Sport-Haley, Inc. reported net sales for the fiscal quarter ended December 31, 2004 were $5.0 million, an increase of 5% from net sales of $4.8 million for the same quarter in the prior fiscal year. Net sales for the six months ended December 31, 2004, were $10.6 million, an increase 16% from net sales of $9.1 million for the same six-month period in the previous fiscal year.

The increase in net sales for the quarterly period was primarily due to a significant disposition of obsolete and aging finished goods inventories in December 2004. Management primarily attributes the increase in the six-month period to the continued growth in sales of our Ben Hogan® apparel collections combined with a continued decrease in sales of HALEY® branded apparel.

Net sales of Ben Hogan® apparel for the fiscal quarter and six months ended December 31, 2003, totaled $2,010,000, or 40% of total net sales for the fiscal quarter, and $4,709,000, or 45% of total net sales for the six-month period, respectively. Comparatively, net sales of Ben Hogan® apparel for the fiscal quarter and six months ended December 31, 2003, totaled $1.4 million, or 30% of total net sales for the fiscal quarter, and $2.5 million, or 27% of total net sales for the six-month period, respectively.

Gross profit, as a percentage of sales, was 9% and 21% for the quarter and six months ended December 31, 2004, respectively. Comparatively, gross profit, as a percentage of sales, was 39% and 39% for the same periods in the prior fiscal year. During the fiscal quarter and six months ended December 31, 2004, gross margins have been adversely impacted by significant increases in our reserve for inventory write-downs, a loss in excess of previous write-downs relating to the disposition of a significant amount of closeout inventories, adjustments to inventories relating to a physical inventory taken at December 31, 2004, and a subsequent review and write down of component inventories. Without the increase in reserve for inventory write-downs, the loss on the sale of closeout inventories, the finished goods physical inventory adjustment and the adjustment to component inventories, our gross margin for the quarterly and six-month periods ended December 31, 2004, would have been 39% and 35%, respectively.

“The inventory adjustments that we recorded in the last quarterly period had a significant negative impact on our operating results for the quarter,” stated Donald W. Jewell, Interim Chief Executive Officer. “However, those adjustments, combined with the significant sale of closeout inventories this quarter, were necessary to place the Company in a position to be able to return to profitability in the future. Excess inventories have been a concern to us for some time now. The sale that we completed in December eliminated almost all of our inventories dating from our spring 2004 and previous seasons. We still need to dispose of the excess inventories left over from our fall 2004 season, and we discovered that we will most likely have more inventories remaining from our spring 2005 season than we would like. However, I think our finished goods inventories are in better shape now than at any time since Ive been associated with the Company. We think that our adjustments have now valued the fall 2004 and spring 2005 inventories such that we should not expect to incur a significant loss when they are sold in the near future. Were also finalizing initiatives to help us better forecast purchasing, so that we can minimize the amount of excess inventories remaining at the end of a selling season.”

Selling, general and administrative expenses for the fiscal quarter ended December 31, 2004, increased by $615,000, or 32%, to $2.5 million from $1.9 million for the same three-month period in the prior fiscal year. Selling, general and administrative expenses for the six months ended December 31, 2004, increased by $1.7 million, or 45%, to $5.6 million from $3.8 million for the same six-month period in the prior fiscal year. Selling, general and administrative expenses were approximately 50% and 53% of net sales for the fiscal quarter and six months ended December 31, 2004, as compared with 42% and 42% for the same periods in the prior fiscal year. The increase between comparative quarterly periods was primarily due to the accrual of severance and other compensation payable to our former Chief Executive Officer. The increase between the six-month periods includes severance and other compensation paid to our late Chairman’s estate, the severance and other compensation due to our former Chief Executive Officer and increases in sales commissions and royalties payable on higher net sales. Had we not recorded severance and other compensation for our late Chairman and former Chief Executive Officer, as a percentage of net sales, our selling, general and administrative expenses would have been 40% and 42% for the quarter and six months ended December 31, 2004, respectively.

“The death benefit, severance and other compensation paid or accrued pursuant to employment agreements in place with our late Chairman and our former CEO severely impacted the results of our operations for the six-month period,” stated Mr. Jewell. “Had we not incurred those expenses, our SG&A would have been comparable to last year. However, we still have some work to do to bring our SG&A in line with our expectations. During the next quarter, we plan to complete our review of SG&A expenses and formulate a plan to further streamline our operations and by making adjustments in the appropriate areas.”

Net loss for the fiscal quarter ended December 31, 2004, was $2.0 million, compared with net income of $11,000 for the same quarter in the prior fiscal year. Net loss for the six months ended December 31, 2004, was $3.3 million, compared with the net loss of ($150,000) for the same six-month period in the prior fiscal year.

SPORT-HALEY, INC.
         Consolidated Unaudited Financial Information
             (In thousands, except per share data)

                            Three Months Ended      Six Months Ended
                                 December 31,          December 31,
                               2004       2003       2004       2003
                            ---------  ---------  ---------  ---------
Statements of Income Data:

Net sales                   $   5,000  $   4,763  $  10,570  $   9,075

Gross profit                      458      1,858      2,228      3,498

Selling, general and
  administrative expenses       2,516      1,901      5,573      3,846

Loss from operations           (2,058)       (43)    (3,345)      (348)

Other income, net                  52         71         63        125

Net income (loss)              (2,006)        11     (3,282)      (150)

Diluted earnings (loss)
  per common share          $   (0.77) $    0.00  $   (1.29) $   (0.06)