<PAGE>
                                       
                                 FORM 10-KSB

                                UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549

(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 [FEE REQUIRED]   FOR THE FISCAL YEAR ENDED JUNE 30, 1997
                                      OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 [NO FEE REQUIRED] for the transition period from
    ____________ to ____________

                       Commission file number:  1-12888

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

               COLORADO                                    84-1111669
    (State or other jurisdiction of                    (I.R.S. Employer
    incorporation or organization)                   Identification Number)

            4600 EAST 48TH AVENUE
              DENVER, COLORADO                               80216
    (Address of principal executive offices)               (Zip Code)

      Registrant's telephone number, including area code:  (303) 320-8800

      Securities registered pursuant to Section 12(b) of the Exchange Act:

       Title of each class             Name of each exchange on which registered
COMMON STOCK, NO PAR VALUE PER SHARE              PACIFIC STOCK EXCHANGE

      Securities registered pursuant to section 12(g) of the Exchange Act:
                                      NONE

Check whether the registrant (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 
preceding 12 months (or for such shorter period that the registrant was 
required to file such reports), and (2) has been subject to such filing 
requirements for the past 90 days.  Yes __X__   No ______

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation 
S-B is not contained in this form, and no disclosure will be contained, to 
the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-KSB or any 
amendment to this Form 10-KSB [ ]

State issuer's revenues for its most recent fiscal year:  $28.9 MILLION

As of September 23, 1997, 4,669,399 shares of the registrant's Common Stock 
were outstanding.  The aggregate market value of the 4,515,316 shares of 
Common Stock held by non-affiliates was $66,036,496 as of September 23, 1997. 
For purposes of the foregoing calculation only, each of the Registrant's 
officers and directors is deemed to be an affiliate.  The market value of the 
shares was calculated based on the closing sale price of such shares on the 
Nasdaq National Market  on such date.

                     DOCUMENTS INCORPORATED BY REFERENCE:
                                     NONE

Transitional Small Business Disclosure Format:  Yes ______  No __X__

<PAGE>

                                    PART I

ITEM 1.   DESCRIPTION OF BUSINESS

GENERAL

    Sport-Haley designs, contracts for the manufacture of, and markets men's 
and women's quality fashion golf apparel under the distinctive 
Haley-Registered Trademark- label.  The Company's fashion golf apparel is 
known for its innovative styling, high quality fabrics, generous fit and 
classic appearance. The Company's apparel is sold in the premium and 
mid-price market through a network of independent sales representatives and 
distributors, primarily to golf professional shops, country clubs and resorts 
throughout the United States and internationally.  The Company targets 
distribution of its apparel to higher quality golf professional shops, which 
generally offer superior customer service and which enhance the appeal of the 
Haley brand name.  The Company has also expanded its marketing program to 
include the college, university, corporate, tournament and retail markets.  
The Company custom embroiders a majority of its men's apparel with a 
customer's club, resort, collegiate or corporate logo, thereby promoting the 
image of both Sport-Haley and its customer base and enhancing the 
marketability of the Company's products.  Sport-Haley's apparel is presented 
semi-annually to the golf industry in spring and fall collections consisting 
of a broad variety of styles of men's and women's fashion golf apparel. The 
Company was incorporated in Colorado in January 1991.  Its principal 
executive offices are located at 4600 East 48th Avenue, Denver, Colorado 
80216, and its telephone number is (303) 320-8800.

PRODUCTS AND PRODUCT DESIGN

    The Company's golf apparel consists of a men's line, a women's line, the 
Elements line and a headwear line, all four of which are marketed under the 
distinctive Haley label.  The Company introduces spring and fall collections 
of its golf apparel in January and September of each year at the two major 
industry trade shows.  The spring collection typically accounts for between 
60% and 70% of sales, with the fall collection accounting for the remaining 
sales.  As the Company's sales have increased, the Company has expanded the 
number of items available in each of the men's and women's lines, offering a 
more extensive selection of styles, colors and fabrics.  Each of the men's 
and women's lines currently has between 100 and 170 pieces of apparel, 
including shirts, pullovers, vests, shorts, sweaters, jackets and pants.

    The Company introduced the "Elements line," a collection of outerwear for 
both men and women, in January 1996.  The Elements line currently consists of 
over 25 pieces of apparel sold separately or in sets, and includes rain 
suits, casual jackets, windshirts, vests and pants.  The Company also 
introduced a headwear line in the fall of 1996.  This line consists of high 
quality fabric headwear, currently including caps and visors, designed in 
popular styles and a range of colors, typically embroidered with the Company 
logo or a customer logo.

    The Company's golf apparel is sold in the premium and mid-price market. 
Apparel designed for premium pricing features larger sizing, higher quality 
materials and more detailed designs.  The following table sets forth 
information regarding suggested retail price ranges for various apparel items.

                       SUGGESTED RETAIL                       SUGGESTED RETAIL
     MEN'S APPAREL       PRICE RANGE      WOMEN'S APPAREL       PRICE RANGE
     -------------     ----------------   ---------------     ----------------

    Shirts              $  45 - $  65        Tops              $  40 - $  65 
    Shorts              $  50 - $  60        Shorts            $  50 - $  65 
    Pants               $  60 - $  90        Pants             $  55 - $  90 
    Pullovers/Vests     $  50 - $ 100        Jackets           $  85 - $ 125 
    Outerwear           $  50 - $ 380        Sweaters          $  72 - $  90 
    Headwear            $   9 - $  18        Outerwear         $  50 - $ 225 
                                             Headwear          $   9 - $  18 

    The Company's golf apparel is designed in the classic style with 
contemporary influences intended to develop and maintain brand recognition 
and loyalty.  Each product in a line of apparel is sold separately, although 
the Company's designers use coordinated styles, color schemes and fabrics to 
encourage purchase of multiple garments and headwear.  The Company's products 
use a variety of fabrics and weave patterns, including interlock, pique, 
french terry and twill.  Each 

                                      -2-
<PAGE>

garment features combed cotton, unique trims, special fabric finishes and 
extra needlework.  A portion of the Elements outerwear line uses 
Gore-tex-Registered Trademark- products, including Gore 
Windstopper-Registered Trademark- fabric, non-exclusive rights to which were 
licensed by the Company.

    The design function within the Company is closely attuned to both sales 
and production operations.  The design process for each collection is an 
ongoing process of coloring, styling, manufacturing of sample products and 
the selection of sewing techniques.  The Company relies on in-house designers 
as well as outside contract designers in the development of its apparel 
collections.  The Company's design staff is responsible for coordinating 
pattern and sample making, negotiating price and quantity with cutting and 
sewing contractors, purchasing fabric and trim, and coordinating production 
schedules with the Company's production personnel.  The design staff also 
coordinates inspection of fabric supplies, as well as sample testing of 
fabric for shrinkage and colorfastness.

    A majority of the men's apparel, and a smaller percentage of women's 
apparel, is custom embroidered with a customer's club or resort logo or the 
Company's Haley logo.  In addition, the Company custom embroiders shirts and 
other garments for tournaments, promotional events, collegiate sales and 
corporate sales and gifts.  Custom embroidery is performed on the Company's 
premises using ten computer-controlled embroidering machines which together 
can embroider over 2,700 custom logos in two 8-hour shifts.  The Company 
currently has a library of over 3,000 custom logos.  Embroidery charges are 
added to the customer's wholesale cost and therefore represent an additional 
source of revenue to the Company.

SALES AND MARKETING

    The Company's marketing strategy is to enhance its position as a leading 
provider of fashion golf apparel by capitalizing on the market awareness of 
the Haley brand name and expanding distribution of existing and proposed 
apparel lines.  The Company intends to implement this strategy by (i) 
increasing distribution through expansion of its network of independent sales 
representatives and adding to its golf professional shop customer base, (ii) 
extending its product lines to include new items of apparel, such as it has 
done with the Elements outerwear line and the headwear line, (iii) securing 
and exploiting distribution arrangements for international sales, (iv) 
diversifying product lines by developing new styles and designs which are 
natural variations on its existing apparel designs, and (iv) increasing 
market penetration in the corporate, university, college tournament and 
retail markets.

    In the fiscal year ended June 30, 1997 ("fiscal 1997"), approximately 80% 
of the Company's sales were made to golf course professional shops, country 
clubs and resorts.  No single customer accounted for 5% or more of the 
Company's net sales.  The balance of the Company's sales were made to 
corporate, tournament, collegiate and retail customers.

    The Company's sales and marketing employees are responsible for 
implementing marketing plans and sales programs, coordinating with the 
Company's network of independent sales representatives, customer service and 
participating in the Company's attendance at industry trade shows.  Domestic 
sales are made primarily through a network of independent sales 
representatives who sell to the Company's customers on a commission basis.  
These sales representatives market the Company's fashion golf apparel 
primarily to golf professional shops, country clubs and resorts.  At June 30, 
1997, there were approximately 35 independent sales representatives through 
which the Company sells its apparel.  The independent sales representatives, 
many of whom may also carry other golf-related lines, are responsible for 
serving targeted accounts in a specific geographic territory.  In January 
1997, the Company entered into a buying program agreement with VGM Golf, 
which has over 800 golf professional shop members who can purchase directly 
from the Company under the agreement.  The Company also maintains exclusive 
distributors in Canada, the Caribbean and portions of Southeast Asia, and has 
nonexclusive distributors in the United Kingdom, Portugal, Singapore, 
Ireland, Western Europe and Japan.

    The sales efforts of the independent sales representatives and 
distributors are supported by the Company's customer service personnel and 
detailed catalogs for each collection which present pricing, sizing and style 
options.  The Company recently installed VRLink, a private electronic network 
which enhances the representatives' order processing speed and accuracy.  
Using notebook computers, the representatives can access current inventory 
information and create and transmit orders.  The system also provides 
management with key sales data.

    In July 1997, the Company terminated its relationship with CMS Sports, 
Inc., which had agreed in July 1996 to sell the Company's apparel products to 
the college, university and corporate markets.  The Company expects to 
implement a new strategy to more effectively address these markets during the 
first half of fiscal 1998.  During fiscal 1997, the Company 

                                      -3-
<PAGE>

secured an exclusive license agreement with General Motors Corporation 
(Cadillac Division), obtained approval as a Major League Baseball licensee 
and entered into its first license agreement with the Cleveland Indians.  The 
Company has also entered into license agreements with various colleges and 
universities.

    The Company introduces its apparel collections at the two major golf 
industry trade shows held in January and September of each year in Orlando, 
Florida, and Las Vegas, Nevada, respectively.  Because many golf shop 
professionals attend one or both of these trade shows, the Company will 
usually receive a significant number of customer orders at or immediately 
after each trade show.  The Company uses attendance at trade shows to obtain 
orders, secure feedback concerning popular apparel designs and styles and to 
prepare more detailed sales forecasts.

    In order to enhance the visibility of the Haley brand, the Company has 
endorsement agreements with several PGA and LPGA professionals.  The Company 
also has an agreement with a Canadian Tour professional, which exemplifies 
the Company's commitment to the international markets.  The endorsement 
agreements generally provide that the professionals will endorse and wear the 
Company's apparel.  The compensation received by the endorsing professionals 
consists of apparel allowances and may include cash and/or stock options.  
Issuance of stock options is based upon the professionals achieving certain 
benchmarks at designated PGA Tour or other major tournaments.

    The Company advertises its apparel in several golf industry publications 
which are targeted to golf professional shop operators.  The Company also 
targets its advertising expenditures to support the sales efforts of its 
network of independent sales representatives in their territories.  The 
Company anticipates increasing its advertising expenditures in future periods 
as the Company seeks to continue to increase its market penetration, although 
such expenditures are expected to decline as a percentage of net sales. 
International distributors provide and pay for advertising in their 
respective geographic territories.

    The Company leases a factory outlet store in Laughlin, Nevada, which 
opened in June 1996.  The factory outlet store, which consists of 
approximately 2,200 square feet, is used to sell close-out inventory and 
discontinued styles.  The factory outlet store sells the Company's apparel at 
discounted retail prices, as opposed to discounted wholesale prices, enabling 
the Company to maximize sales revenue attributable to close-out inventory.

    The Company does not sell its apparel on consignment or accept returns of 
purchased apparel other than apparel which is damaged or which is delivered 
after the specified delivery date.  The Company's returns and allowances were 
approximately 3% of net sales in both fiscal 1996 and fiscal 1997.

COMPETITION

    Competition in the golf apparel market is intense and is based primarily 
on brand recognition and loyalty, quality, price, style and design, 
availability of shelf space and service.  Although the Company believes that 
it competes favorably with respect to certain of these factors, there can be 
no assurance that the Company will compete successfully with its present or 
potential competition.  The Company currently views Ashworth, Izod and 
Polo/Ralph Lauren as its most significant competitors.  While the golf 
apparel market is highly fragmented, recent entries into the market by 
competitors offering apparel comparable to that of the Company may intensify 
competitive pressures.  Many of the Company's current competitors have longer 
operating histories, better name recognition and greater financial, marketing 
and other resources than the Company.  There can be no assurance that the 
Company will be able to maintain market share as new competition develops, to 
increase its market share at the expense of its existing competition, or that 
the Company will not experience pricing pressures as a result of intensifying 
competition within the golf apparel market.

    In addition to competing with fashion golf apparel manufacturers, the 
Company also competes with manufacturers of high quality men's and women's 
sportswear and general leisure wear.  Many of these manufacturers have 
substantially greater experience, financial and marketing resources, 
manufacturing capacity, distribution and design capabilities than the 
Company. Increased competition in the fashion golf apparel market from these 
manufacturers or others could result in price reductions, reduced margins or 
loss of market share, all of which could have a material adverse effect on 
the Company's results of operations and financial condition.

                                      -4-
<PAGE>

RAW MATERIALS

    The Company purchases its fabric in bulk from various mills in the United 
States and from several foreign mills.  Substantially all of the Company's 
apparel is manufactured with 100% cotton fabrics, except certain women's 
apparel made of silk and rayon and certain garments in the Elements outerwear 
line which use the Gore Windstopper fabric.  During fiscal 1997, the Company 
purchased fabric from 15 different mills.  The Company's seven largest fabric 
suppliers accounted for approximately 68% of the Company's fabric 
expenditures in fiscal 1997.  The Company's raw materials also include trim 
consisting principally of buttons, collars, bands, linings, labels and 
zippers and headwear components such as bills and adjustable bands.  The 
Company purchased trim from several suppliers during fiscal 1997, with the 
four largest suppliers accounting for approximately 80% of total trim 
expenditures.

    The Company utilizes domestic and foreign suppliers for the sourcing of 
raw material for, and production of, the Elements outerwear line.  Because 
each of these suppliers provides different portions of the Elements line, 
loss of one or more of these suppliers could potentially affect the Company's 
ability to make timely delivery of outerwear.  The Company believes there are 
a number of other apparel manufacturers from which the Company could secure 
its outerwear line, if necessary.

    The Company does not have any formal contractual arrangements for the 
purchase of raw materials from its suppliers, but issues purchase orders as 
raw materials are required.  Although the Company believes that fabric and 
trim are available from a large number of domestic and foreign sources, the 
inability of the Company to secure fabric or trim from existing suppliers 
during periods of high seasonal demand could result in delays in deliveries 
to customers, thereby adversely affecting the Company's profitability.

    The Company's production personnel oversee its raw material sourcing. 
Production personnel are responsible for on-time delivery of the Company's 
fashion golf apparel and negotiating costs consistent with the Company's 
desired profit margins on each style.  Production personnel inspect samples 
of each item prior to the commencement of actual production and consult with 
design personnel in order to ensure that the Company's high quality standards 
are maintained.

MANUFACTURING

    With the exception of embroidery operations and headwear assembly, all 
manufacturing activities are undertaken by independent third party 
contractors. Following the purchase of raw materials, the Company arranges 
for shipment of these materials directly to cutting and sewing contractors 
who are located primarily in the United States and its territories.  These 
contractors are responsible for cutting and sewing apparel to the Company's 
specifications. During fiscal 1997, the Company used nine cutting and sewing 
contractors, although approximately 75% of the Company's apparel was produced 
by five of these cutting and sewing contractors.  The Company has no 
contractual arrangements other than purchase orders with its cutting and 
sewing contractors and believes that these services may be purchased by the 
Company from a large number of domestic and foreign sources.

    The Company utilizes a management information system designed for the 
apparel industry which facilitates planning, production scheduling, product 
tracking and standard cost control.  The management information system 
provides a perpetual inventory record and provides customer service personnel 
with access to inventory availability.

    The Company receives its orders for the spring or fall collections over a 
period commencing when samples are first shown to customers and continuing 
through the season.  The Company must schedule production in advance of order 
placement, although it can respond to order trends over the period by 
sequencing production with reorders.  Because production of the Company's 
apparel collections is time-sensitive, the Company devotes considerable 
efforts to the preparation of forecasts of apparel sales by item and style.

    In addition to purchasing raw materials and contracting for 
manufacturing, the Company has expanded its purchasing of finished goods 
which are manufactured by outside suppliers to the Company's specifications.  
The Company assists outside suppliers in sourcing of raw materials for these 
finished products. This method of purchasing eliminates the Company's need to 
purchase fabric and trim.  In fiscal 1997, the Company estimates that between 
25% and 30% of the Company's apparel was purchased as finished goods.  
Because the Company has also adopted this method of purchasing for the 
Elements outerwear line, the Company anticipates that purchase of finished 
goods will account for an increasing percentage of apparel 

                                      -5-
<PAGE>

production in future periods.  The Company purchases headwear components and 
fabric inventory and assembles and sews all headwear at the Company's 
facility in Denver, Colorado.

    Finished apparel is shipped to the Company's warehouse facilities in 
Denver, Colorado, for embroidery, final inspection by the Company's quality 
assurance personnel, packaging and shipping.  The Company maintains ten 
computer-controlled embroidering machines on its premises which together can 
embroider a minimum of 2,700 custom logos in two 8-hour shifts.  One of the 
Company's 15-head embroidery machines is used primarily for headwear 
embroidery operations.  A majority of the Company's men's shirts are custom 
embroidered with a country club, resort or company logo, or with the 
Company's own Haley logo.  A lesser percentage of women's apparel is 
similarly embroidered.

NATURE OF BUSINESS

    Golf apparel sales tend to be seasonal in nature, with a disproportionate 
share of sales occurring in the first and second calendar quarters, which is 
the Company's third and fourth fiscal quarters, of each year.

TRADEMARK

    The Company markets its products under the Haley label.  The Company has 
registered the Haley mark and the distinctive "H" design with the United 
States Patent and Trademark Office.  The Company has also registered the 
Haley mark in a number of foreign countries.

EMPLOYEES

    At June 30, 1997, the Company had 112 full-time employees and 18 
part-time employees, including 19 administrative employees, nine marketing 
employees, 62 full-time and 10 part-time personnel in inspection, packaging, 
embroidering and distribution operations, three full-time and five part-time 
retail employees in the factory outlet store, and 20 full-time and two 
part-time employees in headwear operations.  The Company's employees are not 
represented by a union and the Company considers its relations with its 
employees to be good.

ITEM 2.   DESCRIPTION OF PROPERTY

    The Company's executive offices and warehouse facilities are located in 
Denver, Colorado and consist of 96,500 square feet of floor space.  The 
facility is currently leased for an annual base rent of approximately 
$194,000, which increases incrementally to $206,000 in 2001.  The Company is 
obligated to pay taxes, insurance and maintenance expenses for the leased 
space through expiration of the lease in October 2001.  The Company also has 
leased approximately 2,200 square feet of retail space for a factory outlet 
store being constructed in Laughlin, Nevada.  The annual base rental for this 
space is $44,000 during the first three years of the lease and $48,000 for 
the remaining four years.  The factory outlet store opened in June 1996.

ITEM 3.   LEGAL PROCEEDINGS

    At June 30, 1997, the Company was not a party to any material legal 
proceeding.  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 attorneys' fees.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    No matter was submitted during the fourth quarter of fiscal 1997 to a 
vote of security holders through the solicitation of proxies or otherwise.

                                      -6-
<PAGE>
                                       
                                   PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    The Company's Common Stock is quoted on The Nasdaq Stock 
Market-Registered Trademark- under the trading symbol SPOR and on the Pacific 
Stock Exchange under the symbol SHY.  From April 5, 1994 until December 14, 
1994, the Common Stock was quoted on the Nasdaq SmallCap Market-SM-.  Since 
December 14, 1994, the Common Stock has been quoted on the Nasdaq National 
Market.-Registered Trademark-  The following table sets forth the range of 
high and low sales prices, as reported by The Nasdaq Stock Market, from July 
1, 1994 through June 30, 1997.  The prices set forth below reflect 
interdealer quotations, without retail markups, markdowns or commissions, and 
may not represent actual transactions.

    FISCAL YEAR 1995                                  HIGH       LOW
    ----------------                                 -------   -------
     First Quarter                                   $ 7 5/8   $ 5 7/8
     Second Quarter                                    7 1/2     6 1/4
     Third Quarter                                     9         6 7/8
     Fourth Quarter                                    9 1/2     7 7/8

    FISCAL YEAR 1996
    ----------------
     First Quarter                                   $10 1/2   $ 8 7/8
     Second Quarter                                   10 5/8     8 7/8
     Third Quarter                                    12         9 5/8
     Fourth Quarter                                   16 7/8    11

    FISCAL YEAR 1997
    ----------------
     First Quarter                                   $16 1/8   $10 7/8
     Second Quarter                                   16 3/8    12 1/4
     Third Quarter                                    18 1/2    12 1/2
     Fourth Quarter                                   20 1/8    14 5/8

    On September 23, 1997 the closing trade price of the Common Stock was 
$14.625.  As of September 23, 1997, the number of record holders of the 
Company's Common Stock was approximately 105.

    Holders of Common Stock are entitled to receive such dividends as may be 
declared by the Company's Board of Directors.  No dividends on the Common 
Stock have been paid by the Company, nor does the Company anticipate that 
dividends will be paid in the foreseeable future.




                                      -7-
<PAGE>

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

    THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL 
STATEMENTS AND NOTES THERETO.

RESULTS OF OPERATIONS

    The following table sets forth, for the periods indicated, the percentage 
of net sales represented by items included in or derived from the Company's 
statements of income:

                                                     FISCAL YEAR ENDED JUNE 30,
                                                     --------------------------
                                                       1997     1996     1995
                                                      -----    -----    -----

    Net sales.......................................  100.0%   100.0%   100.0%
    Cost of goods sold..............................   58.2     57.8     59.4
                                                      -----    -----    -----
    Gross profit....................................   41.8     42.2     40.6
    Selling, general and administrative expenses....   24.1     24.6     26.7
                                                      -----    -----    -----
    Income from operations..........................   17.7     17.6     13.9
    Interest and other, net.........................    1.3      1.8      2.2
                                                      -----    -----    -----
    Income before provision for income taxes........   19.0     19.4     16.1
    Income taxes....................................    5.5      7.2      5.9
                                                      -----    -----    -----
    Net income......................................   13.5%    12.2%    10.2%
                                                      -----    -----    -----
                                                      -----    -----    -----

    COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996.  Net sales for 
the year ended June 30, 1997 ("fiscal 1997") were $28.9 million, an increase 
of $8.6 million, or approximately 42%, as compared to $20.3 million for the 
fiscal year ended June 30, 1996 ("fiscal 1996").  This increase was due to 
many of the same factors which have contributed to increases in the prior 
years, including a greater number of products offered within each line, 
greater market penetration, and higher sales per account.  Other factors 
which contributed to the increase during fiscal 1997 were a full year's sales 
of the Elements line, the introduction of the headwear line and the opening 
of the factory outlet store. The men's and women's line accounted for 
approximately 52% and 47%, respectively, of total net sales.  Men's line and 
women's line sales increased 52% and 31%, respectively, in fiscal 1997 over 
fiscal 1996.

    Gross profit increased by $3.5 million, or approximately 41%, from $8.6 
million in fiscal 1996 to $12.1 million in fiscal 1997.  The increase in 
gross profit was primarily a result of the same factors as in prior years, 
which were a combination of increased sales, volume purchasing of raw 
materials and better pricing from outside cutting and sewing contractors.  
The cost of goods sold as a percentage of net sales increased slightly due to 
an increase in certain design costs and due to changes in the product sales 
mix, as the various lines have different margins.

    Selling, general and administrative expenses for fiscal 1997 were $7.0 
million, an increase of $2.0 million, or approximately 40%, compared to $5.0 
million for fiscal 1996.  This increase was primarily attributable to payroll 
costs associated with the additional personnel required to handle increased 
sales volume, manufacturing of the headwear line and operation of the factory 
outlet store.  In addition, as in prior years, other factors contributing to 
the increase included commissions to independent sales representatives on 
higher sales levels and increased advertising and marketing expenditures.  
And finally, the Company incurred lease expense for the factory outlet store 
and a full years' increased costs for the additional space leased at the 
Company's facility for the new headwear line.  However, as a percentage of net 
sales, selling, general and administrative expenses decreased from 24.6% in 
fiscal 1996 to 24.1% in fiscal 1997.

    Net other income and expenses increased from $353,000 in fiscal 1996 to 
$389,000 in fiscal 1997, resulting primarily from an increase in interest 
earned on invested funds and an income tax refund, offset by expenditures to 
repurchase non-qualified stock options.

    Income before provision for income taxes increased $1.6 million, or 
approximately 41%, from $3.9 million in fiscal 1996 to $5.5 million in fiscal 
1997. Provision for income taxes increased $136,000 from $1.5 million in 
fiscal 1996 to $1.6 million in fiscal 1997.  Income taxes for both of these 
fiscal years were affected by certain income tax timing differences between 
book and taxable income.  The effective tax rate for fiscal 1996 was 37% and 
for fiscal 1997 was 29%.

                                      -8-
<PAGE>

    Net income increased from $2.5 million in fiscal 1996 to $3.9 million in 
fiscal 1997, an increase of 56%.  This increase can be attributed to the 
factors discussed above, but resulted primarily from increases in sales 
volume and the Company's control of cost of goods sold and operating 
expenditures.  This represents growth in net income as a percentage of net 
sales from 12.2% in fiscal 1996 to 13.5% in fiscal 1997.

    COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND 1995.  Net sales for 
fiscal 1996 were approximately $20.3 million, an increase of $7.7 million, or 
approximately 61%, as compared to approximately $12.6 million for the fiscal 
year ended June 30, 1995 ("fiscal 1995").  This increase was due to a 
combination of factors, including a greater number of products offered within 
each line, greater market penetration, and higher sales per account among a 
majority of accounts.  The men's and women's line each accounted for 
approximately 50% of total net sales.  Men's line and women's line sales 
increased 58% and 67%, respectively, in fiscal 1996 over fiscal 1995.

    Gross profit increased by $3.5 million, or 68%, from $5.1 million in 
fiscal 1995 to $8.6 million in fiscal 1996.  The decrease in cost of goods 
sold as a percentage of net sales and the increase in gross profit as a 
percentage of net sales was primarily a result of the combination of 
increased sales, volume purchasing of raw materials and greater economies in 
the utilization of outside contractors for manufacturing services.

    Selling, general and administrative expenses for fiscal 1996 were $5.0 
million, an increase of $1.7 million, or approximately 52%, compared to $3.3 
million for fiscal 1995.  This increase was primarily attributable to 
personnel additions necessary to handle increased sales volume, commissions 
to independent sales representatives on higher sales levels, increased 
advertising and marketing expenditures, and increased costs for the 
additional space leased at the Company's facility during fiscal 1996 for its 
new headwear division. However, as a percentage of net sales, selling, 
general and administrative expenses decreased from 26.7% in fiscal 1995 to 
24.6% in fiscal 1996.

    Net other income increased from $279,000 in fiscal 1995 to $353,000 in 
fiscal 1996, resulting primarily from increased interest on invested funds.

    Income before provision for income taxes increased $1.9 million, or 
approximately 95%, from $2.0 million in fiscal 1995 to $3.9 million in fiscal 
1996. Provision for income taxes increased $711,000 from $743,000 in fiscal 
1995 to $1.5 million in fiscal 1996.  Income taxes for both of these fiscal 
years were affected by certain tax timing differences between book and 
taxable income. The effective tax rate for each of the two years was 37%.

    Net income increased from $1.3 million in fiscal 1995 to $2.5 million in 
fiscal 1996, or 92%.  This increase can be attributed to increases in sales 
volume, and the Company's control of cost of goods sold and operating 
expenditures.  This represents growth in net income as a percentage of net 
sales from 10% in fiscal 1995 to 12% in fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES

    The Company has experienced significant growth since 1991, with its net 
sales increasing from $4.0 million in fiscal 1993 to $28.9 million in fiscal 
1997.  Historically, the Company has financed its operations through a 
combination of bank borrowings, related party borrowings, the private and 
public sale of equity and revenue from operations.

    Since April 1994, the Company has maintained an annually renewable 
revolving line of credit with the same bank.  The revolving line of credit 
agreement, which has been renewed through October 31, 1997, provides for 
interest at 1/2% below the bank's prime rate and grants the bank a lien on 
substantially all of the Company's assets.  At the time of its most recent 
renewal, the revolving line of credit provided for a maximum loan amount of 
$10.0 million.  The Company has never drawn on its revolving line of credit, 
but maintains such line of credit to facilitate the issuance of letters of 
credit for inventory purchases from offshore suppliers.

    In March and April, 1996 the Company completed a public offering of 
1,020,000 shares of its Common Stock, which included an over allotment of 
150,000 shares. The Common Stock was offered at $10.50 per share.  The 
Company realized gross proceeds of approximately $10.7 million and net 
proceeds of approximately $9.6 million after deducting stock offering costs 
of approximately $1.1 million.  The Company used a portion of the proceeds to 
fund expenditures related to its new headwear operations and has retained the 
balance of the proceeds to finance, as needed, growth in inventories, 
accounts receivable and other operating expenditures.

                                      -9-
<PAGE>

    Net cash provided by operating activities totalled approximately $1,000 
for fiscal 1997 as compared to net cash used by operating activities of $1.2 
million in fiscal 1996.  As anticipated, the primary components of cash used 
in operating activities was inventories and accounts receivable.  Working 
capital requirements are expected to grow as the Company expands its 
inventory and seeks to increase sales through additional marketing activities 
and extension of its product lines.  Working capital was $26.3 million at 
June 30, 1997, compared to $21.4 million and $10.8 million at the end of 
fiscal 1996 and 1995, respectively.  As of June 30, 1997, the Company had 
cash and cash equivalents of $10.3 million.

    The Company intends to rely on cash generated from operations and cash 
from 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.

INVESTMENT BANKING RELATIONSHIPS

    In May 1997, the Company engaged Dain Bosworth Incorporated and Donaldson 
Lufkin Jenrette Securities Corporation to assist the Company in exploring 
strategic alternatives for increasing shareholder value.  The Company is 
continuing to work with its investment bankers for such purposes.

ITEM 7.   FINANCIAL STATEMENTS
                                       
                                     INDEX

                                                                       PAGE
                                                                       ----

    Report of Independent Certified Public Accountants                  11

    Balance Sheets                                                      12

    Statements of Income                                                13

    Statement of Shareholders' Equity                                   14

    Statements of Cash Flows                                            15

    Notes to Financial Statements                                     16-27


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

    None.



                                     -10-
<PAGE>

              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Shareholders
Sport-Haley, Inc.
Denver, Colorado

We have audited the accompanying balance sheets of Sport-Haley, Inc.  as of 
June 30, 1997 and 1996 and the related statements of income, shareholders' 
equity, and cash flows for the years then ended.  These financial statements 
are the responsibility of the Company's management. Our responsibility is to 
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audits to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits of the financial 
statements provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the financial position of Sport-Haley, Inc. as of 
June 30, 1997 and 1996, and the results of its operations and its cash flows 
for the years then ended, in conformity with generally accepted accounting 
principles.

/s/   LEVINE, HUGHES & MITHUEN, INC.

ENGLEWOOD, COLORADO
AUGUST 19, 1997



                                     -11-
<PAGE>

                                  SPORT-HALEY, INC.
                                    BALANCE SHEETS
                                JUNE 30, 1997 AND 1996

                                        ASSETS

<TABLE>
                                                                   1997           1996
                                                               -----------    -----------
<S>                                                            <C>            <C>
CURRENT ASSETS:
   Cash and cash equivalents. . . . . . . . . . . . . . . .    $10,273,466    $ 8,647,736
   Short-term investments and marketable securities . . . .      1,319,470      2,749,474
   Accounts receivable, net of allowance of $71,157
         and $90,243, respectively  . . . . . . . . . . . .      5,756,451      4,549,201
   Inventories  . . . . . . . . . . . . . . . . . . . . . .      9,981,521      7,716,388
   Prepaid expenses . . . . . . . . . . . . . . . . . . . .      1,060,522      1,062,071
   Deferred taxes . . . . . . . . . . . . . . . . . . . . .         54,551         35,195
                                                               -----------    -----------

        TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . .     28,445,981     24,760,065

PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . .      2,408,904      1,700,016
LONG-TERM INVESTMENTS . . . . . . . . . . . . . . . . . . .              -      1,273,932
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . .         67,262         31,645
                                                               -----------    -----------
                                                               $30,922,147    $27,765,658
                                                               -----------    -----------
                                                               -----------    -----------

                              LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Capital lease obligations maturing within one year . . .     $    1,801    $     1,581
   Accounts payable . . . . . . . . . . . . . . . . . . . .      1,319,155      2,141,455
   Accrued income taxes . . . . . . . . . . . . . . . . . .              -        464,483
   Accrued commissions and other expenses . . . . . . . . .        874,505        725,051
                                                               -----------    -----------
        TOTAL CURRENT LIABILITIES . . . . . . . . . . . . .      2,195,461      3,332,570
                                                               -----------    -----------

LONG-TERM LIABILITIES:
   Capital lease obligation, net of current maturities. . .            874          2,454
   Deferred rent  . . . . . . . . . . . . . . . . . . . . .            912          4,560
   Deferred taxes . . . . . . . . . . . . . . . . . . . . .         18,880         60,676
                                                               -----------    -----------
                                                                    20,666         67,690
                                                               -----------    -----------

                                                                 2,216,127      3,400,260
                                                               -----------    -----------

COMMITMENTS AND CONTINGENCIES  (Notes 10, 13, 14 and 15)

SHAREHOLDERS' EQUITY:
   Preferred stock, no par value; authorized 1,500,000
        shares; none issued and outstanding . . . . . . . .              -              -
   Common stock, no par value; 15,000,000 shares
        authorized; 4,651,073 and 4,419,271 shares
        issued and outstanding, respectively. . . . . . . .     20,439,509     20,166,106
   Additional paid-in capital . . . . . . . . . . . . . . .        285,676         62,661
   Retained earnings. . . . . . . . . . . . . . . . . . . .      8,186,858      4,276,904
   Unrealized loss on marketable securities . . . . . . . .       (206,023)      (140,273)
                                                               -----------    -----------

        TOTAL SHAREHOLDERS' EQUITY. . . . . . . . . . . . .     28,706,020     24,365,398
                                                               -----------    -----------

                                                               $30,922,147    $27,765,658
                                                               -----------    -----------
                                                               -----------    -----------
</TABLE>

                       See accountants' audit report
                      and notes to fiancial statements.

                                     -12-
<PAGE>

                                  SPORT-HALEY, INC.
                                 STATEMENTS OF INCOME
                      FOR THE YEARS ENDED JUNE 30, 1997 AND 1996

                                                   1997              1996
                                                -----------       -----------
NET SALES                                       $28,900,350       $20,287,277

COST OF GOODS SOLD                               16,820,275        11,719,115
                                                -----------       -----------

GROSS PROFIT                                     12,080,075         8,568,162

Selling, general and administrative expenses      6,969,656         4,995,382
                                                -----------       -----------

INCOME FROM OPERATIONS                            5,110,419         3,572,780
                                                -----------       -----------

OTHER INCOME AND EXPENSE:
   Interest income, net                             410,611           296,225
   Other  income                                    338,846            56,337
   Other expense                                   (360,174)                -
                                                -----------       -----------
                                                    389,283           352,562
                                                -----------       -----------

INCOME BEFORE PROVISION FOR INCOME TAXES          5,499,702         3,925,342

Provision for income taxes                        1,589,748         1,453,507
                                                -----------       -----------

NET INCOME                                      $ 3,909,954       $ 2,471,835
                                                -----------       -----------
                                                -----------       -----------

EARNINGS PER SHARE                              $       .84       $       .66
                                                -----------       -----------
                                                -----------       -----------

WEIGHTED AVERAGE SHARES OUTSTANDING               4,658,796         3,769,859
                                                -----------       -----------
                                                -----------       -----------

                       See accountants' audit report
                     and notes to financial statements.

                                     -13-
<PAGE>
                                       
                              SPORT-HALEY, INC.
                     STATEMENT OF SHAREHOLDERS' EQUITY
                  FOR THE YEARS ENDED JUNE 30, 1997 AND 1996

<TABLE>

                                           COMMON STOCK         ADDITIONAL                   UNREALIZED                    
                                     ------------------------    PAID-IN     RETAINED   LOSS ON MARKETABLE    SHAREHOLDERS'
                                       SHARES       AMOUNT       CAPITAL     EARNINGS       SECURITIES           EQUITY    
                                     ---------    -----------   ----------   --------   ------------------    -------------
<S>                                  <C>          <C>           <C>         <C>         <C>                   <C>
BALANCE AT JUNE 30, 1995             3,118,188    $10,062,354    $ 75,161   $1,805,069       $       -        $11,942,584 

Issuance of common stock for cash    1,020,000     10,710,000           -            -               -         10,710,000 

Common stock offering costs                  -     (1,113,450)          -            -               -         (1,113,450)

Stock options exercised                313,793        872,886           -            -               -            872,886 

Repurchase of stock options                  -              -     (12,500)           -               -            (12,500)

Repurchase of common stock             (32,710)      (365,684)          -            -               -           (365,684)

Unrealized loss on securities
   available for sale                        -              -           -            -        (140,273)          (140,273)

Net income                                   -              -           -    2,471,835               -          2,471,835 
                                     ---------    -----------    --------   ----------       ---------        ----------- 

BALANCE AT JUNE 30, 1996             4,419,271     20,166,106      62,661    4,276,904        (140,273)        24,365,398 
 
Stock options exercised                319,905      1,657,967           -            -               -          1,657,967 

Warrants exercised                      39,187        240,865           -            -               -            240,865 

Repurchase of common stock            (127,290)    (1,625,429)          -            -               -         (1,625,429)

Stock option compensation                    -              -     223,015            -               -            223,015 

Unrealized loss on securities
   available for sale                        -              -           -            -         (65,750)           (65,750)

Net income                                   -              -           -    3,909,954                          3,909,954 
                                     ---------    -----------    --------   ----------       ---------        ----------- 

BALANCE AT JUNE 30, 1997
                                     4,651,073    $20,439,509    $285,676   $8,186,858       $(206,023)       $28,706,020 
                                     ---------    -----------    --------   ----------       ---------        ----------- 
                                     ---------    -----------    --------   ----------       ---------        ----------- 
</TABLE>

                          See accountants' audit report
                        and notes to financial statements.

                                     -14-
<PAGE>
                                  SPORT-HALEY, INC.
                               STATEMENTS OF CASH FLOWS
                      FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
                                                                      1997           1996
                                                                   -----------    -----------
<S>                                                                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                     $ 3,909,954    $ 2,471,835
    Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depreciation and amortization                                 449,862        324,543
         Deferred taxes, and other                                     (64,800)         2,592
         Allowance for doubtful accounts                               (19,086)        24,718
         Loss on disposal of assets                                          -          7,207
         Amortization of investment premiums                           126,747         23,442
         Stock option compensation                                     223,015              -

    Cash provided (used) due to changes in assets and liabilities:
         Accounts receivable                                        (1,188,164)    (1,391,976)
         Inventory                                                  (2,265,133)    (3,342,387)
         Prepaid expenses                                                1,549       (403,207)
         Other assets                                                  (35,617)       (16,505)
         Accounts payable                                             (822,300)       752,299
         Accrued commissions and other expenses                        149,454        391,714
         Accrued income taxes                                         (464,483)       (23,836)
                                                                   -----------    -----------
              Net cash provided (used) by operating activities             998     (1,179,561)
                                                                   -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of fixed assets                                        (1,158,750)      (833,881)
    Purchase of short-term investments and marketable securities                   (4,187,120)
    Sale of short-term investments and marketable securities         2,511,439              -
                                                                   -----------    -----------
              Net cash provided (used) by investing activities       1,352,689     (5,021,001)
                                                                   -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Principal payments on capital lease obligations                     (1,360)        (1,014)
    Proceeds from issuance of common stock                                   -     10,710,000
    Proceeds from exercised stock options and warrants               1,898,832        872,886
    Common stock offering costs                                              -     (1,113,450)
    Repurchase of common stock                                      (1,625,429)      (365,684)
    Repurchase of stock options                                              -        (12,500)
                                                                   -----------    -----------
              Net cash provided by financing activities                272,043     10,090,238
                                                                   -----------    -----------

    Net increase in cash and cash equivalents                        1,625,730      3,889,676

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                         8,647,736      4,758,060
                                                                   -----------    -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                             $10,273,466    $ 8,647,736
                                                                   -----------    -----------
                                                                   -----------    -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash paid during the year for:
         Interest                                                  $     7,594    $     4,997
                                                                   -----------    -----------
                                                                   -----------    -----------

         Taxes                                                     $ 2,130,562    $ 2,361,208
                                                                   -----------    -----------
                                                                   -----------    -----------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

    At June 30, 1997 the Company has unrealized holding losses on marketable
securities of $206,023.

                       See accountants' audit report
                     and notes to financial statements.

                                     -15- 
<PAGE>
                                       
                              SPORT-HALEY, INC.
                       NOTES TO FINANCIAL STATEMENTS

NOTE 1   ORGANIZATION AND NATURE OF OPERATIONS

         NATURE OF OPERATIONS:

         Sport-Haley designs, markets, and contracts for the manufacture of 
         quality men's and women's fashion golf apparel under the 
         distinctive Haley-Registered Trademark- label.  The Company's 
         fashion golf apparel is known for its innovative styling, high 
         quality fabrics, generous fit and classic appearance.  The 
         Company's apparel is sold in the premium and mid-price market 
         through a network of independent sales representatives and 
         distributors to primarily golf professional shops, country clubs 
         and resorts throughout the United States and internationally. The 
         Company also sells to college, university and corporate markets.

         ORGANIZATION:

         The predecessor of Sport-Haley, Inc. was initially established as a 
         division of Haley & Company, Inc.  The Company was organized as a 
         Colorado corporation on January 1, 1991 as Sun Daze Apparel, Inc. 
         (the Company's name was later changed to Sun Daze by Nancy Haley, 
         Inc.), a wholly owned subsidiary of Haley & Company, Inc. Effective 
         June 30, 1992, the Company ceased being a wholly owned subsidiary 
         of Haley and Company, Inc. as a result of a transaction that was 
         structured as a tax free spin-off.  On September 18, 1992, the 
         Company changed its name from Sun Daze by Nancy Haley, Inc. to 
         Sport-Haley, Inc.

NOTE 2   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         INVENTORIES:

         Inventories are stated at the lower of cost (first-in, first-out)
         or market.  The Company maintains a perpetual inventory system and 
         adjusts inventories annually based upon the results of its physical
         inventory taken at its fiscal year end.  Cost includes materials, 
         labor and manufacturing overhead.

         BAD DEBTS:

         Bad debts are provided for using the allowance method based on 
         historical experience and evaluation of outstanding accounts
         receivable at year end.

         DEPRECIATION AND AMORTIZATION:

         Furniture, fixtures and equipment are depreciated over the estimated 
         useful lives of the assets ranging from three to twelve years using 
         the straight-line method of depreciation. Depreciation and 
         amortization expense at June 30, 1997 and 1996 was $449,862 and 
         $324,543, respectively.

         Leasehold improvements are amortized over the remaining life of the 
         lease, using the straight-line method.

         Upon disposing of assets, the related cost and accumulated 
         depreciation are removed from the books and the resulting gain or loss
         is recognized in the year of the disposition.

                                     -16-
<PAGE>

                              SPORT-HALEY, INC.
                        NOTES TO FINANCIAL STATEMENTS

NOTE 2   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         LONG-LIVED ASSETS:

         The Company periodically evaluates whether the remaining useful life 
         of long-lived assets may require revision or the remaining 
         unamortized balance may not be recoverable.  Accordingly, when 
         factors indicate the asset should be evaluated for possible 
         impairment, the Company uses an estimate of the specific asset's 
         cash flow in evaluating such asset's fair value.

         REVENUE RECOGNITION:

         The Company recognizes revenue upon shipment of its products.

         DEFERRED RENT:

         Deferred rent is recognized for the difference between rent expense 
         which the Company records applying the straight-line method over the 
         life of the lease and the monthly payments called for in the lease 
         agreement.

         DEFERRED TAXES:

         Deferred income taxes are recognized for the tax consequences in 
         future years of differences between the tax base of assets and 
         liabilities and their financial reporting amounts at each year end, 
         based on enacted tax laws and statutory tax rates applicable to the 
         periods in which the differences are expected to affect taxable 
         income. Valuation allowances are established when necessary to 
         reduce deferred tax assets to the amount expected to be realized. 
         Income tax expense is the tax payable for the period and the change 
         during the period in deferred tax assets and liabilities.

         INCOME PER COMMON AND EQUIVALENT SHARE:

         Income per common share amounts are computed based upon the weighted 
         average number of shares outstanding during the year, including 
         common stock equivalents resulting from dilutive stock options and 
         warrants.

         STATEMENT OF CASH FLOWS:

         For purposes of the statement of cash flows, the Company considers 
         all highly liquid instruments purchased with a maturity of three 
         months or less that are readily convertible to known amounts of cash 
         and present an insignificant risk of change in value because of 
         changes in interest rate to be cash equivalents.

         RECLASSIFICATIONS:

         Certain reclassifications have been made to the 1996 amounts to 
         conform to the current year presentation.

         FINANCIAL INSTRUMENTS:

         The Company periodically maintains cash balances at a commercial 
         bank in excess of the Federal Deposit Insurance Corporation 
         insurance limit of $100,000.

                                     -17-
<PAGE>

                              SPORT-HALEY, INC.
                        NOTES TO FINANCIAL STATEMENTS

NOTE 3   FAIR VALUE OF FINANCIAL INSTRUMENTS

         The estimated fair value of the Company's financial instruments
         are as follows:

<TABLE>
                                                 1997                       1996
                                      -------------------------   -----------------------
                                        CARRYING       FAIR        CARRYING      FAIR
                                         AMOUNT        VALUE        AMOUNT       VALUE
                                      -----------   -----------   ----------   ----------
         <S>                          <C>           <C>           <C>          <C>
         Cash and cash equivalents    $10,273,466   $10,273,466   $8,647,736   $8,647,736

         Short-term investments
          and marketable securities     1,319,470     1,319,470    2,749,474    2,749,474

         Long-term investments                  -             -    1,273,932    1,273,932
</TABLE>

         The carrying amount approximates fair value of cash and cash 
         equivalents in short-term investments and marketable securities.

         The carrying value of all other financial instruments potentially 
         subject to valuation risk (principally consisting of accounts 
         receivable and accounts payable) also approximate fair value.

NOTE 4   CASH AND CASH EQUIVALENTS

         Cash and cash equivalents consist of the following:

                                                JUNE 30,
                                       -------------------------
                                           1997          1996 
                                       -----------   -----------
              Cash in banks            $ 2,039,832   $ 1,465,495
              Short-term securities      8,233,634     7,182,241
                                       -----------   -----------
                                       $10,273,466   $ 8,647,736
                                       -----------   -----------
                                       -----------   -----------

NOTE 5   USE OF ESTIMATES

         The preparation of financial statements in conformity with generally 
         accepted accounting principles requires management to make estimates 
         and assumptions that affect certain reported amounts and 
         disclosures. Accordingly, actual results could differ from those 
         estimates.

NOTE 6   INVESTMENTS AND MARKETABLE SECURITIES

         The Company's investment in debt securities are generally held to 
         maturity and valued at amortized cost, which approximates fair 
         value.  The fair value at June 30, 1997 was $1,291,420 for 
         investments in debt securities.

         The Company's investments in marketable equity securities are held 
         for an indefinite period and are classified as available for sale.  
         The fair value of these securities at June 30, 1997, was $28,050.  
         The unrealized holding losses associated with these securities, 
         which were deducted from shareholders' equity, was $206,023 at June 
         30, 1997.

                                     -18-
<PAGE>

                              SPORT-HALEY, INC.
                        NOTES TO FINANCIAL STATEMENTS

NOTE 7   INVENTORIES

         Inventories consist of the following:
                                                 JUNE 30,
                                       ---------------------------
                                          1997             1996
                                       ----------       ----------
              Component inventory      $4,751,026       $3,053,848
              Finished goods            5,230,495        4,662,540
                                       ----------       ----------
                                       $9,981,521       $7,716,388
                                       ----------       ----------
                                       ----------       ----------

NOTE 8   ADVERTISING

         The Company expenses the production costs of advertising the first 
         time the advertising takes place, except for direct-response 
         advertising, which is capitalized and amortized over its expected 
         period of future benefits.

         Direct-response advertising consists primarily of future advertising 
         costs incurred in association with the Company's independent sales 
         representatives.  These capitalized costs are amortized over the 
         future selling seasons, generally five to seven months, the period 
         in which the revenue is recognized.  At June 30, 1997 and 1996, 
         approximately $260,670 and $431,991 of advertising was capitalized.  
         Advertising expense was $457,542 and $544,099 for the years ended 
         June 30, 1997 and 1996, respectively.

NOTE 9   PROPERTY AND EQUIPMENT

         Property and equipment are recorded at cost and are comprised of the
         following at:

                                                           JUNE 30,
                                                  -------------------------
                                                     1997           1996
                                                  ----------     ----------

              Plant equipment                     $1,797,670     $  914,304
              Furniture and equipment                985,696        999,311
              Leasehold improvements                 393,028        331,134
              Transportation equipment                66,627         49,940
              Property held under capital lease        6,685          6,685
                                                  ----------     ----------
                                                   3,249,706      2,301,374
              Less, accumulated depreciation
                 and amortization                    840,802        601,358
                                                  ----------     ----------
                                                  $2,408,904     $1,700,016
                                                  ----------     ----------
                                                  ----------     ----------

NOTE 10  LINE OF CREDIT AGREEMENT

         The Company has a $10,000,000 working line of credit agreement with 
         a bank which expires October 31, 1997.  The line of credit agreement 
         is collateralized by accounts receivable, inventories, machinery and 
         equipment and general intangibles.  The interest rate on borrowings 
         is at one half percent below the banks prime rate (rate on note is 
         8.0% at June 30, 1997) with interest payable monthly.  At June 30, 
         1997 and 1996 there were no borrowings outstanding on the line of 
         credit.



                                     -19-
<PAGE>

                                  SPORT-HALEY, INC.
                            NOTES TO FINANCIAL STATEMENTS

NOTE 11  INCOME TAXES

    The components of income tax expense are as follows:

                                                     JUNE 30,
                                             -------------------------
                                                  1997         1996
                                             -----------   -----------
         Current
              Federal                        $ 1,423,300   $ 1,253,119
              State                              227,600       193,906
                                             -----------   -----------
                                               1,650,900     1,447,025
                                             -----------   -----------
         Deferred
              Federal                            (53,312)        5,651
              State                               (7,840)          831
                                             -----------   -----------
                                                 (61,152)        6,482
                                             -----------   -----------
              Total                          $ 1,589,748   $ 1,453,507
                                             -----------   -----------
                                             -----------   -----------

    The difference between the U.S. Federal statutory rate and the Company's
    effective rate is as follows:
                                                              JUNE 30,
                                                           --------------
                                                           1997      1996
                                                           ----      ----
              U.S. Federal statutory rate                  34.0%     34.0%
              State income taxes, net of federal benefits   4.1       4.9
              Increase (decrease) in deferred taxes         (.1)       .1
              Other                                        (9.1)     (2.0)
                                                           ----      ----
              Effective tax rate                           28.9%     37.0%
                                                           ----      ----
                                                           ----      ----


    The components of the net deferred tax asset and net deferred tax liability
    recognized in the accompanying balance sheets are as follows:

                                                  JUNE 30,
                                  ------------------------------------------
                                         1997                   1996
                                  --------------------   -------------------
                                  CURRENT    LONG-TERM   CURRENT   LONG-TERM
                                  -------   ----------   -------   ---------
         Deferred tax liability   $         $ (100,981)  $     -   $ (60,676)
         Deferred tax asset        54,551       82,101    35,195          -
                                  -------   ---------    -------   ---------
                                  $54,551   $ (18,880)   $35,195   $ (60,676)
                                  -------   ---------    -------   ---------
                                  -------   ---------    -------   ---------

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

<TABLE>
                                                               JUNE 30,
                              ----------------------------------------------------------------------- 
                                             1997                                   1996
                              ----------------------------------     --------------------------------  
                                               TAX EFFECT                             TAX EFFECT
                              TEMPORARY     --------------------     TEMPORARY    -------------------  
                              DIFFERENCE    CURRENT    LONG-TERM     DIFFERENCE   CURRENT   LONG-TERM
                              ----------    -------    ---------     ----------   -------   ---------- 
    <S>                       <C>           <C>        <C>           <C>          <C>       <C>
    Allowance for doubtful
      accounts                $  71,157    $  27,751    $       -    $  90,243    $35,195   $       -
    Accumulated depreciation    258,925                  (100,981)     155,580          -     (60,676)
    Stock options               210,515                    82,101
    Loss on stock                68,718       26,800
                                           ---------    ---------                 -------   ---------
                                           $  54,551    $ (18,880)                $35,195   $ (60,676)
                                           ---------    ---------                 -------   ---------
                                           ---------    ---------                 -------   ---------
</TABLE>


                                    -20-

<PAGE>

                                  SPORT-HALEY, INC.
                            NOTES TO FINANCIAL STATEMENTS

NOTE 12  EQUIPMENT UNDER CAPITAL LEASE

         The Company acquired certain equipment under a capital lease.  The 
         future minimum lease payments as of June 30, 1997 are as follows:

                                                                   ANNUAL
                YEARS ENDED JUNE 30,                              PAYMENTS
                --------------------                              --------
                     1998                                         $  2,214
                     1999                                              923
                                                                  -------- 
                     Total minimum lease payments                    3,137
                     Less amount representing interest                 462
                                                                  -------- 
                     Present value of future net minimum lease
                       payments                                      2,675
                     Less current portion                            1,801
                                                                  -------- 
                                                                  $    874
                                                                  -------- 
                                                                  -------- 


NOTE 13  OPERATING LEASES

         The Company leases its corporate offices, production and warehouse
         facilities under an operating lease which expires in fiscal year 2001.
         During January 1996, the Company amended this facilities lease 
         agreement to provide for additional space, located within the Company's
         premises, which consists of 15,860 square feet.  The Company acquired
         the additional space for its headwear division and commenced operations
         in October 1996.  The lease term and expiration of the additional 
         space will run concurrent with the original lease dated July 29, 1994.
         During October 1994, the Company subleased its former facilities in 
         Lakewood, Colorado.  The sublease is for the period January 1, 1995 to
         September 30, 1997.  Additionally, during fiscal year 1994, the Company
         entered into a non-cancelable operating lease for freight systems and
         folding equipment.

         During March 1995, the Company entered into a lease for a factory 
         outlet store located in Laughlin, Nevada.  The leased facility 
         consists of approximately 2,200 square feet and is leased for a term 
         of seven years, with an option to extend the lease for an additional
         five year period following the initial term.  The store opened in 
         June 1996.  The lease provides for a base rental of $44,000 per year 
         in the first three years of the lease and $48,000 per year in the last
         four years of the lease.

         Rent expense for the years ended June 30, 1997 and 1996 was $289,909 
         and $232,558, respectively.

         The future minimum lease payments under noncancelable leases with 
         initial terms of one year or more as of June 30, 1997 are as follows:

                                                          ANNUAL    
                   YEARS ENDED JUNE 30,                  PAYMENTS   
                   --------------------                ------------ 
                        1998                           $    261,191 
                        1999                                245,738 
                        2000                                290,325 
                        2001                                254,650 
                        Thereafter                          165,550 
                                                       ------------ 
                                                       $  1,217,454 
                                                       ------------ 
                                                       ------------ 



                                    -21-

<PAGE>

                                   SPORT-HALEY, INC
                            NOTES TO FINANCIAL STATEMENTS

NOTE 14  COMMITMENTS

         EMPLOYMENT AGREEMENT:

         Effective January, 1997 the Company, with the approval of its 
         Compensation Committee, entered into an Employment Agreement (the
         "Agreement") with Robert G. Tomlinson ("Tomlinson") and Robert W. 
         Haley ("Mr. Haley") who currently serve as the Company's Chief 
         Executive Officer and President, respectively.  Pursuant to the 
         terms of the Agreements, Messrs. Tomlinson and Haley will continue 
         to serve in their respective positions through December 31, 1999.  
         Annual bonuses, if any, will be determined by the Company's Board 
         of Directors.

         CONSULTING AGREEMENT:

         During May 1996, the Company entered into a consulting agreement (the
         "Agreement") with Nancy Haley ("Ms. Haley") who formerly served as an
         officer and director of the Company.  The Agreement provided for 
         certain consulting services to be rendered in the areas of product
         design, advertising and public relations.  The Agreement commenced 
         June 1, 1996 with annual compensation of $90,000 per year for three 
         years, payable in equal monthly installments of $7,500.  The Agreement
         could be terminated by Ms. Haley at any time after the first ninety 
         (90) days of the Agreement by giving written notice at least ten (10) 
         days prior to the date of termination.  The Agreement provided for 
         certain covenants by Ms. Haley during the term of the Agreement which
         included among other things, a covenant not to compete.  On April 2, 
         1997, Ms. Haley gave her notice to terminate the Agreement.  Total 
         fees paid at June 30, 1997 and 1996 were $70,500 and $7,500, 
         respectively.

         AGREEMENT FOR PROFESSIONAL SERVICES:

         During May 1996, the Company entered into an agreement for professional
         services (the "Agreement") with CLS & Associates, Inc. ("CLS").  
         Pursuant to the terms of the Agreement, CLS  provided certain 
         engineering and consulting services related to the startup of the 
         Company's headwear division.  The Agreement provides for a term of 
         125 working days commencing on or about June 1, 1996, for a total fee 
         of $93,750.  Total fees and reimbursed expenses paid at June 30, 1997 
         and 1996 were $108,952 and $7,880, respectively.

         ENDORSEMENT AGREEMENTS WITH PGA PROFESSIONALS:

         The Company has endorsement agreements with certain PGA professionals.
         Under the terms of these agreements, the Company is obligated to pay 
         cash compensation, provide apparel and issue stock options to purchase
         shares of the Company's common stock.  The future aggregate annual 
         compensation under these agreements are listed in the table below.

                                   ANNUAL  
                        YEAR      PAYMENTS 
                        ----      -------- 
                        1998      $ 12,500 

         The number of options granted to purchase shares of the Company's 
         common stock will be issued based upon the professional's performance
         in certain listed PGA events.  Vesting will occur at time of 
         performance.  The stock options are granted at the market value of 
         the Company's common stock at the date of the agreements.  During 
         the fiscal year ended June 30, 1997, the Company issued 68,000 stock
         option shares pursuant to endorsement agreements.


                                    -22-

<PAGE>

                                  SPORT-HALEY, INC.
                            NOTES TO FINANCIAL STATEMENTS

NOTE 14  COMMITMENTS (CONTINUED)

         OUTSTANDING LETTERS OF CREDIT:

         The Company has entered into a letter of credit arrangement with a 
         bank, in the ordinary course of business, to facilitate the purchase 
         of inventory and fabric from various offshore suppliers.  At June 30,
         1997 the Company has approximately $492,000 of outstanding letters of
         credit.

NOTE 15  SHAREHOLDERS' EQUITY

         COMPLETION OF PUBLIC OFFERING:

         In March and April, 1996 the Company completed its second public 
         offering of 1,020,000 shares of its common stock, which included an 
         over allotment of 150,000 common shares. The common stock was offered
         at $10.50 per share.  The Company realized gross proceeds of 
         approximately $10.710 million and net proceeds of approximately 
         $9.597 million after deducting stock offering costs of approximately 
         $1.113 million.

         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.  The repurchase of the Company's common stock
         is based upon the Board of Director's belief that the Company's common 
         stock is underpriced given its earnings and prospect 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 canceled and returned to 
         the status of authorized but unissued 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 to 300,000 
         shares.  As of June 30, 1997 and 1996 the Company repurchased 127,290 
         shares and 32,710 shares of its common stock at a cost of approximately
         $1.625 million and $365,684, respectively.

         COMMON STOCK OPTIONS:

         During March 1993, the Company, adopted a Stock Option Plan (the 
         "Plan").  The Plan, as originally adopted, provided for the reservation
         of 750,000 shares of the Company's common stock.  During January 1995,
         the shareholders approved a Plan Amendment to provide for an increase 
         in the number of shares reserved for issuance under the Plan by 200,000
         shares, effectively increasing the total shares reserved under the Plan
         to 950,000 shares.  Under the Plan, the Company may grant options to 
         purchase common stock to employees, directors and consultants of the 
         Company and any subsidiary thereof.  Generally, the options vest over
         three years, are granted at fair value on the date of grant, and expire
         ten years from that date.  Generally, the options are non-transferrable
         and cannot be exercised for a period of six (6) months from the date 
         granted.

         During January 1995, the Company filed a registration statement on Form
         S-8 with the Securities and Exchange Commission.  The purpose of this 
         filing was to register up to 950,000 shares of the Company's common 
         stock being reserved for issuance under the Company's 1993 stock option
         plan, as restated.  The Plan, as restated, is administered by the 
         Compensation Committee, and, at its discretion, determines which 
         parties are to be granted options, number of options granted and 
         exercise periods. The purchase price of the shares covered by the Plan
         will be the fair market value of the stock at the date of the grant.

                                     -23- 
<PAGE>

                                  SPORT-HALEY, INC.
                            NOTES TO FINANCIAL STATEMENTS

NOTE 15  SHAREHOLDERS' EQUITY (CONTINUED)

    During March 1995, the Board of Directors approved a restatement of the
    Company's 1993 Plan.  The purpose of the restatement of the Plan was to
    provide clarification regarding the terms, conditions and administration of
    the Plan.

    During May 1996, the Company's Board of Directors authorized the Company to
    prepare and issue a "net issuance" offer to purchase the interests of non-
    employee holders of the Company's non-qualified stock options.  The Company
    offered to pay the difference between the exercise price of the non-
    qualified stock option and the fair market value of the Company's common
    stock on the date the option holder accepted the offer.  As of June 30,
    1997, the Company had repurchased 30,909 options for approximately
    $360,000.  On April 1, 1997, the Company's Board of Directors voted to
    terminate the "net issuance" offer.  Accordingly, the Company will no
    longer accept tendered offers to purchase non-qualified stock options from
    option holders.

    During February 1997, the shareholders of the Company voted to amend and
    restate the Plan to increase the number of shares available under the Plans
    from 950,000 to 1,200,000 and to simplify administration of the Plan in
    accordance with revisions to Section 16 of the Securities Exchange Act of
    1934, as amended.

    During April 1997, the Company filed a registration statement on Form S-8
    with the Securities and Exchange Commission.  The purpose of this filing
    was to register 250,000 shares of the Company's common stock being reserved
    for issuance under the Company's 1993 stock option plan as amended and
    restated.  This Plan is the same employee benefit plan for which the Form
    S-8 registration statement, registering 950,000 shares, as previously filed
    during January 1995, is effective.

    At June 30, 1997, the Company had 1,200,000 shares of common stock reserved
    for issuance pursuant to the Plan, of which 110,878 options (181,094 at
    June 30, 1996) were exercisable.  During fiscal year 1997 and 1996 option
    holders exercised and purchased 319,905 and 313,793 shares of the Company's
    common stock and the Company realized gross proceeds of approximately
    $1.657 million and $872,886, respectively.

    The following activity under the Company's 1993 Amended and Restated Stock
    Option Plan is set forth below:

<TABLE>
                                                Outstanding Options
                                ----------------------------------------------------------
                                                             Aggregate    Weighted Average
                                Number of       Range         Exercise     Exercise Price
                                 Options      Per Share         Price        Per Share
                                ---------    ------------    -----------  ----------------
<S>                             <C>          <C>             <C>          <C>
    BALANCES, JUNE 30, 1995       447,331    $1.60 - 6.50    $ 1,160,158      $ 2.59
    Options granted               296,505     2.50 -12.75      2,044,598        6.90
    Options canceled               (5,103)    2.50 - 2.50        (12,758)      (2.50)
    Options repurchased            (1,000)    2.50 - 2.50         (2,500)      (2.50)
    Options exercised            (313,793)    1.60 - 6.50       (940,592)      (3.00)
                                ---------    ------------    -----------      ------

    BALANCES, JUNE 30, 1996       423,940     1.60 -12.75      2,248,906        5.30
    Options granted               309,319     5.00 -14.25      3,224,627       10.42
    Options canceled              (15,892)    5.00 - 7.75       (104,913)      (6.56)
    Options repurchased           (29,909)    2.50 - 7.75       (100,420)      (3.36)
    Options exercised            (319,905)    1.60 -12.12     (1,589,081)      (4.97)
                                ---------    ------------    -----------      ------

    BALANCES, JUNE 30, 1997       367,553    $1.60 -14.25    $ 3,679,119      $10.01
                                ---------    ------------    -----------      ------
                                ---------    ------------    -----------      ------
</TABLE>

    The weighted average fair value of options granted during fiscal 1997 and
    1996 was $10.42 and $6.90 per share respectively.

                                     -24-
<PAGE>

                                  SPORT-HALEY, INC.
                            NOTES TO FINANCIAL STATEMENTS

NOTE 15  SHAREHOLDERS' EQUITY (CONTINUED)

    The Company has adopted the provisions of Statement of Financial Accounting
    Standards No. 123 (SFAS 123), Accounting for Stock Based Compensation
    effective for fiscal year 1997 for all issuances of stock options to non-
    employees of the Company.  The Company will continue to apply APB Opinion
    No. 25 (Opinion 25), Accounting for Stock Issued to Employees for all
    issuances of stock options to its employees.  Generally, all stock options
    issued to the Company's employees, pursuant to the Plan, are not
    compensatory.  No compensation cost has been recognized for fiscal 1996
    under the Plan.  Had compensation cost for the Plan been determined based
    upon the fair value at the grant date for options granted in fiscal 1997
    and 1996 consistent with the provisions of SFAS 123, the Company's net 
    income and net income per share for fiscal 1997 and 1996 would have been 
    reduced to the pro forma amounts indicated below:

                                               1997           1996
                                            ----------      ----------
    Net income - as reported                $3,909,954      $2,471,835
    Net income - pro forma                  $3,611,462      $2,460,156
    Earnings per share - as reported        $      .84      $      .66
    Earnings per share - pro forma          $      .78      $      .65

    The fair value of each option grant under the Plan is estimated on the date
    of grant using the Black-Scholes option-pricing model with the following
    assumptions:

         Risk-free interest                 5.5% - 6.0%
         Expected life                      3 years
         Expected volatility                32% - 35%
         Expected dividend                  $0

    The expected life was determined based on the Plan's vesting period and
    exercise behavior of the employees.

    The following table summarizes the stock options outstanding at June 30,
    1997:

<TABLE>
                                    Options Outstanding                     Options Exercisable
                      -----------------------------------------------   ---------------------------
                                   Weighted Average      Weighted                       Weighted
    Range of             Number       Remaining           Average         Number        Average 
    Exercise Prices   Outstanding  Contractual Life    Exercise Price   Exercisable  Exercise Price
    ---------------   -----------  ----------------    --------------   -----------  --------------
<S>                   <C>          <C>                 <C>              <C>          <C>
    $         2.50       33,593           6                $ 2.50          33,593        $ 2.50
      5.875 - 6.50       78,630           7                  6.47          55,000          6.50
       7.75 - 9.25       55,330           8                  8.02          13,953          8.29
     12.125 -14.25      200,000         9.5                 13.21          13,332         12.52
                        -------                                           ------- 
                        367,553                                           115,878 
                        -------                                           ------- 
                        -------                                           ------- 
</TABLE>

NOTE 16  UNDERWRITER'S WARRANTS

    The Company, in connection with its initial public offering, sold to the
    underwriter for a nominal amount, warrants to purchase up to 70,000 shares
    of the Company's common stock at $6.50 per share.  The underwriter's
    warrants are exercisable for a period of four years commencing one year
    from the date of the Prospectus (April 5, 1994).  The underwriter's
    warrants also contain antidilution provisions and certain demand and
    "piggyback" registration rights.  In December 1996, the holders of the
    underwriter's warrants utilized their demand registration rights and the
    Company filed a registration statement on Form S-3 to register the
    underlying shares.  Such registration statement became effective in January
    1997.  During the fiscal year ended June 30, 1997, the Company realized
    gross proceeds of $240,865 from the exercise of 39,187 warrants.

                                     -25-
<PAGE>

                                  SPORT-HALEY, INC.
                            NOTES TO FINANCIAL STATEMENTS

NOTE 17  INVESTMENT BANKING AGREEMENT

    During July 1995, the Company entered into an Investment Banking Agreement
    (the "Agreement") with Cruttenden Roth Incorporated of Irvine, California
    ("Cruttenden").  The Agreement provided that Cruttenden would serve as the
    Company's exclusive financial advisor for 12 months.  The Company issued to
    Cruttenden "Advisor's Warrants" to purchase 20,000 shares of the Company's
    common stock upon execution of the Agreement.  The Advisor's Warrants are
    exercisable for a period of three years from the date of the Agreement.
    The exercise price of the Advisor's Warrants is $8.125 per share.  The
    Advisor's Warrants carrys piggyback registration rights and the underlying
    shares were registered on Form S-3 and became effective during January
    1997. As of June 30, 1997 no Warrants have been exercised.

NOTE 18  PREFERRED STOCK

    The Articles of Incorporation of the Company authorize issuance of a
    maximum of 1,500,000 shares of preferred stock.  The Articles of
    Incorporation vest the Board of Directors of the Company with authority to
    divide the class of preferred stock into series and to fix and determine
    the relative rights and preferences of the shares of any such series so
    established to the full extent permitted by the laws of the State of
    Colorado and the Articles of Incorporation.  As of June 30, 1997, the
    Company had no preferred stock issued or outstanding and had no plan to
    issue any preferred stock in the future.

NOTE 19  EARNINGS PER SHARE

    Primary and fully diluted earnings per share amounts are computed based on
    the weighted average number of shares actually outstanding plus the
    shares that would be outstanding assuming exercise of dilutive stock
    options and warrants.  The number of shares that would be issued from the
    exercise of stock options and warrants has been reduced by the number of
    shares that could have been purchased from the proceeds at the average
    market price of the Company's common stock.  The number of shares used in
    the computation of primary earnings per share were 4,658,796 and 3,769,859
    in 1997 and 1996 resulting in earnings per share of $.84 and $.66,
    respectively.  The number of shares used in the computation of fully
    diluted earnings per share were 4,627,879 and 3,787,257 in 1997 and 1996,
    resulting in earnings per share of $.84 and $.65 respectively.

NOTE 20  AGREEMENTS WITH SALES REPRESENTATIVES

    The Company has entered into Sales Representative Agreements (the
    "Agreements") with various individuals whereby, among other things, the
    Company has established an independent contractor relationship with its
    sales representatives. Pursuant to the terms of the Agreements the sales
    representatives' income from the Company is derived primarily from
    commissions paid by the Company from sales generated directly or indirectly
    by the sales representatives. The sales representatives are responsible for
    and assume all income tax liabilities on commissions and other payments
    received from the Company and further agree to hold the Company harmless,
    without liability and to indemnify the Company for any or all claims that
    may arise from the sales representative's actions or inactions. The
    Agreements provide no present or future guarantee of income. The sales
    representatives are paid a commission of up to 10% of the sales price of
    Company products, generated by the sales representatives and delivered to
    the customer. The Company reserves the right to amend the commission terms
    from time to time.  Total commissions expense for fiscal years 1997 and
    1996 was $2,289,494 and $1,682,384, respectively.

                                     -26-
<PAGE>

                                  SPORT-HALEY, INC.
                            NOTES TO FINANCIAL STATEMENTS

NOTE 21  CONCENTRATION OF CREDIT RISK

    The Company's operations consist of the design, manufacture and wholesale
    of golf apparel for men and women.  The Company's headquarters are located
    in Colorado and its customers are located throughout the United States
    and  abroad.  As of June 30, 1997 and 1996 the majority of the Company's
    receivables are from companies in the golfing industry.  No customer
    accounted for 10% or more of the Company's net revenues in fiscal year 1997
    and 1996.  Total receivables at June 30, 1997 and 1996 were $5,827,608 and
    $4,639,444 respectively.

NOTE 22  LITIGATION

    At June 30, 1997 no material legal proceedings are pending.

NOTE 23  RETIREMENT PLAN

    In January 1996, the Company adopted a defined contribution savings plan 
    (the "401(k) Plan") to provide retirement income to employees of the
    Company. The 401(k) Plan is intended to be qualified under Section 401(a)
    of the Internal Revenue Code of 1986, as amended.  The 401(k) Plan covers
    all employees who are at least age 18 and have been employed at least three
    months.  It is funded by voluntary pre-tax contributions from employees up
    to a maximum amount equal to 15% of annual compensation.  During 1997 and
    1996, the Company matched $.25 for each dollar contributed by employees, up
    to the first 5% of each employee's compensation contributed to the plan.
    Upon leaving the Company, each participant is 100% vested with respect to
    the participant's contributions and is vested based upon years of service
    with respect to the Company's matching contributions.  Contributions are
    invested as directed by the participant in investment funds available under
    the 401(k) Plan.  Full retirement benefits are payable to each participant
    in a single cash payment or an actuarial equivalent form of annuity on the
    first day of the month following the participant's retirement.  For the
    year ended June 30, 1997 and 1996 the Company contributed $13,257 and
    $4,457, respectively, to the 401(k) Plan on behalf of Company employees.
    The Company has no defined benefit pension plan nor any other post-
    retirement or post-employment benefit plan.

NOTE 24  SUBSEQUENT EVENT

    Effective July 1, 1997 the Company with the approval of its Board of
    Directors, entered into an Employment Agreement (the "Agreement") with
    Catherine B. Blair ("Blair").  Pursuant to the terms of the Agreement,
    Blair will serve as the Company's Vice-President of Merchandising and
    Design for two years through June 30, 1999.  Annual bonuses, if any, will
    be determined by the Company's Board of Directory.  The Agreement is
    subject to automatic one year extensions.

                                     -27-

<PAGE>
                                   PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

    NAME                     AGE    POSITION 
    ----                     ---    -------- 
    Robert G. Tomlinson(1)   56     Chairman of the Board
                                    and Chief Executive Officer

    Robert W. Haley          52     President and Director

    Steve S. Auger           52     Secretary, Treasurer and Controller

    Catherine B. Blair       46     Vice President - Merchandising/Design

    Mark J. Stevenson(1)(2)  59     Director

    Ronald J. Norick(2)      56     Director

    James H. Everest(1)(2)   49     Director

    ------------------------
    (1)  Member of the Audit Committee.
    (2)  Member of the Compensation Committee.


    Officers are appointed by and serve at the discretion of the Board of
Directors.  Each directors holds office until the next annual meeting of
shareholders or until a successor has been duly elected and qualified.  All of
the Company's officers devote full-time to the Company's business and affairs.

    ROBERT G. TOMLINSON has served as Chairman of the Board and Chief Executive
Officer of the Company since October 1992.  Mr. Tomlinson was a partner in
Tomlinson Enterprises, a real estate investment partnership, from 1972 through
1993.  From 1989 until he joined the Company, Mr. Tomlinson was also engaged in
management of his personal investment portfolio.

    ROBERT W. HALEY has served as President and a director of the Company since
May 30, 1996.  From January 1992 until his appointment to such positions, he
served as Vice President - Marketing of the Company.  From August 1991 to
January 1992, Mr. Haley served as the director of marketing for S.T.X. Golf
Company, Baltimore, Maryland, a men's and women's golf apparel manufacturer.
Mr. Haley is a Class A PGA professional golfer with 25 years experience in the
golf industry.

    STEVE S. AUGER served as Controller of the Company since July 1993.  In
January 1996, he was appointed Secretary and Treasurer.  From September 1989 to
January 1993, Mr. Auger served as the controller of Fiber Optic Technologies,
Inc., Englewood, Colorado, where he was responsible for financial and cost
accounting, budgeting and cash management.

    CATHERINE B. BLAIR has served as Vice President - Merchandising/Design
since her appointment in May 1996.  Ms. Blair has been part of the Company's
design team since 1992, and was appointed Director of Design in 1995.  From 1990
to 1991, she was a designer for Di Fini, Ltd., a golfwear company and prior to
such time, worked as a freelance designer for companies such as Macy's,
Bloomingdale's, Ann Taylor and The Gap.

                                     -28- 
<PAGE>

    MARK J. STEVENSON has been a director of the Company since November 1993.
Since June 1, 1994, Mr. Stevenson has served as chairman of the board, president
and chief executive officer of Electronic Manufacturing Systems, Longmont,
Colorado, a contract manufacturer serving the computer, data storage,
telecommunications and medical equipment industries.  From 1992 to 1994, Mr.
Stevenson served as chairman of the board of Micro Insurance Software, Inc.,
Boulder, Colorado, a manufacturer of computer software oriented to the insurance
industry.  From 1990 to 1992, he served as executive vice president and a
director of Solbourne Computer, Boulder, Colorado, a wholly-owned subsidiary of
Matsushita.  Mr. Stevenson was responsible for worldwide sales, marketing,
customer support and product management in this position.

    RONALD J. NORICK has been a director of the Company since November 1993.
Since 1987, Mr. Norick has served as the elected Mayor of the City of Oklahoma
City, Oklahoma.  His current term of office expires in April 1998.  From 1960 to
1992, Mr. Norick served in various capacities, including as president from 1981
to 1992, of Norick Brothers, Inc., a closely-held printing company which was
acquired by Reynolds & Reynolds in June 1992.  Mr. Norick serves on a number of
public boards and commissions, including the Mayor's Commission on Public
Education, the National League of Cities and the United States Conference of
Mayors.  Mr. Norick also serves as manager of Norick Investments Company LLC, a
family-owned limited liability company which is engaged in investments.

    JAMES H. EVEREST has been a director of the Company since November 1993.
Mr. Everest has served as president of the Jean I. Everest Foundation, Oklahoma
City, Oklahoma, since 1991.  The Jean I. Everest Foundation was organized to
conduct charitable activities by Mr. Everest's father.  Mr. Everest has been the
managing partner of Everest Brothers, a general partnership active in oil and
gas exploration and development, since 1984.  Mr. Everest has also been engaged
in managing his personal investments since 1984.  Mr. Everest is a member of the
Oklahoma Bar Association and the American Bar Association and serves in a number
of capacities for various civic and community organizations.

BOARD COMMITTEES

    The Board of Directors has delegated certain of its authority to a
Compensation Committee and an Audit Committee.  The Compensation Committee is
composed of Messrs. Stevenson, Norick and Everest.  The Audit Committee is
composed of Messrs. Tomlinson, Stevenson and Everest.  No member of either
committee is a former or current officer or employee of the Company with the
exception of Mr. Tomlinson.

    The Compensation Committee held two meetings in fiscal 1997.  The primary
function of the Compensation Committee is to review and make recommendations to
the Board with respect to the compensation, including bonuses, of the Company's
officers and to administer the Company's Stock Option Plan.

    The Audit Committee did not have any meetings in fiscal 1997.  The function
of the Audit Committee is to review and approve the scope of audit procedures
employed by the Company's independent auditors, to review and approve the audit
reports rendered by both the Company's independent auditors and to approve the
audit fee charged by the independent auditors.  The Audit Committee reports to
the Board of Directors with respect to such matters and recommends the selection
of independent auditors.

    In fiscal 1997, the Board of Directors held two meetings.  All directors
attended all board and committee meetings held during fiscal 1997.








                                     -29- 
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

    SUMMARY COMPENSATION TABLE.  The following table sets forth the annual and
long-term compensation for services in all capacities to the Company for the
three fiscal years ended June 30, 1997 of Robert G. Tomlinson, the Chief
Executive Officer, and Robert W. Haley, President, the only executive officers
of the Company whose total annual salary and bonus exceeded $100,000 during the
year ended June 30, 1997 (the "Named Officers").

<TABLE>

                                                                     LONG TERM        
                                                                 COMPENSATION AWARDS  
                                        ANNUAL COMPENSATION     --------------------- 
                              FISCAL   ---------------------    SECURITIES UNDERLYING       ALL OTHER    
NAME AND PRINCIPAL POSITION    YEAR     SALARY       BONUS         OPTIONS/SARS(#)       COMPENSATION(1) 
---------------------------   ------   ---------    --------    ---------------------    --------------- 
<S>                           <C>      <C>          <C>         <C>                      <C>             
Robert G. Tomlinson,           1997    $ 192,726    $ 45,000           30,000                 $796 
 Chairman of the Board and     1996      117,308      49,419              -0-                  796 
 Chief Executive Officer       1995       52,728      24,485           50,000                  -0- 

Robert W. Haley,               1997    $ 154,164    $ 36,000           30,000                 $664 
 President                     1996      112,115      98,026           18,750                  664 
                               1995       98,328      62,008           17,375                  -0- 
</TABLE>

-------------------
(1) Comprised of Company contributions to the Named Officer's 401(k) plan and
    $138 per year per each Named Officer for term life insurance premiums.


    OPTION GRANTS TABLE.  The following table sets forth information on grants
of stock options pursuant to the Company's 1993 Stock Option Plan, as amended,
during fiscal 1997 to the Named Officers.

<TABLE>
                        NUMBER OF SECURITIES        PERCENT OF TOTAL           EXERCISE OR                
                        UNDERLYING OPTIONS/     OPTIONS/SARS GRANTED TO         BASE PRICE     EXPIRATION 
       NAME                SARS GRANTED        EMPLOYEES IN FISCAL YEAR(1)     ($/SHARE)(2)       DATE    
-------------------     --------------------   ---------------------------     ------------    ---------- 
<S>                     <C>                    <C>                             <C>              <C>       
Robert G. Tomlinson            30,000                     31.6%                  $ 14.25        2/13/2007 
Robert W. Haley                30,000                     31.6%                  $ 14.25        2/13/2007 
</TABLE>

---------------
(1) Excludes options granted to the Company's independent sales representatives.
    The percentage of total options granted if such sales representatives were 
    included would be 19.2%.

(2) The exercise price is equal to the market price of the underlying security 
    on the date of grant.  One-third of such options vest annually on February
    14, commencing February 14, 1998, subject to earlier vesting under certain
    circumstances.


    FISCAL YEAR-END OPTIONS/OPTION VALUES TABLE.

<TABLE>
                                                     NUMBER OF SECURITIES UNDER-       VALUE OF UNEXERCISED IN-   
                                                      LYING UNEXERCISED OPTIONS/        THE-MONEY OPTIONS/SARS    
                          SHARES                       SARS AT FISCAL YEAR-END         AT FISCAL YEAR-END($)(2)   
                         ACQUIRED       VALUE        ----------------------------    ---------------------------- 
       NAME            ON EXERCISE    REALIZED(1)    EXERCISABLE    UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE 
-------------------    -----------    -----------    -----------    -------------    -----------    ------------- 
<S>                    <C>            <C>            <C>            <C>              <C>            <C>           
Robert G. Tomlinson       50,000       $443,750          -0-           30,000           -0-            $75,000    
Robert W. Haley           41,616       $500,189          -0-           30,000           -0-            $75,000    
</TABLE>

-------------------
(1) The dollar values are calculated by determining the difference between the
    exercise price of the options and the closing bid price for the Common
    Stock on the date of exercise.
(2) The dollar values are calculated by determining the difference between the
    exercise price of the options and the closing bid price for the Common
    Stock of $16.75 on June 30, 1997.

                                      -30- 
<PAGE>

    No employee of the Company receives any additional compensation for his
services as a director.  Non-management directors receive no salary for their
services as such, but receive a fee of $250 per meeting attended.  The Board of
Directors has also authorized payment of reasonable travel or other out-of-
pocket expenses incurred by non-management directors in attending meetings of
the Board of Directors.  During fiscal 1997, each of the directors who were not
employees of the Company received options to purchase 25,000 shares of Common
Stock at $12.125 per share.  One-third of such options vest on each February 14,
commencing February 14, 1998.

    EMPLOYMENT AGREEMENTS.  Effective January 1, 1997, the Company entered into
a new employment agreement with Mr. Tomlinson.  The agreement requires that he
devote his full business time to the Company as Chief Executive Officer and/or
Chairman of the Board at an annual salary of $200,000, an automobile and such
bonuses as awarded by the Board of Directors.  The employment agreement extends
for a three-year term.  Mr. Tomlinson has the option to convert the employment
agreement to a consulting agreement in the event of a change in control of the
Company or upon his resignation.  Subject to the right of the Company to
terminate the consulting agreement for cause, Mr. Tomlinson is entitled to serve
as a consultant to the Company for the duration of the agreement and to continue
to receive compensation in the amount of 60% of his annual salary.  If Mr.
Tomlinson terminates the agreement with "cause" (as defined in the agreement),
or the Company terminates the agreement for other than "cause" (as defined in
the agreement), or if there is a change in control of the Company or if Mr.
Tomlinson dies, Mr. Tomlinson or his estate, as applicable, is entitled to
receive severance compensation for three years from the date of termination in
an amount equal to his annual salary and bonus payments during the preceding 12
months.  During the time he is receiving such severance compensation, he is
entitled to participate in all employee benefit plans, at the Company's expense.
The change of control provisions and death benefits entitle Mr. Tomlinson or his
estate, as applicable, to receive such amount in a lump sum.  If Mr. Tomlinson
becomes totally disabled during the term of the agreement, his full salary will
be continued for one year from the date of disability.  If termination is for
any reason other than by the Company with cause, all options previously granted
shall become fully vested on the date of termination.  The agreement contains a
non-competition provision for one year following termination.

    Effective January 1, 1997, the Company entered into an employment agreement
with Mr. Haley.  The agreement requires that he devote his full business time to
the Company as President or Senior Executive Officer at an annual salary of
$160,000 and such bonuses as awarded by the Board of Directors.  The employment
agreement extends through December 31, 1998.  If the Company terminates the
agreement for other than "cause" (as defined in the agreement), Mr. Haley is
entitled to receive severance compensation for one year from the date of
termination in an amount equal to his annual salary and bonus payment during the
preceding 12 months.  If Mr. Haley terminates the agreement with or without
cause, Mr. Haley is entitled to receive severance compensation for one year in
an amount equal to 60% of his annual salary and bonus payment during the
preceding 12 months.  During the time he is receiving any such severance
compensation, he is eligible to participate in all employee benefit plans, at
the Company's expense.  If there is a non-negotiated change in control of the
Company or if Mr. Haley dies, Mr. Haley or his estate, as applicable, is
entitled to lump sum severance compensation equal to three times his annual
salary and bonus payment during the preceding 12 months.  If Mr. Haley becomes
disabled during the term of the agreement, his full salary will be continued for
one year from the date of disability.  If termination is for any reason other
than by the Company with cause, all options previously granted shall become
fully vested on the date of termination.  The agreement contains a non-
competition provision for one year following termination.

    In July 1997, the Company entered into an employment agreement with
Catherine B. Blair.  The agreement requires that Ms. Blair devote her full
business time to the Company as Vice President of Merchandising and Design at an
annual salary of $80,000 and such bonuses as awarded by the Board of Directors.
The employment agreement extends for a two-year term.  If the Company
terminates the agreement without cause or does not renew the agreement upon
expiration or if Ms. Blair terminates the agreement with or without cause (as
defined in the agreement), she is entitled to receive severance compensation
equal to six months' salary, plus 50% of her most recent annual bonus.  During
the time she is receiving any such severance compensation, she is entitled to
participate in all employee benefit plans, at the Company's expense.  If there
is a non-negotiated change in control of the Company, Ms. Blair is entitled to
lump sum severance compensation equal to three times her annual salary and bonus
payment during the preceding 12 months.  If Ms. Blair becomes disabled during
the term of the agreement, her full salary will be continued for one year from
the date of disability.  The agreement contains a non-competition provision for
one year following termination.

                                     -31-
<PAGE>

STOCK OPTION PLAN

    The Company adopted a stock option plan in 1993 (as amended, the "Option
Plan").  The Option Plan provides for the granting of incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), non-qualified stock options and
stock appreciation rights ("SARs"), up to a maximum number of 1,200,000 shares.
Non-qualified stock options may be granted to employees, directors and
consultants of the Company, while Incentive Stock Options may be granted only to
employees.  No options may be granted under the Option Plan subsequent to
February 28, 2003.

    The Option Plan is administered by the Compensation Committee of the Board
of Directors, which determines the terms and conditions of the options and SARs
granted under the Option Plan, including the exercise price, number of shares
subject to the option and the exercisability thereof.

    The exercise price of all Incentive Stock Options granted under the Option
Plan must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant.  In the case of an optionee who owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company, the exercise price of Incentive Stock Options
shall be not less than 110% of the fair market value of the Common Stock on the
date of grant.  The exercise price of all non-qualified stock options granted
under the Option Plan shall be determined by the Compensation Committee, but
shall not be less than 85% of the fair market value of the Common Stock.  The
term of all non-qualified stock options granted under the Option Plan may not
exceed ten years and the term of all incentive stock options may not exceed five
years.  The Option Plan may be amended or terminated by the Board of Directors.

    The Option Plan provides the Board of Directors or the Compensation
Committee the discretion to determine when options granted thereunder shall
become exercisable and the vesting period of such options.  Upon termination of
a participant's employment or consulting relationship with the Company, all
unvested options terminate and are no longer exercisable.  Vested options shall
remain exercisable for a specified period of time following the termination
date.  The length of such extended exercise period generally ranges from 30 days
to one year, depending on the nature and circumstances of the termination.

    The Option Plan provides that, in the event the Company enters into an
agreement providing for the merger of the Company into another corporation or
the sale of substantially all of the Company's assets, any outstanding
unexercised option shall become exercisable at any time prior to the effective
date of such agreement.  Upon the consummation of a merger or sale of assets,
such options shall terminate unless they are assumed or another option is
substituted therefor by the successor corporation.

    As of June 30, 1997, a total of 367,553 non-qualified and Incentive Stock
Options were outstanding, with exercise prices ranging from $2.50 to $14.25 per
share and a weighted average exercise price per share of $10.01.

401(k) PLAN

    In January 1996, the Company adopted a defined contribution savings plan
(the "401(k) Plan") to provide retirement income to employees of the Company.
The 401(k) Plan is intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended.  The 401(k) Plan covers all employees who are
at least age 18 and have been employed at least three months.  It is funded by
voluntary pre-tax contributions from employees up to a maximum amount equal to
15% of annual compensation and through matching contributions by the Company up
to 5% of the employee's annual compensation.  Upon leaving the Company, each
participant is 100% vested with respect to the participant's contributions and
is vested based on years of service with respect to the Company's matching
contributions.  Contributions are invested as directed by the participant in
investment funds available under the 401(k) Plan.  Full retirement benefits are
payable to each participant in a single cash payment or an actuarial equivalent
form of annuity on the first day of the month following the participant's
retirement.  Because the 401(k) Plan was not in effect prior to January 1996,
the Company incurred no administrative expense and made no contributions prior
to such time on behalf of employees of the Company.

                                     -32-
<PAGE>

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

    Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission, The Nasdaq Stock Market, Inc., the Pacific
Stock Exchange and the Company.  Specific due dates for these reports have been
established and the Company is required to disclose in this annual report on
Form 10-KSB any failure to file, or late filing, of such reports with respect to
the period ended June 30, 1996.  Based solely on the Company's review of Forms
3, 4 and 5 and amendments thereto furnished to the Company and all written
representations with respect to filing of such Forms, the Company is aware that
a Form 5 to report the grant of 7,500 options was filed by Mr. Steve Auger, the
Treasurer of the Company, one week late.




                                     -33-
<PAGE>

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth certain information regarding beneficial
ownership of Common Stock as of September 23, 1997 by (i) each person known by
the Company to own beneficially more than 5% of the outstanding Common Stock,
(ii) each director or nominee, and (iii) all executive officers and directors as
a group.  The information on the institutional investors' statements filed with
the Commission under Section 13(d) or 13(g) of the Exchange Act.  Each person
has sole voting and sole investment or dispositive power with respect to the
shares shown except as noted.

<TABLE>
                                                                SHAREHOLDINGS ON
                                                               SEPTEMBER 23, 1997
                                                             ----------------------
                                                             NUMBER OF   PERCENT OF
NAME AND ADDRESS (1)                                         SHARES (2)   CLASS(3)
--------------------                                         ----------  ---------
<S>                                                          <C>         <C>
Robert G. Tomlinson..........................................   38,000       *
Robert W. Haley..............................................   21,616       *
Steve S. Auger...............................................    5,000       *
Catherine Blair(4)...........................................    4,167       *
Mark J. Stevenson............................................    8,800       *
Ronald J. Norick(5)..........................................   61,500      1.32%
James H. Everest.............................................   25,000       *
Woodland Partners, LLC.......................................  871,400     18.66%
     60 South Sixth Street, Suite 3750
     Minneapolis, Minnesota 55402
First Bank System, Inc. .....................................  403,600     8.64%
     601 Second Avenue South
     Minneapolis, Minnesota 55402
Robertson, Stephens & Company Investment Management, L.P. ...  386,600     8.28%
     555 California Street, Suite 2600
     San Francisco, California 94104 
Delaware Management Holdings, Inc. ..........................  236,900     5.07%
     2005 Market Street
     Philadelphia, Pennsylvania 19103
All directors and officers as a group
(Seven persons)(6)...........................................  164,083     3.51%
</TABLE>

-------------
* Less than 1%
(1) Except as noted above, the address for all persons listed is 4600 E. 48th
    Avenue, Denver, Colorado 80216.
(2) Ownership includes both outstanding Common Stock and shares issuable upon
    exercise of options that are currently exercisable or will become
    exercisable within 60 days after the date hereof.
(3) All percentages are calculated based on the number of outstanding shares in
    addition to shares which a person or group has the right to acquire within
    60 days of September 26, 1997.
(4) Includes 1,667 shares subject to currently exercisable options.
(5) Includes 8,333 shares subject to currently exercisable options.
(6) Includes 10,000 shares of Common Stock subject to currently exercisable
    options.  Excludes shares of Common Stock as to which officers and
    directors disclaim beneficial ownership.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    The Company has adopted a policy pursuant to which material transactions
between the Company and its executive officers, directors and principal
shareholders (i.e. shareholders owning beneficially 5% or more of the
outstanding voting securities of the Company) shall be submitted to the Board of
Directors for approval by a disinterested majority of the directors voting with
respect to the transaction.  For this purpose, a transaction is deemed material
if such transaction, alone or together with a series of similar transactions
during the same fiscal year, involves an amount which exceeds $60,000.

                                     -34-

<PAGE>

ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

    (a)  EXHIBITS

    The following documents are filed herewith or have been included as
exhibits to previous filings with the Securities and Exchange Commission and are
incorporated herein by this reference:

EXHIBIT NO.   DOCUMENT
-----------   --------
@    3.1      Articles of Incorporation of the Company as filed on January 1,
              1991, and as amended on March 25, 1991, September 18, 1992 and
              September 2, 1993, with the Secretary of State of the State of
              Colorado.

@    3.1.2    Amended and Restated Articles of Incorporation of the Company as
              filed on March 7, 1994 with the Secretary of State of the State
              of Colorado.

-    3.2.3    Amended and Restated By-laws of the Company as adopted
              January 10, 1996.

@    4.1      Form of Specimen Certificate for Common Stock of the Company.

@    4.1.1    Form of Representative's Warrant issued by the Company to
              Schneider Securities, Inc.

!    4.1.2    Form of Advisor's Warrant issued to Cruttenden Roth Incorporated.

#   10.1.3    1993 Stock Option Plan, effective March 1993, as amended February
              14, 1997 authorizing 1,200,000 shares of Common Stock for
              issuance pursuant to the Plan.

**  10.2.1    Employment Agreement, dated January 1, 1997, by and between
              Robert G. Tomlinson and the Company.

+   10.2.2    Employment Agreement, dated July 12, 1995, by and between William
              J. McCabe and the Company.

+   10.2.3    Consulting Agreement, dated July 12, 1995, by and between M-Corp.
              and the Company.

**  10.2.4    Employment Agreement, dated July 1, 1997, by and between
              Catherine B. Blair and the Company.

**  10.2.5    Employment Agreement, dated January 1, 1997, by and between
              Robert W. Haley and the Company.

+   10.2.7    Endorsement Agreement, dated on or about December 1, 1994, by and
              between Neal Lancaster and the Company.

+   10.2.8    Endorsement Agreement, dated on or about November 29, 1994, by
              and between Hal Sutton and the Company.

!   10.2.9    Endorsement Agreement, dated on or about January 1, 1996, by and
              between Jim Rutledge and the Company.

**  10.2.10   Form of standard Endorsement Agreement by and between various
              golf professionals and the Company.

##  10.3.1    Business Loan Agreement, dated October 30, 1996, by and between
              Colorado National Bank and the Company.

++  10.4.1    Lease Agreement, dated July 29, 1994, by and among Thomas J.
              Hilb, individually, Thomas J. Hilb, as Trustee of the Connie Hilb
              Trust, and the Company.

-   10.4.2    Amendment to Lease Agreement, dated January 12, 1996, by and
              among Thomas J. Hilb, individually, Thomas J. Hilb, as Trustee of
              the Connie Hilb Trust, and the Company.

+   10.4.4    Laughlin Factory Outlet Store Lease, dated March 10, 1995,
              between Horizon Outlet Centers Limited Partnership and the
              Company.

                                     -35-
<PAGE>

@   10.5      Form of Independent Sales Representative Agreement.

+   10.7      Trademark Registrations, dated February 21, 1995, issued by the
              United States Patent and Trademark Office to the Company.

+   10.8      Agreement, dated July 13, 1995, by and between Rogue Golf Co.,
              Ltd. and the Company.

+++ 10.9      Agreement, dated October 5, 1995, by and between Mplus & Company,
              Yokohama, Japan, and the Company.

-   10.10     Trademark Licensing Agreement, dated October 14, 1995, by and
              between W.L. Gore & Associates, Inc. and the Company.

!   10.11     Distribution Agreement, dated February 22, 1996, by and between
              Transview Golf Pte Ltd. and the Company.

!   10.12     Amendment to Distribution Agreement, dated May 25, 1996, by and
              between Rogue Golf Co. Ltd. and the Company.

!   10.13     Distribution Agreement, dated May 7, 1996, by and between Silva
              Golf and the Company.

!   10.14     Consulting Agreement, dated May 29, 1996, by and between Nancy
              Haley and the Company.

**  10.15     Form of Distribution Agreement by and between the Company and
              Pacsports Phils, Inc., Pacsports, Ltd. and Bossports.

**  23.       Consent of Levine Hughes & Mithuen, Inc., independent certified
              public accountants for the Company.

**  27.       Financial Data Schedule.

*   Incorporated by reference from the Company's Registration Statement on Form
    SB-2 (S.E.C. File No. 333-1214).
@   Incorporated by reference from the Company's Registration Statement on
    Form SB-2 (S.E.C. File No. 33-74876-D).
+   Incorporated by reference from the Company's Form 10-KSB filed October 6,
    1995 (S.E.C. File No. 1-12888).
++  Incorporated by reference from the Company's Form 10-KSB filed
    September 14, 1994 (S.E.C. File No. 1-12888).
+++ Incorporated by reference from the Company's Form 10-QSB filed November 14,
    1995 (S.E.C. File No. 1-12888).
-   Incorporated by reference from the Company's Form 10-QSBA/1 filed
    February 2, 1996 (S.E.C. File No. 1-12888).
!   Incorporated by reference from the Company's Form 10-KSB filed on October
    11, 1996.
#   Incorporated by reference from the Company's Form 10-QSB filed on May 12,
    1997 (S.E.C. File No. 1-12888).
##  Incorporated by reference from the Company's Registration Statement on Form
    S-3 (S.E.C. File No. 333-18831).
**  Filed herewith.

    (b)  REPORTS ON FORM 8-K

    The Company did not file any reports on Form 8-K during the last quarter of
fiscal 1997.

                                     -36-
<PAGE>

                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                       SPORT-HALEY, INC.



September 26, 1997                     By:  /s/ ROBERT G. TOMLINSON
                                          ---------------------------------
                                          Robert G. Tomlinson, Chairman of
                                          the Board


    Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.

        SIGNATURE                     TITLE                       DATE
        ---------                     -----                       ----

/s/ ROBERT G. TOMLINSON      Chairman of the Board and      September 26, 1997
---------------------------  Chief Executive Officer
    Robert G. Tomlinson      (Principal Executive Officer)

/s/ ROBERT W. HALEY          President and Director         September 26, 1997
---------------------------
    Robert W. Haley

/s/ STEVE S. AUGER           Treasurer (Principal           September 26, 1997
---------------------------  Financial and Accounting
    Steve S. Auger           Officer)

/s/ MARK J. STEVENSON        Director                       September 26, 1997
---------------------------
    Mark J. Stevenson

/s/ RONALD J. NORICK         Director                       September 26, 1997
---------------------------
    Ronald J. Norick

/s/ JAMES H. EVEREST         Director                       September 26, 1997
---------------------------
    James H. Everest


                                     -37-