respectively, when compared with the same periods in theprior fiscal year. Royalties relating to Ben Hogan® apparel increased byapproximately $46,000 and $100,000 for the quarter and six-month period,respectively, when compared with the same periods in the prior fiscal year. TheCompany continually refines its business operations to operate as efficientlyas possible, while attempting to expand sales growth opportunities. Selling,general and administrative expenditures were approximately 40% and 42% of net salesfor the quarter and six months ended December 31, 2003, as compared with 40%and 44% for the same periods in the prior fiscal year.

 

Other income, net,increased by approximately $9,000 and $20,000, or 15% and 19%, respectively, to$71,000 and $125,000 for the quarter and six months ended December 31, 2003,from $62,000 and $105,000 for the same periods in the prior fiscal year. Theincreases were primarily attributable to differences between the periods in therespective rates of interest earned on cash, cash equivalents and federallyinsured marketable securities.

 

Income before provisionfor income taxes increased by approximately $26,000, or 1300%, to $28,000 forthe fiscal quarter ended December 31, 2003, from $2,000 for the same quarter inthe prior fiscal year. Loss before provision for income taxes improved byapproximately $44,000, or 16%, to ($223,000) for the six months ended December31, 2003, from ($267,000) for the same period in the prior fiscal year.

 

The Company’s effective tax rates for the sixmonths ended December 31, 2003 and 2002 were 33% and 39%, respectively. Theeffective tax rate in any fiscal period can vary significantly from theeffective tax rate in another period due to differences between the recognitionof certain transactions for financial versus tax purposes. Certain deductionsrecognized for tax purposes may not be expensed for financial statementpurposes, and certain expenses recorded for financial statement purposes maynot be deductible for tax purposes.

 

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Net income forthe fiscal quarter ended December 31, 2003, was approximately $11,000, anincrease of $1,000, or 10%, when compared with net income of $10,000 for thesame three-month period in the prior fiscal year. Net loss for the six monthsended December 31, 2003, was approximately ($150,000), an improvement of$13,000, or 8%, when compared with the net loss of ($163,000) for the samesix-month period in the prior fiscal year. The differences were primarily duethe numerous factors discussed above.

 

Both the basicand diluted earnings (loss) per share were $0.01 and ($0.06) for the fiscalquarter and six months ended December 31, 2003, respectively. Both the basicand diluted earnings (loss) per share were $0.00 and ($0.06) for the sameperiods in prior fiscal year.

 

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**SPORT-HALEY,INC.**

**ITEM 4****CONTOLS ANDPROCEDURES**

 

 

**(a)****           Evaluation ofDisclosure Controls and Procedures**

 

Management ofthe Company, with the participation of the Chief Executive Officer and theChief Financial Officer, conducted an evaluation of the effectiveness of theCompany’s disclosure controls and procedures pursuant to Rule 13a-15 under theSecurities Exchange Act of 1934 as of the end of the period covered by thisreport. Based on that evaluation, management, including the Chief ExecutiveOfficer and Chief Financial Officer, concluded that, as of the date of thisreport, the Company’s disclosure controls and procedures were effective in ensuringthat: (a) all material information relating to the Company, required to bedisclosed in this report, has been made known to management in a timely manner;and, (b) information was recorded, processed, summarized and reported withinthe time periods specified in the Security and Exchange Commission’s rules andregulations.

 

**(b)****           Changes in InternalControls**

 

During the second quarter of fiscal 2004, the Companydid not institute any significant changes in internal controls over financialreporting that materially affected, or are reasonably likely to materiallyaffect, the Company’s internal controls over financial reporting, except thatthe Company continued the implementation of new management informationsoftware. Management believes that, when fully utilized, the new system willsignificantly improve the Company’s internal controls with respect to orderprocessing, purchasing requirements and timing, receiving and shippingoperations and finished goods inventory management. The Company began utilizingthe new software in its business operations in January 2004.

 

The Company’s management,including the Chief Executive Officer and Chief Financial Officer, does notexpect that the Company’s disclosure controls and procedures or its internalcontrols over financial reporting will, in all instances, prevent all errorsand all fraud. A control system, no matter how well conceived or operated, canonly provide reasonable, not absolute, assurance that the objectives of thecontrol system are met. While the Company’s control systems provide areasonable assurance level, the design of its control systems reflects the factthat there are resource constraints, and the benefits of such controls wereconsidered relative to their costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within the Company have beendetected. These inherent limitations include the realities that judgments indecision-making can be faulty, and that breakdowns can occur because of simpleerrors or mistakes. Additionally, a control may be circumvented by theindividual act of some person, by collusion of two or more persons, or bymanagement’s override of a specific control. The design of any system ofcontrols is also based in part on certain assumptions about the likelihood offuture events, and there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions. Because ofthe inherent limitations in a cost-effective control system, misstatements dueto error or fraud may occur and not be detected.

 

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**SPORT-HALEY,INC.**

**PART II**

**OTHERINFORMATION**

 

 

### **ITEM 1**   LEGAL PROCEEDINGS

 

As previously reported, a former shareholder commenced a putative classaction lawsuit against Sport-Haley and three of its officers and directors (the“Defendants”). Pursuant to a settlement conference, on November 7, 2003, and aMemorandum of Understanding dated December 16, 2003, the parties to the classaction reached a preliminary agreement to settle the action against allparties, subject to court approval and other contingencies. On January 23,2004, the parties entered into, and filed with the court, a Stipulation ofSettlement which more particularly describes the parties’ agreement. Also onJanuary 23, 2004, the Plaintiffs’ filed a motion with the court for preliminaryapproval of the proposed settlement. If the court grants preliminary approvalof the proposed settlement, notice of the class action and the proposedsettlement will be sent to the class and the court will schedule and conduct ahearing to consider the settlement and any objections, if any. Under thecontemplated settlement, the Defendants will pay to the class a total of$1,000,000, from which will be deducted certain administrative costs and awardsmade to the named Plaintiffs and to Plaintiffs’ counsel for attorneys’ fees andcosts. The settlement amount is expected to be derived from proceeds of theDefendants’ liability insurance coverage. Although the Defendants believe thatit is probable that the parties will complete formal documentation of thesettlement agreement, and that the settlement will be approved by the court, therecan be no assurance that completion of the settlement or court approval willoccur. In the event that the settlement is not completed, the litigation willcontinue. The Defendants continue to maintain that they have meritoriousdefenses to the class action claims, but have agreed to the settlement forpractical and other reasons. The Defendants have incurred significant costs andexpenses, including the uses of Company resources and executive time, defendingthe class action. Of those expenses, a considerable portion is not recoverableby applicable insurance. If the settlement is not completed and approved, suchunrecoverable expenses may continue to negatively impact the Company’sfinancial position and the results of its operations.

 

As previouslyreported, on September 26, 2003, the United States Securities and ExchangeCommission (the “Commission”) filed suit in the United States District Courtfor the District of Colorado against Sport-Haley, its Chairman and former ChiefExecutive Officer, Robert G. Tomlinson, and its former Controller, Steve S.Auger (the “Defendants”). The Commission filed an amended complaint on October29, 2003, which added one of the Company’s former auditors to the action as aDefendant. The suit seeks an injunction against future violations and otherrelief, including disgorgement, civil penalties and an order barring either Mr.Tomlinson or Mr. Auger from serving as a director or officer of any publiclyheld company. The suit alleges that the Defendants misrepresented inventories,period costs and losses on the sale of headwear equipment in annual and/orquarterly financial statements for the Company’s fiscal years 2000, 1999 and1998. The amended complaint alleges that the Company violated §17(a) of theSecurities Act of 1933 (the “Securities Act”), §10(b), §13(b)(2) and §15(d) ofthe Securities Exchange Act of 1934 (the “Exchange Act”) and various otherrules promulgated thereunder.

 

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The amendedcomplaint further alleges that Mr. Tomlinson and Mr. Auger violated §17(a) ofthe Securities Act, §10(b) and §13(b)(5) of the Exchange Act and Rules 10b-5and 13b-2 thereunder. Finally, the suit alleges that Mr. Tomlinson and Mr.Auger aided and abetted the Company’s violations of §13(b)(2) and §15(d) of theExchange Act and various rules promulgated thereunder. The Commission’s suitprimarily relates to errors in the Company’s previously issued financialstatements that the Company previously reported when it voluntarily restatedits financial statements for fiscal years 1999 and 1998 and subsequentlycorrected material financial information for the quarterly periods of fiscalyears 2000, 1999 and 1998. The Defendants have answered the allegations of theAmended Complaint, denying the substantive allegations and asserting variousdefenses.

 

The Defendantsintend to vigorously defend the Commission’s allegations, which the Defendantsbelieve are without merit. Based upon the information that is currentlyavailable, management cannot reasonably estimate the amount of future coststhat the Company will incur defending the Commission’s allegations. However, ifthe suit were determined in favor of the Commission and against the Defendants,the possible monetary penalties and other relief that the Company might berequired to pay could negatively impact the Company’s financial position andthe results of its operations.

 

As previouslyreported, the Company retained legal counsel to possibly pursue claims againstits former auditors in connection with damages suffered as a result of therestatements of its financial statements for the fiscal years ended June 30,1999 and 1998 and the corrections of material financial information for thequarterly periods of the fiscal years ended June 30, 2000, 1999 and 1998.Further, counsel to the former auditors has advised the Company that the formerauditors may bring certain claims against the Company. Management believes thatthe claims threatened by the former auditors relate to allegations of unpaidfees. Each party continues to deny any liability to the other party. Neitherthe Company nor its former auditors have yet filed any legal action to assertany of these claims. During the three months ended December 31, 2003, theCompany expended approximately $69,000, and, as of that date, the Company hadcumulatively incurred approximately $725,000 in expenses related to therestatements of its financial statements and material quarterly information,the investigation and subsequent civil action commenced by the Commission andthe class action lawsuit. While the Company maintains its rights to pursueclaims against its former auditors, the Company has elected to treat amountsexpended for legal and other costs, that are potentially recoverable from theformer auditors and the Company’s insurance carriers, as selling, general andadministrative expenses in the periods incurred. If such amounts are recoveredin future periods, the Company will treat amounts recovered as other income inthe periods such amounts are received. At December 31, 2003, at least $24,000of such amounts, in excess of the policy deductible for such matters, wasrecoverable from one of the Company’s insurance carriers.

 

The Company issubject to various other legal proceedings and claims which arise in theordinary course of its business. In the opinion of management, the amount ofultimate liability with respect to those actions will not materially affect thefinancial position the Company or the results of its operations.

 

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### **ITEM 5**   OTHER INFORMATION

 

### **In January 2004, the Company’s President, Robert W. Haley,agreed to the termination of his employment, to be effective March 31, 2004.Mr. Haley’s severance package will include the continuation of his salary forone year in exchange for his agreement not to enter into activities that are ormay be competitive with, or which might place Mr. Haley in a competing positionto that of, the Company during that one-year period. Effective January 1, 2004,Mr. Haley’s duties as President were assumed by the Chief Executive Officer,Kevin M. Tomlinson.**

### ** **

### **Effective January 1, 2004, the Company’s board of directorsappointed Mark Maley to the newly-created position of Vice President – Sales.The Company subsequently entered into an employment contract with Mr. Maley,who will direct the Company’s sales organizations for their HALEY®, Ben Hogan®and Top-Flite® apparel brands. In addition, in January 2004, the Companycreated two new regional sales manager positions and appointed Mitch Wise andBarry Hyman to oversee the Company’s sales organizations in the western andeastern portions of the United States, respectively.**

 

On February 9,2004, the Board of Directors formed a new committee, to be called the NominatingCommittee (the “Committee”), and appointed James H. Everest, Ronald J. Norickand Mark J. Stevenson to serve on the Committee. Each of the Committee’smembers is independent within the applicable Nasdaq listing rules. TheCommittee will, among other things, establish and implement qualifications forBoard service, identify and approve qualified individuals to be nominated forBoard service, pursuant to criteria defined by the Board, and recommend to theBoard any improvements to the Company’s corporate governance guidelines, asdeemed appropriate. The Committee expects to adopt a written charter, whichshall further describe the functions and procedures to be followed by theCommittee.

 

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### **ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K**

 

(A) EXHIBITS

Exhibit 31.1 – Certification of Kevin M.Tomlinson

 

Exhibit 31.2 – Certification of Patrick W.Hurley

 

Exhibit 32.1 – Certifications of Kevin M.Tomlinson and Patrick W. Hurley pursuant to 18 U.S.C. §1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002

 

(B) REPORTS ONFORM 8-K

On November20, 2003, the Company filed a Form 8-K to report that the Company had issued anews release dated November 19, 2003, which announced its financial results forthe fiscal quarter ended September 30, 2003.

 

On December18, 2003, the Company filed a Form 8-K to report that the Company had issued anews release dated December 17, 2003, which announced the signing of amemorandum of understanding on December 16, 2003, concerning the settlement ofthe previously reported putative class action brought by former and currentshareholders against Sport-Haley, Inc. and certain officers and directors.

 

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**SIGNATURES**

 

 

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

 

 
|   |               | **SPORT-HALEY, INC.**    |
|--------|--------------------|--------------------------|
|   |               | (Registrant)             |
|   |               |                     |
|   |               |                     |
| Date:  | February 13,  2004 |                     | /s/ Kevin M.  Tomlinson |   |
|   |               | Kevin M.  Tomlinson      |
|   |               | Chief  Executive Officer |
|   |               |                     |
|   |               |                     |
|   |               |                     |
|   |               |                     |
| Date:  | February 13,  2004 |                     | /s/ Patrick  W. Hurley |   |
|   |               | Patrick W.  Hurley       |
|   |               | Chief  Financial Officer |

 

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