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FORM 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

(Mark One)

|ý                              |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------ |  | ----------------------------------------------------------------------------------------
|                               |  | For the fiscal year ended June 30, 2002                                                 
|OR                            
|o                              |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                               |  | For the transition period from  to                                                      
|Commission file number:1-12888

SPORT-HALEY, INC.(Exact Name of Registrant as Specified in Its Charter)

|Colorado(State or Other Jurisdiction of
Incorporation or Organization)         |  | 84-1111669(I.R.S. Employer
Identification Number)
|------------------------------------------------------------------------------ |  | -------------------------------------------------
|4600 East 48th Avenue
Denver, Colorado(Address of Principal Executive Offices) |  | 80216(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 None |  | Name of each exchange on which registered None
|------------------------ |  | ----------------------------------------------

Securities registered pursuant to section 12(g) of the Exchange Act:

Common Stock, no par value per share

Indicate by checkmark 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
ý        No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K. o

As
of September 13, 2002, the aggregate market value of the 2,730,985 shares of Common Stock (the Registrant's only common equity) held by non-affiliates was approximately $9.48 million based on the
closing sale price of the Registrant's Common Stock on the Nasdaq National Market(r) on such date. For purposes of the foregoing calculation only, each of the Registrant's officers and directors is
deemed to be an affiliate.

There
were 2,730,985 shares of the Registrant's Common Stock outstanding at the close of business on September 13, 2002.

DOCUMENTS
INCORPORATED BY REFERENCE:

None

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PART I

ITEM 1. BUSINESS

General

Sport-Haley designs, purchases, contracts for the manufacture of, markets and distributes men's and women's quality fashion golf apparel under the
HALEY® label and premium men's golf apparel under the Ben Hogan® label. HALEY® fashion golf apparel, known for its innovative design, quality fabrics, generous fit
and classic style, is marketed in the premium and mid-price markets through a network of independent sales representatives and distributors to golf professional shops at country clubs and resorts
throughout the United States and internationally. Appeal for the HALEY® brand name is enhanced because golf professional shops generally prefer to sell quality apparel that is not broadly
distributed in the retail market. Sport-Haley also markets HALEY® apparel to corporate, college, university and other markets. Sport-Haley continually seeks to expand its brand
recognition. Sport-Haley continually focuses its marketing efforts on expanding appeal for HALEY® apparel by improving the sourcing and fabrications of its garments in order to continue to
offer its customers high quality garments at competitive prices. Ben Hogan® apparel is marketed to elite golf professional shops, upscale resorts and exclusive department stores.
Sport-Haley offers custom embroidering of its apparel with each customer's personalized club, resort or corporate logo, thereby promoting the image of both Sport-Haley and its customers and enhancing
the marketability of its products. Sport-Haley was incorporated in Colorado in January 1991. The principal executive offices are located at 4600 East 48th Avenue, Denver, Colorado 80216, and the main
telephone number is (303) 320-8800.

Products and Product Design

During the fiscal year ended June 30, 2002, apparel marketed under the distinctive HALEY® label consisted of the following principal lines: men's,
women's, Elements (comprised of men's and women's outerwear) and corporate.

HALEY®
apparel is marketed in the premium and mid-price markets. Apparel designed for premium pricing features larger sizing, higher quality materials and more detailed
designs and fabrications. The fall collections for all of the HALEY® apparel lines are introduced at a major golf industry trade show, generally held in January of each year. Spring
collections typically account for approximately 60% of annual sales, with the fall collections accounting for the remaining sales.

Over
the years, Sport-Haley has expanded the number of items available in each of the HALEY® men's and women's apparel lines, offering more extensive selections of styles,
colors and fabrics. Each of the HALEY® men's and women's lines typically consist of between 150 and 200 pieces of apparel, including shirts, pullovers, vests, shorts, sweaters, jackets and
pants for each of the spring and fall selling seasons. The HALEY® Elements outerwear line typically consists of over 70 pieces of apparel such as rain suits, casual jackets, wind shirts,
vests and pants for each of the fall and spring selling seasons.

The
following table presents the suggested retail price ranges for various HALEY® apparel items:

|HALEY®
Men's Apparel |  | Suggested Retail
Price Range |  | HALEY®
Women's Apparel |  | Suggested Retail
Price Range
|-------------------- |  | ---------------------------- |  | ---------------------- |  | ----------------------------
|Shirts               |  | $29 - $  85                  |  | Tops                   |  | $48 - $  75                 
|Shorts               |  | $60 - $  75                  |  | Shorts                 |  | $60 - $  85                 
|Pants                |  | $80 - $150                   |  | Pants                  |  | $70 - $120                  
|Pullovers/Vests      |  | $50 - $120                   |  | Sweaters               |  | $50 - $140                  
|Elements Outerwear   |  | $45 - $200                   |  | Elements Outerwear     |  | $45 - $200                  

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HALEY®
apparel is designed utilizing classic styles with contemporary influences intended to develop and maintain brand recognition and loyalty. While each product in an
apparel line is sold separately, the apparel lines are designed in groups with coordinated styles, color schemes and fabrics to encourage customers to purchase multiple garments. HALEY®
apparel is manufactured using a variety of fabrics and weave patterns, including interlock, pique, French terry, jersey and twill, and may feature a unique trim, a special fabric finish or extra
needlework.

During
the fiscal year ended June 30, 2002, Sport-Haley began marketing and distributing Ben Hogan® apparel collections for the Fall 2002 selling season. The initial Ben
Hogan® apparel collections were introduced at a major golf industry trade show in January 2002. Ben Hogan® apparel will be marketed in both the fall and spring selling seasons,
common within the golf apparel industry. Sport-Haley has begun marketing Ben Hogan® men's apparel for the Spring 2003 selling season. The collections of Ben Hogan® men's
apparel are comprised of over 230 individual pieces of apparel such as tops, bottoms, wind wear, and outerwear for each selling season.

Ben
Hogan® apparel is marketed to elite golf professional shops, upscale resorts and exclusive department stores. Apparel designed for elite pricing features the finest
quality materials, exquisite designs and premium fabrications.

The
following table presents the suggested retail price ranges for various Ben Hogan® apparel items:

|Ben Hogan®
Men's Apparel |  | Suggested Retail
Price Range
|------------------------ |  | ----------------------------
|Shirts                   |  | $80 - $  95                 
|Shorts                   |  | $70 - $  75                 
|Pants                    |  | $95 - $125                  
|Pullovers/Vests          |  | $90 - $  95                 
|Outerwear                |  | $75 - $225                  

Ben
Hogan® apparel is designed utilizing elegant time-honored classic styles intended to garner nearly instantaneous brand recognition. While each product in an apparel line
is sold separately, apparel lines are designed in groups with coordinated styles, color schemes and fabrics to encourage customers to purchase multiple garments. Ben Hogan® apparel is
manufactured using a variety of fabrics, including wool, silk and cashmere, and weave patterns, including pique, jersey and twill, and most pieces feature a unique trim, a special fabric finish or
extra needlework.

Sport-Haley
closely coordinates the designing functions with sales and production operations. The designing functions for each collection of garments comprise a continual cycle of
selecting fabric and weave patterns, coloring, styling, and sewing techniques and includes supervising the production of prototype garments. Sport-Haley relies on in-house designers as well as outside
contract designers to develop its apparel collections. Sport-Haley's design staff is responsible for negotiating price and quantities with suppliers, arranging for pattern and sample manufacturing,
and coordinating finished goods delivery schedules with production personnel. The design staff also supervises the quality controls for inspection of fabric samples, as well as the testing of fabric
samples for shrinkage and colorfastness. Key persons within Sport-Haley's design and production staffs periodically visit international and domestic factories that produce HALEY® and Ben
Hogan® apparel in order to assure that quality expectation standards are met or exceeded.

HALEY®
and Ben Hogan® apparel may be embroidered with the respective logo on the right sleeve of each garment. A large percentage of HALEY® and Ben
Hogan® men's apparel, and a smaller percentage of HALEY® women's apparel, is also custom embroidered with each customer's personalized club or resort logo. HALEY®
shirts and other garments for tournaments, promotional events, and corporate sales are also usually custom embroidered with a sponsor or corporate logo.

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Custom embroidering charges represent an additional source of revenue. Sport-Haley performs custom embroidering operations at its distribution facility using ten computer-controlled embroidering
machines. The embroidering machines have the capacity for Sport-Haley to embroider up to approximately 4,000 garments per day. Sport-Haley maintains an electronic library of over 10,000 custom logos.

Sales and Marketing

Overview.Sport-Haley implements marketing strategies designed to enhance its position as a high-quality provider of fashion
golf apparel by capitalizing on the market awareness of the HALEY® and Ben Hogan® brand names to establish, maintain and improve distribution channels. Sport-Haley implements
these strategies by: (i) increasing distribution channels through its network of independent sales representatives in an effort to add new golf professional shops to its customer base and increase
purchases from existing customers; (ii) securing, utilizing and maintaining distributor arrangements for international sales; (iii) diversifying product lines by developing new styles and designs that
are natural variations on its existing apparel designs; and, (iv) intensifying marketing efforts in the premium, mid-priced and corporate markets.

In
the fiscal year ended June 30, 2002 ("fiscal 2002"), sales of HALEY® apparel to domestic and international golf course professional shops, country clubs and resorts
accounted for approximately 74% of Sport-Haley's net sales. Sales of HALEY® apparel to corporate, special event and retail customers accounted for approximately 17% of net sales and
approximately 3% was sold through retail outlet stores in Denver, Colorado and Laughlin, Nevada. No single customer accounted for 5% or more of net sales. The introduction of Ben Hogan®
apparel to elite golf professional shops, upscale resorts and exclusive department stores accounted for approximately 6% of Sport-Haley's net sales.

Golf Professional Shops, Country Clubs and Resorts.Domestic sales of HALEY® apparel are solicited primarily
through a network of approximately 30 independent sales representatives that sell HALEY® apparel, on a commission basis, mainly to golf professional shops at country clubs and resorts in
all of the 50 United States. The independent HALEY® sales representatives, many of whom may also carry other golf-related lines, are responsible for generating new business and serving
customers in specific geographic territories. Since January 1997, Sport-Haley has maintained buying programs with various entities whereby the participating golf professional shop operators may
purchase directly from Sport-Haley in accordance with specific promotional programs. The promotional programs accounted for less than 21% of sales in fiscal 2002. International sales are made through
distributors in the Caribbean Islands, Mexico, Japan, Chile, certain regions of Southeast Asia and the Philippines and to U.S. military bases overseas. Historically, the vast majority of Sport-Haley's
sales have been to United States customers. International sales represented less than 3% of net sales in fiscal 2002.

Domestic
sales of Ben Hogan® apparel are solicited primarily through a network of approximately 15 independent sales representatives that sell Ben Hogan® apparel,
on a commission basis, to elite golf
professional shops, upscale resorts and exclusive department stores in all of the 50 United States. The independent Ben Hogan® sales representatives, many of whom may also carry other
golf-related lines, are responsible for generating new business and serving customers in specific geographic territories in the United States. In July 2002, the licensing agreement with Spalding
Sports Worldwide, Inc. concerning Ben Hogan® apparel was expanded to cover territory in certain foreign countries. Ben Hogan® apparel will be marketed in these countries by
establishing agreements with various distributors in the respective markets.

Sport-Haley's
sales and marketing executives are responsible for implementing marketing plans and sales programs, coordinating the networks of independent HALEY® and Ben
Hogan® sales representatives, providing customer service and participating in industry trade shows. Sport-Haley's executives support the sales activities of the independent sales
representatives and distributors by

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assigning specific HALEY® customer service personnel to specific geographic regions, assigning specific service personnel to Ben Hogan® apparel customers, advancing the
distribution of sample garments, providing detailed catalogs that present pricing, sizing and style options for each collection of garments, and providing access to a private electronic network
designed to expedite sales order processing. Via personal computers, each sales representative has access to current and future inventory availability and may create and transmit orders from a remote
location. Remote computer access enhances the representatives' order processing speed and accuracy and reduces the risk of placing customer orders that cannot be timely delivered. The electronic
network also interfaces with Sport-Haley's management information system that provides key sales order data to assist management with planning, production scheduling, sales trends and cost controls.
Sport-Haley also maintains an internet webpage at "www.sporthaley.com". The Sport-Haley webpage that is purely informational at present, providing limited information about Haley® apparel,
is currently being updated. Sport-Haley is also in the process of developing a highly comprehensive website that will provide detailed information about the Ben Hogan® products it markets.
When completed, information regarding Ben Hogan® apparel will be available on the internet webpage at "www.behogan.com."

Sport-Haley
introduces the distinctive HALEY® and Ben Hogan® golf apparel collections for the fall selling season at a major golf industry trade show that is
generally held in January of each year in Orlando, Florida. Because many buyers for golf resorts and professional shops attend this particular trade show, Sport-Haley usually books a significant
number of customer orders at or following the show. The trade show also provides Sport-Haley with direct customer feedback regarding apparel designs, fabrics, styles, fashion trends and other
information necessary to assist management with the preparation of detailed sales forecasts and production schedules.

In
order to enhance the visibility of the HALEY® and Ben Hogan® brands, Sport-Haley sustains endorsement agreements with several select PGA and LPGA
professionals. Sport-Haley also sustains an agreement with a Canadian Tour professional in order to maintain its presence in an international market. Under these endorsement agreements, Sport-Haley
may compensate the respective professionals with apparel allowances, cash and/or other compensation.

Sport-Haley
periodically advertises the availability of HALEY® and Ben Hogan® apparel in several separate golf industry publications, including those that are
distributed primarily to operators of golf professional shops. Sport-Haley also expends a portion of its advertising budget to support the sales activities of its networks of independent sales
representatives. International distributors provide and pay for advertising in their respective geographic territories.

Sport-Haley
maintains a program that provided select customers with distinctive fixtures dedicated to featuring HALEY® brand apparel. Upon the customer's agreement to
maintain a pre-determined amount of inventory for a specified period of time, the fixture became the property of the customer for a nominal delivery fee. This display fixture program encourages
customers to keep their loyal commitment to Sport-Haley by continuing to prominently display a large selection of HALEY® brand apparel.

In
fiscal 2002, Sport-Haley initiated a program to provide certain customers with distinctive display fixtures dedicated to featuring Ben Hogan® apparel collections. Upon the
customer's agreement to maintain a pre-determined amount of inventory for a specified period of time, the fixture becomes the property of the customer for a nominal delivery fee. This display fixture
program is intended to encourage customers to help generate brand appeal for Ben Hogan® apparel by its featured display within their places of business.

Corporate Market.Sport-Haley's management believes that there is a natural synergy between the golf apparel market and the
corporate apparel market, because both markets can be served from some of the same inventory, allowing quick response to a shifting demand in either market. Sport-Haley has developed several direct
corporate accounts, and is actively pursuing this market primarily though

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promotional-product companies that source and distribute a variety of products for corporate fulfillment programs and special events. These promotional-product companies generally produce corporate
catalogs containing apparel and other products that may be used for employee recognition, customer appreciation and other corporate purposes. A promotional-product company will also source and supply
a specific product or products for special events sponsored by a corporation. Sport-Haley's apparel is currently included, or confirmed to be included, in a variety of catalogs, including catalogs for
several Fortune 500 companies. Sport-Haley does not enter into formal agreements or contracts with these promotional-product companies but does agree that it will make available the products
advertised in any specific catalog during the period the catalog is being used, generally a one-year period. Sport-Haley generally selects a limited number of its most popular, classic styles of golf
apparel and includes those in its corporate catalog. Because the corporate apparel inventory must be maintained for a longer period of time and the classic styles of corporate apparel are generally
not designed for one specific season, Sport-Haley features one collection of garments in its corporate catalog each year. Corporate sales are made periodically throughout the year, and thus Corporate
sales are not historically quantifiable within the fixed or seasonal selling periods common to the other HALEY® and Ben Hogan® apparel collections.

Factory Outlet and Retail Sales.Sport-Haley maintains a 2,200 square foot factory outlet store in Laughlin, Nevada. Since
June 1996, Sport-Haley has utilized this facility to market closeout inventories,
discontinued styles and irregular garments at discounted retail prices, as opposed to discounted wholesale prices, enabling Sport-Haley to maximize sales revenue. Sport-Haley also sells a small
percentage of its apparel in the retail market through selected upscale department stores.

In
the fall of 2001, Sport-Haley temporarily opened a warehouse outlet style retail sales operation at its distribution facility to market closeout inventories, discontinued styles and
irregular garments to walk-in customers at discounted retail prices. In the spring of 2002, Sport-Haley entered into an agreement with a professional liquidator that opened a retail store front in
Denver, Colorado, to market closeout inventories, discontinued styles and irregular garments at discounted retail prices directly to the public. Upon the mutual consent of Sport-Haley and the
liquidator, the retail store front was closed in June 2002.

Ben Hogan® Licensing Agreement.In May 2001, Sport-Haley entered into a licensing agreement with Spalding Sports
Worldwide, Inc. ("Spalding") that granted Sport-Haley the rights to market men's premium golf apparel under the Ben Hogan® brand name. The first collections of Ben Hogan®
apparel, introduced at a major golf related tradeshow in January 2002, feature tops, bottoms, windwear and outerwear. In July 2002, Sport-Haley and Spalding agreed to amend the Licensing Agreement to
expand the applicable territory covered by the agreement to include the United Kingdom, Sweden, Mexico and various Caribbean countries. The original Licensing Agreement had previously granted
Sport-Haley the right to market Ben Hogan® apparel within the United States.

Competition

The fashion golf apparel market, both domestically or internationally, is highly fragmented and the leading supplier has only slightly over a 10% market share.
Sport-Haley currently views Ashworth, Cutter & Buck, Inc., Izod Club, Polo/Ralph Lauren Corporation, and Tommy Hilfiger as its most significant competitors in the fashion golf apparel market. In
addition to competing with fashion golf apparel manufacturers, Sport-Haley must also compete with manufacturers of high quality men's and women's sportswear and general leisure wear such as Nike and
Nautica Enterprises Inc. Many of these same fashion golf apparel and sportswear companies are also competitors in the corporate market. The intense competition throughout both the fashion golf and
corporate wear markets is defined primarily by brand recognition and loyalty, quality, price, style and design, service and availability of shelf space in the fashion golf apparel and leisure wear
markets. Many of Sport-Haley's competitors have longer operating histories, better name recognition and greater financial, marketing and other resources than

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Sport-Haley. Because of the intense competition in the golf apparel and leisure wear markets, Sport-Haley cannot be assured of obtaining additional market share or maintaining its current market
share; and, market and general economic conditions may dictate reductions in selling prices that could result in reduced margins and adversely impact Sport-Haley's results of operations.

Finished Goods and Raw Materials Sourcing

Most of the HALEY® and Ben Hogan® garments are made from 100% cotton fabrics. Certain men's and women's garments contain silk, wool, rayon
or micro-fiber and certain outerwear garments contain micro-fiber, fleece, nylon or Gore-tex® products, including Gore Windstopper® fabric, which is utilized on occasion in
accordance with non-exclusive licensing rights that were previously granted to Sport-Haley.

Purchases
of made-to-order finished goods are manufactured by outside suppliers in accordance with HALEY® and Ben Hogan® specifications with regard to quality and
custom styling. Sport-Haley may assist outside suppliers with the sourcing of raw materials for the respective finished products, but generally does not purchase the fabric and trim for the suppliers.
In fiscal 2002, Sport-Haley purchased approximately 95% of HALEY® and Ben Hogan® apparel as finished goods from a variety of foreign and domestic suppliers. In fiscal 2002,
Sport-Haley purchased 31% and 11% of its finished apparel from two separate vendors, respectively. The loss of either of the two significant vendors could cause substantial disruption to Sport-Haley's
short-term ability to fulfill its customers' orders on a timely basis.

Sport-Haley
did not initiate any formal contractual arrangements for the purchase of raw materials or finished goods from its suppliers, but issued purchase orders as raw materials and
finished goods apparel purchases were initiated. Although Sport-Haley believes that all of the components of HALEY® and Ben Hogan® apparel are available from a large number of
domestic and foreign sources, an inability to secure finished goods apparel or raw materials from existing suppliers during periods of high seasonal demand could result in delays in deliveries to
customers, thereby adversely affecting profitability.

Sport-Haley's
production personnel assist the design department with the sourcing of finished goods apparel, negotiating costs consistent with desired profit margins and the inspection
of sample fabrics and garments prior to the commencement of actual production. Production personnel are also responsible for ensuring timely-receipt of finished goods.

With
the exception of custom embroidering, which is done at Sport-Haley's facility in Denver, Colorado, most manufacturing activities were undertaken by foreign and domestic "cutting and
sewing" vendors. In fiscal 2002, Sport-Haley manufactured approximately 5% of its finished apparel by utilizing a variety of foreign and domestic cutting and sewing vendors. Following the purchase of
raw materials, Sport-Haley arranged for shipment of the materials directly to the cutting and sewing vendors. The individual vendors were responsible for cutting and sewing apparel to
HALEY® and Ben Hogan® specifications. Sport-Haley did not purchase 10% or more of its component materials from any individual vendor. Sport-Haley did not execute contractual
arrangements other than purchase orders with any of its domestic or foreign cutting and sewing vendors and believes that these services could be obtained from a large number of international and other
domestic sources. Because of a significant increase in reliance on purchasing finished and packaged apparel from foreign suppliers, in August 2001 Sport-Haley closed B&L Sportswear, Inc., its former
subsidiary that had served as a major cutting and sewing vendor in prior years.

Sport-Haley
receives orders for the HALEY® and Ben Hogan® spring and fall collections over a period commencing when samples are first shown to customers and
continuing through the respective selling seasons. Sport-Haley must begin to schedule purchases and production in advance of sales order placements. Because the receiving and delivery of apparel
collections is time-sensitive, Sport-Haley

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devotes considerable time and efforts to the revision of forecasts of apparel sales by item and style. Sport-Haley's computerized management information system provides management with key data that
facilitates sales forecasting, product tracking and standard cost controls as well as providing perpetual inventory records and inventory availability.

Finished
apparel is generally received from the ready-made manufacturers or cutting and sewing vendors at Sport-Haley's warehouse and distribution facilities in Denver, Colorado. Some
apparel items, primarily shirts and tops, are embroidered with the Haley® or Ben Hogan® sleeve logo. Approximately 75% of men's HALEY® shirts are custom embroidered
with a golf course, country club, resort or company logo, whereas only approximately 40% of women's HALEY® apparel is similarly embroidered. Sport-Haley maintains ten computer-controlled
embroidering machines on its premises, which together have the capacity to embroider up to 4,000 custom logos each day. After being embroidered to the customer's specifications, apparel receives a
final inspection by quality assurance personnel and is packaged and shipped from the Denver, Colorado facility.

Management Information Systems and Inventory Management

Sport-Haley utilizes an integrated computer system to manage all business transactions, historical data and record keeping, including sourcing, warehousing,
embroidering and shipping. The computer system provides information to all of Sport-Haley's internal departments. The electronic computer system used by Sport-Haley's sales representatives interfaces
with the main system to provide sales representatives with inventory information and order entry capability and allows the sales force to order against actual inventory availability. The computer
system has improved operations by providing information critical to forecasting such as analyses of sales histories, purchasing histories, and future customer commitments, all of which allow for
better management of finished goods inventories.

Nature of Business

Golf apparel sales in golf professional shops tend to be seasonal in nature, with disproportionately higher sales occurring from January through June, which are
Sport-Haley's third and fourth quarters of each fiscal year. Sport-Haley continues to seek to reduce the impact of seasonal revenues by attempting to increase sales in other markets, such as the
corporate and international markets.

The
amount of back orders outstanding at any particular time may be affected by a number of factors, including the timely receipt of first-quality products from suppliers, which can
impact Sport-Haley's ability to ship garments on time, and the timing of orders placed by customers. Accordingly, a comparison of Sport-Haley's backlog of orders from period to period is not
necessarily meaningful and may not be indicative of actual shipments during any specific period. In addition, partial orders are shipped if they are at least 80% complete. Orders may be changed or
canceled up to 30 days prior to the scheduled shipping date of the order. Generally, Sport-Haley does not sell its apparel on consignment and generally does not accept returns of purchased apparel
other than apparel which is damaged or which is delivered after the specified delivery date. Returns and allowances were approximately 6% of net sales in fiscal 2002, approximately 5% of net sales in
fiscal 2001 and approximately 3% of sales in fiscal 2000. Historically, the backlog of orders has not materially impacted Sport-Haley's sales with respect to cancellations and rejections of back
orders.

Trademark

Sport-Haley markets men's and women's fashion golf apparel under the HALEY® label. Sport-Haley has registered the HALEY® trademark and the
distinctive "H" design with the United States Patent and Trademark Office. Sport-Haley has also registered the HALEY® trademark in a number of international jurisdictions.

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Sport-Haley
also markets men's fashion golf apparel under the Ben Hogan® label. Spalding Sports Worldwide, Inc. has registered the Ben Hogan® trademark and the
distinctive signature of Mr. Hogan with the United States Patent and Trademark Office. Spalding is licensed, through an affiliate, to use the Ben Hogan® trademark outside of the United
States. Sport-Haley is licensed by Spalding to use the Ben Hogan® trademark in the United States and certain other countries, subject to the terms of their licensing agreement, as amended.

Employees

At June 30, 2002, Sport-Haley had 71 full-time employees and five part-time employees, including 29 full-time and one part-time executive and administrative
employees, 3 full-time marketing and corporate sales employees, 38 full-time personnel in inspection, packaging, embroidering and distribution operations, and one full-time and four part-time retail
employees in the Laughlin, Nevada factory outlet store.

In
August 2001, Sport-Haley closed the manufacturing plant operated by B&L Sportswear, Inc., its former subsidiary. Since that date, B&L Sportswear, Inc. ceased operations and no longer
employed any persons.

ITEM 2. PROPERTIES

Sport-Haley's executive offices and warehouse facilities are located in Denver, Colorado. Prior to negotiating an extension of the lease in September 2001,
Sport-Haley leased approximately 82,500 square feet of floor space at the Denver location. In conjunction with the lease extension, Sport-Haley negotiated a reduction in the floor space leased at the
Denver location. As of October 2001, Sport-Haley leases approximately 66,640 square feet of the available 82,500 square feet of floor space. The Denver facilities were leased at an annual base rent of
approximately $223,000 in fiscal 2002. Sport-Haley is obligated to pay its proportionate share of taxes, insurance and maintenance expenses for the leased space.

Sport-Haley
leases approximately 2,200 square feet of retail space for its retail factory outlet store in Laughlin, Nevada. The annual base rental for the Laughlin lease, which expires
in June 2003, is approximately $48,000.

The
Subsidiary leased approximately 22,000 square feet of manufacturing facilities in Four Oaks, North Carolina from two of the Subsidiary's former minority shareholders. The lease
commenced on April 1, 1998 and was due to expire on March 31, 2008, subject to the Subsidiary's right to extend the lease term for two additional five-year periods. The annual lease payments were
approximately $65,000, and the Subsidiary was obligated to pay all utilities, taxes, insurance and certain repair costs. The Subsidiary ceased operations in August 2001. In January 2002, Sport-Haley
negotiated a termination of the Subsidiary's lease with the Subsidiary's former minority shareholders.

ITEM 3. LEGAL PROCEEDINGS

As previously reported, a former shareholder commenced a putative class action lawsuit against Sport-Haley and three of its officers and directors (the
"Defendants"). The action, which seeks unspecified damages, alleges that the Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), and Rule 10b-5 promulgated
thereunder, by knowingly overstating Sport-Haley's financial results, thereby causing Sport-Haley's stock price to be artificially inflated. The complaint further alleges that the individual
Defendants are liable by virtue of being controlling persons of Sport-Haley, pursuant to Section 20(a) of the Exchange Act. The allegations arise out of Sport-Haley's restatements of its financial
statements for the fiscal years ended June 30, 1999 and 1998, which Sport-Haley previously reported. The Court appointed a group of investors (the "Plaintiffs"), to act as lead plaintiffs in the
action.

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The
Defendants believe that the action is without merit and intend to vigorously defend the lawsuit. As previously reported, in December 2001, the Defendants filed a motion to dismiss
the action. In February 2002, the Plaintiffs filed their first amended complaint, alleging the same claims. The Defendants moved to dismiss the first amended complaint in February 2002. The
Defendants' motion to dismiss is pending before the court. Based upon information that is currently available, management is not able to estimate the amount of damages, if any, that might be awarded
to the Plaintiffs and the class if the action were certified by the court as a class action and if the lawsuit were determined in favor of the Plaintiffs.

As
previously reported, the staff of the United States Securities and Exchange Commission (the "Commission") advised Sport-Haley and its Chairman and former Chief Executive Officer,
Robert G. Tomlinson, that the staff plans to recommend to the Commission that an enforcement action should be taken against Sport-Haley and Mr. Tomlinson to obtain an injunction prohibiting future
violations of certain provisions of the securities laws and possibly other relief. The staff's planned recommendation primarily relates to errors in Sport-Haley's previously issued financial
statements that Sport-Haley previously reported when it restated its financial statements for fiscal years 1999 and 1998 and subsequently corrected material financial information for the quarterly
periods of fiscal year 2000. Sport-Haley and Mr. Tomlinson provided the staff with written submissions setting forth legal and factual reasons why such an action should not be brought. Sport-Haley and
Mr. Tomlinson do not know what action, if any, the staff will ultimately recommend to the Commission. If the staff recommends that the Commission initiate an enforcement action, it is not known
whether the Commission will accept the staff's recommendation. Should the Commission bring such an action, Sport-Haley and Mr. Tomlinson intend to vigorously contest it. Based upon the information
that is currently available, management does not believe that the impact, if any, of such an enforcement action would have a material adverse effect upon Sport-Haley's financial position.

As
previously reported, Sport-Haley retained legal counsel to possibly pursue claims against its former auditors in connection with damages suffered as a result of the restatements of
its financial statements for the fiscal years ended June 30, 1999 and 1998 and the corrections of material financial information for the quarterly periods of the fiscal year ended June 30, 2000.
Further, counsel to the former auditors has advised Sport-Haley that the former auditors may bring certain claims against Sport-Haley. Management believes that the claims threatened by Sport-Haley's
former auditors relate to allegations of unpaid fees. Each party continues to deny any liability to the other party. No legal action has been filed by Sport-Haley or its former auditors that asserts
any of these claims. As of June 30, 2002, Sport-Haley had incurred approximately $513,000 in expenses related to the restatements of its financial statements and material quarterly information noted
above.

Sport-Haley
is subject to various other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability
with respect to those actions will not materially affect the financial position or results of operations of Sport-Haley.

10

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Sport-Haley's Common Stock is quoted on the Nasdaq National Market® under the trading symbol "SPOR." The following table sets forth the range of high
and low sale prices of the Common Stock, as reported by The Nasdaq Stock Market®, from July 1, 1999 through June 30, 2002. The prices set forth below reflect interdealer quotations,
without retail markups, markdowns or commissions, and may not represent actual transactions.

High

LowFiscal Year 2002Fourth Quarter

$
4.640

$
3.720Third Quarter


4.870


3.250Second Quarter


3.500


2.160First Quarter


3.220


2.030Fiscal Year 2001Fourth Quarter

$
3.360

$
2.563Third Quarter


3.563


2.750Second Quarter


4.438


2.875First Quarter


4.750


3.250Fiscal Year 2000Fourth Quarter

$
4.875

$
3.938Third Quarter


5.000


3.938Second Quarter


4.625


3.938First Quarter


5.125


4.000


As
of January 21, 2002, Sport-Haley's common stock was held by approximately 1,000 shareholders. Holders of common stock are entitled to receive such dividends as may be declared by
Sport-Haley's Board of Directors. No dividends have been paid on the common stock, and the Board of Directors does not anticipate that dividends will be declared in the foreseeable future.

11

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ITEM 6. SELECTED FINANCIAL DATA

The following consolidated selected financial data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, appearing
elsewhere in this report on Form 10-K, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The consolidated statements of operations data for each of the years
in the three-year period ended June 30, 2002 and the balance sheets data at June 30, 2002 and 2001 are derived from the consolidated financial statements of Sport-Haley which have been audited by Hein
+ Associates LLP, independent auditors, as indicated in their report included herein. The selected financial data provided below is not necessarily indicative of the future results of operations or
future financial performance of Sport-Haley.

As
previously reported, the Company restated its financial statements for fiscal years 1999 and 1998. The Company's beginning account balances as of July 1, 1997 were corrected for
certain accounting errors attributable to periods prior to July 1, 1997. The restatements cumulatively reduced the retained earnings balance as of July 1, 1997 by approximately $872,000. The following
consolidated selected financial information for the fiscal years ended June 30, 1999 and 1998 are derived from the restated financial statements for those years:

|                                                                               |                                                               | Fiscal Year Ended June 30, |       
|------------------------------------------------------------------------------ | ------------------------------------------------------------- | -------------------------- | ------
|
|
|Consolidated Statements of Operations Data:                                    |                                                               |                            |       
|Net sales                                                                      |                                                               | $                          | 17,099
|Cost of goods sold                                                             |                                                               |                            | 12,915
|Gross profit                                                                   |                                                               |                            | 4,184 
|Selling, general and administrative expenses                                   |                                                               |                            | 6,886 
|Impairment of fixed assets                                                     |                                                               |                            | 0     
|Income (loss) from operations                                                  |                                                               |                            | (2,702
|Other income and expenses, net                                                 |                                                               |                            | 346   
|Income (loss) from operations before (provision for) benefit from income taxes |                                                               |                            | (2,356
|(Provision for) benefit from income taxes                                      |                                                               |                            | 1,383 
|Income (loss) from continuing operations                                       |                                                               |                            | (973  
|Income (loss) from discontinued operations                                     |                                                               |                            | 0     
|Cumulative effect of change in accounting principle                            |                                                               |                            | 0     
|Net income (loss)                                                              |                                                               | $                          | (973  
|Income (loss) per common and equivalent shares outstanding:                    |                                                               |                            |       
|                                                                               | From continuing operations (basic)                            |                            | $     
|                                                                               | From discontinued operations (basic)                          |                            | $     
|                                                                               | Cumulative effect of change in accounting principle (basic)   |                            | $     
|                                                                               | Net income (loss) (basic)                                     |                            | $     
|                                                                               | From continuing operations (diluted)                          |                            | $     
|                                                                               | From discontinued operations (diluted)                        |                            | $     
|                                                                               | Cumulative effect of change in accounting principle (diluted) |                            | $     
|                                                                               | Net income (loss) (diluted)                                   |                            | $     
|Weighted average common and basic equivalent shares outstanding (basic)        |                                                               |                            | 2,938 
|Weighted average common and basic equivalent shares outstanding (diluted)      |                                                               |                            | 2,938 

12

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|                                         |  | June 30,
|---------------------------------------- |  | --------
|
|
|Consolidated Balance Sheets Data:        |  |         
|Working capital                          |  | $       
|Total assets                             |  |         
|Long-term debt                           |  |         
|Total liabilities                        |  |         
|Shareholders' equity                     |  |         
|Net book value per share of common stock |  | $       

The
following table summarizes selected quarterly financial information for each of the quarterly periods in the fiscal years ended June 30, 2002 and 2001:

|                                                                           |         | Fiscal Quarter Ended |       |       |  
|-------------------------------------------------------------------------- | ------- | -------------------- | ----- | ----- | -
|
|
|Quarterly Financial Data  Unaudited
(in thousands, except per share data) |         |                      |       |       |  
|Fiscal year 2002:                                                          |         |                      |       |       |  
|Net sales                                                                  |         | $                    | 3,975 |       | $
|Cost of goods sold                                                         |         |                      | 2,730 |       |  
|Gross profit                                                               |         |                      | 1,245 |       |  
|Other operating costs                                                      |         |                      | 1,517 |       |  
|Other income and expense, net                                              |         |                      | 102   |       |  
|Benefit from income taxes                                                  |         |                      | 27    |       |  
|Net loss                                                                   |         | $                    | (143  | )     | $
|Basic and diluted loss per common share                                    |         | $                    | (0.04 | )     | $
|Weighted average shares outstanding                                        |         |                      |       |       |  
|                                                                           | Basic   |                      |       | 3,273 |  
|                                                                           | Diluted |                      |       | 3,273 |  
|Fiscal year 2001:                                                          |         |                      |       |       |  
|Net sales                                                                  |         | $                    | 5,863 |       | $
|Cost of goods sold                                                         |         |                      | 4,045 |       |  
|Gross profit                                                               |         |                      | 1,818 |       |  
|Other operating costs                                                      |         |                      | 1,944 |       |  
|Other income and expense, net                                              |         |                      | 213   |       |  
|(Provision) benefit for income taxes                                       |         |                      | (34   | )     |  
|Net income (loss)                                                          |         | $                    | 53    |       | $
|Basic and diluted net income (loss) per common share                       |         | $                    | 0.02  |       | $
|Weighted average shares outstanding                                        |         |                      |       |       |  
|                                                                           | Basic   |                      |       | 3,460 |  
|                                                                           | Diluted |                      |       | 3,496 |  

13

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Report on Form 10-K contains certain forward-looking statements. When used in this report, the words "may," "will," "expect," "anticipate," "continue,"
"estimate," "project," "intend," "believe" and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 regarding events, conditions and financial trends including, without limitation, business conditions and growth in the fashion golf apparel market and the
general economy, competitive factors, and price pressures in the high-end golf-apparel market; inventory risks due to shifts in market and/or price erosion of purchased apparel, raw fabric and trim;
cost controls; changes in product mix; and other risks or uncertainties detailed in other Securities and Exchange Commission filings made by Sport-Haley. Such statements are based on management's
current expectations and are subject to risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, the
actual plan of operations, business strategies, operating results and financial position of Sport-Haley could differ materially from those expressed in, or implied by, such forward-looking statements.
Sport-Haley's business in general is subject to certain risks including the following:



The following discussion should be read in conjunction with the Consolidated Financial Statements and notes thereto.

14

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Results of Operations

The following table sets forth the percentage of net sales represented by items included in or derived from Sport-Haley's statements of income for its fiscal
years ended June 30, 2002, 2001 and 2000 and as previously restated for its fiscal years ended June 30, 1999 and 1998:

|                                                                               |  | Fiscal Year Ended June 30, |   
|------------------------------------------------------------------------------ |  | -------------------------- | --
|
|Net sales                                                                      |  | 100.0                      | % 
|Cost of goods sold                                                             |  | 75.5                       |   
|Gross profit                                                                   |  | 24.5                       |   
|Selling, general and administrative expenses                                   |  | 40.3                       |   
|Impairment of fixed assets                                                     |  |                           |   
|Income (loss) from operations                                                  |  | (15.8                      | ) 
|Other income and expenses, net                                                 |  | 2.0                        |   
|Income (loss) from operations before (provision for) benefit from income taxes |  | (13.8                      | ) 
|(Provision for) benefit from income taxes                                      |  | 8.1                        |   
|Income (loss) from continuing operations                                       |  | (5.7                       | ) 
|Income (loss) from discontinued operations                                     |  |                           |   
|Cumulative effect of change in accounting principle                            |  |                           |   
|Net income (loss)                                                              |  | (5.7                       | )%

Comparison of Fiscal Years Ended June 30, 2002 and 2001.Net sales for the year ended June 30, 2002 ("fiscal 2002") were approximately $17.1 million, a
decrease of approximately $4.6 million, or 21%, as compared with approximately $21.7 million for the fiscal year ended June 30, 2001 ("fiscal 2001"). The decrease was primarily attributable to the
general downturn in the United States economy combined with the significant negative economic impact caused by the events of September 11, 2001. Business trends of the golf apparel industry closely
follow trends in the travel and leisure sectors of the United States economy. The historic events of September 11, 2001 severely depressed the travel and leisure sectors that had already been
negatively impacted by the general economic downturn experienced during calendar year 2001. As a result, Sport-Haley experienced significant cancellations of orders during its second and third fiscal
quarters as well as substantial decreases in the number of orders placed for delivery during its third fiscal quarter, as compared with the same periods in the prior fiscal years. The cancellations
and decreases in orders significantly impacted Sport-Haley's net sales for its third quarter ended March 31, 2002. Further, the golf apparel industry sustained an intense competitive environment
throughout fiscal 2002. Companies with greater financial resources and better name recognition than Sport-Haley have continued to pressure their individual customers to maintain strong business
relationships with them in these times of a relatively weak United States economy. Because of their status, the "big name" companies have a competitive advantage over Sport-Haley in a sluggish
economy, and they have the ability to maintain a greater relative share of the overall golf apparel business in such times. Sport-Haley, through its networks of independent sales representatives,
implemented marketing strategies to strengthen relationships with its loyal HALEY® customers and to attract new customers to the HALEY® and Ben Hogan® brands.

For
fiscal 2002, the HALEY® men's and women's lines accounted for approximately 37% and 42% of total net sales, respectively. The HALEY® Elements line accounted
for approximately 9% of total net sales. Approximately 6% of total net sales was attributable to the introduction of Ben Hogan® apparel. The remaining 6% was comprised of embroidering and
shipping revenues plus sales at the retail outlet stores, which Sport-Haley used to sell prior seasons' and other inventories at discounted retail prices.

For
fiscal 2001, the HALEY® men's and women's lines accounted for approximately 37% and 46% of total net sales, respectively. The HALEY® Elements line accounted
for approximately 11% of

15

---

total net sales. The remaining 6% was comprised of embroidering and shipping revenues plus sales at the Laughlin, Nevada retail factory outlet store.

Gross
profit for fiscal 2002 was approximately $4.2 million, a decrease of approximately $2.4 million or 36%, as compared with approximately $6.6 million in fiscal 2001. While the
decrease in gross profit is consistent with the downward trend in net sales, the decrease is not entirely due to such a downward trend. In an effort to diminish its prior seasons' and closeout
finished goods inventories, Sport-Haley opened a temporary retail warehouse outlet at its distribution facilities, in the fall of calendar year 2001. In its fourth quarter of fiscal 2002, because of
the relative success of the fall 2001 retail sales effort, Sport-Haley entered into an agreement with a professional liquidator to dispose of prior seasons' and closeout inventories at a liquidation
retail store operation in Denver, Colorado. Because the liquidation effort was only marginally successful and excessive amounts of prior seasons' and closeout finished goods inventories remained at
June 30, 2002, Sport-Haley recorded a charge of approximately $1.2 million to revalue prior seasons and closeout finished goods inventories to the lower of cost or fair market value. Sport-Haley also
recorded a charge of approximately $68,000 to revalue obsolete component inventories to the lower of cost or market value at June 30, 2002. Sport-Haley dramatically altered its business operations
during fiscal 2001 in order to place the Company in a better competitive position within the golf apparel industry. Prior to fiscal 2001, Sport-Haley manufactured substantially all of its finished
goods inventories and predominantly utilized United States vendors. During fiscal 2001, Sport-Haley evolved from a company that manufactured its finished goods inventories into a company that
primarily purchases its inventories from foreign suppliers. The changes in business operations completed in fiscal 2001 included improvements in inventory purchasing controls. Because the current
controls over the purchasing of finished goods inventories have attained reduced levels of finished goods inventories at the ends of recent selling seasons, management expects that sales of closeout
inventories and inventory write-downs will have significantly less impact on gross margins in future reporting periods.

Gross
margin for fiscal 2002 was approximately 25%, a decrease of approximately 5%, from approximately 30% in fiscal 2001. As discussed above, gross margin was negatively impacted in
fiscal 2002 due to sales of closeout inventories at reduced selling prices combined with inventory write-down adjustments of approximately $1.3 million that were included in cost of goods sold. In
both fiscal 2002 and fiscal 2001, gross margins were negatively impacted by inventory write-downs and dispositions of excess and prior seasons' inventories at discounted sales prices. Disposition of
closeout inventories is common and recurring within the seasonal apparel business in general. However, dispositions of closeout inventories were disproportionately higher in fiscal 2002 and fiscal
2001 than normal as a result of the slowing United States economy, adverse weather conditions and changes in Sport-Haley's business operations and other factors. Sales of closeout inventories
represented approximately 15% of Sport-Haley's net sales in fiscal 2002 and 10% in fiscal 2001 and generated approximately $2.6 million and $2.2 million in operating cash in fiscal 2002 and 2001,
respectively. Because of the completion of significant changes in business operations that include purchasing finished goods inventories almost exclusively from foreign suppliers, the Company expects
to achieve higher gross margins in future years than were achieved in fiscal 2002 or in fiscal 2001.

Selling,
general and administrative expenses for fiscal 2002 were approximately $6.9 million, a decrease of approximately $1.1 million or 14%, as compared with approximately $8.0 million
for fiscal 2001. A
significant portion of the decrease was attributable to lower commissions paid to independent sales representatives on the corresponding decrease in net sales in fiscal 2002. Another significant
portion of the improvement in selling, general and administrative expenses in fiscal 2002 was related to a decrease in accounting, legal and other expenses. In fiscal 2001, Sport-Haley incurred
approximately $420,000 in accounting, legal and other expenses related to the restating of Sport-Haley's financial statements for fiscal years 1999 and 1998 and the correction of material quarterly
information for the quarters of fiscal years 2000, 1999 and 1998. The remainder of the decrease in selling, general and administrative expenses directly relates to management's concerted efforts to
control operating expenses in fiscal 2002. The success of management's efforts to control operating expenses is evidenced by the

16

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overall decrease in selling, general and administrative expenses even after Sport-Haley incurred start-up and operational costs of approximately $366,000 relating to the introduction of Ben
Hogan® apparel in fiscal 2002. As a percentage of net sales, selling, general and administrative expenses were 40% and 37% for fiscal years 2002 and 2001, respectively.

Total
other income, net, for fiscal 2002 approximated $346,000, a decrease of approximately $245,000 or 42%, as compared with approximately $591,000 for fiscal 2001. The decrease was
primarily due to the difference between fiscal years 2002 and 2001 in the rates in interest earned on cash equivalents and marketable securities. As a function of the dramatically sluggish USA
economy, interest rates available on virtually risk free investments plummeted to near all-time lows during fiscal 2002. Sport-Haley continues to search for investment alternatives available within
the guidelines approved by its Board of Directors in order to maximize the rates of return achieved on cash equivalents and marketable securities.

Income
(loss) from operations before provision for income taxes for fiscal 2002 was approximately ($2.4 million), a decrease of approximately $1.3 million, or 123%, as compared with
approximately ($1.1 million) for fiscal 2001. Net loss for fiscal 2002 was approximately ($973,000), a difference of approximately ($207,000), or (27%), as compared with approximately ($766,000) for
fiscal 2001. The disparity between the decrease in loss from operations before provision for income taxes and the improvement in net loss between the fiscal years arose because of the difference in
effective tax rates for financial statement, as opposed to tax, purposes. The effective tax rate in any fiscal year can vary significantly from the effective tax rate in another year due to
differences between the methods of recording certain transactions for financial statement versus the methods of recognizing those transactions for tax purposes. Certain deductions recognized for tax
purposes may not be recorded for financial purposes in the same fiscal year, and certain expenses recorded for financial statement purposes may not be deductible for tax purposes in the same fiscal
year. The disparity was primarily caused by differences in recording federal net operating loss carry-backs in fiscal 2002 with regard to the liquidation of the Subsidiary. State income tax law
requires Sport-Haley's operating losses to be carried forward. Sport-Haley recorded an increase in income taxes receivable of approximately $683,000 relating to the fiscal 2002 net loss combined with
the liquidation of the Subsidiary and other book versus tax differences. The effective tax rate for fiscal 2002 was approximately (59%) as compared with (28%) for fiscal 2001.

Net
loss for fiscal 2002 was approximately ($973,000), a difference in net income of approximately ($207,000), or (27%), as compared with the net loss of approximately ($766,000) for
fiscal 2001. The difference was primarily attributable to the combination of the factors discussed above.

Comparison of Fiscal Years Ended June 30, 2001 and 2000.Net sales for the year ended June 30, 2001 ("fiscal 2001") were approximately $21.7 million, a
decrease of approximately $1.4 million, or 6%, as compared with approximately $23.1 million for the fiscal year ended June 30, 2000 ("fiscal 2000"). The decrease was attributable to several factors.
Both a general slowing of the United States economy and unusually inclement weather conditions in major geographic markets were contributing factors to the decrease in net sales. Each of those
circumstances contributed to late season cancellations of customer orders for spring season merchandise and a decrease in the number of golf shops that placed orders for "basic" goods at the opening
of the spring golf season in fiscal 2001. The net decrease in sales in fiscal 2001 was also consistent with the similar negative trend with respect to the number of rounds of golf played at country
club and resort courses in fiscal 2001. Per published reports, the number of rounds played during fiscal 2001 were markedly less than were played during fiscal 2000. Further, intense competition
within the golf apparel industry continued throughout fiscal 2001. Companies with greater financial resources and better name recognition than Sport-Haley continued to intensify their individual
marketing efforts within the golf apparel industry. Because of the increased competition with "big name" companies, Sport-Haley, through its network of independent sales representatives, implemented
marketing strategies in fiscal 2001 to attract new customers to the HALEY® brand and to strengthen relationships with its long-time customers.

17

---

For
fiscal 2001, the HALEY® men's and women's lines accounted for approximately 37% and 46% of total net sales, respectively. The HALEY® Elements line accounted
for approximately 11% of total net sales. The remaining 6% was comprised of embroidering, shipping and sales at the Laughlin, Nevada retail factory outlet store, which Sport-Haley used to sell prior
seasons' and other inventories at discounted retail prices.

For
fiscal 2000, the HALEY® men's and women's lines accounted for approximately 47% and 41% of total net sales, respectively. The HALEY® Elements line accounted
for approximately 8% of total net sales. The remaining 4% was comprised of embroidering and shipping revenues plus sales at the Laughlin, Nevada retail factory outlet store.

Gross
profit for fiscal 2001 was approximately $6.6 million, a decrease of approximately $687,000 or 9%, as compared with approximately $7.3 million in fiscal 2000. While the decrease in
gross profit was consistent with the downward trend in net sales, the decrease was not entirely due to such a downward trend. Sport-Haley dramatically altered its business operations during fiscal
2001 in order to place the Company in a better competitive position within the golf apparel industry. Prior to fiscal 2001, Sport-Haley primarily manufactured its finished goods inventories
predominantly by utilizing United States vendors. During fiscal 2001, Sport-Haley evolved from a company that manufactured its finished goods inventories into a company that primarily purchases its
inventories from foreign suppliers. Because of the completion of its change in operations at or near June 30, 2001, Sport-Haley incurred charges to cost of goods sold of approximately $872,000 during
the fiscal quarter ended June 30, 2001. Of the $872,000, raw materials inventories were deduced by approximately $800,000 to reduce the value of those inventories to estimated amounts realizable upon
disposal sales of the fabric and trim items. This revaluation of raw materials inventories directly related to the Company's exit from the garment manufacturing industry as of June 30, 2001. The
balance of the $872,000 consisted of a charge of approximately $72,000 to reduce the valuation of prior seasons' finished goods inventories to the lower of cost or market.

Gross
margin for fiscal 2001 was approximately 30%, a decrease of approximately 1%, from approximately 31% in fiscal 2000. As discussed above, gross margin was negatively impacted in
fiscal 2001 due to cost of goods sold inventory write-down adjustments of approximately $872,000. Had the cost of goods sold inventory write-down adjustments not been taken, gross margin would have
been higher in fiscal 2001 than the margin achieved in fiscal 2000. In both fiscal 2001 and fiscal 2000, gross margins were negatively impacted by dispositions of excess and prior seasons' inventories
at discounted sales prices. Disposition of closeout inventories is common and recurring within the seasonal apparel business in general. Sales of closeout inventories represented approximately 10% of
Sport-Haley's net sales in both fiscal 2001 and fiscal 2000 and generated approximately $2.2 million in operating cash from the reduction of inventories in each of the fiscal years.

Selling,
general and administrative expenses for fiscal 2001 were approximately $8.0 million, an increase of approximately $1.1 million or 15%, as compared with approximately $6.9
million for fiscal 2000. A significant portion of the increase was attributable to additional accounting, legal and other expenses of approximately $420,000 incurred in fiscal 2001 related to the
restating of the Company's financial statements for fiscal years 1999 and 1998 and the correction of material quarterly information for the quarters of fiscal years 2000, 1999 and 1998. Another
portion of the increase was related to increased design costs. Sport-Haley retained the services of Donald W. Jewell during fiscal 2001 to redesign and re-source the HALEY® men's apparel
collections and to design and source apparel to be included in the Ben Hogan® apparel collections. Sales commissions expense also attributed approximately $100,000 to the increased
selling, general and administrative expenses. Commissions increased primarily because of the differences between fiscal years 2001 and 2000 in the sales prices of current seasons' sales. Other
contributing factors to the increase in selling, general and administrative expenses were increased general and health insurance premiums, increased costs of shipping materials and the increased cost
of natural gas and electricity utilities. As a percentage of net sales, selling, general and administrative expenses were 37% and 30% for fiscal years 2001 and 2000, respectively.

18

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In
August 2001, the Company formalized its decision to close its Subsidiary. Therefore, in the fourth quarter of fiscal 2001, Sport-Haley recorded a charge of approximately $254,000
related to an impairment of fixed assets. The impairment related to fixed assets used by the Subsidiary in its manufacturing operations. Because of the significant increase in reliance on purchasing
finished and packaged apparel from foreign suppliers, Sport-Haley closed the Subsidiary in August 2001. Since that time, substantially all of the Subsidiary's assets were sold at public auction.

Total
other income, net, for fiscal 2001 approximated $591,000, a decrease of approximately $95,000 or 14%, as compared with approximately $686,000 for fiscal 2000. The decrease was
primarily due to the difference between fiscal years in refunds of state income taxes and interest on the refunds relating to certain expenditures recorded in prior years.

Income
(loss) from operations before provision for income taxes for fiscal 2001 was approximately ($1.1 million), a decrease of approximately $2.1 million, or 206%, as compared with
approximately $1.0 million for fiscal 2000. Income (loss) from continuing operations for fiscal 2001 was approximately
($766,000), a decrease of approximately $1.4 million, or 217%, as compared with approximately $654,000 for fiscal 2000. The disparity between the decrease in income (loss) from operations before
provision for income taxes and the decrease in income (loss) from operations arose because of the difference in effective tax rates for financial statement, as opposed to tax, purposes. The effective
tax rate in any fiscal year can vary significantly from the effective tax rate in another year due to differences between the methods of recording certain transactions for financial statement versus
the methods of recognizing those transactions for tax purposes. Certain deductions recognized for tax purposes may not be recorded for financial purposes in the same fiscal year, and certain expenses
recorded for financial statement purposes may not be deductible for tax purposes in the same fiscal year. The disparity was primarily caused by differences in recording net operating loss carry-backs.
Federal income tax law required a recalculation of the net operating loss created in fiscal 2001, because the loss was carried back to a tax year in which the Company did not file a consolidated tax
return. State income tax law requires Sport-Haley's operating losses to be carried forward. The Company recorded an increase in income taxes receivable of approximately $250,000 relating to the fiscal
2001 loss from continuing operations. The effective tax rate for fiscal 2001 was approximately (28%) as compared with 35% for fiscal 2000.

Net
income (loss) for fiscal 2001 was approximately ($766,000), a decrease of approximately $1.8 million, or 175%, as compared with approximately $1.0 million for fiscal 2000. The
decrease was primarily attributable to the combination of the factors discussed above combined with the approximate $361,000 cumulative effect of change in accounting principle that was reported for
fiscal 2000.

Sport-Haley
adopted Financial Accounting Standards Board Interpretation No. 44 ("FIN 44") in fiscal 2000. Because of adopting that standard, the Company changed its method of accounting
for stock options issued to non-employee directors. The change resulted in a cumulative effect adjustment of $361,000, net of taxes, in fiscal 2000.

Liquidity and Capital Resources

Historically, Sport-Haley has financed its operations through a combination of revenues from operations and the public sales of equity. Sport-Haley intends to
rely on cash generated from operations to finance its working capital requirements for at least the next 12 months. To the extent such amounts are insufficient to finance Sport-Haley's working capital
requirements or if working capital requirements are greater than estimated, Sport-Haley may borrow funds by utilizing its revolving line of credit.

Net
cash provided by operating activities totaled approximately $2,631,000, $438,000 and $4,584,000 for fiscal years 2002, 2001, and 2000, respectively. The primary components of
adjustments to reconcile net income to cash provided by operating activities were changes between fiscal years relating to inventories, accounts receivable, prepaid expenses, income taxes receivable,
accounts payable, and accrued commissions and other expenses.

19

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Working
capital requirements are expected to remain relatively constant. Working capital was approximately $20,766,000 at June 30, 2002 and approximately $22,581,000 at June 30, 2001.
Cash and cash equivalents totaled approximately $8,428,000 and approximately $4,413,000 at June 30, 2002 and 2001, respectively.

Net
cash provided by (used in) investing activities totaled approximately $2,986,000, ($2,114,000), and ($2,642,000) for fiscal years 2002, 2001, and 2000, respectively. The primary
components of net cash provided by (used in) investing activities were maturities (purchases) of marketable securities and purchases and disposals of fixed assets.



The
Company had no long-term debt at June 30, 2002 or 2001. Since April 1994, Sport-Haley has maintained a revolving line-of-credit with a commercial bank. The revolving line-of-credit
agreement, which has been renewed through December 5, 2002, provides for interest at 1/2% below the banks prime rate. The agreement provides for a maximum loan amount of $9.0 million to Sport-Haley
secured by a lien on substantially all of Sport-Haley's assets. Sport-Haley generally maintains the line-of-credit solely to facilitate the issuance of letters of credit for inventory purchases from
offshore suppliers and to fund any temporary working capital needs. Sport-Haley had no outstanding borrowings under the line-of-credit at either June 30, 2002 or June 30, 2001.

20

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Sport-Haley,
in the ordinary course of its business, enters into letters of credit arrangements with a commercial bank to facilitate the purchase of finished and packaged inventory
and/or raw fabric from various offshore suppliers. As of June 30, 2002, the Company had outstanding letters of credit totaling approximately $2.3 million, which related to commitments to purchase
finished goods inventories from various suppliers. Amounts outstanding on letters of credit reduce the amount available for borrowing under the lines of credit.

Historically,
gross proceeds received by Sport-Haley from the exercise of stock options and warrants have fluctuated significantly from year to year. Sport-Haley realized no proceeds in
fiscal 2002, 2001or 2000 from the exercise of stock options and warrants.

Since
December 1994, management has been authorized by the Board of Directors to repurchase shares of Sport-Haley's Common Stock, and an aggregate of 2,226,400 shares had been
repurchased as of June 30, 2002 at an aggregate cost of approximately $12.4 million. In fiscal 2002 and 2001, Sport-Haley repurchased 542,000 and 187,400 shares at costs of approximately $1.6 million
and $587,000, respectively. The Board's authorization is based on its belief that Sport-Haley's Common Stock is underpriced at times given Sport-Haley's working capital, liquidity, assets, book value
and future prospects. The shares may be repurchased from time to time in the open market, through block purchases or in privately negotiated transactions depending upon market conditions and other
factors. Sport-Haley has no commitment or obligation to purchase all or any portion of the authorized shares. All shares purchased are canceled and returned to the status of authorized but unissued
common stock.

Most
of Sport-Haley's purchases from offshore manufacturers and sales to foreign distributors are U.S. Dollar denominated and, consequently, Sport-Haley has no material currency exchange
risk. Sport-Haley is not currently using derivative financial instruments to reduce its exposure to changes in foreign exchange rates in connection with sales to its Canadian distributor. To the
extent that its accounts receivable were denominated in Canadian currency and were not hedged, Sport-Haley would be subject to foreign currency transaction gains and losses.

Management
believes that inflation has not materially affected the results of operations during the three most recent fiscal years.

New Accounting Standards

In June 2001, the Financial Accounting Standards Board (the "FASB") issued Statements of Financial Accounting Standards No. 141, entitled "Business Combinations"
("SFAS 141"), and No. 142, entitled "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for under the
purchase method. For all business combinations for which the date of acquisition is after June 30, 2001, SFAS 141 also establishes specific criteria for the recognition of intangible assets separately
from goodwill and requires unallocated negative goodwill to be written off immediately as extraordinary gain, rather than to be deferred and amortized. SFAS 142 changes the accounting for goodwill and
other intangible assets after an acquisition. The most significant changes made by SFAS 142 are: 1) goodwill and intangible assets with indefinite lives will no longer be amortized; 2) goodwill and
intangible assets with indefinite lives must be tested for impairment at least annually; and, 3) the amortization period for intangible assets with finite lives will no longer be limited to forty
years. The adoptions of SFAS 141 and SFAS 142 are not expected to have a material effect on the Company's financial position or results of its operations.

In
June 2001, the FASB issued Statements of Financial Accounting Standards No. 143, entitled "Asset Retirement Obligations" ("SFAS 143"). SFAS 143 establishes accounting requirements for
retirement obligations associated with tangible long-lived assets, including: 1) the timing of the liability recognition; 2) initial measurement of the liability; 3) allocation of asset retirement
cost to expense; 4) subsequent measurement of the liability; and, 5) financial statement disclosures. SFAS 143 requires that an asset's retirement cost should be capitalized as part of the cost of the
related long-lived asset and subsequently allocated to expense using a systematic and rational method. Sport-Haley will adopt SFAS 142 effective January 1, 2003, as required. The transition adjustment
resulting from the adoption of

21

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SFAS 143, if any, will be reported as a cumulative effect of a change in accounting principle. The adoption of SFAS 143 is not expected to have a material effect on the Company's financial position
or results of its operations.

In
October 2001, the FASB issued Statements of Financial Accounting Standards No. 144, entitled "Accounting for the Impairment or Disposal of Long-Lived Assets " ("SFAS 144"). SFAS 144
replaces Statements of Financial Accounting Standards No. 121, entitled "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The new accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued
operations, and replaces the provisions of the Accounting Principles Board Opinion No. 30, entitled "Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business," for
the disposal of segments of a business. SFAS 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether the measurement is reported
in continuing operations or discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet
occurred. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be
eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15,
2001, and, generally, are to be applied prospectively. The adoption of SFAS 144 is not expected to have a material effect on the Company's financial position or results of its operations.

In
April 2002, the FASB approved Statements of Financial Accounting Standards No. 145, entitled "Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS 13, and Technical
Corrections" ("SFAS 145"). SFAS 145 rescinds previous accounting guidance, which required all gains and losses from extinguishments of debt to be classified as extraordinary items. Under SFAS 145,
classification of debt extinguishments depends on the facts and circumstances of the transactions. SFAS 145 is effective for fiscal years beginning after May 15, 2002. The adoption of SFAS 145 is not
expected to have a material effect on the Company's financial position or results of its operations.

In
July 2002, the FASB issued Statements of Financial Accounting Standards No. 146, entitled "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered
by SFAS 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plan closing or other exit or disposal activity.
SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 is not expected to have a material effect on Sport-Haley's financial
position or results of its operations.

22

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|INDEX                                              |  | Page
|-------------------------------------------------- |  | ----
|Report of Independent Certified Public Accountants |  | F-2 
|Consolidated Balance Sheets                        |  | F-3 
|Consolidated Statements of Operations              |  | F-4 
|Consolidated Statement of Shareholders' Equity     |  | F-5 
|Consolidated Statements of Cash Flows              |  | F-6 
|Notes to Consolidated Financial Statements         |  | F-7 
|Schedule IIValuation and Qualifying Accounts      |  | F-20

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

As previously reported, as of July 13, 2000, at the recommendation of the Audit Committee, the Company terminated the services of its former accountants, Levine,
Hughes & Mithuen, Inc. The reports of Levine, Hughes & Mithuen, Inc. on the Company's financial statements for the years ending June 30, 1999 and 1998 did not contain any adverse opinions or
disclaimers of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. At the advice of the Audit Committee, the Company retained the services of Hein +
Associates LLP on or about July 13, 2000. During the two years preceding the termination of Levine, Hughes & Mithuen, Inc., there were no disagreements with the Company's former accountants on any
matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which would have caused the former accountants to make reference to such disagreements in
connection with their report.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

|Name                     |  | Age |  | Position                                                                                                
|------------------------ |  | --- |  | --------------------------------------------------------------------------------------------------------
|Robert G. Tomlinson      |  | 61  |  | Chairman of the Board, Chief Executive Officer (3)                                                      
|Kevin M. Tomlinson       |  | 42  |  | Chief Executive Officer, Chief Operating Officer, Executive Vice President  Operations (4) and Director
|Robert W. Haley          |  | 57  |  | President and Director                                                                                  
|Patrick W. Hurley        |  | 50  |  | Chief Financial Officer, Secretary, Treasurer and Controller                                            
|Donald W. Jewell         |  | 51  |  | Senior Vice President                                                                                   
|Catherine B. Blair       |  | 51  |  | Vice President  Merchandising/Design                                                                   
|James A. Saxon           |  | 47  |  | Vice President  Sales, Special Markets and Brands                                                      
|Mark J. Stevenson (1)(2) |  | 64  |  | Director                                                                                                
|Ronald J. Norick (1)(2)  |  | 61  |  | Director                                                                                                
|James H. Everest (1)(2)  |  | 54  |  | Director                                                                                                

---

Officers
are appointed by and serve at the discretion of the Board of Directors except in those instances that officers are employed under employment agreements. Each director holds
office until the next annual meeting of shareholders or until a successor has been duly elected and qualified. All of Sport-Haley's officers devote full-time to Sport-Haley's business and affairs.

Robert G. Tomlinsonhas served as Chairman of the Board of Sport-Haley since October 1992 and served as Chief Executive Officer from
October 1992 until March 2002. From March 1998 until August 2001, he also served as a director of the Subsidiary. Prior to joining Sport-Haley, Mr. Tomlinson was a partner in Tomlinson Enterprises, a
real estate investment partnership, and also engaged in management of his personal investment portfolio. Mr. Tomlinson is the father of Kevin Tomlinson, the Chief Executive Officer.

Kevin M. Tomlinsonhas served as Chief Executive Officer since March 2002 and as a director since September 1999. Previously, Mr.
Tomlinson had served as Vice President of Operations from December 1997 until January 1999, and Chief Operating Officer and Executive Vice President-Operations, from January 1999 until March 2002.
From September 1999 until August 2001, he also served as a director and vice-president of the Subsidiary. From 1992 until joining Sport-Haley, Mr. Tomlinson was employed by Nu-Kote International,
Inc., an office products manufacturer and distributor, in capacities including vice president of product marketing, vice president of marketing, vice president of global procurement and vice president
of retail sales. Mr. Tomlinson is the son of Robert G. Tomlinson, the Chairman of the Board of Sport-Haley.

24

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Robert W. Haleyhas served as President and a director of Sport-Haley since May 1996. From January 1992 until his appointment to such
positions, he served as Vice President of Marketing of Sport-Haley. Prior to joining Sport-Haley, Mr. Haley served in various marketing positions for golf apparel manufacturers. Mr. Haley is a Class A
PGA professional golfer with more than 25 years experience in the golf industry.

Patrick W. Hurleyserved as Secretary, Treasurer and Controller since November 1999 and as Chief Financial Officer since December 2000.
Prior to joining Sport-Haley, he was employed as a Senior Staff Accountant at Saltzman Hamma Nelson Massaro LLP, Denver, Colorado, where among other things,
he supervised or participated in the preparation of audited and unaudited financial statements and income tax returns, and provided advice and training for business clients regarding selection and
implementation of accounting systems and procedures. Mr. Hurley is a certified public accountant and received a Bachelor of Science in Accounting in 1991. He is a member of the American Institute of
Certified Public Accountants and the Colorado Society of Certified Public Accountants.

Donald W. Jewellhas served as Senior Vice President of Sport-Haley since February 1, 2001. From 1996 until joining Sport-Haley, Mr.
Jewell was the founder, president and director of Jewell Apparel Group, a Canadian distributor of premium and mid-priced men's golf apparel. Mr. Jewell began designing, sourcing and marketing golf
apparel in 1993 while serving as the president and chief executive officer of Jewell-Rung, positions that he held from 1980 to 1996.

Catherine B. Blairhas served as Vice President of Merchandising/Design since her appointment in May 1996. Ms. Blair has been part of
Sport-Haley's design team since 1992, and was appointed Director of Design in 1995. Prior to joining Sport-Haley, she was a designer for a golfwear company and also worked as a freelance designer for
companies such as Macy's, Bloomingdale's, Ann Taylor and The Gap.

James A. Saxonhas served as Vice President  Sales, Special Markets and Brands since June 1, 2001. From August
2000 until joining Sport-Haley, Mr. Saxon was vice president of sales and marketing for American Design Studios, Inc. From July 1998 to August 2000, Mr. Saxon was vice president and chief operating
officer for Jewell Apparel Group. From September 1994 to December 1997, Mr. Saxon was the president and chief operating officer for Montecito Sportswear Corp.

Mark J. Stevensonhas been a director of Sport-Haley since November 1993. Mr. Stevenson serves as president and chief executive officer of
Zenodata Corporation, a Colorado based financial services software company. Mr. Stevenson held the positions of 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 June 1, 1994 until that company was merged into
E-M-Solutions in January 1999. At that time, Mr. Stevenson was appointed executive chairman and chairman of the board of E-M-Solutions, which was purchased by Sanmina/SCI in November 2001. From 1992
to 1994, Mr. Stevenson served as chairman of the board for Micro Insurance Software, Inc., Boulder, Colorado, a manufacturer of computer software oriented to the insurance industry. Mr. Stevenson
currently serves on the Colorado Governor's Commission on Science and Technology and on the Advisory Council of the University of Colorado Center for Entrepreneurship. Mr. Stevenson formerly served as
chairman of the American Electronics Association, the nation's largest high technology trade association.

Ronald J. Norickhas been a director of Sport-Haley since November 1993. From April 1987 until April 1998, Mr. Norick served as the
elected Mayor of the City of Oklahoma City, Oklahoma. From 1960 to 1992, Mr. Norick served in various capacities, including serving as president from 1981 to 1992, of a closely-held printing company,
which was acquired by Reynolds & Reynolds in June 1992. Mr. Norick serves on a number of civic, community, educational, corporate and public boards, commissions and committees Mr. Norick is a director
of Banc First Corporation, a publicly-held corporation based

25

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in Oklahoma City, Oklahoma. Mr. Norick also serves as controlling manager of Norick Investments Company LLC, a family-owned limited liability company, which is engaged in investments.

James H. Everesthas been a director of Sport-Haley 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 by Mr. Everest's father to conduct charitable activities. 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 also composed of Messrs. Norick, Stevenson and Everest. No member of either committee is a current or former officer or employee of
Sport-Haley.

The
primary function of the Compensation Committee is to review and make recommendations to the Board with respect to the compensation, including bonuses, of Sport-Haley's officers and
to administer Sport-Haley's Option Plan. See "Compensation Committee Report" included in Item 11 below. The Compensation Committee held two meetings in fiscal 2002. All of the committee members
attended the meetings held during fiscal 2002.

The
function of the Audit Committee is to review and approve the scope of audit procedures employed and to review and approve the audit reports rendered by Sport-Haley'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. The Audit Committee held four formal meetings during fiscal 2002. Mr. Everest attended three meetings and each other committee member attended all of the meetings held during
fiscal 2002.

The
Board of Directors authorized the hiring of a consultant to assist the Audit Committee with the review of financial statements in accordance with regulations promulgated by the
Securities and Exchange Commission. The consultant attended all of the Audit Committee meetings held during fiscal 2002.

In
fiscal 2002, the Board of Directors held six formal meetings. Mr. Everest attended four of the six meetings and each other director attended all board meetings held during fiscal
2002.

26

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ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table.The following table sets forth the annual and long-term compensation for services in all
capacities to Sport-Haley for the three fiscal years ended June 30, 2002 of Robert G. Tomlinson, Chief Executive Officer until March 2002, Kevin M. Tomlinson, Chief Executive Officer from March 2002
and Chief Operating Officer until March 2002, Robert W. Haley, President, James A. Saxon, Vice President  Sales, Special Markets and Brands, and Donald W. Jewell, Senior Vice President,
the only executive officers of Sport-Haley whose total annual salary and bonus exceeded $100,000 during the year ended June 30, 2002 (the "Named Officers").

|                                                                                                                                  |  |                |  |   |                         |  |   | Long Term
Compensation Awards |  |   |            
|--------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | - | ----------------------- |  | - | ----------------------------- |  | - | -----------
|
|
|
|Robert G. Tomlinson,
    Chairman of the Board and
    Chief Executive Officer(3)                                                 |  | 2002
2001
2000 |  | $ | 170,000
170,000
176,539 |  | $ | -0-
-0-
-0-                   |  | $ | -0-
-0-
-0-
|Kevin M. Tomlinson,
    Chief Executive Officer,
    Chief Operating Officer
    and Executive Vice President 
    Operations(4) |  | 2002
2001
2000 |  |   | 160,000
140,000
129,885 |  |   | -0-
-0-
-0-                   |  |   | -0-
-0-
-0-
|Robert W. Haley,
    President                                                                                                    |  | 2002
2001
2000 |  |   | 150,000
150,000
155,769 |  |   | -0-
-0-
-0-                   |  |   | -0-
-0-
-0-
|James A. Saxon,
    Vice President  Sales,
    Special Markets and Brands                                                        |  | 2002           |  |   | 130,000                 |  |   | -0-                           |  |   | -0-        
|Donald W. Jewell,
    Senior Vice President                                                                                       |  | 2002           |  |   | 100,571                 |  |   | -0-                           |  |   | -0-        

---

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Option/SAR Grants Table.

The following table sets forth information concerning grants of stock options to the Named Executive Officers pursuant to the Company's stock option plan during
the fiscal year ended June 30, 2002.

|                    |  | Option/SAR Grants in Last Fiscal Year
Individual Grants |  | Market
Price of
Common
Stock on
Date of
Grant |  |            
|------------------- |  | ------------------------------------------------------- |  | --------------------------------------------- |  | -----------
|
|Robert G. Tomlinson |  | 25,000
25,000                                           |  | 6.4%
6.4                                      |  | $3.00
$3.60
|Kevin M. Tomlinson  |  | 25,000
50,000                                           |  | 6.4
12.8                                      |  | $3.00
$3.60
|Robert W. Haley     |  | 25,000
25,000                                           |  | 6.4
6.4                                       |  | $3.00
$3.60
|James A. Saxon      |  | 25,000                                                  |  | 6.4                                           |  | $3.60      
|Donald W. Jewell    |  | 25,000
25,000                                           |  | 6.4
6.4                                       |  | $3.07
$3.60

|                    |  | Potential Realizable Value at
Assumed Annual Rates Of
Stock Price Appreciation for
Option Term
|------------------- |  | ----------------------------------------------------------------------------------------------
|
|
|Robert G. Tomlinson |  | $                                                                                             
|Kevin M. Tomlinson  |  |                                                                                               
|Robert W. Haley     |  |                                                                                               
|James A. Saxon      |  |                                                                                               
|Donald W. Jewell    |  |                                                                                               

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Fiscal Year-End Options/Option Values Table.

|                    |  |     |  |     |  | Number of Securities Underlying Unexercised Options/SARs at
Fiscal Year-End |  | Value of Unexercised In-the-Money(1) Options/SARs at Fiscal Year-End(2)
|------------------- |  | --- |  | --- |  | --------------------------------------------------------------------------- |  | -----------------------------------------------------------------------
|
|
|Robert G. Tomlinson |  | -0- |  | -0- |  | 46,667                                                                      |  | 58,333                                                                 
|Kevin M. Tomlinson  |  | -0- |  | -0- |  | 61,667                                                                      |  | 83,333                                                                 
|Robert W. Haley     |  | -0- |  | -0- |  | 36,668                                                                      |  | 58,333                                                                 
|James A. Saxon      |  | -0- |  | -0- |  | 8,333                                                                       |  | 41,667                                                                 
|Donald W. Jewell    |  | -0- |  | -0- |  | 8,333                                                                       |  | 41,667                                                                 

---

No
employee of Sport-Haley receives any additional compensation for his services as a director. Non-management directors receive no salary for their services as such, but may receive a
fee of $250 per meeting attended. The Board of Directors has also authorized payment of reasonable travel and other out-of-pocket expenses incurred by non-management directors in attending meetings of
the Board of Directors. During fiscal 2002, the three non-employee directors were granted 50,000 options each (150,000 total) to purchase the Company's common stock, 25,000 at an exercise price per
share of $3.00 and 25,000 at an exercise price per share of $3.60.

Employment Agreements.Effective January 1, 1997, Sport-Haley entered into an employment agreement with Mr. Robert G.
Tomlinson. During fiscal year 2002, on March 18, 2002, Mr. Tomlinson resigned from his position as Chief Executive Officer, but continues to serve as the Chairman of the Board. The agreement requires
that he devote his full business time to Sport-Haley as Chief Executive Officer and/or Chairman of the Board at an annual salary of $230,000, as amended, be provided an automobile and such bonuses as
awarded by the Board of Directors. The term of the employment agreement extends from January 1, 1997 to December 31, 1999, subject to automatic one (1) year extensions at the end of each year. Mr.
Tomlinson has the option to convert the employment agreement to a consulting agreement in the event of a change in control of Sport-Haley or upon his resignation. Subject to the right of Sport-Haley
to terminate the consulting agreement for cause, Mr. Tomlinson is entitled to serve as a consultant to Sport-Haley 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 Sport-Haley terminates the agreement for other than "cause" (as defined in
the agreement), or if there is a change in control of Sport-Haley 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 Sport-Haley'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 Sport-Haley with cause, all options previously granted shall

29

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become fully vested on the date of termination. The agreement contains a non-competition provision for one-year following termination.

Effective
December 1, 1999, Sport-Haley entered into an employment agreement with Mr. Kevin Tomlinson to act as the Company's Chief Operating Officer and Executive
Vice-PresidentOperations. Mr. Tomlinson served in these positions until March 18, 2002, at which time he resigned from these positions and became the Chief Executive Officer of
Sport-Haley. During the period applicable, the agreement required that he devote his full business time to Sport-Haley as Chief Operating Officer and Executive Vice President-Operations at an annual
salary of $140,000 per year and such bonuses as awarded by the Board of Directors. The term of the employment agreement would have otherwise extended from December 1, 1999 to December 1, 2002, subject
to automatic one (1) year extensions at the end of each year. If Sport-Haley terminated the agreement for other than "cause" (as defined in the agreement), Mr. Tomlinson was entitled to receive
severance compensation equal to 12 months salary and bonus and incentive payments over the last 12 months. During the time he was receiving any such severance compensation, he would be eligible to
participate in all employee benefit plans, at Sport-Haley's expense. If there were a non-negotiated change in control of Sport-Haley, he was entitled to lump sum severance compensation equal to three
times his annual salary and bonus payment during the preceding 12 months. If Mr. Tomlinson became disabled during the term of the agreement, his full salary would have been continued for one year from
the date of disability. If termination was for any reason other than by Sport-Haley with cause, all options previously granted would have become fully vested on the date of termination. The agreement
contained a non-competition provision for one-year following termination.

Effective
March 18, 2002, Sport-Haley entered into an employment agreement with Mr. Kevin Tomlinson to act as the Company's Chief Executive Officer. The agreement requires that he devote
his full business time to Sport-Haley as Chief Executive Officer, at an annual salary of $160,000 per year and such bonuses as awarded by the Board of Directors. The term of the employment agreement
extends from March 18, 2002 until March 18, 2005, subject to automatic one (1) year extensions at the end of each year. If Sport-Haley terminates the agreement for other than "cause" (as defined in
the agreement), Mr. Tomlinson is entitled to receive severance compensation equal to 36 months salary and bonus and incentive payments over the last 12 months, payable monthly over the 36-month
period. During the time he is receiving any such severance compensation, he is eligible to participate in all employee benefit plans, at Sport-Haley's expense. If there is a non-negotiated "change in
control" (as defined in the agreement) of Sport-Haley, he is entitled to lump sum severance compensation equal to three times his annual salary and bonus payment during the preceding 12 months. In the
event of a negotiated change of control, Mr. Tomlinson is not entitled to any severance benefits if, after the change of control has occurred, he continues to serve as Chief Executive Officer and his
employment agreement remains in full force and effect, or, he is able to negotiate a satisfactory new employment agreement with the Company. If Mr. Tomlinson becomes disabled during the term of the
agreement, his full salary shall be continued for one year from the date of disability. If termination is for any reason other than by Sport-Haley 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, Sport-Haley entered into an employment agreement with Mr. Robert W. Haley. The agreement requires that he devote his full business time to Sport-Haley 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 extended through December 31, 1998 and has
subsequently automatically renewed for additional one-year terms. If Sport-Haley 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.

30

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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 Sport-Haley's expense. If there is a non-negotiated change in control of Sport-Haley 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 Sport-Haley 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.

Sport-Haley
entered into an employment agreement with Mr. Donald Jewell effective February 1, 2001. The agreement requires that he devote his full business time to Sport-Haley as Senior
Vice President at an annual salary of $130,000 and such bonuses as awarded by the Board of Directors. The employment agreement extends from February 1, 2001 through January 1, 2003, subject to
automatic one (1) year extensions at the end of each year. If Sport-Haley terminates the agreement for other than "cause" (as defined in the agreement), or if he terminates the agreement for "cause,"
he is entitled to receive severance compensation equal to twelve months salary and 50% of the last annual bonus. During the
time he is receiving any such severance compensation, he would be eligible to participate in all employee benefit plans, at Sport-Haley's expense. If there is a non-negotiated change in control of
Sport-Haley, he is entitled to lump sum severance compensation equal to three times his annual salary and bonus payment during the preceding 12 months. In the event of a non-negotiated change in
control of the Company, options previously granted to Mr. Jewell would become fully vested and exercisable on the date of termination. In the event of a termination by either party without cause,
options previously granted will vest and become exercisable on a pro-rata basis from the date of grant to the date of termination. If Sport-Haley terminates the agreement with cause, no unexercised
options will be exercisable. The agreement contains a non-competition agreement for twelve months following termination, provided Mr. Jewell could be released from the non-compete if the agreement
were terminated without cause and if he had elected to forego any severance pay.

Sport-Haley
entered into an employment agreement with Mr. James A. Saxon effective June 6, 2001. The agreement requires that he devote his full business time to Sport-Haley as Vice
PresidentSales, Special Markets and Brands for an annual salary of $130,000 and such bonuses as awarded by the Board of Directors. The employment agreement extends from June 1, 2001
through May 31, 2003, subject to automatic one (1) year extensions at the end of each year. If Sport-Haley terminates the agreement for other than "cause" (as defined in the agreement), or if he
terminates the agreement for "cause," he is entitled to receive severance compensation equal to six months salary and 50% of the last annual bonus. During the time he is receiving any such severance
compensation, he would be eligible to participate in all employee benefit plans, at Sport-Haley's expense. If there is a non-negotiated change in control of Sport-Haley, he is entitled to lump sum
severance compensation equal to three times his annual salary and bonus payment during the preceding 12 months. In the event of a non-negotiated change in control of the Company, options previously
granted to Mr. Jewell would become fully vested and exercisable on the date of termination. In the event of a termination by either party without cause, options previously granted and vested must be
exercised within three months of termination or such options are extinguished. If Sport-Haley terminates the agreement with cause, no unexercised options will be exercisable.

Stock Option Plan

Sport-Haley adopted a stock option plan in 1993 (as amended, the "Option Plan"). The Option Plan, as amended, provides for the granting of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options and stock

31

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appreciation rights ("SARs"), up to a maximum number of 2,150,000 shares. Non-qualified options may be granted to employees, directors and consultants of Sport-Haley, while incentive 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. The Compensation Committee 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 incentive options granted under the Option Plan must be at least equal to the fair market value of the Common Stock of Sport-Haley 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 Sport-Haley, the exercise price of incentive 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 terms of all non-qualified stock options granted under the Option Plan may not exceed ten years and the
terms of all incentive 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 Sport-Haley, 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 Sport-Haley enters into an agreement providing for the merger of Sport-Haley into another corporation or the sale of substantially all of
Sport-Haley'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, 2002, a total of 978,958 non-qualified and incentive options were outstanding, with exercise prices ranging from $2.50 to $10.625 per share and a weighted average exercise
price per share of $4.60.

401(k) Plan

In January 1996, Sport-Haley adopted a defined contribution savings plan (the "401(k) Plan") to provide retirement income to employees of Sport-Haley. 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 full-time 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 Sport-Haley of $0.25
on the dollar for employee contributions on the first 5% of the employee's annual compensation. Upon leaving Sport-Haley, each participant is 100% vested with respect to the participant's
contributions and is vested based on years of service with respect to Sport-Haley's matching contributions. Contributions are invested as directed by the participant in investment funds available
under the 401(k) Plan. Upon 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.

32

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Compliance with Section 16(a) of the Exchange Act

Under the securities laws of the United States, Sport-Haley's directors, its executive officers, and any persons holding more than ten percent of its Common Stock
are required to report their initial ownership of Common Stock and other equity securities and any subsequent changes in that ownership to the Securities and Exchange Commission and Sport-Haley.
Specific due dates for these reports have been established and Sport-Haley is required to disclose in this annual report on Form 10-K any failure to file, or late filing, of such reports with respect
to the period ended June 30, 2002. Based solely on Sport-Haley's review of the reports furnished to Sport-Haley and written representations that no other reports were required during fiscal 2002,
Sport-Haley's officers, directors and beneficial owners of more than ten percent of its Common Stock complied with all Section 16(a) filing requirements.

Compensation Committee Report

Notwithstanding anything to the contrary set forth in any of the previous filings made by Sport-Haley under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future filings, including, but not limited to, this Report on Form 10-K, in whole or in part, the following Compensation Committee
Report shall not be deemed to be "filed" with the Securities and Exchange Commission nor shall it be incorporated by reference into any such future filings.

This
Compensation Committee Report discusses Sport-Haley's executive compensation policies and the basis for the compensation paid to Sport-Haley's executive officers, including its
Chief Executive Officer, during fiscal 2002.

Compensation Policy.Sport-Haley's policy with respect to executive compensation was designed to:



The
components of compensation paid to executive officers consist of: a) base salary; b) incentive compensation in the form of discretionary annual bonus payments; c) long-term incentive
compensation in the form of awards under Sport-Haley's Option Plan; and, d) various other benefits.

Base Salary.For fiscal 2002, the Compensation Committee reviewed the base salaries paid by Sport-Haley to its executive
officers under their respective employment agreements. Annual adjustments to base salaries, if any, are determined based upon a number of factors, including Sport-Haley's performance (to the extent
such performance can fairly be attributed or related to each executive officer's performance), as well as the value of each executive officer's responsibilities, capabilities and contributions and
internal compensation equity considerations. In addition, for fiscal 2002, the Compensation Committee reviewed the base salaries of its executive officers in an attempt to ascertain whether those
salaries fairly reflect job responsibilities and prevailing market conditions and rates of pay. The Compensation Committee believes that base salaries for Sport-Haley's executive officers have been
reasonable in relation to its size and performance in comparison with the compensation paid by similarly sized companies or companies within the golf apparel industry. The Compensation Committee did
not increase the base pay of Sport-Haley's executive officers in fiscal 2002, except for one officer, who assumed significantly greater responsibilities.

33

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Incentive Cash Bonus Compensation.The Compensation Committee feels that a relatively lower level of base salary and
relatively higher level of incentive compensation, in the form of bonuses and grants of options, most effectively aligns the interests of management with the interests of Sport-Haley's shareholders.
The Compensation Committee also believes that its policy regarding incentive compensation is similar to policies of other companies of comparable size within the golf apparel industry. The decision of
whether to award incentive cash bonus compensation is based on a combination of the achievement of business targets and objectives and certain other financial measures which the Compensation Committee
feels will dictate, in large part, Sport-Haley's future operating results, and on an officer's responsibilities, capabilities and contribution to Sport-Haley. There is no formal written bonus
incentive plan for executive officers, although certain executive officers' employment agreements provide that the executive is eligible for a discretionary bonus of up to a specified percentage of
his or her base salary. Although all of the executive officers' contributions were noted and commended, the Compensation Committee did not believe that bonuses were merited in view of the continued
negative sales and profitability trends of Sport-Haley in fiscal 2002.

Long-Term Incentive (Option) Compensation.The Compensation Committee also has authority to select the executive officers and
employees who will be granted options and other awards and to determine
the timing, pricing and amount of any such options or awards. As stated above, the Compensation Committee believes that incentive compensation, in the form of bonuses and grants of options, most
effectively aligns the interests of management with the interests of Sport-Haley's shareholders. In fiscal 2002, the Compensation Committee granted 398,000 options to executives or employees of the
Company.

Other Benefits.Executive officers are eligible for various benefits, including health and welfare plans generally available
to all full-time employees. In addition, executive officers are eligible to participate in the 401(k) Plan, also generally available to all employees, whereby the officers may elect to defer part or
all of their base and incentive cash compensation, with matching contributions from Sport-Haley. Sport-Haley does not maintain any other plans or arrangements for the benefit of its executive officers
except to provide life insurance policies for the benefit of certain executive officers' named beneficiaries and a vehicle for use by its Chief Executive Officer. The Compensation Committee believes
these benefits are reasonable in relation to the executive compensation practices of other similarly sized companies or companies within the golf apparel industry.

Tax Considerations.Beginning in 1994, the Internal Revenue Code limited the federal income tax deductibility of compensation
paid to a company's Chief Executive Officer and to each of the four most highly compensated executive officers. For this purpose, compensation can include, in addition to cash compensation, the
difference between the exercise price of stock options and the value of the underlying stock on the date of exercise. A company may deduct compensation with respect to any of these individuals only to
the extent that during any fiscal year such compensation does not exceed $1 million or meets certain other conditions (such as shareholder approval). Considering current compensation plans and policy
and the exercise price of currently outstanding stock options held by the executive officers, the Compensation Committee believes that, for the near future, there is little risk that Sport-Haley will
lose any significant tax deduction relating to executive compensation. At such time, if any, that the deductibility of executive compensation becomes an issue, modifications to compensation plans and
policies will be considered by the Compensation Committee.

CEO Compensation.During fiscal 2002, Robert G. Tomlinson served as Chief Executive Officer of the Company until March 18,
2002, at which time he resigned from that position and Kevin M. Tomlinson was appointed Chief Executive Officer. In reviewing the Chairman's and Chief Executive Officer's compensation packages, the
Committee pursues the same objectives that apply for other executive officers. The Committee's overall goal is to set the Chairman's and Chief Executive Officer's salaries at a bases comparable to
those of persons employed in similar capacities with competitors that

34

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are similar in industry size and performance. However, the actual levels approved by the Committee may be higher or lower based upon the Committee's subjective evaluation of the annual and long-term
performance of Sport-Haley, the individual performance of the Chairman and Chief Executive Officer, particularly with respect to leadership and strategic vision, and the cash resources and needs of
Sport-Haley. The Committee believes that Robert G. Tomlinson has exhibited exemplary leadership as the Chairman and former Chief Executive Officer of Sport-Haley. The Compensation Committee noted that
Robert G. Tomlinson previously made a voluntary decision to reduce his base salary and commended that action as a demonstration of his leadership by example. In fiscal 2002, no raises or cash bonuses
were awarded to Robert G. Tomlinson. His voluntary reduction in salary continued into fiscal 2002 and he is currently being paid at an annual rate of $170,000, rather than the $230,000 to
which he is entitled under his employment agreement. When Kevin M. Tomlinson was appointed Chief Executive Officer effective March 18, 2002, the Compensation Committee considered and reviewed the base
salary and benefits paid to him as Chief Operating Officer and recommended an increase in base salary based upon the increase in responsibilities and to reward him for past service to the Company.

The
Compensation Committee believes that the concepts discussed above further the shareholders interests and that officer compensation encourages responsible management of Sport-Haley.
The Compensation Committee considers the effect of management compensation on shareholder interests. In the past, the Board of Directors based its review in part on the experiences of its own members
and on information requested from management personnel. These same factors will be used in the future when determining officer compensation.

This
report was furnished by Mark J. Stevenson, Ronald J. Norick and James H. Everest, all of the members of the Compensation Committee.

Compensation Committee Interlocks and Insider Participation

All of the Compensation Committee members are independent directors of Sport-Haley. None of these members have ever been an officer or employee of Sport-Haley or
its Subsidiary nor have any of them had a relationship, which would require disclosure under the "Certain Relationship and Related Transactions" captions of any of Sport-Haley's filings with the
Commission during the past three fiscal years.

Performance Graph

Notwithstanding anything to the contrary set forth in any of the previous filings made by Sport-Haley under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future filings, including, but not limited to, this Report on Form 10-K, in whole or in part, the following performance graph shall
not be deemed to be incorporated by reference into any such future filings.

35

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Set
forth below is a line graph prepared by Media General Financial Services comparing the yearly percentage change in Sport-Haley's cumulative total shareholder return (share price
appreciation plus dividends) on Sport-Haley's Common Stock with the cumulative total return of (i) a Nasdaq Market Index and (ii) the stocks of apparel manufacturers having Standard Industrial
Classification codes from
industry group numbers 231 through 235, which is deemed as a market weighted index of publicly traded peers, for the period from July 1, 1997 through June 30, 2002 (the "Measurement Period"). The
graph assumes that $100 is invested in each of Sport-Haley's common stock, the Nasdaq Market Index and the publicly traded peers on July 1, 1997 and that all dividends were reinvested (there were no
dividends paid by Sport-Haley during the Measurement Period). Sport-Haley's shareholder return is calculated by dividing (i) the difference between Sport-Haley's share price at July 1, 1997 and each
June 30 of the Measurement Period by (ii) the share price at the beginning of the Measurement Period.

GRAPHIC

|                          |  | Fiscal Year Ended June 30,
|------------------------- |  | --------------------------
|
|Sport-Haley, Inc.         |  | 100.00                    
|Industry Peer Group Index |  | 100.00                    
|Nasdaq Market Index       |  | 100.00                    

36

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial ownership of Sport-Haley's Common Stock as of September 13, 2002 by: (i) each person known
by Sport-Haley 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 with respect
to institutional investors is derived solely from statements filed with the Commission under Section 13(d) or 13(g) of the Securities Exchange Act. Each person has sole voting and sole investment or
dispositive power with respect to the shares shown except as noted.

|                                                                                                                                                     |  | Shareholdings on
September 13, 2002 | 
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | 
|
|Robert G. Tomlinson (4)                                                                                                                              |  | 99,667                              | 
|Kevin M. Tomlinson (7)                                                                                                                               |  | 61,667                              | 
|Robert W. Haley (5)                                                                                                                                  |  | 58,284                              | 
|James A. Saxon (7)                                                                                                                                   |  | 8,333                               | 
|Donald W. Jewell (7)                                                                                                                                 |  | 8,333                               | 
|Patrick W. Hurley (7)                                                                                                                                |  | 10,000                              | 
|Catherine Blair (6)                                                                                                                                  |  | 20,000                              | 
|Mark J. Stevenson (7)                                                                                                                                |  | 25,000                              | 
|Ronald J. Norick (8)                                                                                                                                 |  | 135,617                             | 
|James H. Everest (9)                                                                                                                                 |  | 65,000                              | 
|Catalyst Master Fund, L.P. (10)
    c/o W.S. Walker & Co.
    Walker House, Mary Street P.O. Box 265GT
    George Town, Grand Cayman, Cayman Islands |  | 210,085                             | 
|Dimensional Fund Advisors Inc. (11)
    1299 Ocean Avenue, 11th Floor
    Santa Monica, California 90401                                             |  | 259,500                             | 
|Hillson Partners Limited Partnership (12)
    6900 Wisconsin Avenue, Suite 501
    Bethesda, MD 20815                                                |  | 274,600                             | 
|Michael Cook Asset Management, Inc. (13)
    d/b/a Cook Mayer Taylor
    5170 Sanderlin Avenue, Suite 200
    Memphis, Tennessee 38117               |  | 523,100                             | 
|All directors and officers as a group (Nine persons)(14)                                                                                             |  | 491,901                             | 

---

37

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Equity Compensation Plan Information

The following table contains information regarding Sport-Haley's equity compensation plan as of June 30, 2002. The only equity compensation plan maintained by
Sport-Haley is the company's amended and restated 1993 stock option plan (the "Option Plan"). The Option Plan was approved by the shareholders of Sport-Haley in 1993 and was amended in 1997.

|Plan Category                                              |  | Number of Securities to be
issued upon exercise of
outstanding options, warrants
and rights
(a) |     | Weighted-average exercise
price of outstanding options,
warrants and rights
(b) |      | Number of securities
remaining available for
future issuance under equity
compensation plans (excluding
securities reflected in
column (a))
(c) |        
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------- | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------- | -------
|Equity compensation plans approved by security holders     |  | 978,958                                                                                         | (1) | $                                                                               | 4.60 | (2)                                                                                                                                             | 308,679
|Equity compensation plans not approved by security holders |  |                                                                                                 |     |                                                                                 |      |                                                                                                                                                 |        
|Total                                                      |  | 978,958                                                                                         |     | $                                                                               | 4.60 |                                                                                                                                                 | 308,679

---

38

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Sport-Haley adopted a policy pursuant to which material transactions between Sport-Haley and its executive officers, directors and principal shareholders (i.e.
shareholders owning beneficially 5% or more of the outstanding voting securities of Sport-Haley) 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 that exceeds $60,000. No such transactions occurred in fiscal 2002.

ITEM 14. CONTROLS AND PROCEDURES

During fiscal 2002, Sport-Haley did not institute any significant changes in its internal controls. In addition, there were no significant changes in other
factors that could significantly affect these controls.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Exhibits, Financial Statements and Financial Statement Schedules

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:

(1) Financial Statements



(2) Financial Statement Schedules

Schedule IIValuation and Qualifying Accounts

39

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(3) Exhibits

|Exhibit No. |          | Document
|----------- | -------- | --------
|*/          | 3.1.2    |         
|           | 3.2.3    |         
|***         | 3.2.4    |         
|*/          | 4.1      |         
|#           | 10.1.3   |         
|x           | 10.2.1   |         
|III         | 10.2.4   |         
|xx          | 10.2.4.1 |         
|x           | 10.2.5   |         
|x           | 10.2.6   |         
|##          | 10.2.7   |         
|##          | 10.2.8   |         
|##          | 10.2.9   |         
|x           | 10.2.10  |         
|II          | 10.3.2   |         
|##          | 10.3.5   |         
|***         | 10.3.6   |         
|++          | 10.4.1   |         
|***         | 10.4.2   |         
|+           | 10.4.4   |         
|            |          |         

40

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|**  | 10.4.5 |  | Lease Agreement, dated April, 1998, between Larry M. Jones and Roberta C. Jones, and B&L Sportswear, Inc.                
|--- | ------ |  | -------------------------------------------------------------------------------------------------------------------------
|*/  | 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 Sport-Haley.
|   | 10.10  |  | Trademark Licensing Agreement, dated October 14, 1995, by and between W.L. Gore & Associates, Inc. and Sport-Haley.      
|**  | 21.    |  | Subsidiaries of the Registrant                                                                                           
|*** | 99.1   |  | Certification Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002         

---

(b) Reports on Form 8-K

None.

41

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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, 2002 |  | By:              

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/KEVIN M. TOMLINSONKevin M. Tomlinson   |  | Chief Executive Officer (Principal Executive Officer)        |  | September 26, 2002
|/s/ROBERT G. TOMLINSONRobert G. Tomlinson |  | Chairman of the Board                                        |  | September 26, 2002
|/s/ROBERT W. HALEYRobert W. Haley         |  | President and Director                                       |  | September 26, 2002
|/s/PATRICK W. HURLEYPatrick W. Hurley     |  | Chief Financial Officer, Secretary, Treasurer and Controller |  | September 26, 2002
|/s/MARK J. STEVENSONMark J. Stevenson     |  | Director                                                     |  | September 26, 2002
|/s/RONALD J. NORICKRonald J. Norick       |  | Director                                                     |  | September 26, 2002
|/s/JAMES H. EVERESTJames H. Everest       |  | Director                                                     |  | September 26, 2002

42

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CERTIFICATION

I,
Kevin M. Tomlinson, Chief Executive Officer of Sport-Haley, Inc., certify that:

1.    I
have reviewed this annual report on Form 10-K of Sport-Haley, Inc.;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date:
September 26, 2002

|/s/KEVIN M. TOMLINSONKevin M. Tomlinson
Chief Executive Officer |  | 
|--------------------------------------------------------------- |  | 

CERTIFICATION

I,
Patrick W. Hurley, Chief Financial Officer of Sport-Haley, Inc., certify that:

1.    I
have reviewed this annual report on Form 10-K of Sport-Haley, Inc.;

2.    Based
on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and

3.    Based
on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report.

Date:
September 26, 2002

|/s/PATRICK W. HURLEYPatrick W. Hurley
Chief Financial Officer |  | 
|------------------------------------------------------------- |  | 

43

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INDEX TO FINANCIAL STATEMENTS

|                                               |                                                  | PAGE
|---------------------------------------------- | ------------------------------------------------ | ----
|Independent Auditor's Report                   |                                                  | F-2 
|Consolidated Balance Sheets                    |                                                  |     
|                                               | June 30, 2002 and 2001                           |     
|Consolidated Statements of Operations          |                                                  |     
|                                               | For the Years Ended June 30, 2002, 2001 and 2000 |     
|Consolidated Statement of Shareholders' Equity |                                                  |     
|                                               | For the Years Ended June 30, 2002, 2001 and 2000 |     
|Consolidated Statements of Cash Flows          |                                                  |     
|                                               | For the Years Ended June 30, 2002, 2001 and 2000 |     
|Notes to Consolidated Financial Statements     |                                                  | F-7 
|Schedule IIValuation and Qualifying Accounts  |                                                  | F-20

F-1

---



INDEPENDENT AUDITOR'S REPORT

Board
of Directors
Sport-Haley, Inc. and Subsidiary
Denver, Colorado

We
have audited the accompanying consolidated balance sheets of Sport-Haley, Inc. and Subsidiary as of June 30, 2002 and 2001, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ending June 30, 2002. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sport-Haley, Inc. and Subsidiary as of June 30, 2002 and
2001, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2002, in conformity with accounting principles generally accepted in the United
States of America.

Our
audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index of consolidated financial statements is
presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

HEIN
+ ASSOCIATES LLP
Denver, Colorado

August
22, 2002

F-2

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SPORT-HALEY, INC.CONSOLIDATED BALANCE SHEETS

|                                               |                                                                                                                               | June 30,                  
|---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | --------------------------
|
|ASSETS                                         |                                                                                                                               |                           
|Current Assets:                                |                                                                                                                               |                           
|                                               | Cash and cash equivalents                                                                                                     |                           
|                                               | Marketable securities                                                                                                         |                           
|                                               | Accounts receivable, net of allowances of $256,000 and $174,000, respectively                                                 |                           
|                                               | Inventories                                                                                                                   |                           
|                                               | Prepaid expenses and other                                                                                                    |                           
|                                               | Taxes receivable                                                                                                              |                           
|                                               | Deferred taxes                                                                                                                |                           
|                                               |                                                                                                                               |                           
|                                               |                                                                                                                               | Total current assets      
|Property and Equipment,net                     |                                                                                                                               |                           
|Deferred Taxes                                 |                                                                                                                               |                           
|Other Assets                                   |                                                                                                                               |                           
|                                               |                                                                                                                               |                           
|Total Assets                                   |                                                                                                                               | $                         
|                                               |                                                                                                                               |                           
|LIABILITIES AND SHAREHOLDERS' EQUITY           |                                                                                                                               |                           
|Current Liabilities:                           |                                                                                                                               |                           
|                                               | Accounts payable                                                                                                              |                           
|                                               | Accrued commissions payable                                                                                                   |                           
|                                               | Accrued payroll                                                                                                               |                           
|                                               | Other                                                                                                                         |                           
|                                               |                                                                                                                               |                           
|                                               |                                                                                                                               | Total current liabilities 
|                                               |                                                                                                                               |                           
|Commitments and Contingencies(Notes 10 and 11) |                                                                                                                               |                           
|Shareholders' Equity:                          |                                                                                                                               |                           
|                                               | Preferred stock, no par value; 1,500,000 shares authorized; none issued and outstanding                                       |                           
|                                               | Common stock, no par value; 15,000,000 shares authorized; 2,730,985 and 3,272,985 shares issued and outstanding, respectively |                           
|                                               | Additional paid-in capital                                                                                                    |                           
|                                               | Retained earnings                                                                                                             |                           
|                                               |                                                                                                                               |                           
|                                               |                                                                                                                               | Total shareholders' equity
|                                               |                                                                                                                               |                           
|Total Liabilities and Shareholders' Equity     |                                                                                                                               | $                         
|                                               |                                                                                                                               |                           

See accompanying notes to these consolidated financial statements.

F-3

---



SPORT-HALEY, INC.CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                               |                                              | For the Years Ended June 30,                        |           
|---------------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------------------- | ----------
|
|Net Sales                                                                                      |                                              | $                                                   | 17,099,000
|                                                                                               | Cost of goods sold                           |                                                     |           
|                                                                                               |                                              |                                                     |           
|Gross Profit                                                                                   |                                              |                                                     | 4,184,000 
|                                                                                               |                                              |                                                     |           
|Other Operating Costs:                                                                         |                                              |                                                     |           
|                                                                                               | Selling, general and administrative expenses |                                                     |           
|                                                                                               | Impairment of fixed assets                   |                                                     |           
|                                                                                               |                                              |                                                     |           
|                                                                                               |                                              | Total other operating costs                         |           
|                                                                                               |                                              |                                                     |           
|Income (Loss) From Operations                                                                  |                                              |                                                     | (2,702,000
|                                                                                               |                                              |                                                     |           
|Other Income and (Expense):                                                                    |                                              |                                                     |           
|                                                                                               | Interest income, net                         |                                                     |           
|                                                                                               | Other income                                 |                                                     |           
|                                                                                               | Other expense                                |                                                     |           
|                                                                                               |                                              |                                                     |           
|                                                                                               |                                              | Total other income                                  |           
|                                                                                               |                                              |                                                     |           
|Income (Loss) From Operations Before Provision for Income Taxes                                |                                              |                                                     | (2,356,000
|                                                                                               | (Provision for) benefit from income taxes    |                                                     |           
|                                                                                               |                                              |                                                     |           
|Income (Loss) Before Cumulative Effect of Change in Accounting Principle                       |                                              |                                                     | (973,000  
|Cumulative Effect of Change in Accounting Principle, Net of Income Tax Provision of ($213,000) |                                              |                                                     |          
|                                                                                               |                                              |                                                     |           
|Net Income (Loss)                                                                              |                                              | $                                                   | (973,000  
|                                                                                               |                                              |                                                     |           
|Net Income (Loss) Per Share:                                                                   |                                              |                                                     |           
|                                                                                               | Basic and Diluted:                           |                                                     |           
|                                                                                               |                                              | Income (loss) from continuing operations            |           
|                                                                                               |                                              | Cumulative effect of change in accounting principle |           
|                                                                                               |                                              |                                                     |           
|                                                                                               |                                              | Net income (loss)                                   |           
|                                                                                               |                                              |                                                     |           
|Weighted Average Shares Outstanding:                                                           |                                              |                                                     |           
|                                                                                               | Basic                                        |                                                     |           
|                                                                                               |                                              |                                                     |           
|                                                                                               | Diluted                                      |                                                     |           
|                                                                                               |                                              |                                                     |           

See accompanying notes to these consolidated financial statements.

F-4

---



SPORT-HALEY, INC.CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY  FOR THE YEARS ENDED JUNE 30, 2002, 2001, AND 2000

|                             |                                                     | Common Stock |          |   |            |            |   |           |         
|---------------------------- | --------------------------------------------------- | ------------ | -------- | - | ---------- | ---------- | - | --------- | --------
|
|
|Balances, as of July 1, 1999 |                                                     | 4,257,552    |          | $ | 16,355,000 |            | $ | 1,769,000 |         
|                             | Income tax benefit from stock options exercised     |              |         |   |            |           |   |           | 7,000   
|                             | Stock options exercised                             |              | 12,833   |   |            | 32,000     |   |           |        
|                             | Repurchase of common stock                          |              | (810,000 | ) |            | (3,279,000 | ) |           |        
|                             | Stock option compensation                           |              |         |   |            |           |   |           | 26,000  
|                             | Cumulative effect of change in accounting principle |              |         |   |            |           |   |           | (574,000
|                             | Net income                                          |              |         |   |            |           |   |           |        
|                             |                                                     |              |          |   |            |            |   |           |         
|Balances, June 30, 2000      |                                                     | 3,460,385    |          |   | 13,108,000 |            |   | 1,228,000 |         
|                             | Stock option compensation                           |              |         |   |            |           |   |           | 20,000  
|                             | Repurchase of common stock                          |              | (187,400 | ) |            | (587,000   | ) |           |        
|                             | Net loss                                            |              |         |   |            |           |   |           |        
|                             |                                                     |              |          |   |            |            |   |           |         
|Balances, June 30, 2001      |                                                     | 3,272,985    |          |   | 12,521,000 |            |   | 1,248,000 |         
|                             | Stock option compensation                           |              |         |   |            |           |   |           | 61,000  
|                             | Repurchase of common stock                          |              | (542,000 | ) |            | (1,602,000 | ) |           |        
|                             | Net loss                                            |              |         |   |            |           |   |           |        
|                             |                                                     |              |          |   |            |            |   |           |         
|Balances, June 30, 2002      |                                                     | 2,730,985    |          | $ | 10,919,000 |            | $ | 1,309,000 |         
|                             |                                                     |              |          |   |            |            |   |           |         

See accompanying notes to these consolidated financial statements.

F-5

---



SPORT-HALEY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                          | For the Years Ended June 30,                        |                                       
|---------------------------------------------------- | ---------------------------------------------------------------------------------------- | --------------------------------------------------- | --------------------------------------
|
|Cash Flows from Operating Activities:                |                                                                                          |                                                     |                                       
|                                                     | Net income (loss)                                                                        |                                                     | $                                     
|                                                     | Adjustments to reconcile net income (loss) to net cash provided by operating activities: |                                                     |                                       
|                                                     |                                                                                          | Depreciation and amortization                       |                                       
|                                                     |                                                                                          | Impairments and write-downs                         |                                       
|                                                     |                                                                                          | Deferred taxes and other                            |                                       
|                                                     |                                                                                          | Provisions for doubtful accounts and sales returns  |                                       
|                                                     |                                                                                          | Common stock options                                |                                       
|                                                     |                                                                                          | Gain/loss on disposal of assets                     |                                       
|                                                     |                                                                                          | Cumulative effect of change in accounting principle |                                       
|                                                     |                                                                                          | Changes in assets and liabilities:                  |                                       
|                                                     |                                                                                          |                                                     | Accounts receivable                   
|                                                     |                                                                                          |                                                     | Inventory                             
|                                                     |                                                                                          |                                                     | Prepaid expenses                      
|                                                     |                                                                                          |                                                     | Taxes receivable                      
|                                                     |                                                                                          |                                                     | Other assets                          
|                                                     |                                                                                          |                                                     | Accounts payable                      
|                                                     |                                                                                          |                                                     | Accrued commissions and other expenses
|                                                     |                                                                                          |                                                     |                                       
|                                                     |                                                                                          | Net cash provided by operating activities           |                                       
|                                                     |                                                                                          |                                                     |                                       
|Cash Flows from Investing Activities:                |                                                                                          |                                                     |                                       
|                                                     | Purchase of fixed assets                                                                 |                                                     |                                       
|                                                     | Maturities (purchases)of marketable securities                                           |                                                     |                                       
|                                                     | Proceeds from the disposal of fixed assets                                               |                                                     |                                       
|                                                     |                                                                                          |                                                     |                                       
|                                                     |                                                                                          | Net cash provided by (used in) investing activities |                                       
|                                                     |                                                                                          |                                                     |                                       
|Cash Flows from Financing Activities:                |                                                                                          |                                                     |                                       
|                                                     | Repayments on notes payable                                                              |                                                     |                                       
|                                                     | Proceeds from exercised stock options and warrants                                       |                                                     |                                       
|                                                     | Repurchases of common stock                                                              |                                                     |                                       
|                                                     |                                                                                          |                                                     |                                       
|                                                     |                                                                                          | Net cash used in financing activities               |                                       
|                                                     |                                                                                          |                                                     |                                       
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                                          |                                                     | 4,015,000                             
|Cash and Cash Equivalents,Beginning of year          |                                                                                          |                                                     | 4,413,000                             
|                                                     |                                                                                          |                                                     |                                       
|Cash and Cash Equivalents,End of year                |                                                                                          | $                                                   | 8,428,000                             
|                                                     |                                                                                          |                                                     |                                       
|Supplemental Cash Flow Information:                  |                                                                                          |                                                     |                                       
|                                                     | Cash payments for:                                                                       |                                                     |                                       
|                                                     |                                                                                          | Interest                                            |                                       
|                                                     |                                                                                          |                                                     |                                       
|                                                     |                                                                                          | Income taxes                                        |                                       
|                                                     |                                                                                          |                                                     |                                       
|                                                     | Cash received for income tax refund                                                      |                                                     | $                                     
|                                                     |                                                                                          |                                                     |                                       

See accompanying notes to these consolidated financial statements.

F-6

---



SPORT-HALEY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization and Significant Accounting Policies:

Nature of OperationsSport-Haley designs, purchases, contracts for the manufacture of, markets and
distributes quality men's and women's fashion golf apparel under the HALEY® label and premium men's apparel under the Ben Hogan® label. HALEY® fashion golf apparel,
known for its innovative styling, high quality fabrics, generous fit and classic appearance, is marketed in the premium and mid-priced markets through a network of independent sales representatives
and distributors to golf professional shops, country clubs and resorts across the United States and internationally. The Company also markets HALEY® apparel to corporate, college,
university, and other markets. Ben Hogan® apparel is marketed to elite golf professional shops, upscale resorts and exclusive department stores. The Company was organized as a Colorado
corporation on January 1, 1991.

Principles of ConsolidationThe consolidated financial statements include the accounts of Sport-Haley, Inc. and its former
wholly-owned subsidiary, B&L Sportswear, Inc. (collectively referred to as the "Company"). All significant inter-company accounts and transactions have been eliminated.

Marketable SecuritiesMarketable securities consist of United States government and mortgage-backed debt securities that
mature within one year or less. The securities are classified as held-to-maturity. Due to the short-term nature of the investments, there are no material unrealized gains or losses on these
investments. As a result, the carrying values of marketable securities approximate their fair market values.

InventoriesInventories are stated at the lower of cost (first-in, first-out) or market. Cost includes materials, labor,
direct costs, and allocated overhead. Generally, inventories are written down to market value during the period in which impairment of such inventories is identified.

Property and EquipmentProperty and equipment are stated at cost. Depreciation is provided over the estimated useful lives of
the assets ranging from three to twelve years using the straight-line method of depreciation. Leasehold improvements are stated at cost and amortized over the remaining life of the lease, using the
straight-line method. The cost of normal maintenance and repairs is charged to operating expenses as incurred. Material expenditures that increase the life of an asset are capitalized and depreciated
over the estimated remaining useful life of the asset. Upon the disposition of assets, the related cost and accumulated depreciation are removed from the books and the realized gain or loss, if any,
is recognized in the year of the disposition.

Impairment of Long-Lived AssetsIn the event that facts and circumstances indicate that the cost of assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation were required, the estimated future undiscounted cash flows associated with an asset would be compared to the asset's carrying amount
to determine whether a write-down to market value or discounted cash flow value were required. As discussed in Note 2, in 2001 the Company determined that certain fixed assets were impaired. During
2002, the Company disposed those impaired fixed assets. At June 30, 2002, management believes the Company has no long-lived assets that require a write-down to market or discounted cash flow.

Revenue RecognitionThe Company recognizes revenue when risk of loss for and title to its products pass to the buyer.
Generally, both risk of loss and title pass to the Company's customers at the date of shipment via common carrier. During fiscal 2001 the Company implemented limited consignment programs with certain
of its customers. The Company recognizes revenue on its consignment sales at the time of collection from the Company's customer. Consigned inventories totaled $8,000 and $157,000 at June 30, 2002 and
2001, respectively. On a limited basis, the Company

F-7

---

also offers the right of return for certain inventory, for which the Company estimates a return allowance.

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. The Company had no amounts capitalized for direct response advertising at June 30, 2002,
2001 or 2000. Advertising expense was $506,000, $585,000, and $676,000 for the years ended June 30, 2002, 2001, and 2000, respectively.

Deferred TaxesDeferred income taxes are recognized for the tax consequences in future years for differences between the tax
bases 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 equals the tax payable
for the period plus the net change during the period in deferred tax assets and liabilities.

Use of EstimatesThe preparation of consolidated financial statements in conformity with generally accepted accounting
principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Among others, significant estimates include the
allowance for doubtful accounts, sales returns and inventory reserves and valuation allowances associated with deferred tax assets. Accordingly, actual results could differ from those estimates.

Certain Risks and ConcentrationsThe Company's operations consist of the designing, purchasing, contracting for the
manufacture of, marketing and wholesale distribution 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, 2002, 2001 and 2000, the majority of the Company's receivables were from customers in the golfing industry. The Company performs on-going credit evaluations, and management
believes that the Company maintains adequate allowance for potential credit losses.

In
2001, the Company significantly increased its reliance on foreign suppliers that provided finished and packaged apparel. The increased reliance heightened the risk that the Company's
revenues could be adversely affected if a foreign shipment or shipments were received late or lost. The Company maintains insurance for risk of loss relating to goods shipped from its foreign and
domestic suppliers. However, the Company's increased reliance on foreign suppliers heightens the risk that the Company may be left with inadequate or unsatisfactory recourse should the goods received
from the foreign suppliers be nonconforming.

In
2002, the Company purchased significant amounts of its finished apparel from two separate foreign suppliers. If the Company were to lose or terminate the services of either of these
significant suppliers, the Company's short-term ability to fulfill its customers' orders on a timely basis could be substantially impaired, thereby negatively affecting the Company's results of
operations. In fiscal 2002, the Company purchased 31% and 11% of its finished apparel from two suppliers, respectively.

Statements of Cash FlowsFor purposes of the statements of cash flows, the Company considers all highly liquid instruments
purchased with an original maturity of three months or less, that are readily convertible to known amounts of cash and present an insignificant risk of change in value due to changes in interest
rates, to be cash equivalents.

Recent PronouncementsIn June 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial
Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and No.

F-8

---

142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for under the purchase method. For all business
combinations for which the date of acquisition is after June 30, 2001, SFAS 141 also establishes specific criteria for the recognition of intangible assets separately from goodwill and requires
unallocated negative goodwill to be written off immediately as an extraordinary gain, rather than
deferred and amortized. SFAS 142 changes the accounting for goodwill and other intangible assets after an acquisition. The most significant changes made by SFAS 142 are: 1) goodwill and intangible
assets with indefinite lives will no longer be amortized; 2) goodwill and intangible assets with indefinite lives must be tested for impairment at least annually; and 3) the amortization period for
intangible assets with finite lives will no longer be limited to forty years. The adoptions of SFAS 141 and 142 are not expected to have a material effect on the Company's financial position or
results of its operations.

In
June 2001, the FASB approved for issuance Statements of Financial Accounting Standards No. 143 "Asset Retirement Obligations" ("SFAS 143"). SFAS 143 establishes accounting
requirements for retirement obligations associated with tangible long-lived assets, including: 1) the timing of the liability recognition; 2) initial measurement of the liability; 3) allocation of
asset retirement cost to expense; 4) subsequent measurement of the liability; and, 5) financial statement disclosures. SFAS 143 requires that an asset's retirement cost should be capitalized as part
of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. The Company will adopt SFAS 143 effective July 1, 2003, as required. The
transition adjustment resulting from the adoption of SFAS 143, if any, will be reported as a cumulative effect of a change in accounting principle. The adoption of SFAS 143 is not expected to have a
material effect on the Company's financial position or results of its operations.

In
October 2001, the FASB approved for issuance Statements of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Asset" ("SFAS 144"). SFAS
144 replaces SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The new accounting model for long-lived assets to be disposed of by sale
applies to all long-lived assets, including discontinued operations, and replaces the provisions of Accounting Principles Board Opinion No. 30, "Reporting Results of Operations-Reporting the Effects
of Disposal of a Segment of a Business," for the disposal of segments of a business. SFAS 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost
to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating
losses that have not yet occurred. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the
entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001 and, generally, are to be applied prospectively. The adoption of SFAS 144 is not expected to have a material effect on the Company's financial position or results of
its operations.

In
April 2002, the FASB approved for issuance Statements of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS 13, and Technical
Corrections" ("SFAS 145").SFAS 145 rescinds previous accounting guidance, which required all gains and losses from extinguishment of debt be classified
as an extraordinary item. Under SFAS 145 classification of debt extinguishment depends on the facts and circumstances of the transaction. SFAS 145 is effective for fiscal years beginning after May 15,
2002 and adoption is not expected to have a material effect on the Company's financial position or results of its operations.

F-9

---

In
July 2002, the FASB issued Statements of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 requires
companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by SFAS
146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS 146
is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of SFAS 146 is not expected to have a material effect on the Company's financial position
or results of its operations.

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.

Comprehensive Income (Loss)Comprehensive income is defined as all changes in shareholders' equity (deficit), exclusive of
transactions with owners, such as capital investments. Comprehensive income includes net income (loss) and income or loss from changes in certain assets and liabilities that are reported directly in
equity. The Company had no items of other comprehensive income at June 30, 2002, 2001, or 2000.

Net Income (Loss) Per ShareBasic earnings per share (EPS) is calculated by dividing the income or loss available to common
shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock. Due to losses incurred in 2002 and 2001, basic and diluted earnings per share were the same.

Stock-Based CompensationAs permitted under the Statements of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation," the Company accounts for its stock-based compensation for options issued to employees in accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). As such, for options granted to employees and directors, compensation expense is recorded only if the current market price of the underlying
stock exceeds the exercise price. Compensation expense is recorded on a straight-line basis over the shorter of the period that the services are provided by the employee or director or the vesting
period. Certain pro forma net income and earnings per share disclosures for employee stock option grants are also included in the notes to the financial statements as if the fair value method as
defined in SFAS 123 had been applied. Transactions in equity instruments with non-employees for goods or services are accounted for by the fair value method.

2.    Asset Impairments:

In
2001, the Company implemented a plan to purchase substantially more finished goods and to manufacture fewer goods. In addition, in August 2001, the Company decided to cease operations
of B&L Sportswear, Inc. (the "Subsidiary"). In September 2001, the Company sold substantially all of the Subsidiary's remaining assets at a public auction. As a result of these changes in
circumstances, the Company analyzed certain assets for recoverability at June 30, 2001. The Company determined that expected future cash flows would not be sufficient to recover the net book value of
certain assets. During the fourth quarter of fiscal 2002, the Company reviewed the net recoverability of its remaining older component and finished goods inventories and increased its reserve for
obsolescence by

F-10

---

$1,274,000. Impairments were recorded in the fourth quarter as of June 30, 2002 and 2001, respectively, to reduce the impaired assets to their respective estimated recoverable values as follows:

2002

2001Component inventories

$
68,000

$
800,000Finished goods inventories


1,206,000


72,000Equipment





254,000Total impairments

$
1,274,000

$
1,126,000


The
impairments for inventories are reflected in the costs of goods sold for the years ended June 30, 2002 and 2001. The impairment for equipment was reflected as a component of other
operating costs for the year ended June 30, 2001.

3.    Fair Value of Financial Instruments:

The
carrying values of financial instruments, principally consisting of cash and cash equivalents, marketable securities, accounts receivable and accounts payable, approximate their fair
market values due to their short-term maturities.

4.    Cash and Cash Equivalents:

Cash
and cash equivalents consist of the following at June 30:

2002

2001Cash in banks

$
1,380,000

$
2,688,000Short-term securities with maturities of three months or less


7,048,000


1,725,000$
8,428,000

$
4,413,000


5.    Inventories:

Inventories
consist of the following at June 30:

2002

2001Components

$
455,000

$
1,130,000Finished goods


6,249,000


8,034,000$
6,704,000

$
9,164,000


F-11

---

6.    Property and Equipment:

Property
and equipment are recorded at cost and are comprised of the following at June 30:

2002

2001Plant equipment

$
1,329,000

$
2,099,000Leasehold improvements


375,000


417,000Furniture, fixtures and computer software and equipment


2,109,000


2,091,000Other


46,000


126,0003,859,000


4,733,000Less accumulated depreciation, amortization, and impairment


(3,072,000
)

(3,214,000
)$
787,000

$
1,519,000


Depreciation
and amortization expense at June 30, 2002, 2001, and 2000 was $524,000, $774,000 and $769,000, respectively.

7.    Line of Credit Agreement:

The
Company maintains a revolving line of credit agreement with a commercial bank. The revolving line of credit agreement, which was renewed through December 5, 2002, provides for
interest at 1/2% below the bank's prime rate. The agreement provides for a maximum loan amount of $9,000,000 to Sport-Haley collateralized by a lien on substantially all of the
Company's assets. The Company generally maintains its line of credit to facilitate the issuance of letters of credit for inventory purchases from offshore suppliers and, if necessary, to fund any
temporary working capital needs. The Company did not have any balances due on the line of credit at June 30, 2002 and 2001, respectively.

At
June 30, 2002, the Company had outstanding letters of credit of approximately $2,264,000. Outstanding letters of credit reduce the amount available for borrowing under the Company's
line of credit agreement.

8.    Acquisition:

In
March 1998, Sport-Haley purchased 52% of the outstanding shares of B&L Sportswear, Inc. ("B&L") in an exchange for $165,000 in cash.

In
July 1999, Sport-Haley increased its ownership in B&L to a 93% interest by exchanging $290,000 of debt owed by B&L to Sport-Haley for additional equity in B&L. During fiscal 2000,
Sport-Haley obtained the remaining 7% of the outstanding shares of capital stock of B&L by exchanging $250,000 of debt owed by B&L to Sport-Haley for additional equity in B&L and by purchasing the
outstanding shares held by the former minority shareholders in an exchange for $23,000 in cash.

These
capital stock transactions were accounted for using the purchase method of accounting. The Company has included the operations of B&L in its consolidated financial statements since
the Company's purchase of its 52% interest in B&L.

In
August 2001, the Company closed the manufacturing plant formerly operated by B&L. Since that time, B&L ceased all business operations and had no employees. In September 2001,
substantially all of B&L's remaining assets were sold at a public auction. In May 2002, the Company formally dissolved B&L Sportswear, Inc.

F-12

---

9.    Income Taxes:

The
differences between the U.S. Federal statutory rate and the Company's effective rate are as follows at June 30:

2002

2001

2000U.S. Federal statutory rate

$
(764,000
)
$
(359,000
)
$
584,000State income taxes


(118,000
)

(32,000
)

2,000Change in deferred tax valuation allowance


(135,000
)

52,000


(33,000
)Tax-exempt interest








(22,000
)Permanent differences from liquidation of B&L


(358,000
)




Permanent Differences and Other


(8,000
)

48,000


26,000Total tax expense (benefit) (current and deferred)

$
(1,383,000
)
$
(291,000
)
$
557,000


The
components of the net deferred tax asset and net deferred tax liability recognized in the accompanying balance sheets are as follows at June 30:

2002

2001Current

Long-
Term

Current

Long-
TermDeferred tax liability

$


$
(130,000
)
$


$
(123,000
)Deferred tax asset


380,000


439,000


204,000


482,000Net deferred tax asset before valuation allowance


380,000


309,000


204,000


359,000Valuation allowance





(112,000
)

(42,000
)

(199,000
)$
380,000

$
197,000

$
162,000

$
160,000


The
components of income tax expense (benefits) are as follows at June 30:

2002

2001

2000Federal

$
(1,131,000
)
$
(193,000
)
$
270,000State


2,000





2,000Deferred


(254,000
)

(98,000
)

285,000$
(1,383,000
)
$
(291,000
)
$
557,000


F-13

---

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 at June 30:

|                                                  |  |   |           | 2002 |   |         |  | 2001 |         
|------------------------------------------------- |  | - | --------- | ---- | - | ------- |  | ---- | --------
|
|Allowance for doubtful accounts                   |  | $ | 76,000    |      | $ | 28,000  |  | $    |        
|Reserve for sales returns                         |  |   | 180,000   |      |   | 67,000  |  |      |        
|Prepaid expenses                                  |  |   | 620,000   |      |   | 230,000 |  |      |        
|Accrued vacation                                  |  |   | 89,000    |      |   | 33,000  |  |      |        
|Accumulated depreciation and impairment           |  |   | 352,000   |      |   |        |  |      | (130,000
|Stock options                                     |  |   | 392,000   |      |   |        |  |      | 145,000 
|Unrealized loss on investment                     |  |   | 234,000   |      |   |        |  |      | 87,000  
|B&L net operating losses                          |  |   |          |      |   |        |  |      |        
|B&L accumulated depreciation and impairment       |  |   |          |      |   |        |  |      |        
|Inventory                                         |  |   | 60,000    |      |   | 22,000  |  |      |        
|State net operating losses                        |  |   | 4,481,000 |      |   |        |  |      | 207,000 
|                                                  |  |   |           |      |   |         |  |      |         
|Net deferred tax asset before valuation allowance |  |   |           |      |   | 380,000 |  |      | 309,000 
|Valuation allowance                               |  |   |           |      |   |        |  |      | (112,000
|                                                  |  |   |           |      |   |         |  |      |         
|                                                  |  |   |           |      | $ | 380,000 |  | $    | 197,000 
|                                                  |  |   |           |      |   |         |  |      |         

Due
to the liquidation of B&L, the Company recognized a $358,000 current tax benefit associated with its tax loss on the disposal of B&L. There are no remaining net operating losses,
deferred tax assets or liabilities associated with B&L as of June 30, 2002.

The
valuation allowance for fiscal 2002, 2001 and 2000 increased (decreased) by $(135,000), $52,000 and ($33,000), respectively.

10.  Operating Leases:

The
Company leases its corporate offices, production and warehouse facilities under an operating lease that was extended through October 2006.

During
March 1995, the Company entered into a lease for a factory outlet store located in Laughlin, Nevada. The facility is leased for a term of seven years. The factory outlet store
lease expires in June 2003.

In
April 1998, B&L entered into a lease for its operating facilities with former minority shareholders of B&L. The lease had an initial term of 10 years and could have been extended for
two additional five-year periods following the initial term. In January 2002, the Company negotiated a termination of the B&L lease with the former minority shareholders.

Rent
expenses for the years ended June 30, 2002, 2001, and 2000 were $307,000, 320,000, and $321,000, respectively, of which $32,000, $65,000, and $65,000 pertained to the B&L lease.

F-14

---

The
future minimum lease payments under non-cancelable leases with initial terms of one year or more as of June 30, 2002 are as follows:

Years Ending June 30,

Amount2003

$
272,0002004


223,0002005


230,0002006


233,0002007


78,000Thereafter


$
1,036,000


11.  Commitments and Contingencies:

Potential ClaimsIn the fiscal year ending June 30, 2000, the Company restated previously issued financial statements. In
October 2001, a former shareholder of the Company commenced a putative class action lawsuit against Sport-Haley, Inc. and three of its officers and directors (the "Defendants"). The Defendants believe
the lawsuit is without merit and have filed a motion to dismiss, which is pending before the court. Based upon information that is currently available, the Company's management cannot reasonably
estimate the amount of damages, if any, that might be awarded to the Plaintiffs and the class, if the action is certified by the court as a class action and the lawsuit were to be determined in favor
of the Plaintiffs.

In
December 2001, the staff of the United States Securities and Exchange Commission (the "Commission") advised the Company and its Chairman and former Chief Executive Officer, Robert G.
Tomlinson ("Mr. Tomlinson"), that the staff plans to recommend to the Commission that an enforcement action should be taken against the Company and Mr. Tomlinson to obtain an injunction prohibiting
future violations of certain provisions of the securities laws and possibly other relief. If the staff recommends that the Commission initiate an enforcement action, it is not known whether the
Commission will accept the staff's recommendation. Should the Commission bring such an action, the Company and Mr. Tomlinson intend to vigorously contest it. Based upon the information that is
currently available, management does not believe the impact, if any, of such an enforcement action would have a material adverse effect upon the Company's financial position.

Touring ProfessionalsIn conjunction with a marketing agreement with a golf touring professional, the Company agreed to issue
the individual 10,000 stock options with an exercise price of $3.00 for each tour victory he achieved prior to December 31, 2001. Pursuant to these terms, 10,000 options were issued to the
professional in fiscal year 2001. The Company has similar arrangements with other touring professionals who have not earned any options as of June 30, 2002.

Employment AgreementsThe Company maintains several employment and non-compete agreements with officers and key employees of
the Company. The agreements are subject to automatic one-year extensions. Employment and non-compete agreements provide for minimum salary levels totaling $950,000 per year excluding discretionary
bonuses and severance payments upon termination of employment without cause.

Ben Hogan Licensing AgreementIn May 2001, the Company entered into a licensing agreement with Spalding Sports Worldwide, Inc.
("Spalding") for the rights to market a line of men's premium golf apparel under the Ben Hogan® brand name. In July 2002, the Company and Spalding agreed to amend the licensing agreement
to expand the applicable territory covered by the agreement to include the United Kingdom, Sweden, Mexico and various Caribbean countries. The original licensing agreement had previously granted the
Company the right to market Ben Hogan® apparel within the United States. The Company paid Spalding $50,000 in cash and an additional $50,000 in finished goods (at a cost to the Company of
approximately $29,000) for the rights to market Ben Hogan® apparel for a five year period ending December 31, 2006. Additionally, the Company pays an 8% royalty to Spalding on sales of the
Ben Hogan® apparel.

F-15

---

12.  Shareholders' Equity:

Repurchase of Common StockAs of June 30, 2002, the Company's Board of Directors had authorized the repurchase of up to
2,520,000 shares of the Company's issued and outstanding common stock. The shares may be purchased from time to time in open market transactions at prevailing market prices or privately negotiated
transactions. The Company has no commitment or obligation to purchase all or any portion of the shares. All shares purchased by the Company are required to be canceled and returned to the status of
authorized but unissued common stock. Through June 30, 2002, the Company repurchased a total of 2,226,400 shares of its common stock at a cost of approximately $12,436,000.

Preferred StockThe Articles of Incorporation of the Company authorize the 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 separate 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,
2002, the Company had no preferred stock issued or outstanding.

Common Stock OptionsIn 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 for issuance pursuant to the Plan. Since its adoption, as a result of various actions, the number of shares reserved for
issuance under the Plan has increased to 2,150,000 shares. Under the Plan, the Company may grant to employees, directors and consultants of the Company and any subsidiary thereof options to purchase
common stock. Generally, the options vest over three years, are granted at fair market value on the date of grant, expire 10 years from that date, are non-transferable and cannot be exercised for a
period of one year from the date granted. The Plan, as restated, is administered by the Compensation Committee, which, at its discretion, determines the optionee, number of options granted and
exercise periods. Options granted in conjunction with Board approved increases in the number of shares reserved for issuance under the Plan, increases for which shareholder approval was not obtained,
are granted as non-qualified options.

In
July 2001, the Compensation Committee granted to certain employees, directors and a consultant the options to cumulatively purchase 226,000 shares of the Company's stock with an
exercise price of $3.00 per share. In August 2001, the Compensation Committee granted an officer the options to purchase 25,000 shares of the Company's stock with an exercise price of $3.00 per share.
In February 2002, the Compensation Committee granted certain employees and directors the options to cumulatively purchase 304,000 shares of the Company's stock with an exercise price of $3.60 per
share.

At
June 30, 2002, the Company had outstanding options to purchase 978,958 shares of common stock at prices ranging from $2.50 to $9.78 with expiration dates between fiscal 2003 and
fiscal 2012. No options were exercised in fiscal 2002.

F-16

---

The
activity under the Company's Plan is set forth below:

|                        |                  | Employee Options Outstanding
|----------------------- | ---------------- | ----------------------------
|
|Balances, July 1, 1999  |                  | 242,001                     
|                        | Options granted  |                             
|                        | Options canceled |                             
|                        |                  |                             
|Balances, June 30, 2000 |                  | 400,501                     
|                        | Options granted  |                             
|                        | Options canceled |                             
|                        |                  |                             
|Balances, June 30, 2001 |                  | 372,501                     
|                        | Options granted  |                             
|                        | Options canceled |                             
|                        |                  |                             
|Balances, June 30, 2002 |                  | 669,501                     
|                        |                  |                             

Employee
options vest as follows:

|                                             |  | Number of
Options |  | Weighted
Average
Exercise
Price
|-------------------------------------------- |  | ----------------- |  | -------------------------------
|Vested as of June 30, 2002                   |  | 224,835           |  | $                              
|Vesting during the year ending June 30, 2003 |  | 183,332           |  |                                
|Vesting during the year ending June 30, 2004 |  | 139,002           |  |                                
|Vesting during the year ending June 30, 2005 |  | 122,332           |  |                                
|                                             |  |                   |  |                                
|                                             |  | 669,501           |  | $                              
|                                             |  |                   |  |                                

|                        |                   | Outside Directors and Non-Employee Options Outstanding
|----------------------- | ----------------- | ------------------------------------------------------
|
|Balances, July 1, 1999  |                   | 160,213                                               
|                        | Options exercised |                                                       
|                        |                   |                                                       
|Balances, June 30, 2000 |                   | 147,380                                               
|                        | Options granted   |                                                       
|                        |                   |                                                       
|Balances, June 30, 2001 |                   | 157,380                                               
|                        | Options granted   |                                                       
|                        | Options canceled  |                                                       
|                        |                   |                                                       
|Balances, June 30, 2002 |                   | 309,457                                               
|                        |                   |                                                       

F-17

---

Non-employee
options vest as follows:

|                                             |  | Number of
Options |  | Weighted
Average
Exercise
Price
|-------------------------------------------- |  | ----------------- |  | -------------------------------
|Vested as of June 30, 2002                   |  | 145,790           |  | $                              
|Vesting during the year ending June 30, 2003 |  | 55,664            |  |                                
|Vesting during the year ending June 30, 2004 |  | 55,672            |  |                                
|Vesting during the year ending June 30, 2005 |  | 52,331            |  |                                
|                                             |  |                   |  |                                
|                                             |  | 309,457           |  | $                              
|                                             |  |                   |  |                                

Included
in the Company's net income (loss) for the year ended June 30, 2001 and 2000, are charges of approximately $20,000 and $26,000, respectively, which are a result of applying the
SFAS 123, "Accounting for Stock-Based Compensation," to non-employees. In 2002, there was no SFAS 123 stock option expense. In accordance with a new accounting pronouncement, $574,000 of previously
recognized SFAS 123 expense was reversed in fiscal 2000 as a cumulative effect of change in accounting principle, as a result of accounting for stock options issued to outside directors under APB 25,
instead of SFAS 123.

The
weighted average fair values of options granted during fiscal 2002, 2001, and 2000 were $1.07, $1.69, and $2.71, per share, respectively for those options issued with an exercise
price equal to the stock price. There were 304,000 options that were issued in fiscal 2002 at approximately 80% of market price and the weighted average fair value was $1.71 for the options. All other
options were granted at an exercise price that approximated the market price on the date of grant.

Since
its fiscal year 1997, the Company has followed the provisions of SFAS 123 for all issuances of stock options to non-employees of the Company. The Company follows APB 25 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. During fiscal 2002, the Company recognized
$62,000 of compensation expense related to issuance of options to its employees. No compensation cost has been recognized for stock options granted to employees under the Plan for the years ended June
30, 2001 and 2000.

Had
compensation cost for the Plan been determined based upon the fair value at the grant date for options granted consistent with the provisions of SFAS 123, the Company's net income
(loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below:

|                                         |                   | 2002 |            | 2001  |   | 2000    
|---------------------------------------- | ----------------- | ---- | ---------- | ----- | - | --------
|Net income (loss)  as reported          |                   | $    | (973,000   | )     | $ | (766,000
|Net income (loss)  pro forma            |                   |      | (1,143,000 | )     |   | (869,000
|Earnings (loss) per share  as reported: |                   |      |            |       |   |         
|                                         | Basic and Diluted |      | $          | (0.33 | ) | $       
|Earnings (loss) per share  pro forma:   |                   |      |            |       |   |         
|                                         | Basic and Diluted |      | $          | (0.39 | ) | $       

F-18

---

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:

2002

2001

2000Risk-free interest

3.5%-4.4%

3.5%-6.5%

5.5%-6.5%Expected life

3 years

5-10 years

10 yearsExpected volatility

46.1%

32%-54.5%

32%-42%Expected dividend








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

If
not exercised earlier, options outstanding as of June 30, 2002 will expire as follows:

|     |  | Employees |  | Non-Employees
|---- |  | --------- |  | -------------
|
|2003 |  | 99,501    |  | $            
|2004 |  | 20,000    |  |              
|2005 |  |          |  |              
|2006 |  |          |  |              
|2007 |  |          |  |              
|2008 |  |          |  |              
|2009 |  |          |  |              
|2010 |  | 133,000   |  |              
|2011 |  | 25,000    |  |              
|2012 |  | 392,000   |  | $            

13.  Net Income (Loss) Per Share:

In
the reconciliation of basic to diluted earnings per share, there were no reconciling items affecting the numerator in any year presented. The only items offsetting the denominator
were the effects of stock options, which increased the basic weighted average shares by 29,000 in 2000. These additional dilutive securities had no material effect on 2000 earnings per share.

In
2002 and 2001, due to the Company's net losses, all options, amounting to 978,958 and 529,881, respectively, were antidilutive and excluded from the earnings (loss) per share
calculation.

Options
to purchase 547,881 shares of common stock were outstanding at June 30, 2000. Of that total, 166,000 options had a dilutive effect on the 2000 earnings per share calculation. For
purposes of calculating diluted EPS, outstanding options resulted in 29,000 incremental shares determined using the treasury stock method. The remaining 381,881 options had an antidilutive effect and
were therefore excluded from the calculation of diluted EPS.

14.  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 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 of $0.25 on the dollar for employee
contributions on the first 5% of employee annual compensation. For the years ended June 30, 2002, 2001, and 2000, the Company contributed $19,000, $11,000, and $15,000, respectively, to the 401(k)
Plan on behalf of Company employees.

F-19

---



Schedule II        Sport-Haley, Inc.  Valuation and Qualifying Accounts

|Column A                        |  | Column B |        | Column C |   | Column D  |  | Column E
|------------------------------- |  | -------- | ------ | -------- | - | --------- |  | --------
|
|
|Allowance for Doubtful Accounts |  |          |        |          |   |           |  |         
|June 30,                        |  |          |        |          |   |           |  |         
|2000                            |  | $        | 87,000 |          | $ | 199,000   |  | $       
|2001                            |  | $        | 62,000 |          | $ | 65,000    |  | $       
|2002                            |  | $        | 80,000 |          | $ | 183,000   |  | $       
|Allowance for Sales Returns     |  |          |        |          |   |           |  |         
|June 30,                        |  |          |        |          |   |           |  |         
|2000                            |  | $        | 96,000 |          | $ | 670,000   |  | $       
|2001                            |  | $        | 68,000 |          | $ | 1,115,000 |  | $       
|2002                            |  | $        | 94,000 |          | $ | 1,127,000 |  | $       

---

F-20

---

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