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

                                    FORM 10-K
                                (Amendment No. 1)

(Mark One)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

                    For the fiscal year ended March 31, 2004

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

               For the transition period from ________to_________.

                         Commission file number: 0-20736

                               Sport Chalet, Inc.
             (Exact name of registrant as specified in its charter)

             Delaware                                            95-4390071
  (State or other jurisdiction                               (I.R.S. Employer
of incorporation or organization)                         Identification Number)

One Sport Chalet Drive, La Canada, California                      91011
  (Address of principal executive offices)                       (Zip Code)

Registrant's telephone number, including area code: (818) 949-5300

Securities registered pursuant to Section 12(b) of the Act: None

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

                         Common Stock, $0.01 par value.
                                (Title of class)

Indicate by check mark whether the registrant (1) has 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. |X| Yes |_| No

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. |X|

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of Act). |_| Yes |X| No

The  aggregate  market value of the Common Stock held by  non-affiliates  of the
registrant as of September 30, 2003, was approximately  $14.2 million based upon
the closing price of the Common Stock on that date.

The number of shares of the registrant's  Common Stock outstanding as of June 7,
2004 was 6,673,534.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the  registrant's  definitive  proxy statement  relating to its 2004
annual  meeting of  stockholders,  which will be filed with the  Securities  and
Exchange  Commission  pursuant to Regulation 14A within 120 days of the close of
the  registrant's  last fiscal year, are incorporated by reference into Part III
of this Report.
<PAGE>

EXPLANATORY NOTE

      This Amendment No. 1 to this Annual Report on Form 10-K/A ("Form  10-K/A")
for the fiscal  year ended  March 31, 2004 is being filed in order to correct an
error in the previously issued historical  consolidated  financial statements of
Sport Chalet,  Inc. (the  "Company")  for the fiscal years ended March 31, 2004,
March 31,  2003 and March 31,  2002  initially  filed  with the  Securities  and
Exchange  Commission (the "SEC") on June 22, 2004 (the "Original  Filing").  The
corrections  are to properly  account for landlord  construction  allowances  in
accordance with Statement of Financial Accounting  Standards No.13,  "Accounting
for Leases" and Financial  Accounting  Standards  Board  Technical  Bulletin No.
88-1,  "Issues  Relating to Accounting  for Leases";  rent expense in accordance
with  Financial   Accounting   Standards  Board  Technical  Bulletin  No.  85-3,
"Accounting for Operating Leases with Scheduled Rent Increases" and amortization
of leasehold  improvements  in accordance  with  paragraph  5(f) of Statement of
Financial  Accounting  Standards  No.13  "Accounting  for  Leases."  See Note 2:
"Restatement  and  Reclassification  of  Financial  Statements"  under  Notes to
Consolidated  Financial Statements of this Form 10-K/A for additional discussion
and a summary  of the  effect of these  changes  on the  Company's  consolidated
financial statements as of March 31, 2004, March 31, 2003 and March 31, 2002.

      This Form 10-K/A  amends and restates only Items 2, 6, 7, 8 and 9A of Part
II and Item 15 of Part IV of the Original  Filing to reflect the effects of this
restatement of our financial statements for the periods presented. The remaining
Items contained  within this Amendment No. 1 on Form 10-K/A consist of all other
Items  originally  contained  on Form 10-K for the fiscal  year ended  March 31,
2004.  These remaining  Items are not amended  hereby,  but are included for the
convenience of the reader.  Except for the forgoing  amended  information,  this
Form 10-K/A  continues  to describe  conditions  as of the date of the  Original
Filing,  and we have not updated  the  disclosures  contained  herein to reflect
events that occurred at a later date.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item                                                                                        Page
------------------------------------------------------------------------------------------------
<S>                                                                                         <C>
PART I

1.  Business ............................................................................    1

2.  Properties ..........................................................................    6

3.  Legal Proceedings ...................................................................    7

4.  Submission of Matters to a Vote of Security Holders .................................    7

PART II

5.  Market for Registrant's Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities ...............................................    8

6.  Selected Consolidated Financial Data ................................................    9

7.  Management's  Discussion and Analysis of Financial  Condition and Results of
    Operations ..........................................................................   10

7A. Quantitative and Qualitative Disclosures About Market Risk ..........................   20

8.  Financial Statements and Supplementary Data .........................................   20

9.  Changes In and  Disagreements  With  Accountants on Accounting and Financial
    Disclosure ..........................................................................   20

9A. Controls and Procedures .............................................................   20

PART III

10. Directors and Executive Officers of the Registrant ..................................   21

11. Executive Compensation ..............................................................   21

12. Security Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters .........................................................   21

13. Certain Relationships and Related Transactions ......................................   21

14. Principal Accountant Fees and Services ..............................................   21

PART IV

15. Exhibits, Financial Statement Schedules and Reports on Form 8-K .....................   22
</TABLE>

<PAGE>

                                     PART I

      This  Annual  Report  on Form 10-K  contains  statements  that  constitute
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended.  These statements include comments  regarding the intent,  belief or
current  expectations of the Company and its management.  Prospective  investors
are cautioned  that any such  forward-looking  statements  are not guarantees of
future performance and involve risks and uncertainties,  and that actual results
may differ  materially from those projected in the  forward-looking  statements.
See "Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations - Factors That May Affect Future Results."

ITEM 1. BUSINESS

General

      Sport Chalet,  Inc.  (referred to as the "Company,"  "Sport Chalet," "we,"
"us," and "our"  unless  specified  otherwise),  founded  in 1959,  is a leading
operator of 31 full service,  specialty sporting goods superstores in California
and Nevada.  As of March 31, 2004,  we had 27 locations in Southern  California,
two in Northern California and two in Nevada. These stores average 38,800 square
feet in size.  In addition,  we operate a retail  e-commerce  store  through GSI
Commerce, Inc. at www.sportchalet.com.  Our executive offices are located at One
Sport Chalet Drive, La Canada,  California  91011,  and our telephone  number is
(818) 949-5300.

Operating History and Growth Plans

      In 1959, Norbert Olberz,  our Chairman Emeritus and principal  stockholder
(the  "Principal  Stockholder"),  purchased  a small ski and  tennis  shop in La
Canada,  California.  A focus on providing quality  merchandise with outstanding
customer  service was the foundation of Norbert's  vision.  As a true pioneer in
the industry,  Norbert's mission was three simple things. To "see things through
the eyes of the customer"; "to do a thousand things a little bit better"; and to
focus on "being the best, not the biggest." Over the last 45 years, Sport Chalet
has  grown  into  a  chain  of 31  specialty  retail  superstores  serving  both
California and Nevada.

      Our growth strategy had historically focused on Southern  California,  but
now includes  opening new stores  throughout  California  and Nevada as suitable
locations are found. Over the past three years, we have opened eight new stores,
two of which include our recent  expansion into the Northern  California  market
and two in the Las Vegas,  Nevada,  market.  We currently  plan to open at least
five  stores  during  the next 12  months,  of which  three  will  continue  our
expansion into Northern California, one will be in Central California and one in
Southern  California.  Future  store  openings  are subject to  availability  of
satisfactory  store  locations  based  on  local  competitive  conditions,  site
availability  and cost and our  ability to provide  and  maintain  high  service
levels and quality brand  merchandising at competitive  prices. For fiscal 2004,
average sales per store for stores open  throughout  both fiscal 2004 and fiscal
2003 were $9.2  million,  with  corresponding  average  sales per square foot of
$239.

      Store  openings are expected to have a favorable  impact on sales  volume,
but will  negatively  affect  profit in the short term.  New stores tend to have
higher  costs in the  early  years of  operation,  due  primarily  to  increased
promotional  costs  and  lower  sales on a per  employee  basis  until the store
matures. As the store matures, sales tend to level off and expenses decline as a
percentage of sales. Our stores generally require three to four years to attract
a stable,  mature  customer base. We estimate the cost of opening an average new
store to be approximately $2.8 million consisting primarily of the investment in
inventory (net of average vendor  payables),  the cost of fixtures and equipment
and pre-opening  expenses,  such as the costs associated with training employees
and stocking the store.  Opening costs for each new store can vary significantly
depending  on how much the  landlord  has agreed to  contribute  to our required
improvements.


                                       1
<PAGE>

      Our  sales  partially  depend  on the  economic  environment  and level of
consumer spending in California and Nevada. The retail industry historically has
been subject to substantial  cyclical variation,  and a recession in the general
economy  or  uncertainties  regarding  future  economic  prospects  that  affect
consumer  spending  habits in our market  areas have had,  and may in the future
have, a materially adverse effect on our results of operations.

Stores and Merchandising

      Our  prototype  stores range in size from 40,000 to 45,000 square feet and
showcase each product  category with the feel of a specialty  shop all contained
under one roof.  The full  service  approach  to  customer  service  and product
knowledge is enhanced by fixtures which feature  specific  categories,  and give
the customer an enhanced  shopping  experience.  Each shop is staffed by trained
sales associates with expertise in the merchandise  they sell,  permitting us to
offer our  customers  a high level of product  knowledge  and  service  from the
beginner to the professional sports enthusiast.

      Our  prototype  format  boasts a natural and  outdoor-feel  color  scheme,
clear-coated fixtures,  30-foot clear ceilings,  large sport-specific  graphics,
pool for SCUBA and watersports  instruction and  demonstrations,  and a 100 foot
shoe  wall,  among  other  improvements.  In coming  years we plan to  retro-fit
certain  mature stores to conform to the  prototype.  During  fiscal 2005,  four
stores will be remodeled,  with expected  grand  re-openings in fall of 2004 and
spring of 2005.  For both new stores and  remodels,  we  continually  update our
prototype format to remain competitive. While we have taken advantage of unusual
building layouts in the past, and when  appropriate may do so in the future,  we
will utilize as many prototype  design elements as possible.  We evaluate stores
for remodel based on each store's age and competitive situation,  as well as how
much the landlord  will  contribute to our required  improvements.  Future store
remodeling  plans will depend upon several factors,  including,  but not limited
to, general  economic  conditions,  competition  trends and the  availability of
adequate capital.  Once a store is selected for remodel, an estimate of fixtures
and  leasehold  improvements  requiring  disposal  is  prepared.  The  remaining
book-value of these items are fully expensed  through  accelerated  depreciation
over the period prior to the  completion  of the  remodel.  For fiscal 2005 this
additional expense is expected to be approximately  $700,000. With the scheduled
new store  openings and remodels,  44% of our store base will be three years old
or less.

      Our  stores  feature  a  number  of  distinct,  specialty  sporting  goods
divisions,  offering a large  assortment  of quality brand name  merchandise  at
competitive  prices. The stores include  traditional  sporting goods merchandise
(e.g., footwear, apparel and other general athletic products) and nontraditional
merchandise such as downhill skiing,  mountaineering  and SCUBA. The merchandise
appeals to both experts and  beginners.  In  addition,  our stores offer over 40
services for the serious sports enthusiast, including backpacking, canyoneering,
and kayaking  instruction,  custom golf club fitting and repair,  ski rental and
repair,  SCUBA  training and  certification,  SCUBA boat  charters,  team sales,
racquet  stringing,  and bicycle  tune-up and repair.  Our stores are open seven
days a week, typically from 9:30 a.m. to 9:30 p.m. Monday through Saturday,  and
10:00 a.m. to 7:00 p.m. on Sunday.

      The following  table sets forth the percentage of total net sales for each
major category for each of the last three fiscal years:

                                                   Year Ended March 31,
                                                 -------------------------
                                                 2004      2003      2002
                                                 ----      ----      ----
      Hardlines ............................       53%       53%       53%
      Apparel ..............................       28%       28%       29%
      Footwear .............................       19%       19%       18%
                                                 ------------------------
             Total .........................      100%      100%      100%
                                                 ========================


                                       2
<PAGE>

      We  operate  our  online  store  through  GSI  Commerce,  Inc.  ("GSI") at
www.sportchalet.com.   GSI   creates   and   operates   all   aspects   of   the
www.sportchalet.com  shopping experience,  including fulfillment and purchasing,
while remaining transparent to the customer. We receive a license fee based on a
percentage of sales generated by the website.

      The market for retail  sporting goods is seasonal in nature.  As with many
other retailers, our business is heavily affected by sales of merchandise during
the Holiday season.  In addition,  our product mix has  historically  emphasized
cold weather  sporting goods  merchandise,  particularly  winter-sports  related
products.  In  recent  years,  the  months of  November,  December  and  January
represented  between  30% and 34% of our total net sales,  while  winter-related
products ranged from 15% to 19% of total net sales.  Management anticipates that
this seasonal  trend in sales will  persist.  To be less  dependent  upon winter
business,  management continues to emphasize a broadened product mix that offers
merchandise  generally  purchased by  consumers  in the spring,  summer and fall
seasons.  See  "Item  7.  Management's  Discussion  and  Analysis  of  Financial
Condition and Results of  Operations - Factors That May Affect Future  Results -
Seasonality."

Marketing and Advertising

      We generate all of our marketing and advertising campaigns in-house,  with
production support from outside vendors as needed. The campaigns are designed to
reflect our strategic direction through our brand and product offerings, as well
as  communicate  a focused and  consistent  theme/event  calendar  through media
vehicles including newspaper, direct mail, radio, billboards,  magazines and the
Internet.  Through the Team Sales Division, we reach out to communities in which
our stores do business, contributing to local teams and leagues. Our advertising
leverage  has been  boosted by vendor  payments  under  cooperative  advertising
arrangements as well as vendor  participation in sponsoring  sporting events and
programs.

Purchasing and Distribution

      In order to provide a full line of specialty and sporting goods brands and
a wide  selection,  we  purchase  merchandise  from over 1,200  vendors.  Vendor
payment terms  typically  range from 30 to 120 days from our receipt,  and there
are no long-term purchase commitments. Our largest vendor, Nike, Inc., accounted
for approximately 8.4% and 7.7% of our total inventory purchases for fiscal 2004
and 2003, respectively.

      In January  2002,  we moved our  distribution  operations to a new 326,000
square foot facility located in Ontario,  California. This facility replaced our
150,000 square foot warehouse and a 30,000 square foot satellite  facility,  and
has been  designed to support  growth plans for the  foreseeable  future.  Labor
savings  from  operating  efficiency  provided by the new  facility  have offset
increases in  occupancy  costs in the short term and  installation  of warehouse
management  software should continue to improve  warehousing and logistical cost
management.

      The distribution center serves as the primary receiving,  distribution and
warehousing facility.  Common carriers deliver merchandise to our stores outside
of  Southern  California,  while our own  trucks  deliver  merchandise  from the
distribution  center to the Southern California stores. For fiscal 2005, we will
completely outsource our intra-company trucking. A minimal amount of merchandise
is shipped  directly by vendors to our stores.  Most of the product  received at
the  distribution  center is processed by unpacking  and  verifying the contents
received  and then  sorting  the  contents  by store for  delivery.  Some of the
product received at the distribution  center is pre-packaged and pre-ticketed by
the vendor so it can be immediately cross-docked to trucks bound for the stores.
Due  to  the  efficiencies   cross-docking  creates,  we  encourage  vendors  to
pre-package their merchandise in a floor-ready  manner.  Some of the merchandise
is held at the distribution  center for future allocation to the stores based on
current  sales trends as directed by our  computerized  replenishment  system to
optimize   inventory  levels.  We  believe  that  the  advantages  of  a  single
distribution center include reduced individual store inventory levels and better
use of store floor space,  timely  inventory  replenishment  of store  inventory
needs, consolidated vendor returns, and reduced transportation costs.


                                       3
<PAGE>

      We use a sophisticated computerized replenishment system from JDA. The JDA
E3 system consists of three modules: (i) advanced warehouse replenishment, which
manages purchases from vendors, (ii) advanced store replenishment, which manages
warehouse  to  store  replenishment,   and  (iii)  network  optimization,  which
synchronizes the two systems.  In addition,  we utilize the JDA Consumer Outlook
and Pinpoint  seasonal profile software to help identify,  create and manage the
seasonal trends of our merchandise. Currently, inventory management utilizes the
E3 system to manage approximately 47% of our total inventory.  The remaining 53%
of the inventory  purchases are managed by traditional  methods conducted by the
buying staff on a short-term purchase order basis.

Information Systems

      We use a "best of breed" approach to information  systems. All new systems
communicate with a legacy system that has become the centralized data repository
and the primary financial system. Our inventory systems track purchasing,  sales
and inventory  transfers down to the stock keeping unit or "SKU" level and allow
us to  improve  overall  inventory  management  by  identifying  individual  SKU
activity and projecting  trends and  replenishment  needs on a timely basis.  We
believe these systems  enable us to increase  margins by reducing  inventory and
markdowns while strengthening our in-stock positions.

      Consistent with the stated direction to upgrade the legacy systems,  those
applications  were  migrated to a new Sun computer in May 2002. In October 2000,
store systems were upgraded to the Encore Retail Suite of applications  from CRS
Retail Systems, an open technology allowing flexibility for the future. A custom
rental  program  was added to the  store  system in  October  2001.  Merchandise
replenishment  is controlled by E3 software from the JDA Software  Group,  Inc.,
running on an IBM AS 400. In fiscal 2003,  the processing of  debit/credit  card
authorization was upgraded to allow on-line debit and signature capture, and the
distribution  center  was  enhanced  with  warehouse  management  software  from
HighJump. HighJump is web-enabled, real-time, scaleable software that can expand
to meet the demands of our growth plans. We continue ongoing enhancements to the
legacy system as well as the  evaluation,  procurement  and  integration  of new
systems in order to keep pace with our growth plan.

Trademarks and Trade Names

      We use the "Sport  Chalet" name as a service mark in  connection  with our
business  operations.  We have registered  "Sport Chalet" as a service mark with
the State of  California,  and have obtained  federal  registration  for certain
purposes,  which has been  successfully  defended in the past against  attack by
third parties.  We also retain common law rights to the name, which we have used
since 1959. The lack of federal  registration  for certain purposes might pose a
problem  if we were to  expand  into a  geographic  area  where  the name or any
confusingly similar name is used by someone with prior rights.

Industry and Competition

      The market for retail sporting goods is highly competitive, fragmented and
segmented.  We  compete  with  a  variety  of  other  retailers,  including  the
following:

      o     full-line  sporting  goods  chains,  such as The  Sports  Authority,
            Galyans, Dick's Sporting Goods and Big 5;

      o     specialty stores, such as REI, Foot Locker and West Marine;

      o     supplier-owned stores, such as Nike, The North Face, adidas and New
            Balance;

      o     mass merchandisers, club stores, discount stores and department
            stores, such as Wal-Mart, Costco, Target, Macy's and Sears; and

      o     Internet retailers and catalog merchandisers.

      Many of these competitors have greater financial  resources than we do, or
better name recognition in regions into which we seek to expand. Our industry is
dominated by sporting goods superstore retailers, i.e., full-line sporting goods
chains  with  stores   typically  larger  than  30,000  square  feet,


                                       4
<PAGE>

often in freestanding  locations.  Superstore chains generally provide a greater
selection of higher quality  merchandise than other  retailers,  while remaining
price competitive.  Specialty retailers often have the advantage of a lower cost
structure and a smaller  "footprint" that can be located in shopping centers and
strip malls, offering more customer convenience.

      Historically,  we have  distinguished  ourselves  from our  competitors by
providing a broader selection of higher-end  specialty items that require higher
levels of customer  service and sales associate  expertise than other superstore
retailers  in the  California  and  Nevada  areas.  We  believe  that our  broad
selection  of  high  quality  name  brands  and  numerous   specialty  items  at
competitive   prices,   showcased   by  our   well-trained   sales   associates,
differentiates us from discount and department stores, traditional and specialty
sporting goods stores and other superstore operations.

      Our format takes advantage of several significant trends and conditions in
the sporting goods industry.  These conditions include the size of the industry,
fragmented  competition,  superstore  dominance,  limited assortments offered by
many sporting goods retailers,  consumer  preference for one-stop shopping,  and
the  importance of  delivering  value through  selection,  quality,  service and
price.

Employees

      As of March  31,  2004,  we had a total of  approximately  2,654  full and
part-time  employees,  2,420 of whom were employed in our stores and 234 of whom
were  employed in warehouse  and  delivery  operations  or in  executive  office
positions.  None  of  our  employees  are  covered  by a  collective  bargaining
agreement.  We encourage and welcome the  communication of our employees' ideas,
suggestions  and concerns and believe this  contributes  to our strong  employee
relations. A typical store has approximately 75 employees,  of whom 20 to 40 are
in the store at any given  time on a normal  operating  basis.  Generally,  each
store employs a general manager, two to three assistant managers, who along with
area managers and department  heads  supervise the sales  associates in customer
service,  merchandising,  and  operations.  Additional  part-time  employees are
typically hired during the Holiday and other peak seasons.

      We are  committed to the growth and training of our  employees in order to
provide  "The  Expert"  product  knowledge  and  service to our  customers.  Our
"Certified  Pro" program  ensures that  employees  attend  product line specific
clinics and receive hands-on  training to improve  technical product and service
expertise. Only after completing all of the clinics and training, in addition to
passing  specific  testing,  may an  associate be  considered  a Certified  Pro.
Certified Pro certification is offered in 19 different  service  disciplines and
is a  requirement  for  new  associates  in  their  areas  of  expertise.  Being
knowledgeable  and informed  allows our work force to meet the customer's  needs
and enhance their shopping experience.

Financial Information about Segments

      For financial reporting purposes the Company operates in a single business
segment.

Additional Information

      The  Company  makes   available   free  of  charge  through  our  website,
www.sportchalet.com,  our Annual Report on Form 10-K,  Quarterly Reports on Form
10-Q and Current  Reports on Form 8-K and  amendments  to those reports filed or
furnished  pursuant to Section 13(a) of the Securities  Exchange Act of 1934, as
soon as reasonably  practicable  after those reports are filed with or furnished
to the Securities and Exchange Commission ("SEC").

      The  public  may read any of the  items we file  with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, NW, Washington,  DC 20549. The public
may obtain  information  about the  operation  of the Public  Reference  Room by
calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site that
contains  reports,  proxy and  information  statements,  and  other  information
regarding the Company and other issuers that file electronically with the SEC at
http://www.sec.gov.


                                       5
<PAGE>

      ITEM 2. PROPERTIES

      At June 7, 2004, we had 31 store locations. The following table summarizes
the key information on our retail properties:

<TABLE>
<CAPTION>
                                                                                     Gross
                                                                                     Square
Location                                          Opening Date                       Footage
-------------------------                         --------------                    ----------
<S>                                               <C>                               <C>
La Canada (1)..................................   June 1960                             40,300
Huntington Beach (2)...........................   June 1981                             50,000
La Jolla ......................................   June 1983                             20,000
Mission Viejo..................................   August 1986                           30,000
Point Loma (2).................................   November 1987                         34,600
Valencia (2)...................................   November 1987                         40,000
Marina del Rey.................................   November 1989                         42,300
Beverly Hills..................................   November 1989                         39,300
Brea (2).......................................   April 1990                            34,200
Oxnard (2).....................................   June 1990                             40,100
West Hills (2).................................   June 1991                             44,000
Burbank........................................   August 1992                           45,000
Montclair (3)..................................   November 1992                         18,000
Torrance.......................................   November 1993                         38,700
Glendora.......................................   November 1993                         40,000
Rancho Cucamonga (2)...........................   June 1994                             36,000
Irvine (2).....................................   November 1995                         35,000
Laguna Niguel..................................   November 1997                         40,000
Mission Valley.................................   June 1998                             47,000
Long Beach.....................................   May 1999                              43,000
Porter Ranch...................................   July 1999                             43,000
Temecula.......................................   October 1999                          40,000
Chino Hills....................................   July 2000                             40,000
Palmdale (2)...................................   June 2001                             40,000
Henderson, NV (2) ...........................     November 2001                         42,000
Costa Mesa - South Coast Plaza...............     November 2001                         40,300
Summerlin, NV (2)............................     November 2002                         40,300
Riverside (2) ...............................     November 2002                         44,000
Antioch (2)..................................     November 2003                         40,000
Redlands (2).................................     November 2003                         42,000
Sacramento (2)...............................     December 2003                         40,600
                                                                                      ---------
                                                                             Total    1,209,700
                                                                                      =========
</TABLE>

----------------------
(1)   The  original  store  opened in 1959.  The existing  store  includes  four
      facilities.

(2)   Includes swimming pool facility for SCUBA and kayaking instruction.

(3)   Outlet store  relocated to a nearby  regional  shopping  center in October
      2000.


                                       6
<PAGE>

      All  facilities are located on leased  property.  The initial terms of the
retail  leases  expire in 2005 through 2020 and  typically  provide for multiple
five-year  renewal options.  All retail store leases provide for base rent which
may or may not be credited  against  percentage rent based upon gross sales from
the premises.  In some of the leases,  base rental amounts increase as the lease
term  progresses,  although in some cases,  we expect that  percentage rent will
more than offset the base rental amounts.

      We lease from  corporations  controlled by Norbert Olberz,  Sport Chalet's
Chairman Emeritus and principal stockholder (the "Principal  Stockholder"),  our
corporate  office  space in La Canada and our  stores in La  Canada,  Huntington
Beach and Porter Ranch, California.  In prior years, we also leased from him our
warehouse and distribution facility in Montclair,  California. Although the term
of this lease ran to 2007, the Principal  Stockholder agreed to cancel the lease
when  we  moved  to the  new  distribution  center  in  January  2002.  The  new
distribution center located in Ontario,  California, is leased from an unrelated
third party.  We have incurred  rental  expense to the Principal  Stockholder of
$2.5  million,  $2.1  million and $2.3  million in fiscal  2004,  2003 and 2002,
respectively.

      Our  corporate  offices in prior  years  were  spread  over  seven  nearby
buildings  in  La  Canada,  California,   neighboring  our  original  store.  To
facilitate  our expansion  plans,  we leased a new 27,500 square foot  corporate
office in La Canada from La Canada Properties, Inc., a corporation controlled by
the Principal  Stockholder,  in October 2002. We expect this building to support
our growth plans for the foreseeable future.

      Management  believes  that the  occupancy  costs  under  the  leases  with
corporations  controlled by the  Principal  Stockholder  described  above are no
higher  than those  which  would be charged by  unrelated  third  parties  under
similar circumstances.

ITEM 3. LEGAL PROCEEDINGS

      We are involved in various  routine  legal  proceedings  incidental to the
conduct of our  business.  Management  does not believe  that any of these legal
proceedings  will have a  material  adverse  impact on the  business,  financial
condition or results of operations,  either due to the nature of the claims,  or
because management believes that such claims should not exceed the limits of our
insurance coverage.

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

      No matters were submitted to our stockholders during the fourth quarter of
fiscal 2004.


                                       7
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES

Market Price for Common Shares

      Our Common  Stock is traded on the Nasdaq  Stock  Market  under the symbol
"SPCH." The  following  table  reflects the range of high and low sale prices of
our  Common  Stock by  quarter  over the last two fiscal  years as  reported  by
Nasdaq:

      Fiscal 2003                                           High      Low
      -----------                                          ------   ------
      First Quarter ....................................   $ 9.40   $ 8.49
      Second Quarter ...................................   $ 9.05   $ 6.54
      Third Quarter ....................................   $ 7.34   $ 6.12
      Fourth Quarter ...................................   $ 7.41   $ 6.50

      Fiscal 2004                                           High      Low
      -----------                                          ------   ------
      First Quarter ....................................   $ 7.42   $ 6.50
      Second Quarter ...................................   $ 7.55   $ 6.81
      Third Quarter ....................................   $10.93   $ 6.96
      Fourth Quarter ...................................   $15.08   $ 9.40

      Fiscal 2005                                           High      Low
      -----------                                          ------   ------
      First Quarter (through June 7, 2004) .............   $13.90   $ 9.65

      On June 7, 2004,  the  closing  price of our Common  Stock as  reported by
Nasdaq was $12.99.  Stockholders  are urged to obtain current market  quotations
for the Common Stock.

Approximate Number of Holders of Common Shares

      The approximate number of stockholders of record of our Common Stock as of
June 7, 2004 was 176  (excluding  individual  participants  in nominee  security
position  listings),   and  as  of  that  date,  we  estimate  that  there  were
approximately 1,000 beneficial owners holding stock in nominee or "street" name.

Dividend Policy

      We have not paid any dividends to  stockholders  since our initial  public
offering in November 1992. We currently intend to retain earnings for use in the
operation  and  potential  expansion  of our  business  and,  therefore,  do not
anticipate declaring or paying any cash dividends in the foreseeable future. The
declaration and payment of any such dividends in the future will depend upon our
earnings,  financial condition,  capital needs and other factors deemed relevant
by the Board of Directors.


                                       8
<PAGE>

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

      The following  sets forth selected  consolidated  financial data as of and
for the five  most  recent  fiscal  years  ended  March  31,  2004 and have been
restated  to  reflect   adjustments  that  are  discussed  further  in  Note  2.
"Restatement  and  Reclassification  of  Financial  Statements"  in the Notes to
Consolidated Financial Statements.  This data should be read in conjunction with
the  financial   statements  and  related  notes  thereto  and  other  financial
information included herein.

<TABLE>
<CAPTION>
                                                                      Year Ended March 31 (As restated)
                                                        --------------------------------------------------------------
                                                          2004         2003          2002          2001          2000
                                                          ----         ----          ----          ----          ----
Statements of Income Data:                                   (In thousands, except per share, square foot amounts)
<S>                                                     <C>         <C>           <C>           <C>           <C>
Net sales ...........................................   $264,237    $ 238,033     $ 227,349     $ 214,842     $ 175,846
Cost of goods sold, buying and occupancy
   costs ............................................    184,047      168,519       162,368       148,334       123,794
                                                        ---------------------------------------------------------------
Gross profit ........................................     80,190       69,514        64,981        66,508        52,052
Selling, general and administrative expenses ........     72,360       62,579        57,443        54,690        43,713
                                                        ---------------------------------------------------------------
Income from operations ..............................      7,830        6,935         7,538        11,818         8,339
Interest expense (income) ...........................        190          307            71          (361)         (284)
                                                        ---------------------------------------------------------------
Income before taxes .................................      7,640        6,628         7,467        12,179         8,623
Income tax provision ................................      2,996        2,584         3,026         4,913         3,431
                                                        ---------------------------------------------------------------
Net income ..........................................   $  4,644    $   4,044     $   4,441     $   7,266     $   5,192
                                                        ===============================================================
Earnings per share - basic ..........................   $   0.70    $    0.61     $    0.67     $    1.10     $    0.79
                                                        ===============================================================
Earnings per share - diluted ........................   $   0.66    $    0.58     $    0.63     $    1.07     $    0.77
                                                        ===============================================================
Weighted average shares outstanding:
     Basic ..........................................      6,646        6,615         6,587         6,580         6,577
                                                        ===============================================================
     Diluted ........................................      7,008        6,947         6,995         6,805         6,756
                                                        ===============================================================

Selected Operating Data:
Comparable store sales increase (decrease) (1) ......        3.7%        (0.9)%        (1.1)%        14.5%          2.0%
Net cash provided by operating activities ...........   $  7,608    $   6,513     $   7,350     $  11,512     $   1,694
EBITDA (2) ..........................................   $ 14,276    $  12,826     $  12,997     $  16,321     $  12,242
Stores open at end of period ........................         31           28            26            23            22
Total square feet at end of period (3) ..............      1,210        1,087         1,002           881           841
Net Sales per square foot (4) .......................   $    239    $     241     $     247     $     256     $     229
Average net sales per store (4) .....................   $  9,221    $   9,220     $   9,453     $   9,642     $   8,480

<CAPTION>

                                                                           As of March 31 (As restated)
                                                        --------------------------------------------------------------
                                                          2004         2003          2002          2001          2000
                                                          ----         ----          ----          ----          ----
<S>                                                     <C>         <C>           <C>           <C>           <C>
Balance Sheet Data:                                                             (Inthousands)
Working capital .....................................   $ 40,746    $  37,329     $  32,224     $  33,238     $  29,239
Total assets ........................................     95,056       89,492        85,510        78,007        66,924
Long-term debt ......................................         --           --            --            --            --
Total stockholders' equity ..........................     62,811       57,456        53,223        48,692        41,274
</TABLE>

(1)   A store's  sales are included in the  comparable  store sales  calculation
      after its twelfth full month of operation.

(2)   EBITDA is earnings before income taxes,  interest expense and depreciation
      and  amortization.  We  believe  that,  in  addition  to cash  flows  from
      operations  and net  income,  EBITDA  is a  useful  financial  performance
      measure for assessing  operating  performance as it provides an additional
      basis to  evaluate  our  ability  to incur  and  service  debt and to fund
      capital expenditures. In evaluating EBITDA, consideration should be given,
      among other things,  to the amount by which EBITDA exceeds  interest costs
      for the period and how EBITDA  compares  to capital  expenditures  for the
      period.  To evaluate EBITDA,  the components of EBITDA such as revenue and
      operating expenses and the variability of such components over time should
      also  be  considered.  EBITDA  should  not be  construed,  however,  as an
      alternative  to  operating   income  (as  determined  in  accordance  with
      accounting  principles  generally accepted in the United States of America
      ("GAAP") as an indicator  of our  operating  performance  or to cash flows
      from operating  activities  (as  determined in accordance  with GAAP) as a
      measure of  liquidity.  Our method of  calculating  EBITDA may differ from
      methods  used  by  other  companies  and,  as a  result,  EBITDA  measures
      disclosed  herein may not be comparable to other similarly titled measures
      used by other companies.

(3)   Total  square  footage  of  all  stores  open  at the  end  of the  period
      represented in thousands of square feet.

(4)   Calculated  by using  stores  that were open for the full  current  fiscal
      period and were also open for the full prior fiscal year.


                                       9
<PAGE>

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

      The  following  should  be read in  conjunction  with  "Item  6.  Selected
Consolidated  Financial  Data" and our  consolidated  financial  statements  and
related notes thereto.

Restatement of Financial Statements

      On February 7, 2005,  the Office of the Chief  Accountant  of the SEC (the
"OCA") issued a letter to the American Institute of Certified Public Accountants
regarding lease accounting which identified three issues:

   1. Amortization  of Leasehold  Improvements - The OCA believes that leasehold
      improvements  in an operating lease should be amortized by the lessee over
      the  shorter  of their  economic  lives or the lease  term,  as defined in
      paragraph 5(f) of FASB Statement 13 ("SFAS 13"), Accounting for Leases, as
      amended.  The OCA believes amortizing  leasehold  improvements over a term
      that includes  assumption of lease renewals is  appropriate  only when the
      renewals have been determined to be "reasonably  assured," as that term is
      contemplated by SFAS 13.

   2. Rent  Holidays  - The  OCA  believes  that  pursuant  to the  response  in
      paragraph 2 of FASB Technical  Bulletin 85-3 ("FTB 85-3"),  Accounting for
      Operating  Leases  with  Scheduled  Rent  Increases,  rent  holidays in an
      operating  lease  should be  recognized  by the lessee on a straight  line
      basis over the lease  term  (including  any rent  holiday  period)  unless
      another systematic and rational  allocation is more  representative of the
      time pattern in which leased property is physically employed.

   3. Landlord/Tenant   Incentives  -  The  OCA  believes  that:  (a)  leasehold
      improvements  made by a lessee that are funded by landlord  incentives  or
      allowances  under an  operating  lease should be recorded by the lessee as
      leasehold improvement assets and amortized over a term consistent with the
      guidance  in item 1  above;  (b) the  incentives  should  be  recorded  as
      deferred  rent and amortized as reductions to lease expense over the lease
      term in  accordance  with  paragraph  15 of SFAS  13 and the  response  to
      Question 2 of FASB Technical  Bulletin 88-1 ("FTB 88-1"),  Issues Relating
      to  Accounting  for  Leases,  and  therefore,   the  OCA  believes  it  is
      inappropriate to net the deferred rent against the leasehold improvements;
      and  (c) a  registrant's  statement  of cash  flows  should  reflect  cash
      received from the lessor that is accounted for as a lease incentive within
      operating  activities and the  acquisition of leasehold  improvements  for
      cash within investing activities.

      Management  and the  Audit  Committee  of the  Board of  Directors  of the
Company in  consultation  with Moss Adams LLP and Ernst & Young LLP,  determined
that the Company's  accounting for leases was not consistent with the accounting
principles described in the OCA's letter.  Similar to many other retailers,  the
Company has corrected its error in accounting for leases as follows:

   1. Generally  the  Company  has  amortized  leasehold  improvements  over the
      shorter of the assets'  estimated useful lives or the initial lease terms,
      excluding  any renewal  options.  This is  consistent  with the  Company's
      utilization  of initial  lease terms in its  calculation  of straight line
      rent  expense,   however,  in  some  situations  the  Company  depreciated
      leasehold  improvements over a 15-year period while the straight line rent
      expense in those same years was  computed  over the initial  lease  terms,
      which  were less  than 15 years.  Therefore,  to  ensure  compliance  with
      generally accepted  accounting  principles,  the Company is correcting its
      calculation of its  amortization of leasehold  improvements to utilize the
      shorter of the assets'  estimated useful lives or the initial terms of the
      related leases.

   2. The Company had  historically  recognized  straight  line rent expense for
      leases  beginning  on the  earlier  of the  store  opening  date or  lease
      commencement  date, which had the effect of excluding the build-out period
      from the  calculation  of the period  over  which it  expensed  rent.  The
      Company has determined  that it should have included the build-out  period
      in its  calculation  of straight  line rent expense and has  corrected its
      straight line rent accrual and deferred lease credits accordingly.


                                       10
<PAGE>

   3. The  Company  has  historically  treated   construction   allowances  from
      landlords  as a reduction  of fixed  assets on its  balance  sheet and the
      related  amortization  as a  reduction  of  depreciation  expense  on  its
      statement of cash flows.  The Company has  corrected  its  accounting  for
      tenant  improvement  allowances to reflect the recognition of rent expense
      on a straight line basis. Certain reclassifications have been reflected in
      the  statement  of cash flows to  include  tenant  improvement  allowances
      within  operating  activities  and exclude  them as a component of capital
      expenditures within investing  activities.  This restatement to previously
      issued consolidated  financial statements does not have an effect on total
      net cash flows during any of the periods restated.

      See Note 2:  "Restatement and  Reclassification  of Financial  Statements"
under  Notes to  Consolidated  Financial  Statements  of this Form  10-K/A for a
summary of the effect of these changes on the Company's  consolidated  financial
statements as of March 31, 2004, March 31, 2003 and March 31, 2002.

Results of Operations

      The  following  tables set forth  statements  of income data and  relative
percentages of net sales for the periods indicated (dollar amounts in thousands,
except per share amounts).

<TABLE>
<CAPTION>
                                             Year ended March 31 (As restated)
                              -----------------------------------------------------------------
                                     2004                  2003                    2002
                              -------------------    -------------------    -------------------
                              Amount      Percent    Amount      Percent    Amount      Percent
                              ------      -------    ------      -------    ------      -------
<S>                          <C>           <C>      <C>           <C>      <C>           <C>
Net sales ................   $264,237      100.0%   $238,033      100.0%   $227,349      100.0%
Gross profit .............     80,190       30.3      69,514       29.2      64,981       28.6
Selling, general and
   administrative expenses     72,360       27.4      62,579       26.3      57,443       25.3
Income from operations ...      7,830        3.0       6,935        2.9       7,538        3.3
Interest expense (income)         190        0.1         307        0.1          71        0.0
Income before taxes ......      7,640        2.9       6,628        2.8       7,467        3.3
Net income ...............      4,644        1.8       4,044        1.7       4,441        2.0
Earnings per share:
      Basic ..............   $   0.70               $   0.61               $   0.67
      Diluted ............   $   0.66               $   0.58               $   0.63
</TABLE>

                                Quarter ended March 31 (As restated)
                             --------------------------------------------
                                     2004                   2003
                             --------------------   --------------------
                              Amount      Percent    Amount      Percent
                             -------      -------   -------      -------
Net sales ................   $ 69,404      100.0%   $ 58,230      100.0%
Gross profit .............     20,505       29.5      16,291       28.0
Selling, general and
   administrative expenses     19,970       28.8      16,041       27.5
Income from operations ...        535        0.8         250        0.4
Interest expense .........         28        0.0          34        0.1
Income before taxes ......        507        0.7         216        0.4
Net income ...............        330        0.5         116        0.2
Earnings per share:
      Basic ..............   $   0.05               $   0.02
      Diluted ............   $   0.05               $   0.02


                                       11
<PAGE>

      Fiscal 2004  Compared to Fiscal 2003.  Sales  increased  $26.2  million or
11.0%,  from  $238.0  million for the fiscal year ended March 31, 2003 to $264.2
million for fiscal 2004.  The increase is the result of opening  three stores in
fiscal 2004 and two in fiscal  2003,  in addition  to a  comparable  store sales
increase of 3.7%. The comparable store sales increase reflects improved economic
climate and more seasonable winter weather  conditions at the resorts frequented
by our customers.

      Gross profit  increased  $10.7 million or 15.4%,  primarily from increased
sales. As a percent of sales,  gross profit  increased from 29.2% in fiscal 2003
to 30.3% in fiscal 2004.  The 1.1%  increase for fiscal 2004  compared to fiscal
2003 resulted primarily from ongoing  improvements in purchasing practices which
reduced the need for markdowns.

      Selling,  general and  administrative  expenses  increased $9.8 million or
15.6%,  primarily from additional  stores. As a percent of sales, these expenses
increased  from 26.3% in fiscal 2003 to 27.4% in fiscal 2004.  The 1.1% increase
for fiscal 2004 compared to fiscal 2003 resulted from several  primary  factors:
(i) the write-off of assets  totaling  $245,000 which came from two  large-scale
remodels  completed in the first quarter of fiscal 2004, (ii) increased workers'
compensation  expense of $1.2 million,  (iii) additional  non-cash  compensation
expense from a stock award of $449,000 from the Principal Stockholder to certain
executives of the Company,  combined with a cash bonus of $369,000,  paid by the
Company to cover the executives' related income tax.

      The  effective tax rate as a percent of pretax income was 39.2% for fiscal
2004 and 39.0% for fiscal 2003.  These rates differ from the  statutory  rate of
39.8% primarily as a result of permanent differences between financial reporting
and tax-basis income.

      Net income  increased  from $4.0  million or $0.58 per  diluted  share for
fiscal  2003,  to $4.6  million  or $0.66 per  diluted  share for  fiscal  2004,
primarily due to increased sales and improved gross profit as a percent of sales
partially offset by increased  workers'  compensation  expense and the effect of
the stock award.

      Fourth Quarter 2004 Compared to Fourth Quarter 2003. Sales increased $11.2
million or 19.2%,  from $58.2  million for the  quarter  ended March 31, 2003 to
$69.4 million for the same period in fiscal 2004. The increase  results from the
opening of three stores in fiscal 2004, in addition to a comparable  store sales
increase of 10.5%.  The  comparable  store sales  increase  reflects an improved
economic  climate and more seasonable  winter weather  conditions at the resorts
frequented by our customers.

      Gross profit  increased  $4.2 million or 25.9%,  primarily  from increased
sales. As a percent of sales,  gross profit increased from 28.0% for the quarter
ended  March 31, 2003 to 29.5% for the quarter  ended March 31,  2004.  The 1.5%
increase  resulted  primarily from reduced  markdowns as more seasonable  winter
weather conditions increased customer demand for winter-related products.

      Selling,  general and  administrative  expenses  increased $3.9 million or
24.5%,  primarily from additional  stores. As a percent of sales, these expenses
increased  from  27.5% for the  quarter  ended  March 31,  2003 to 28.8% for the
quarter  ended March 31, 2004.  The 1.3% increase is primarily the result of two
factors:  (i)  increased  workers'   compensation  expense  of  $600,000,   (ii)
additional non-cash compensation expense from a stock award of $449,000 from the
Principal Stockholder to certain executives of the Company, combined with a cash
bonus of $369,000,  paid by the Company to cover the executives'  related income
tax.

      The effective tax rate, as a percent of pretax  income,  was 34.9% for the
quarter ended March 31, 2004 and 46.3% for the same period in fiscal 2003.  Both
differ from the statutory rate of 39.8% as a result of fourth quarter  provision
adjustments  reconciling the estimated effective rate utilized in prior quarters
to the annual effective tax rate.


                                       12
<PAGE>

      Net income  increased  from  $116,000 or $0.02 per  diluted  share for the
quarter  ended March 31,  2003,  to $330,000 or $0.05 per diluted  share for the
quarter  ended March 31, 2004,  primarily  due to  increased  sales and improved
gross  profit as a percent  of sales  partially  offset  by  increased  workers'
compensation expense and the effect of the stock award.

      Fiscal 2003 Compared to Fiscal 2002. Sales increased $10.7 million or 4.7%
from $227.3  million for the fiscal year ending March 31, 2002 to $238.0 million
for fiscal  2003.  The  increase  was the result of opening two stores in fiscal
2003 and three in fiscal 2002,  offset by a comparable  store sales  decrease of
0.9%. The comparable store sales decrease  reflects a prolonged  sluggish retail
environment, lackluster economic recovery, and the war in Iraq. In addition, the
decrease  reflects a second  year of  unseasonable  warm and dry winter  weather
conditions at the resorts  frequented by our customers  throughout the third and
fourth quarters which resulted in decreased sales of winter-related merchandise.
Sales exclusive of winter-related  merchandise  increased 7.0% in total and 0.9%
on a comparable store basis.

      Gross profit  increased  $4.5 million or 7.0%,  primarily  from  increased
sales. As a percent of sales,  gross profit  increased from 28.6% in fiscal 2002
to 29.2% in fiscal 2003. The  improvement  in merchandise  margins was partially
offset by the effects of decreased comparable store sales which caused occupancy
costs to increase as a percent of sales in fiscal 2003 compared to fiscal 2002.

      Selling,  general and  administrative  expenses  increased $5.1 million or
8.9%,  primarily from additional  stores. As a percent of sales,  these expenses
increased  from 25.3% in fiscal 2002 to 26.3% in fiscal  2003.  The increase was
caused by increases in utility expenses, advertising expense, professional fees,
incentive-based labor and employment-based insurance costs.

      Interest  expense  increased  from  $71,000 in fiscal  2002 to $307,000 in
fiscal 2003, as our  expansion was partially  funded by the increased use of our
credit facility.

      The  effective tax rate as a percent of pretax income was 39.0% for fiscal
2003 and 40.5% for fiscal 2002.  These rates differ from the  statutory  rate of
39.8% primarily as a result of permanent differences between financial reporting
and  tax-basis  income.  The  decrease was the result of reduced  blended  state
income tax rate,  from our  expansion  into  Nevada  which has no income tax and
qualifying  tax  credits  from  California  not earned in the same period in the
prior year.

      Net income  decreased  from $4.4  million or $0.63 per  diluted  share for
fiscal  2002,  to $4.0  million  or $0.58 per  diluted  share for  fiscal  2003,
primarily due to higher selling,  general and administrative  expenses partially
offset by higher sales and improved merchandise margins.

Liquidity and Capital Resources

      Our primary capital  requirements  are for inventory and store  expansion,
relocation and remodeling. Historically, cash from operations, credit terms from
vendors and bank borrowing have met our liquidity  needs.  We believe that these
sources will be sufficient to fund currently  anticipated cash  requirements for
the foreseeable future.

      Net cash provided by operating  activities  of $7.6 million,  $6.5 million
and $7.4 million for fiscal 2004, 2003 and 2002, respectively, was primarily the
result of net income, adjusted for depreciation and amortization,  and increases
in bank overdraft combined with accounts payable offset by inventory purchases.

      Typically, inventory levels increase from year to year due to the addition
of new stores.  Inventories  increased $3.3 million in fiscal 2004, $3.0 million
in 2003 and $5.4 million in 2002,  primarily  from the addition of three stores,
two stores and three  stores  respectively.  In fiscal  2004,  the  increase  in
inventory was partially offset by a 3.0% decrease in average inventory per store
compared to fiscal 2003 due to ongoing improvements in inventory management.


                                       13
<PAGE>

      Bank overdraft represents the total of checks in transit in excess of cash
on hand. Although there is no bank overdraft at March 31, 2004, the overdraft is
expected to continue to  fluctuate  due to the timing of vendor  payments in the
future.  Historically,   accounts  payable  increases  as  inventory  increases.
However,  the timing of vendor  payments  near the end of the  fiscal  year does
influence this relationship.  As a result of these timing differences,  accounts
payable combined with the bank overdraft decreased $4.0 million and $2.9 million
for fiscal 2004 and 2003, respectively,  compared to an increase of $6.0 million
for fiscal 2002.

      Other accrued expenses  increased by $2.8 and $1.0 million for fiscal 2004
and 2003,  respectively,  primarily from increased sales.  Fiscal 2002 decreased
$1.8 million,  as expenses  related to the settlement of litigation were accrued
during fiscal 2001, and subsequently paid in fiscal 2002.

      Net cash used in investing activities was $9.0 million,  $6.7 million, and
$12.1  million  for fiscal  2004,  2003 and 2002,  respectively,  primarily  for
capital expenditures as shown below, in thousands:


                                          Year ended March 31
                                       2004     2003      2002
                                       ----     ----      ----
                New stores            $3,595   $2,658   $ 4,628
                Remodels               1,978       --        --
                Existing stores          850      457     1,710
                Information systems    1,496    2,233       993
                Distribution center       --       --     3,278
                Other                  1,082    1,450     1,518
                                      ------   ------   -------
                Total                 $9,001   $6,798   $12,127
                                      ======   ======   =======

      We have continued to open new stores,  three in fiscal 2004, two in fiscal
2003 and three in fiscal 2002. In addition,  we are beginning to remodel  mature
stores,  two in fiscal  2004.  In  fiscal  2002,  the  distribution  center  was
relocated.

      As a result of our ongoing  growth and strategic  initiatives,  forecasted
capital  expenditures  for fiscal 2005 are  expected to be  approximately  $14.2
million,  which will be funded by cash flow from  operations and our bank credit
line, as needed.  Approximately $7.3 million of this amount will be used to open
five new stores.  The remainder is primarily  for  expenditures  on  information
systems  and  existing   store   improvements,   which  include  four  remodels.
Depreciation  is  expected  to be  accelerated  for the stores to be  remodeled,
increasing  depreciation  expense  for those  stores by  approximately  $700,000
through the remodel date.  We evaluate  stores for remodel based on each store's
age and  competitive  situation as well as how much the landlord will contribute
to our required improvements.

      Net cash provided by financing activities reflects advances and repayments
of borrowings under our revolving  credit facility.  As of March 31, 2004, 2003,
and 2002, we had no outstanding borrowings on this facility.

      Our amended  credit  facility with Bank of America,  N.A.  (the  "Lender")
provides for advances up to $20.0  million,  increasing to $35.0 million for the
period  October  1,  through  December  31,  each  year,  less the amount of any
outstanding draws, up to a $4.0 million maximum in authorized letters of credit.
Interest accrues at the Lender's prime rate plus 0.25% (4.25% at March 31, 2004)
or can be fixed for a period of time at the then current rate established  under
one of several  indices,  all at our  option.  In  addition,  there is an unused
commitment  fee of .20% per year,  based on a  weighted  average  formula.  This
credit facility  expires on September 30, 2005, and we expect to renegotiate and
extend the term of this  agreement or obtain  another  form of financing  before
that date. Our obligation to the Lender is presently secured by a first priority
lien on substantially  all of our non-real estate assets,  and we are subject to
several restrictive  covenants.  The principal operating covenants require us to
maintain  certain  minimum  cash flow  coverage  and  debt-to-equity  ratios and
restrict the level of capital expenditures,  calculated on a quarterly basis. We
are currently in compliance with the covenants.  We believe our credit line with
the Lender is sufficient to


                                       14
<PAGE>

fund  capital  expenditures  for the  foreseeable  future  and to meet  seasonal
fluctuations in cash flow  requirements.  However,  unexpected  conditions could
require us to request additional borrowing capacity from the Lender or alter our
expansion plans or operations.

      Our primary contractual  obligations and commitments as of March 31, 2004,
are store leases with initial  terms  expiring  from 2005  through  2020,  which
typically  provide  for  multiple   five-year  renewal  options  and  employment
contracts:

                                             Operating      Employment
         Payments due by period:               Leases       Contracts
                                            ------------   ------------
         Within 1 year ..................   $ 17,023,811   $    319,500
         2 - 3 years ....................     33,948,239        639,000
         4 - 5 years ....................     31,537,754        639,000
         After 5 years ..................     62,662,962      1,597,500
                                            ------------   ------------
         Total ..........................   $145,172,766   $  3,195,000
                                            ============   ============

      All  retail  store  leases  provide  for base rent which may or may not be
credited  against  percentage rent based upon gross sales from the premises.  In
some of the leases,  base rental amounts  increase as the lease term  progresses
although,  in some cases,  we expect that  percentage rent will more than offset
the base rental amounts.  Generally,  our purchase obligations are cancelable 45
days  prior to  shipment  from our  vendors.  Letters  of  credit  amounting  to
$1,555,093  relating to purchase  commitments  were  outstanding as of March 31,
2004 and expire within one year.

      No cash  dividends  have been  declared on Common Stock in fiscal 2004. We
intend to retain earnings for use in the operation and expansion of our business
and,  therefore,  do not anticipate paying any cash dividends in the foreseeable
future.

Critical Accounting Policies and Use of Estimates

      Our  significant  accounting  policies  are  described  in  Note  2 to the
Financial  Statements,  which have been prepared in accordance  with  accounting
principles  generally  accepted in the United States. In preparing the financial
statements,  we are required to make  estimates and  judgments  which affect the
results of its  operations  and the  reported  value of assets and  liabilities.
Actual  results may differ from these  estimates.  We believe that the following
summarizes critical accounting policies which require significant  judgments and
estimates in the preparation of its consolidated financial statements.

      Inventory  Valuation.  Merchandise  inventories are stated at the lower of
cost  (first-in,  first-out  determined by the retail method of  accounting)  or
market.  We consider cost to include direct cost of  merchandise,  plus internal
costs  associated  with  merchandise  procurement,   storage  and  handling.  We
regularly review aged and excess  inventories to determine if the carrying value
of such  inventories  exceeds  market value. A reserve is recorded to reduce the
carrying  value to market value as necessary.  A  determination  of market value
requires estimates and judgment based on our historical  markdown experience and
anticipated  markdowns  based on future  merchandising  and  advertising  plans,
seasonal considerations, expected business trends and other factors.

      Revenue  Recognition.  Sales are recognized upon the purchase by customers
at our retail  store  locations,  less  merchandise  returned by  customers.  We
provide  a  reserve  for  projected  merchandise  returns  based  on  historical
experience.  As the reserve for merchandise  returns is based on estimates,  the
actual returns could differ from the reserve,  which could impact sales. Revenue
from gift cards, gift  certificates and store merchandise  credits is recognized
at the time of redemption.


                                       15
<PAGE>

      Self-insurance.  Property,  general  liability  and workers'  compensation
insurance coverage is self-insured for various levels.  Self-insurance  accruals
include  claims  filed,  as well as  estimates  of claims  incurred  but not yet
reported based on historical  trends.  Projections of future loss are inherently
uncertain  because of the random nature of insurance claim occurrences and could
be  significantly   affected  if  future  occurrences  and  claims  differ  from
historical trends.

      Gift  Card/Certificate  Redemption.  We offer our  customers the option of
purchasing  gift cards and,  in the past,  gift  certificates  which may be used
toward  the  future  purchase  of our  product  offerings.  The gift  cards  and
certificates  have no  expiration  dates.  We record  unredeemed  gift  cards or
certificates  as a  liability  until the  point of  redemption.  Our  historical
experience  indicates  that  not all  issued  gift  cards  or  certificates  get
redeemed.  Accordingly, we periodically adjust the carrying value of the related
liability.  We monitor  redemption  rates as a percent of issuances and use this
information to estimate  probable  redemption of all  outstanding  gift cards or
certificates.  This  calculation is based on historical  experience,  and future
redemption  rates may vary if  consumer  purchasing  practices  change or if the
pattern  of  redeeming  gift  cards  is  significantly  different  than  we have
experienced with gift certificates.

      Impairment  of  Long-Lived  Assets.  We account for  long-lived  assets in
accordance  with the provisions of Statement of Financial  Accounting  Standards
("SFAS")  No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets." We review long-lived  assets for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  Recoverability  of assets to be held and used is  determined  by a
comparison of the carrying  amount of an asset to future  undiscounted  net cash
flows  expected to be  generated  by the asset.  If such  assets are  considered
impaired,   the  impairment   recognized  is  measured  by  comparing  projected
individual store discounted cash flow to the asset carrying values.  Declines in
projected store cash flow could result in the impairment of assets.

      Accounting  for Income  Taxes.  As part of the  process of  preparing  the
financial  statements,  income taxes are estimated for each of the jurisdictions
in which we  operate.  This  process  involves  estimating  actual  current  tax
exposure together with assessing temporary  differences resulting from differing
treatment of items for tax and accounting purposes.  These differences result in
deferred  tax assets and  liabilities,  which are  included  within the  balance
sheet.  The  likelihood  that deferred tax assets will be recovered  from future
taxable income is assessed, recognizing that future taxable income may give rise
to new  deferred  tax assets.  To the extent  that that  future  recovery is not
likely,  a valuation  allowance would be established.  To the extent a valuation
allowance is  established or increased,  an expense will be included  within the
tax provision in the income statement.

      Significant  management  judgment is required in determining the provision
for  income  taxes,  deferred  tax  assets  and  liabilities  and any  valuation
allowance  recorded  against net  deferred  tax assets.  Based on our history of
operating  earnings,  no valuation  allowance  has been recorded as of March 31,
2004. In the event that actual  results  differ from these  estimates,  or these
estimates are adjusted in future periods,  a valuation  allowance may need to be
established,   which  could  impact  our  financial   position  and  results  of
operations.

      Provisions for income taxes for 2004,  2003 and 2002 are based on numerous
factors  that are subject to audit by the Internal  Revenue  Service and the tax
authorities in the various jurisdictions in which we do business.

Factors That May Affect Future Results

      Our short- and  long-term  success  is  subject to many  factors  that are
beyond our control.  Stockholders  and  prospective  stockholders in the Company
should  consider  carefully  the following  risk  factors,  in addition to other
information  contained in this report.  This Annual Report on Form l0-K contains
forward-looking  statements,  which  are  subject  to a  variety  of  risks  and
uncertainties. Our actual results could differ materially from those anticipated
in these  forward-looking  statements as a result of various  factors  including
those set forth below.


                                       16
<PAGE>

      Economic Conditions.  The retail industry historically has been subject to
substantial  cyclical  variations.  The  merchandise  sold by us is  generally a
discretionary  expense for its customers.  A recession in the general economy or
uncertainties  regarding future economic prospects that affect consumer spending
habits has had, and may do so in the future have, a materially adverse effect on
our results of operations.

      Terrorism/War.  Terrorist  attacks may cause damage or  disruption  to our
employees,  facilities,  information systems, vendors and customers, which could
significantly impact net sales, costs and expenses and financial condition.  The
potential for future terrorist attacks, the national and international responses
to  terrorist  attacks,  and other acts of war or  hostility  may cause  greater
uncertainty and cause us to suffer in ways that we currently cannot predict. Our
geographical  focus in California and Nevada may make us more vulnerable to such
uncertainties  than  other  comparable   retailers  who  may  not  have  similar
geographical concentration.

      Competition.  The sporting goods business and the retail  environment  are
highly competitive,  and we compete with national,  regional and local full-line
sporting goods chains,  specialty  stores,  supplier owned stores,  discount and
department  stores,  and internet  retailers.  A number of our  competitors  are
larger and have greater resources.

      Regional Market Concentration.  Currently,  most of our stores are located
in Southern  California  and the balance are located in Northern  California and
the Las Vegas area of Nevada.  Accordingly,  we are subject to  regional  risks,
such as the  economy,  weather  conditions,  natural  disasters  and  government
regulations.  For example,  warm winter weather in the resorts frequented by our
customers has affected  sales in the past.  When the region  suffers an economic
downturn or when other  adverse  events  occur,  historically  there has been an
adverse effect on our net sales and profitability and this could also affect our
ability to implement  our planned  growth.  Several of our  competitors  operate
stores  across  the United  States  and,  thus,  are not as  vulnerable  to such
regional risks.

      Reliance on a Single  Distribution  Center.  We currently rely on a single
distribution  center in  Ontario,  California.  Any  natural  disaster  or other
serious  disruption to this distribution  center due to fire,  earthquake or any
other  cause  could  damage a  significant  portion of our  inventory  and could
materially  impair both our ability to  adequately  stock our stores and our net
sales and profitability.

      Expansion Plan. Our continued growth depends on a strategy of opening new,
profitable stores in existing markets and in new regional  markets.  The ability
to successfully  implement this growth strategy could be negatively  affected by
any of the following:

      o     suitable sites may not be available for leasing;

      o     we may not be able to negotiate acceptable lease terms;

      o     we might not be able to hire and retain  qualified store  personnel;
            and

      o     we might  not have the  financial  resources  necessary  to fund our
            expansion plans.

      In  addition,  our  expansion  in new and  existing  markets  may  present
competitive,  distribution  and  merchandising  challenges  that differ from the
current challenges. These potential new challenges include competition among our
stores,  added strain on our distribution center,  additional  information to be
processed by our  management  information  systems and  diversion of  management
attention from ongoing operations. We face additional challenges in entering new
markets, including consumers' lack of awareness of the Company,  difficulties in
hiring  personnel and problems due to our  unfamiliarity  with local real estate
markets  and  demographics.  New  markets  may also have  different  competitive
conditions,  consumer  tastes  and  discretionary  spending  patterns  than  our
existing  markets.  To the  extent  that we are  not  able  to  meet  these  new
challenges,  net sales  could  decrease  and  operating  costs  could  increase.
Furthermore, a decline in our overall financial performance,  increased rents or
any other adverse  effects arising from the commercial real estate market in our
geographical  markets may adversely affect our current growth plan. There can be
no assurance that we will possess  sufficient  funds to finance the expenditures
related to our planned growth,  that new stores can be opened on a timely basis,
that such new stores can be operated on a profitable  basis, or that such growth
will be manageable.


                                       17
<PAGE>

      Future Capital Requirements.  We may not be able to fund our future growth
or  react to  competitive  pressures  if we lack  sufficient  funds.  Unexpected
conditions  could  cause  us  to be  in  violation  of  our  Lender's  operating
covenants. Currently, we feel we have sufficient cash available through our bank
credit  facilities and cash from operations to fund existing  operations for the
foreseeable  future.  We cannot be certain  that  additional  financing  will be
available in the future if necessary.

      Management of Growth. Since our inception,  we have experienced periods of
rapid  growth.  No  assurance  can be  given  that  we  will  be  successful  in
maintaining  or increasing  our sales in the future.  Any future growth in sales
will require  additional  working capital and may place a significant  strain on
our  management,   management   information   systems,   inventory   management,
distribution  facilities  and  receivables  management.  Any  failure  to timely
enhance our operating systems,  or unexpected  difficulties in implementing such
enhancements, could have a material adverse effect on our results of operations.

      Dependence on Key  Personnel.  We depend on the  continued  service of our
senior  management.  The loss of the services of any key employee could hurt our
business. Also, our future success depends on our ability to identify,  attract,
hire,  train and motivate other highly skilled  personnel.  Failure to do so may
adversely affect future results.

      Seasonality.  Our sales volume increases  significantly during the Holiday
season as is typical with other  sporting  goods  retailers.  In  addition,  our
product mix has  historically  emphasized cold weather sporting goods increasing
the  seasonality  of our  business.  In recent  years,  the months of  November,
December  and January  represented  between 30% and 34%, of our total net sales,
while  winter-related  products  ranged from 15% to 19% of total net sales.  The
operating results  historically have been influenced by the amount and timing of
snowfall at the resorts frequented by our customers. An early snowfall often has
influenced sales because it generally  extends the demand for winter apparel and
equipment,  while a late snowfall may have the opposite effect. Suppliers in the
ski and  snowboard  industry  require us to make  commitments  for  purchases of
apparel and equipment by April for fall delivery, and only limited quantities of
merchandise can be reordered during the fall. Consequently,  we place our orders
in the spring  anticipating  snowfall in the winter. If the snowfall does not at
least provide an adequate base or occurs late in the season,  or if sales do not
meet  projections,  we may be  required  to mark  down our  winter  apparel  and
equipment.

      Variability  of  Quarterly  Results.  We have  experienced,  and expect to
continue to experience,  a substantial  variation in our net sales and operating
results from quarter to quarter.  We believe  that the factors  which  influence
this  variability of quarterly  results  include  general  economic and industry
conditions that affect consumer spending,  changing consumer demands, the timing
of our  introduction of new products,  the level of consumer  acceptance of each
new product, the seasonality of the markets in which we participate, the weather
and  actions  of  competitors.  Accordingly,  a  comparison  of our  results  of
operations from period to period is not necessarily meaningful,  and our results
of  operations  for  any  period  are  not  necessarily   indicative  of  future
performance.

      Closely  Controlled Stock. At June 7, 2004,  Norbert Olberz, the Company's
founder,   Chairman  Emeritus,   director  and  Principal   Stockholder,   owned
approximately  65% of  Sport  Chalet's  outstanding  Common  Stock.  Mr.  Olberz
effectively  has the ability to control  the  outcome on all  matters  requiring
stockholder approval, including, but not limited to, the election and removal of
directors, and any merger,  consolidation or sale of all or substantially all of
our assets, and to control our management and affairs.


                                       18
<PAGE>

      Information Systems are Vulnerable. Our success, in particular our ability
to successfully manage inventory levels and our centralized distribution system,
largely  depends  upon the  efficient  operation  of our  computer  hardware and
software  systems.  We use  management  information  systems to track  inventory
information at the store level,  replenish  inventory  from our  warehouse,  and
aggregate  daily sales  information  among other  things.  These systems and our
operations are vulnerable to damage or interruption from:

      o     earthquake, fire, flood and other natural disasters;

      o     power   loss,    computer    systems    failures,    internet    and
            telecommunications  or data network  failure,  operator  negligence,
            improper  operation by or  supervision  of  employees,  physical and
            electronic loss of data and similar events; and

      o     computer   viruses,   penetration  by  hackers  seeking  to  disrupt
            operations  or  misappropriate  information  and other  breaches  of
            security.

      We seek to  minimize  these  risks  by the use of  backup  facilities  and
redundant  systems.  Nevertheless any failure that causes an interruption in our
operations  or a decrease  in  inventory  tracking  could  result in reduced net
sales.

      Our  Business  Depends  on  Anticipating  Consumer  Tastes.  If we fail to
anticipate changes in consumer  preferences,  we may experience lower net sales,
higher  inventory  markdowns and lower margins.  Products must appeal to a broad
range of consumers whose preferences  cannot be predicted with certainty.  These
preferences  are also  subject to change.  Sporting  goods are often  subject to
short-lived  trends,  such as the  short-lived  popularity of in-line  scooters.
Outdoor wear is  significantly  influenced by fashion.  Our success depends upon
the ability to  anticipate  and respond in a timely manner to trends in sporting
goods  merchandise and consumers'  participation in sports.  Failure to identify
and  respond  to these  changes  may cause net sales to  decline.  In  addition,
because we generally make  commitments  to purchase  products from vendors up to
six  months in  advance  of the  proposed  delivery,  misjudging  the market may
over-stock  unpopular  products and force inventory  markdowns that could have a
negative impact on profitability,  or have  insufficient  inventory of a popular
item that can be sold at full markup.

      Stock Price. Our Common Stock is thinly traded making it difficult to sell
large amounts. The market price of our Common Stock is likely to be volatile and
could be subject to  significant  fluctuations  in response  to factors  such as
quarterly variations in operating results, operating results which vary from the
expectations  of  securities  analysts  and  investors,   changes  in  financial
estimates,  changes in market valuations of competitors,  announcements by us or
our competitors of a material nature,  additions or departures of key personnel,
future  sales of Common  Stock  and stock  volume  fluctuations.  Also,  general
political  and  economic  conditions  such  as  a  recession  or  interest  rate
fluctuations may adversely affect the market price of our Common Stock.


                                       19
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Our exposure to interest rate risk consists  primarily of borrowings under
our credit  facility,  which bears interest at floating rates  (primarily  LIBOR
rates).  The impact on earnings or cash flows during the next fiscal year from a
change of 100 basis points in the interest rate would not be significant.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements required by this section are submitted as part of
Item 15 of this report.

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

      None.

ITEM 9A. CONTROLS AND PROCEDURES

      The Company's Chief Executive  Officer,  Craig Levra,  and Chief Financial
Officer,  Howard Kaminsky,  with the participation of the Company's  management,
carried out an  evaluation  of the  effectiveness  of the  Company's  disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that
evaluation,  the  Chief  Executive  Officer  and  the  Chief  Financial  Officer
concluded that our disclosure  controls and procedures  were not effective as of
the  period  ended in this  report for the  following  reason:  In May 2005,  we
announced that our financial statements were to be restated, relating to certain
lease accounting and leasehold  amortization  accounting  practices,  consistent
with similar  adjustments made by many other retailers and other publicly traded
companies  concerning these  practices.  Our conclusion to change our accounting
policy and restate was made,  among other things,  in consideration of the views
of the Office of the Chief Accountant of the SEC expressed in its letter related
to these  matters dated  February 7, 2005.  Accordingly,  we concluded  that our
controls over the selection of  appropriate  assumptions  and factors  affecting
lease  accounting  practices  were not  effective as of the period ended in this
report.

      In May 2005,  the Company  remediated  the  material  weakness in internal
control over  financial  reporting by correcting  its method of  accounting  for
construction allowances and recording of rent between the date the Company takes
possession  and the  commencement  date of the lease.  The  Company  implemented
controls in which all leases are reviewed and accounted  for in accordance  with
Statement of Financial  Accounting Standards No. 13, "Accounting for Leases" and
Financial  Accounting  Standards  Board  Technical  Bulletin No.  88-1,  "Issues
Relating to Accounting for Leases";  and Financial  Accounting  Standards  Board
Technical  Bulletin No. 85-3,  "Accounting  for Operating  Leases with Scheduled
Rent Increases."

      Disclosure  controls  and  procedures,  no matter  how well  designed  and
implemented,  can provide  only  reasonable  assurance  of achieving an entity's
disclosure  objectives.  The likelihood of achieving such objectives is affected
by limitations inherent in disclosure controls and procedures. These include the
fact that human judgment in decision-making can be faulty and that breakdowns in
internal  control can occur  because of human  failures such as simple errors or
mistakes or intentional circumvention of the established process.

      There were no changes in the Company's  internal  controls over  financial
reporting,  known to the Chief Executive  Officer or the Chief Financial Officer
that  occurred  during  the most  recent  fiscal  quarter  that have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


                                       20
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The  information  concerning  the directors and executive  officers of the
Company is incorporated  herein by reference from the section entitled "Proposal
1 - Election of Directors"  contained in the definitive  Proxy  Statement of the
Company to be filed  pursuant to Regulation 14A within 120 days after the end of
the Company's last fiscal year (the "Proxy Statement").

ITEM 11. EXECUTIVE COMPENSATION

      The information  concerning executive  compensation is incorporated herein
by  reference  from the section  entitled  "Proposal 1 - Election of  Directors"
contained in the Proxy Statement.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

      The information  concerning the security  ownership of certain  beneficial
owners and  management  is  incorporated  herein by reference  from the sections
entitled "General  Information-Security  Ownership of Principal Stockholders and
Management"  and  "Proposal  1-Election  of  Directors"  contained  in the Proxy
Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information  concerning certain relationships and related transactions
is  incorporated  herein  by  reference  from  the  section  entitled  "Proposal
1-Election  of   Directors-Certain   Relationships  and  Related   Transactions"
contained in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

            The information concerning principal accountant fees and services is
      incorporated  herein by reference from the section  entitled  "Independent
      Auditors" contained in the Proxy Statement.


                                       21
<PAGE>

                                     PART IV

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

(a)   (1)   Financial  Statements  - The  financial  statements  listed  on  the
            accompanying Index to Audited Consolidated  Financial Statements are
            filed as part of this report.

      (2)   Schedules - Not applicable.

(b)   Reports on Form 8-K - (1)  Current  report  on Form  8-K  filed  with  the
                                 Securities  and Exchange  Commission on May 26,
                                 2004,  regarding  a change in the  auditors  of
                                 Sport Chalet,  Inc. Employee Retirement Savings
                                 Plan.

(c)   Exhibits - See Index on Page 43.


                                       22
<PAGE>

                               Sport Chalet, Inc.

               Index to Audited Consolidated Financial Statements

                                                                            Page
                                                                            ----
Report of Independent Registered Public Accounting Firm......................24

Consolidated Statements of Income for each of the three years in the
period ended March 31, 2004..................................................25

Consolidated Balance Sheets as of March 31, 2004 and 2003....................26

Consolidated Statements of Stockholders' Equity for each of the three
years in the period ended March 31, 2004.....................................27

Consolidated Statements of Cash Flows for each of the three years in the
period ended March 31, 2004..................................................28

Notes to Consolidated Financial Statements...................................29


                                       23
<PAGE>

             Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Sport Chalet, Inc.

      We have  audited the  accompanying  consolidated  balance  sheets of Sport
Chalet,  Inc.  as of March  31,  2004 and  2003,  and the  related  consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years  in  the  period  ended  March  31,  2004.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

      In our opinion, the financial statements referred to above present fairly,
in all material respects,  the consolidated  financial position of Sport Chalet,
Inc. at March 31, 2004 and 2003, and the consolidated  results of its operations
and its cash  flows for each of the three  years in the period  ended  March 31,
2004, in conformity with United States generally accepted accounting principles.

      As described in Note 2,  "Restatement  and  Reclassification  of Financial
Statements,"   Sport  Chalet  has  restated  its  previously   issued  financial
statements to correct its accounting for leases.

                                                         /s/ Ernst & Young LLP

Los Angeles, California
May 21, 2004, except for Note 2 as to which the date is May 19, 2005


                                       24
<PAGE>

                               Sport Chalet, Inc.

                        Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                            Year ended March 31 (As restated)
                                                            2004           2003           2002
                                                        ------------------------------------------
<S>                                                     <C>            <C>            <C>
Net sales ...........................................   $264,236,923   $238,033,375   $227,348,772
Cost of goods sold, buying and occupancy costs ......    184,046,770    168,519,772    162,367,361
                                                        ------------------------------------------
Gross profit ........................................     80,190,153     69,513,603     64,981,411

Selling, general and administrative expenses ........     72,360,528     62,578,573     57,443,412
                                                        ------------------------------------------
Income from operations ..............................      7,829,625      6,935,030      7,537,999

Interest expense (income) ...........................        189,924        306,755         70,791
                                                        ------------------------------------------
Income before taxes .................................      7,639,701      6,628,275      7,467,208

Income tax provision ................................      2,995,625      2,584,497      3,026,290
                                                        ------------------------------------------
Net income ..........................................   $  4,644,076   $  4,043,778   $  4,440,918
                                                        ==========================================

Earnings per share:
   Basic ............................................   $       0.70   $       0.61   $       0.67
                                                        ==========================================

   Diluted ..........................................   $       0.66   $       0.58   $       0.63
                                                        ==========================================

Weighted average number of common shares outstanding:
     Basic ..........................................      6,645,667      6,614,544      6,586,904
     Diluted ........................................      7,008,380      6,947,343      6,994,514
</TABLE>

See accompanying notes.


                                       25
<PAGE>

                               Sport Chalet, Inc.

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                              March 31 (As restated)
                                                                 2004          2003
                                                             -------------------------
<S>                                                          <C>           <C>
Assets
Current assets:
   Cash and cash equivalents .............................   $ 3,071,648   $ 4,230,003
   Accounts receivable, less allowance of $30,000 in 2004
     and $25,000 in 2003 .................................     1,208,934     1,140,519
   Merchandise inventories ...............................    54,172,055    50,886,630
   Prepaid expenses and other current assets .............     2,202,036     2,038,588
   Refundable income taxes ...............................            --        58,990
   Deferred income taxes .................................     2,443,945     1,325,249
                                                             -------------------------
Total current assets .....................................    63,098,618    59,679,979
Furniture, equipment and leasehold improvements:
   Furniture, fixtures and office equipment ..............    27,503,694    26,922,764
   Rental equipment ......................................     3,955,873     3,892,903
   Vehicles ..............................................       610,413       553,670
   Leasehold improvements ................................    26,186,004    23,355,255
                                                             -------------------------
                                                              58,255,984    54,724,592
   Less allowance for depreciation and amortization ......    27,633,846    26,302,563
                                                             -------------------------
                                                              30,622,138    28,422,029

Deferred income tax ......................................     1,234,729     1,279,931
Other assets .............................................       101,036       109,905
                                                             -------------------------
Total assets .............................................   $95,056,521   $89,491,844
                                                             =========================

Liabilities and stockholders' equity Current liabilities:
   Bank overdraft ........................................   $        --   $ 5,764,355
   Accounts payable ......................................    11,131,473     9,353,444
   Salaries and wages payable ............................     3,354,368     2,191,335
   Income taxes payable ..................................        35,631            --
   Other accrued expenses ................................     7,830,961     5,041,753
                                                             -------------------------
Total current liabilities ................................    22,352,433    22,350,887

Deferred rent ............................................     9,893,581     9,684,515
Commitments and contingencies ............................

Stockholders' equity:
   Preferred stock, $.01 par value:
     Authorized shares - 2,000,000
     Issued and outstanding shares - none ................            --            --
   Common stock, $.01 par value:
     Authorized shares - 15,000,000
     Issued and outstanding shares - 6,673,534 in 2004 and
     6,628,334 in 2003 ...................................        66,735        66,283
   Additional paid-in capital ............................    22,830,906    22,121,369
   Retained earnings .....................................    39,912,866    35,268,790
                                                             -------------------------
Total stockholders' equity ...............................    62,810,507    57,456,442
                                                             -------------------------
Total liabilities and stockholders' equity ...............   $95,056,521   $89,491,844
                                                             =========================
</TABLE>

See accompanying notes.


                                       26
<PAGE>

                               Sport Chalet, Inc.

                 Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                                 Common Stock             Additional        Retained
                                           Shares           Amount      Paid-in Capital      Earnings          Total
                                        --------------------------------------------------------------------------------
<S>                                        <C>            <C>              <C>              <C>              <C>
Balance at March 31, 2001 .........        6,580,001      $    65,800      $21,842,340      $26,784,094      $48,692,234
   Exercise of stock options ......           15,499              155           56,028               --           56,183
   Tax benefit from exercise of
     options ......................               --               --           34,249               --           34,249
   Net income for 2002 ............               --               --               --        4,440,918        4,440,918
                                        --------------------------------------------------------------------------------
Balance at March 31, 2002 .........        6,595,500           65,955       21,932,617       31,225,012       53,223,584
   Exercise of stock options ......           32,834              328          135,279               --          135,607
   Tax benefit from exercise of
     options ......................               --               --           53,473               --           53,473
   Net income for 2003 ............               --               --               --        4,043,778        4,043,778
                                        --------------------------------------------------------------------------------
Balance at March 31, 2003 .........        6,628,334           66,283       22,121,369       35,268,790       57,456,442
   Exercise of stock options ......           45,200              452          226,121               --          226,573
   Tax benefit from exercise of
     options ......................               --               --           34,498               --           34,498
   Stock Compensation from grant of
     shares from Principal
     Stockholder ..................               --               --          448,918               --          448,918
   Net income for 2004 ............               --               --               --        4,644,076        4,644,076
                                        --------------------------------------------------------------------------------
Balance at March 31, 2004 .........        6,673,534      $    66,735      $22,830,906      $39,912,866      $62,810,507
                                        ================================================================================
</TABLE>

See accompanying notes.


                                       27
<PAGE>

                               Sport Chalet, Inc.

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                        Year ended March 31 (As restated)
                                                                    2004               2003               2002
                                                                 --------------------------------------------------
<S>                                                              <C>                <C>                <C>
Operating activities
Net income ................................................      $  4,644,076       $  4,043,778       $  4,440,918
Adjustments to reconcile net income to net cash provided by
   operating activities:
     Depreciation and amortization ........................         6,446,657          5,890,430          5,459,720
     Loss on disposal of equipment ........................           354,608             31,730            659,931
     Stock compensation ...................................           448,918                 --                 --
     Deferred income taxes ................................        (1,073,494)           (22,747)           340,146
     Tax benefit on employee stock options ................            34,498             53,473             34,249
     Changes in operating assets and liabilities:
       Accounts receivable ................................           (68,415)          (370,843)          (249,999)
       Merchandise inventories ............................        (3,285,425)        (2,970,077)        (5,425,021)
       Prepaid expenses and other current assets ..........          (163,448)          (281,581)          (432,960)
       Refundable income taxes ............................            58,990            389,770           (448,760)
       Bank overdraft .....................................        (5,764,355)        (1,427,903)         7,192,258
       Accounts payable ...................................         1,778,029         (1,461,797)        (1,135,443)
       Salaries and wages payable .........................         1,163,033              6,826           (775,658)
       Other accrued expenses .............................         2,789,208          1,033,545         (1,764,802)
       Income taxes payable ...............................            35,631                 --         (1,286,861)
       Deferred rent ......................................           209,066          1,598,297            742,072
                                                                 --------------------------------------------------
Net cash provided by operating activities .................         7,607,577          6,512,901          7,349,790

Investing activities
Purchases of furniture, equipment and leasehold
   improvements ...........................................        (9,001,374)        (6,797,554)       (12,127,475)
Other assets ..............................................             8,869            105,564             49,953
                                                                 --------------------------------------------------
Net cash used in investing activities .....................        (8,992,505)        (6,691,990)       (12,077,522)

Financing activities
Proceeds from bank borrowings .............................        10,225,000         57,563,424         15,100,000
Repayment of bank borrowings ..............................       (10,225,000)       (57,563,424)       (15,100,000)
Proceeds from exercise of stock options ...................           226,573            135,607             56,183
                                                                 --------------------------------------------------
Net cash provided by financing activities .................           226,573            135,607             56,183
                                                                 --------------------------------------------------
Decrease in cash and cash equivalents .....................        (1,158,355)           (43,482)        (4,671,549)
Cash and cash equivalents at beginning of year ............         4,230,003          4,273,485          8,945,034
                                                                 --------------------------------------------------
Cash and cash equivalents at end of year ..................      $  3,071,648       $  4,230,003       $  4,273,485
                                                                 ==================================================
Cash paid during the year for:
   Income taxes ...........................................      $  3,940,000       $  2,164,000       $  4,587,516
   Interest ...............................................           189,925            323,304             91,727
</TABLE>

See accompanying notes.


                                       28
<PAGE>

                               Sport Chalet, Inc.

                   Notes to Consolidated Financial Statements

1. Description of Business

      Sport Chalet, Inc. (the "Company"), founded in 1959, is a leading operator
of 31 full service,  specialty  sporting  goods  superstores  in California  and
Nevada.  The Company has 27  locations in Southern  California,  two in Northern
California and two in Nevada.

      The   Chairman   of  the  Board  (the   "Principal   Stockholder")   owned
approximately 65% of the Company's outstanding Common Stock at March 31, 2004.

Segments of an Enterprise

      The Company reports  segment  information in accordance with SFAS No. 131,
"Disclosures  about  Segments of an Enterprise and Related  Information"  ("SFAS
131").  Under SFAS 131 all  publicly  traded  companies  are  required to report
certain  information  about  the  operating  segments,  products,  services  and
geographical areas in which they operate and their major customers.  The company
operates in a single business segment and operates only in the United States.

2. Restatement and Reclassification of Financial Statements

      On February 7, 2005,  the Office of the Chief  Accountant  of the SEC (the
"OCA")  issued a letter to American  Institute of Certified  Public  Accountants
regarding lease accounting which identified three issues:

   1. Amortization  of Leasehold  Improvements - The OCA believes that leasehold
      improvements  in an operating lease should be amortized by the lessee over
      the  shorter  of their  economic  lives or the lease  term,  as defined in
      paragraph 5(f) of FASB Statement 13 ("SFAS 13"), Accounting for Leases, as
      amended.  The OCA believes amortizing  leasehold  improvements over a term
      that includes  assumption of lease renewals is  appropriate  only when the
      renewals have been determined to be "reasonably  assured," as that term is
      contemplated by SFAS 13.

   2. Rent  Holidays  - The  OCA  believes  that  pursuant  to the  response  in
      paragraph 2 of FASB Technical  Bulletin 85-3 ("FTB 85-3"),  Accounting for
      Operating  Leases  with  Scheduled  Rent  Increases,  rent  holidays in an
      operating  lease  should be  recognized  by the lessee on a straight  line
      basis over the lease  term  (including  any rent  holiday  period)  unless
      another systematic and rational  allocation is more  representative of the
      time pattern in which leased property is physically employed.

   3. Landlord/Tenant   Incentives  -  The  OCA  believes  that:  (a)  leasehold
      improvements  made by a lessee that are funded by landlord  incentives  or
      allowances  under an  operating  lease should be recorded by the lessee as
      leasehold improvement assets and amortized over a term consistent with the
      guidance  in item 1  above;  (b) the  incentives  should  be  recorded  as
      deferred  rent and amortized as reductions to lease expense over the lease
      term in  accordance  with  paragraph  15 of SFAS  13 and the  response  to
      Question 2 of FASB Technical  Bulletin 88-1 ("FTB 88-1"),  Issues Relating
      to  Accounting  for  Leases,  and  therefore,   the  OCA  believes  it  is
      inappropriate to net the deferred rent against the leasehold improvements;
      and  (c) a  registrant's  statement  of cash  flows  should  reflect  cash
      received from the lessor that is accounted for as a lease incentive within
      operating  activities and the  acquisition of leasehold  improvements  for
      cash within investing activities.


                                       29
<PAGE>

      Management  and the  Audit  Committee  of the  Board of  Directors  of the
Company in  consultation  with Moss Adams LLP and Ernst & Young LLP,  determined
that the Company's  accounting for leases was not consistent with the accounting
principles described in the OCA's letter.  Consistent with many other retailers,
the Company has corrected its error in accounting for leases as follows:

   1. Generally  the  Company  has  amortized  leasehold  improvements  over the
      shorter of the assets'  estimated useful lives or the initial lease terms,
      excluding  any renewal  options.  This is  consistent  with the  Company's
      utilization  of initial  lease terms in its  calculation  of straight line
      rent  expense,   however,  in  some  situations  the  Company  depreciated
      leasehold  improvements over a 15-year period while the straight line rent
      expense in those same years was  computed  over the initial  lease  terms,
      which  were less  than 15 years.  Therefore,  to  ensure  compliance  with
      generally accepted  accounting  principles,  the Company is correcting its
      calculation of its  amortization of leasehold  improvements to utilize the
      shorter  of  their  estimated  useful  lives or the  initial  terms of the
      related leases.

   2. The Company had  historically  recognized  straight  line rent expense for
      leases  beginning  on the  earlier  of the  store  opening  date or  lease
      commencement  date, which had the effect of excluding the build-out period
      from the  calculation  of the period  over  which it  expensed  rent.  The
      Company has determined  that it should have included the build-out  period
      in its  calculation  of straight  line rent expense and has  corrected its
      straight line rent accrual and deferred lease credits accordingly.

   3. The  Company  has  historically  treated   construction   allowances  from
      landlords  as a  reduction  of fixed  assets  on its  balance  sheet and a
      reduction of  depreciation  expense on its  statement  of cash flows.  The
      Company has corrected its accounting for tenant improvement  allowances to
      reflect the recognition of rent expense on a straight line basis.  Certain
      reclassifications  have been  reflected in the  statement of cash flows to
      include tenant  improvement  allowances  within  operating  activities and
      exclude  them as a  component  of capital  expenditures  within  investing
      activities.  This restatement to previously issued consolidated  financial
      statements  does not have an effect on total net cash flows  during any of
      the periods restated.

      Following is a summary of the significant  effects of these corrections on
the  Company's  consolidated  balance  sheet as of March 31,  2004 and March 31,
2003, as well as the effects of these corrections on the Company's  consolidated
statements  of income and cash flows for the years ended March 31,  2004,  March
31, 2003 and March 31, 2002:


<TABLE>
<CAPTION>
                                                            Consolidated Statements of Income

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
Fiscal year ended March 31, 2004
                                                          Amount            Amount              Amount
                                                          ------            ------              ------
<S>                                                   <C>                 <C>               <C>
Cost of goods sold, buying and occupancy costs        $184,579,034        $(532,264)        $184,046,770
Gross profit                                            79,657,889          532,264           80,190,153
Selling, general and administrative expenses            71,987,975          372,553           72,360,528
Income from operations                                   7,669,914          159,711            7,829,625
Income before taxes                                      7,479,990          159,711            7,639,701
Income tax provision                                     2,933,000           62,625            2,995,625
Net income                                               4,546,990           97,086            4,644,076

Earnings per share:
             Basic                                    $       0.68        $    0.01         $       0.69
             Diluted                                  $       0.65        $    0.01         $       0.66
</TABLE>


                                       30
<PAGE>

<TABLE>
<CAPTION>

                                                            Consolidated Statements of Income

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
Fiscal year ended March 31, 2003
                                                         Amount             Amount             Amount
                                                         ------             ------             ------
<S>                                                   <C>                 <C>               <C>
Cost of goods sold, buying and occupancy costs        $168,739,502        $(219,730)        $168,519,772
Gross profit                                            69,293,873          219,730           69,513,603
Selling, general and administrative expenses            62,167,771          410,802           62,578,573
Income from operations                                   7,126,102         (191,072)           6,935,030
Income before taxes                                      6,819,347         (191,072)           6,628,275
Income tax provision                                     2,659,000          (74,503)           2,584,497
Net income                                               4,160,347         (116,569)           4,043,778

Earnings per share:
             Basic                                    $       0.63        $   (0.02)        $       0.61
             Diluted                                  $       0.60        $   (0.02)        $       0.58

<CAPTION>

                                                            Consolidated Statements of Income

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
Fiscal year ended March 31, 2002
                                                          Amount            Amount             Amount
                                                          ------            ------             ------
<S>                                                   <C>                 <C>               <C>
Cost of goods sold, buying and occupancy costs        $162,090,636        $ 276,725         $162,367,361
Gross profit                                            65,258,136         (276,725)          64,981,411
Selling, general and administrative expenses            57,126,198          317,214           57,443,412
Income from operations                                   8,131,938         (593,939)           7,537,999
Income before taxes                                      8,061,147         (593,939)           7,467,208
Income tax provision                                     3,267,000         (240,710)           3,026,290
Net income                                               4,794,147         (353,229)           4,440,918

Earnings per share:
             Basic                                    $       0.73        $   (0.05)        $       0.68
             Diluted                                  $       0.69        $   (0.05)        $       0.64

<CAPTION>

                                                              Consolidated Balance Sheets

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
As of March 31, 2004
                                                          Amount           Amount               Amount
                                                          ------           ------               ------
<S>                                                   <C>               <C>                 <C>
Accounts receivable                                   $  1,158,934      $    50,000         $  1,208,934
Leasehold improvements                                  23,241,431        2,944,573           26,186,004
Allowance for depreciation and amortization             25,843,435        1,790,411           27,633,846
Defered income tax                                          83,704        1,151,025            1,234,729
Total assets                                            92,701,334        2,355,187           95,056,521
Deferred rent                                            5,818,026        4,075,555            9,893,581
Retained earnings                                       41,633,234       (1,720,368)          39,912,866
Total stockholders' equity                              64,530,875       (1,720,368)          62,810,507
Total liabilities and stockholders' equity              92,701,334        2,355,187           95,056,521
</TABLE>


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                                              Consolidated Balance Sheets

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
As of March 31, 2003
                                                          Amount           Amount               Amount
                                                          ------           ------               ------
<S>                                                   <C>               <C>                 <C>
Accounts receivable                                   $  1,090,519        $    50,000       $  1,140,519
Leasehold improvements                                  20,610,682          2,744,573         23,355,255
Allowance for depreciation and amortization             24,884,705          1,417,858         26,302,563
Defered income tax                                          66,281          1,213,650          1,279,931
Total assets                                            86,901,479          2,590,365         89,491,844
Deferred rent                                            5,276,696          4,407,819          9,684,515
Retained earnings                                       37,086,244         (1,817,454)        35,268,790
Total stockholders' equity                              59,273,896         (1,817,454)        57,456,442
Total liabilities and stockholders' equity              86,901,479          2,590,365         89,491,844

<CAPTION>


                                                    Consolidated Statements of Stockholders' Equity

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
Fiscal year ended March 31, 2004
                                                          Amount           Amount               Amount
                                                          ------           ------               ------
<S>                                                   <C>               <C>                 <C>
Retained earnings                                     $ 41,633,234        $(1,720,368)      $ 39,912,866

<CAPTION>

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
Fiscal year ended March 31, 2003
                                                          Amount           Amount               Amount
                                                          ------           ------               ------
<S>                                                   <C>               <C>                 <C>
Retained earnings                                     $ 37,086,244        $(1,817,454)        $ 35,268,790

<CAPTION>

                                                         Consolidated Statements of Cash Flow

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
Fiscal year ended March 31, 2004
                                                          Amount             Amount             Amount
                                                          ------             ------             ------
<S>                                                   <C>                 <C>               <C>
Net income                                            $  4,546,990        $    97,086       $  4,644,076
Depreciation and amorization                             6,074,104            372,553          6,446,657
Accounts receivable                                        (68,415)                --            (68,415)
Deferred income taxes                                   (1,145,000)            71,506         (1,073,494)
Income taxes payable                                        44,512             (8,881)            35,631
Deferred rent                                              541,330           (332,264)           209,066
Net cash provided by operating activities                7,407,577            200,000          7,607,577
Purchases of furniture, equipment and leasehold
  improvements                                          (8,801,374)          (200,000)        (9,001,374)
Net cash used investing activities                      (8,792,505)          (200,000)        (8,992,505)

<CAPTION>

                                                           Consolidated Statements of Cash Flow

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
Fiscal year ended March 31, 2003
                                                          Amount             Amount             Amount
                                                          ------             ------             ------
<S>                                                   <C>                 <C>               <C>
Net income                                            $  4,160,347        $  (116,569)      $  4,043,778
Depreciation and amorization                             5,479,628            410,802          5,890,430
Accounts receivable                                       (411,810)            40,967           (370,843)
Deferred income taxes                                       51,756            (74,503)           (22,747)
Deferred rent                                            1,091,071            507,226          1,598,297
Net cash provided by operating activities                5,744,978            767,923          6,512,901
Purchases of furniture, equipment and leasehold
  improvements                                          (6,029,631)          (767,923)        (6,797,554)
Net cash used investing activities                      (5,924,067)          (767,923)        (6,691,990)
</TABLE>


                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                           Consolidated Statements of Cash Flow

                                                ----------------------  --------------    ----------------
                                                As previously reported   Adjustments        As restated
                                                ----------------------  --------------    ----------------
Fiscal year ended March 31, 2002
                                                          Amount             Amount             Amount
                                                          ------             ------             ------
<S>                                                   <C>                 <C>               <C>
Net income                                            $  4,794,147        $  (353,229)      $  4,440,918
Depreciation and amorization                             5,142,507            317,213          5,459,720
Accounts receivable                                       (159,032)           (90,967)          (249,999)
Deferred income taxes                                      580,856           (240,710)           340,146
Deferred rent                                              374,379            367,693            742,072
Net cash provided by operating activities                7,349,790                 --          7,349,790
Purchases of furniture, equipment and leasehold
  improvements                                         (12,127,475)                --        (12,127,475)
Net cash used investing activities                     (12,077,522)                --        (12,077,522)
</TABLE>

3. Summary of Significant Accounting Policies

Principles of Consolidation

      The consolidated  financial statements include the accounts of the Company
and its wholly owned subsidiary.  All significant inter-company transactions and
balances have been eliminated in consolidation.

Cash and Cash Equivalents

      The Company  considers all highly liquid  investments  with  maturities of
less than three months when purchased to be cash equivalents.

      The Company has a concentration of credit risk when cash deposits in banks
are in excess of federally  insured limits in the event of nonperformance by the
related  financial   institution.   However,   management  does  not  anticipate
nonperformance by these financial institutions.

Merchandise Inventories

      Merchandise  inventories  are  stated  at the  lower  of  cost  (first-in,
first-out  determined by the retail method of  accounting) or market and consist
principally  of  merchandise  held for  resale.  The Company  considers  cost to
include the direct cost of  merchandise,  plus internal  costs  associated  with
merchandise procurement, storage and handling.


                                       33
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

3. Summary of Significant Accounting Policies (continued)

Furniture, Equipment and Leasehold Improvements

      Furniture,  equipment,  and leasehold improvements are stated on the basis
of cost.  Depreciation  of furniture and equipment is computed  primarily on the
straight  line method over the estimated  useful lives of the assets.  Leasehold
improvements  are  amortized on the straight line method over the shorter of the
life of the asset or the remaining lease term. The estimated useful lives of the
assets are as follows:

Furniture, fixtures and office equipment........................  5-7 years
Rental equipment................................................  3 years
Vehicles........................................................  5 years
Leasehold improvements..........................................  10-15 years

      Maintenance  and repairs are charged to expense as incurred  and the costs
of additions  and  betterments  that increase the useful lives of the assets are
capitalized.  When leasehold improvements or equipment are disposed of, the cost
and related  accumulated  depreciation  and  amortization  are removed  from the
accounts and any gain or loss is included in operations.

Long Lived Assets

      The  Company  accounts  for  long-lived  assets  in  accordance  with  the
provisions of Statement of Financial Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." The Company reviews long-lived
assets for impairment whenever events or changes in circumstances  indicate that
the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is determined  by a comparison of the carrying  amount of an
asset to future  undiscounted  net cash flows  expected to be  generated  by the
asset.  If such assets are  considered  impaired the  impairment  recognized  is
measured by comparing  projected  individual  store  discounted cash flow to the
asset carrying values.

Financial Instruments

      Cash and cash equivalents,  marketable securities, accounts receivable and
accounts payable are carried at cost which  approximates fair value due to their
short-term nature.


                                       34
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

3. Summary of Significant Accounting Policies (continued)

Pre-opening Costs

      Non-capital  expenditures incurred prior to the opening of a new store are
charged to operations as incurred.

Revenue Recognition

      Revenue from retail sales are recognized at the time the customer receives
the  merchandise,  net of an allowance for estimated  returns.  Issuance of gift
cards  and  store  credits  are  recorded  as a  liability  until  redeemed  for
merchandise.

Vendor Allowances

      Vendor allowances  include  consideration  received from vendors,  such as
volume  rebates  and  cooperative   advertising  funds.  The  majority  of  this
consideration   is  based  on  contract   terms.   Amounts  that  represent  the
reimbursement  of costs incurred for  advertising are recorded as a reduction of
the related expense in the period incurred. Amounts expected to be received from
vendors relating to the purchase of merchandise are recognized as a reduction of
cost of good sold as the merchandise is sold.

Advertising Costs

      Advertising costs are expensed as incurred.  Advertising  expense,  net of
vendor reimbursement,  amounted to $6,639,668, $6,125,976 and $5,145,848 for the
years ended March 31, 2004, 2003 and 2002, respectively.

Income Taxes

      The Company  utilizes the  liability  method of  accounting to compute the
difference  between  the tax basis of assets  and  liabilities  and the  related
financial reporting amounts using currently enacted tax laws and rates.

Deferred Rent

      Rent expense under  non-cancelable  operating  leases with  scheduled rent
increases or free rent periods is  accounted  for on a straight  line basis over
the lease term, beginning on the date of initial possession,  which is generally
when we enter  the space and begin  construction  build-out.  The  amount of the
excess of straight  line rent expense over  scheduled  payments is recorded as a
deferred rent liability. Construction allowances and other such lease incentives
are recorded as deferred credits,  and are amortized on a straight line basis as
a reduction of rent expense.


                                       35
<PAGE>

Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

3. Summary of Significant Accounting Policies (continued)

Earnings Per Share

      Earnings  per share has been  computed in  accordance  with  Statement  of
Financial Accounting Standards No. 128, "Earnings Per Share" ("EPS").  Basic EPS
equals net  income  divided by the number of  weighted  average  common  shares.
Diluted EPS includes  potentially  dilutive securities such as stock options and
convertible securities.

      A  reconciliation  of the  numerators  and  denominators  of the basic and
diluted EPS computations is illustrated below:

<TABLE>
<CAPTION>
                                                            March 31 (As restated)
                                                         2004        2003        2002
                                                    -------------------------------------
                                                    (in thousands, except per share data)
<S>                                                     <C>         <C>         <C>
Basic EPS computation:
   Numerator .....................................      $4,644      $4,044      $4,441

   Denominator:
     Weighted average common shares outstanding ..       6,646       6,615       6,587
                                                        ------------------------------
   Basic earnings per share ......................      $ 0.70      $ 0.61      $ 0.67
                                                        ==============================

Diluted EPS computation:
   Numerator .....................................      $4,644      $4,044      $4,441

   Denominator:
     Weighted average common shares outstanding ..       6,646       6,615       6,587
     Incremental shares from assumed conversion of
       options ...................................         363         332         408
                                                        ------------------------------
Total weighted average common shares - assuming
   dilution ......................................       7,009       6,947       6,995
                                                        ------------------------------
Diluted earnings per share .......................      $ 0.66      $ 0.58      $ 0.63
                                                        ==============================
</TABLE>


                                       36
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

3. Summary of Significant Accounting Policies (continued)

Use of Estimates

      The  preparation  of financial  statements in conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that affect the amounts  reported in the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

Stock-Based Compensation

      The  Company  accounts  for its  employee  stock  option  plan  under  the
recognition and measurement  principles of Accounting  Principles  Board Opinion
("APB")  No.  25,  "Accounting  for Stock  Issued  to  Employees,"  and  related
Interpretations.  Under APB No. 25, no stock-based  compensation is reflected in
net income,  as all options  granted under the plans had an exercise price equal
to the market value of the underlying  Common Stock on the date of grant and the
related number of shares granted is fixed at that point in time.

      The Company used the Black-Scholes option-pricing model with the following
weighted-average assumptions in determining the fair value of options granted in
fiscal 2004, 2003 and 2002:  weighted-average  risk-free interest rates of 4.0%,
4.0% and 4.5%, respectively;  dividend yields of 0%; weighted-average volatility
factors of the expected  market price of the Company's  Common Stock of 0.33 for
2004, 0.41 for 2003 and 0.45 for 2002; and a weighted  average  expected life of
the option of five years.  The following table presents the effect on net income
and basic and  diluted net income per common  share had the Company  adopted the
fair value method of accounting for  stock-based  compensation  under  Statement
123.  Because  additional  options are expected to be granted each year, the pro
forma  disclosures  may not be  representative  of pro forma effects on reported
results  for  future  periods.  The  Black-Scholes  option  valuation  model was
developed for use in estimating  the fair value of traded  options which have no
vesting restrictions and are fully transferable.  In addition,  option valuation
models require the input of highly subjective assumptions including the expected
stock price  volatility.  Because the  Company's  employee  stock  options  have
characteristics  significantly  different  from  those of  traded  options,  and
because changes in the subjective  input  assumptions can materially  affect the
fair value estimate, in management's opinion, the existing models do not provide
a reliable single measure of the fair value of employee stock options.

      The weighted  average fair value of options  granted  during  fiscal 2004,
2003 and 2002 were $2.86, $3.45 and $4.16, respectively.


                                       37
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

      The following table  illustrates the effect on net income and earnings per
share if the company had applied the fair value  recognition  provisions of SFAS
No. 123,  "Accounting for  Stock-Based  Compensation,"  to stock-based  employee
compensation (see Note 6):

<TABLE>
<CAPTION>
                                                               March 31 (As restated)
                                                         2004             2003             2002
                                                     ---------------------------------------------

                                                     ---------------------------------------------
<S>                                                  <C>              <C>              <C>
Net income as reported ........................      $ 4,644,076      $ 4,043,778      $ 4,440,918
Add:
   Stock based compensation expense included in
   reported net income, net of related tax
   effects ....................................          271,146               --               --
Deduct:
   Total stock-based employee compensation
   expense determined under fair market
   value based method for all awards, net
   of related tax effects .....................          805,782          391,938          286,556
                                                     ---------------------------------------------
Pro forma net income ..........................      $ 4,109,440      $ 3,651,840      $ 4,154,362
                                                     =============================================

Net income per share - basic and diluted
   As reported - basic ........................      $      0.70      $      0.61      $      0.67
   As reported - diluted ......................      $      0.66      $      0.58      $      0.63

   Pro forma - basic ..........................      $      0.62      $      0.55      $      0.62
   Pro forma - diluted ........................      $      0.51      $      0.53      $      0.60
</TABLE>

Reclassification

      Certain reclassifications were made to the prior year financial statements
to  conform  to  current  year  presentation  with  regard  to the  consolidated
statement of cash flows.


                                       38
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

4. Loans Payable to Bank

      The Company's  credit  facility with Bank of America,  N.A. (the "Lender")
provides for advances up to $20.0  million,  increasing to $35.0 million for the
period  October  1,  through  December  31,  each  year,  less the amount of any
outstanding draws, up to a $4.0 million maximum in authorized letters of credit.
Interest accrues at the Lender's prime rate plus 0.25% (4.25% at March 31, 2004)
or can be fixed for a period of time at the then current rate established  under
one of several indices,  all at the Company's option.  In addition,  there is an
unused  commitment fee of .20% per year,  based on a weighted  average  formula.
This credit  facility  expires on September 30, 2005, and the Company expects to
renegotiate  and extend the term of this  agreement  or obtain  another  form of
financing before that date. The Company's  obligation to the Lender is presently
secured by a first priority lien on substantially all of the Company's  non-real
estate assets, and the Company is subject to several restrictive covenants.  The
principal  operating  covenants  require the Company to maintain certain minimum
cash flow  coverage and debt to equity  ratios and restrict the level of capital
expenditures,  calculated  on a quarterly  basis.  The Company  currently  is in
compliance  with the  covenants.  The Company  believes its credit line with the
Lender is sufficient to fund capital expenditures for the foreseeable future and
to meet seasonal  fluctuations in cash flow  requirements.  However,  unexpected
conditions could require the Company to request  additional  borrowing  capacity
from the Lender or alter its expansion plans or operations.

      At  March  31,  2004,  there  were no  outstanding  borrowings  under  the
facility.  Letters  of credit  amounting  to  $1,555,093  relating  to  purchase
commitments were outstanding as of March 31, 2004.

      The weighted  average  interest rate on  borrowings  during the year ended
March 31, 2004 was 4.25%.

5. Commitments and Contingencies

      The Company leases all buildings (including its corporate office space and
three  stores  from  the   Company's   Principal   Stockholder)   under  certain
noncancelable  operating lease  agreements.  Rentals of the retail  locations in
most instances  require the payment of contingent  rentals based on a percentage
of sales in excess of minimum  rental payment  requirements.  Most of the leases
obligate the Company to pay costs of maintenance, utilities, and property taxes.
Most leases contain renewal options of five years and certain leases provide for
various rate increases over the lease term.


                                       39
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

5. Commitments and Contingencies (continued)

      Future minimum payments, by year and in the aggregate,  under those leases
with terms of one year or more, consist of the following at March 31, 2004:

              2005 ............................      $ 17,023,811
              2006 ............................        17,159,240
              2007 ............................        16,788,999
              2008 ............................        16,711,786
              2009 ............................        14,825,968
              Thereafter ......................        62,662,962
                                                     ------------
                                                     $145,172,766
                                                     ============

      Total rent expense  amounted to  $21,957,345,  $19,774,698 and $17,188,800
for the years ended March 31, 2004, 2003 and 2002, respectively,  which includes
$2,460,243,  $2,140,206 and  $2,323,024,  respectively,  for the leases with the
Principal  Stockholder.  Also,  total rent expense includes  contingent  rentals
calculated  as a  percentage  of  gross  sales  over  certain  base  amounts  of
$1,918,429,  $1,227,879 and $1,105,928 for the years ended March 31, 2004,  2003
and 2002, respectively.  Included in the accompanying balance sheets are amounts
representing prepaid rent to the Principal  Stockholder of $133,614 at March 31,
2004 and $128,959 at March 31, 2003.  Pursuant to his employment  contract dated
April 1, 2000,  the Principal  Stockholder is paid a base salary of $300,000 per
year until March 31, 2014.

      The  Company  is  involved  from  time to time in  routine  legal  matters
incidental  to  its  business.  In the  opinion  of  the  Company's  management,
resolution  of such  matters  will not have a material  effect on its  financial
position or results of operations.


                                       40
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

6. Income Taxes

      The  provision  for income taxes for the years ended March 31, 2004,  2003
and 2002 consists of the following:

                                     2004             2003             2002
                                 ----------------------------------------------
                                 (As restated)    (As restated)    (As restated)
Federal:
   Current ...................   $  3,279,000     $  1,843,000     $  2,018,000
   Deferred ..................       (919,000)         152,000          303,000
                                 ----------------------------------------------
                                    2,360,000        1,995,000        2,321,000
State:
   Current ...................        799,000          764,000          668,000
   Deferred ..................       (163,000)        (175,000)          37,000
                                 ----------------------------------------------
                                      636,000          589,000          705,000
                                 ----------------------------------------------
                                 $  2,996,000     $  2,584,000     $  3,026,000
                                 ==============================================

      Deferred income taxes reflect the net tax effects of temporary differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's  deferred tax liabilities and assets as of March 31, 2004 and 2003
are as follows:

<TABLE>
<CAPTION>
                                             2004                            2003
                                  --------------------------------------------------------
                                                    Non-                          Non-
                                    Current        current        Current        current
                                  --------------------------------------------------------
<S>                               <C>            <C>            <C>            <C>
Deferred tax liabilities:
   Tax over book depreciation     $        --    $    61,469    $        --    $  (116,080)
                                  --------------------------------------------------------
Total deferred tax liabilities             --         61,469             --       (116,080)
Deferred tax assets:
   Uniform cost capitalization        135,086             --         96,435             --
   Inventory reserves ........        720,206             --        828,556             --
   Accrued vacation ..........        290,715             --        271,143             --
   Self-insurance accruals ...        662,522             --             --             --
   Allowance for bad debt and
     sales returns ...........        121,495             --          9,959             --
   State income taxes ........        288,868             --             --             --
   Deferred rent .............             --      1,173,260             --      1,396,011
   Other .....................        225,053             --        119,156             --
                                  --------------------------------------------------------
Total deferred tax assets ....      2,443,945      1,173,260      1,325,249      1,396,011
                                  --------------------------------------------------------
Total deferred tax asset .....    $ 2,443,945    $ 1,234,729    $ 1,325,249    $ 1,279,931
                                  ========================================================
</TABLE>


                                       41
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

6. Income Taxes (continued)

      A  reconciliation  of the  provision  for income taxes for the years ended
March  31,  2004,  2003 and 2002 with the  amount  computed  using  the  federal
statutory rate follows:

<TABLE>
<CAPTION>
                                             2004            2003           2002
                                          ------------------------------------------
<S>                                       <C>             <C>             <C>
Statutory rate, 34% applied to income
   before taxes ......................    $ 2,597,000     $ 2,254,000     $2,539,000
State taxes, net of federal tax effect        446,000         387,000        436,000
Other, net ...........................        (47,375)        (56,503)        51,290
                                          ------------------------------------------
                                          $ 2,995,625     $ 2,584,497     $3,026,290
                                          ==========================================
</TABLE>

7. Award Plan and Stock Award

Award Plan

      The Company has an  Incentive  Award Plan ("1992  Plan") under which stock
options or other  awards to  purchase or receive up to  1,500,000  shares of the
Company's Common Stock may be granted to employees and  non-employee  directors.
The option  price per share shall not be less than fair market value at the date
of grant.  Options vest over three- to five-year  periods and if not  exercised,
expire five to ten years from the date of grant. The 1992 Plan also provides for
issuance  by the  Company of stock  appreciation  rights,  restricted  stock and
performance  awards.  At March 31, 2004 and 2003, there were 420,799 and 431,999
remaining shares,  respectively,  reserved for future issuance and available for
grant under the Plan.

      The Company has adopted the  disclosure-only  provisions  of  Statement of
Financial  Accounting  Standards  ("SFAS") No. 123,  "Accounting for Stock-Based
Compensation"  ("Statement  123"),  as amended by SFAS No. 148,  "Accounting for
Stock-Based   Compensation-Transition   and  Disclosure-an   amendment  of  FASB
Statement  No.  123"  ("Statement   148").   Statement  148  requires  prominent
disclosures in annual and interim financial  statements  regarding the method of
accounting for stock-based  employee  compensation  and the effect of the method
used on reported  results.  The Company  measures  compensation  expense for its
stock option  awards under the  intrinsic  value method in  accordance  with the
provisions of Accounting  Principles Board Opinion No. 25, "Accounting for Stock
Issued to  Employees"  ("APB 25") and related  interpretations.  APB 25 requires
compensation expense to be recognized based on the excess, if any, of the quoted
market  price of the stock at the date of the grant and the  amount an  employee
must pay to acquire the stock.  Options awarded under the Company's stock option
plans are granted  with an exercise  price equal to the fair market value on the
date of the grant.


                                       42
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

7. Award Plan and Stock Award (continued)

Award Plan (continued)

      On December 20, 2002,  the Company's  founder and  Principal  Stockholder,
Norbert  Olberz,  and his wife,  through a family  trust,  granted  an option to
purchase all of the shares (then  4,400,510) of the Company's  Common Stock held
by the family trust to a newly formed limited liability company (the "LLC"). The
managers of the LLC  currently are the  Company's  Chairman and Chief  Executive
Officer  and the  Company's  Chief  Financial  Officer,  who own 59.1% and 39.4%
respectively,  of the  interests  in the LLC.  Other  senior  executives  of the
Company own the remaining interest in the LLC. Under the terms of the grant, the
option  becomes  exercisable  for 181 days from the date of death  ("vesting" or
"measurement"  date) of Mr.  Olberz,  at an  exercise  price equal to the market
price on the date of Mr. Olberz' death. The option  terminates by mutual consent
between  the  family  trust and the  members of the LLC or in the event that the
Company's  Chairman and Chief Executive Officer ceases to be the Chief Executive
Officer of the Company. The family trust may borrow against the shares until the
vesting date and may also sell shares  provided that the family trust  maintains
ownership of at least 51% of the Company's  shares on a fully diluted basis.  On
June 11, 2004, the option was amended to extend the exercisable  period from 181
days to 365 days from the date of death.

      For  financial  accounting  purposes,  the  grant  of  the  option  by the
Principal  Stockholder  of the Company is being  treated in a manner  consistent
with a grant of an option by the Company. The Company has also treated the grant
of the option to the LLC as if the grant was made  directly to  employees of the
Company,  as the  members  of the  LLC  are  employees  of  the  Company  and no
non-employee  services  will be provided to the Company by the LLC or members of
the LLC and, for economic and tax purposes,  the LLC is a pass-through entity in
that all  income or  losses  of the LLC are  passed  through  to its  individual
members.  In addition,  vesting of the option,  except for the  Company's  Chief
Financial Officer, is contingent upon continued  employment.  Because the option
has  been  granted  with an  exercise  price  equal to the  market  price on the
measurement  date,  under APB No.  25,  the  Company  has not been  required  to
recognize  compensation  expense in connection with the grant of the option. The
fair  value of the  option  is being  recognized  as  compensation  expense  for
purposes of calculating pro forma net income and pro forma earnings per share as
required by FASB Statement  No.123,  "Accounting for Stock-Based  Compensation."
The fair  value  for the  option  was  estimated  at the  date of grant  using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions:  weighted-average  risk-free interest rate of 4.0%, dividend yields
of 0%;  weighted-average  volatility factors of the expected market price of the
Company's  Common Stock of 0.332 and an expected life of the option of 365 days.
For  purposes  of  pro  forma  disclosures  displayed  in  Note 2 -  Summary  of
Significant  Accounting Policies:  Stock Based Compensation,  the estimated fair
value at the date of grant was $3,872,000 for the option and is being  amortized
to expense over the option's  vesting  period,  which has been estimated at nine
years.


                                       43
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

7. Award Plan and Stock Award (continued)

Award Plan (continued)

      A summary of the Company's stock option  activity and related  information
follows:

<TABLE>
<CAPTION>
                                      March 31, 2004               March 31, 2003                March 31, 2002
                                -----------------------------------------------------------------------------------------
                                                Weighted                      Weighted                        Weighted
                                                 Average                       Average                        Average
                                 Options     Exercise Price    Options      Exercise Price     Options     Exercise Price
                                ------------------------------------------------------------------------------------------
<S>                               <C>           <C>              <C>           <C>              <C>           <C>
 Outstanding at
   beginning of year .....        939,667       $    5.09        912,501       $    5.18        851,333       $    4.57
     Granted .............         43,000            7.22         60,000            7.77        154,000            8.54
     Exercised ...........        (45,200)           5.01        (32,834)           4.13        (15,499)           3.62
     Forfeited ...........        (31,800)           7.10             --              --        (77,333)           5.67
Outstanding at end of year        905,667       $    5.13        939,667       $    5.09        912,501       $    5.18
                                =========                      =========                      =========

Exercisable at end of year        727,534       $    4.58        706,467       $    4.35        704,301       $    4.71
                                =========       =========      =========       =========      =========       =========
</TABLE>


                                       44
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

7. Award Plan and Stock Award (continued)

      The following  table provides  certain  information  with respect to stock
options outstanding and stock options exercisable at year end 2004:

<TABLE>
<CAPTION>
                                       Stock Options Outstanding           Stock Options Exercisable
                               -----------------------------------------------------------------------

                                                               Weighted
                                              Weighted          Average                   Weighted
                                               Average         Remaining                   Average
Range of Exercise Prices        Shares      Exercise Price        Life       Shares     Exercise Price
                               -----------------------------------------------------------------------
<S>                              <C>          <C>                  <C>        <C>          <C>
Under $3.00 .............        147,000      $    2.38            1.9        147,000      $    2.38
$3.00-$4.99 .............        517,667           4.59            4.5        479,667           4.58
$5.00-$6.99 .............         20,000           5.81            1.8         15,000           5.44
$7.00-$8.99 .............        211,000           8.22            6.6         83,533           8.28
Above $8.99 .............         10,000           9.15            4.2          8,333           9.16
                               ---------                                    ---------
                                 905,667      $    5.16            4.5        733,533      $    4.63
                               =========                                    =========
</TABLE>

Stock Award

      During the year ended March 31, 2004,  the Principal  Stockholder  and his
spouse, through their family trust, awarded 38,600 shares to certain executives.
Award recipients were not required to pay consideration for the shares. The fair
market value of the shares,  $448,918,  was treated as a capital contribution by
the Principal Stockholder and expensed as compensation to recipients as of March
31, 2004.

      The Company granted loans to employees to pay the income taxes  associated
with certain  stock awards  granted and expensed in fiscal 1999 and fiscal 2001.
These loans bear interest at 6% and were originally  payable over four years and
secured by the awarded  shares.  In 2003 a two-year  extension  was granted.  At
March  31,  2004  and  2003  the  loan  balance  was   $101,036  and   $109,905,
respectively.

8. Employee Retirement Plan

      Effective  January 1, 1997,  the Company  adopted the Sport  Chalet,  Inc.
Employee  Retirement  Savings Plan (the "401(k)  Plan").  All employees who have
been  employed by the  Company  for at least three  months of service and are at
least 21 years of age are eligible to participate. Employees may contribute from
2% to  100%  of  their  eligible  earnings  to the  401(k)  Plan,  subject  to a
statutorily  prescribed  annual  limit.  The  Company  matches  25% of  employee
contributions  up to 1% of the  employee's  current  compensation.  The  Company
expense  related to this plan was $152,817,  $147,291 and $123,158 for the years
ended March 31, 2004, 2003 and 2002, respectively.


                                       45
<PAGE>

                               Sport Chalet, Inc.

             Notes to Consolidated Financial Statements (continued)

9. Quarterly Results of Operations (Unaudited, as restated)

      A summary of the unaudited quarterly results of operations follows (dollar
amounts in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                  First          Second          Third         Fourth
                                 Quarter         Quarter        Quarter        Quarter
                                -------------------------------------------------------
<S>                             <C>             <C>            <C>            <C>
Fiscal 2004
Net sales ................      $  53,309       $  61,819      $  79,705      $  69,404
Gross profit .............         14,943          18,685         26,056         20,505
Income from operations ...           (880)          3,019          5,157            535
Net income ...............           (552)          1,780          3,086            330
Basic earnings per share .      $   (0.08)      $    0.27      $    0.46      $    0.05
Diluted earnings per share      $   (0.08)      $    0.26      $    0.44      $    0.05

<CAPTION>

                                  First          Second          Third         Fourth
                                 Quarter         Quarter        Quarter        Quarter
                                -------------------------------------------------------
<S>                             <C>             <C>            <C>            <C>
Fiscal 2003
Net sales ................      $  51,205       $  56,327      $  72,271      $  58,230
Gross profit .............         13,902          16,780         22,541         16,291
Income from operations ...            201           2,337          4,147            250
Net income ...............             95           1,352          2,480            116
Basic earnings per share .      $    0.01       $    0.20      $    0.37      $    0.02
Diluted earnings per share      $    0.01       $    0.19      $    0.36      $    0.02
</TABLE>

10. Other Accrued Expenses

      Other accrued expenses consist of the following:

                                                             March 31
                                                      2004               2003
                                                   -----------------------------

Amount due to customers ..................         $2,361,886         $1,973,474
Accrued sales tax ........................          1,784,623          1,400,646
Self-insurance accruals ..................          1,663,192                 --
Other ....................................          2,021,260          1,667,633
                                                   -----------------------------
Other accrued expenses ...................         $7,830,961         $5,041,753
                                                   =============================


                                       46
<PAGE>

                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, on June 6, 2005.

                             SPORT CHALET, INC.
                                (Registrant)


                             By: /s/  HOWARD K. KAMINSKY
                                -----------------------------------------------
                                Howard K. Kaminsky, Executive Vice President -
                                Finance, Chief Financial Officer and Secretary
                                (Principal Financial and Accounting Officer)

      Pursuant to the requirements of the Securities  Exchange 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 date indicated above.


                                /s/  NORBERT  OLBERZ
                                ------------------------------------------------
                                Norbert Olberz,
                                Chairman Emeritus and Director


                                /s/ CRAIG L. LEVRA
                                ------------------------------------------------
                                Craig L. Levra, Chairman,
                                Chief Executive Officer and President
                                (Principal Executive Officer)


                                /s/  HOWARD K. KAMINSKY
                                ------------------------------------------------
                                Howard K. Kaminsky, Executive Vice President -
                                Finance, Chief Financial Officer and Secretary
                                (Principal Financial and Accounting Officer)


                                /s/  JOHN R. ATTWOOD
                                ------------------------------------------------
                                John R. Attwood, Director


                                /s/  DONALD J. HOWARD
                                ------------------------------------------------
                                Donald J. Howard, Director


                                /s/  AL D. MCCREADY
                                ------------------------------------------------
                                Al D. McCready, Director


                                /s/  ERIC S. OLBERZ
                                ------------------------------------------------
                                Eric S. Olberz, Director


                                /s/  KENNETH OLSEN
                                -------------------------------------
                                Kenneth Olsen, Director


                                /s/  FREDERICK H. SCHNEIDER.
                                -------------------------------------
                                Frederick H. Schneider, Director


                                       47
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER       DESCRIPTION
<S>          <C>                                                                                                 <C>
3.1          Amended and Restated Certificate of Incorporation.                                                   (1)

3.2          Bylaws, of Sport Chalet, Inc., as amended.                                                           (2)

4.1          Form of Certificate for the Common Stock.                                                            (3)

10.1         1992 Incentive Award Plan of the Company.                                                            (4)

10.1.1       2004 Equity Incentive Plan.                                                                         (17)

10.2         Form of Nonemployee Director Stock Option Incentive Award Agreement.                                 (4)

10.3         Form of Key Employee Stock Option Incentive Award Agreement.                                         (4)

10.4         Form of Director and Officer Indemnification Agreement.                                              (4)

10.5         Form of Employee Stock Option Incentive Award Agreement.                                             (5)

10.6         Lease for La Canada  stores  dated as of  September  1, 1992,  between  the Company and La Canada    (6)
             Properties, Inc.

10.7         Lease for Huntington Beach store dated as of August 25, 1994,  between the Company and Huntington    (7)
             Beach Properties, Inc.

10.8         Lease for Porter Ranch store dated as of May 7, 1999,  between the Company and North San Fernando    (9)
             Valley Properties, Inc.

10.9         Lease for La Canada  offices  dated a of October  1,  2002,  between  the  Company  and La Canada   (15)
             Properties, Inc.

10.10        Business Loan Agreement dated as of June 19, 1998, between the Company and Bank of America, N.A.     (8)

10.11        Amendment No. 2 to Business  Loan  Agreement  dated as of June  19,1998,  between the Company and   (11)
             Bank  of America, N.A.

10.12        Amendment No. 3 to Business  Loan  Agreement  dated as of November 20, 2001,  between the Company   (12)
             and Bank of America, N.A.

10.13        Amendment No. 4 to Business  Loan  Agreement  dated as of June 10, 2002,  between the Company and   (13)
             Bank of America, N.A.

10.14        Amendment No. 5 to Loan  Agreement,  dated as of September 25, 2003,  between the Company Bank of   (14)
             America, N.A.

10.15*       Employment Agreement dated as of April 1, 2000, between the Company and Norbert J. Olberz.          (10)

10.16*       Employment agreement dated as of November 15, 2002, between the Company and Craig L. Levra.         (16)

10.17*       Employment agreement dated as of November 15, 2002, between the Company and Howard K. Kaminsky.     (16)

10.18*       Employment agreement dated as of November 15, 2002, between the Company and Dennis D. Trausch.      (16)

14.1         Code of Conduct                                                                                      +

23.1         Report of Independent Registered Public Accounting Firm.                                             +
</TABLE>


                                       48
<PAGE>

<TABLE>
<S>                                                                                                                <C>
31.1     Certification  Pursuant to Rule 13a-14(a) of the Securities  Exchange Act of 1934,  Adopted  Pursuant to  +
         Sector 202 of the Sarbanes-Oxley Act of 2002.

31.2     Certification  Pursuant to Rule 13a-14(a) of the Securities  Exchange Act of 1934, Adopted + Pursuant to  +
         Sector 202 of the Sarbanes-Oxley Act of 2002.

32.1     Certification  Pursuant to 18 U.S.C.  Section 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley  +
         Act of 2002.

+        Filed as part of this Annual Report on Form 10-K.

*        Constitute management contracts,  or compensatory plans or arrangements,  which are required to be filed
         Pursuant to Item 601 of Regulation S-K.

(1)      Incorporated  by  reference  to  Exhibit  3.1  to the  Company's  Registration  Statement  on  Form  S-1
         (Registration Statement No. 33-53120).

(2)      Incorporated  by  reference  to  Exhibit  3.2  to the  Company's  Registration  Statement  on  Form  S-8
         (Registration Statement No. 333-107683).

(3)      Incorporated  by  reference  to  Exhibit  4.1  to the  Company's  Registration  Statement  on  Form  S-1
         (Registration Statement No. 33-53120).

(4)      Incorporated  by reference to Exhibits 10.19 through 10.23, to the Company's  Registration  Statement on
         Form S-1 (Registration Statement No. 33-53120).

(5)      Incorporated  by  reference  to  Exhibits  4.5 to the  Company's  Registration  Statement  on  Form  S-8
         (Registration Statement No. 33-61612).

(6)      Incorporated  by  reference  to  Exhibit  10.1 to the  Company's  Registration  Statement  on  Form  S-1
         (Registration Statement No. 33-53120).

(7)      Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
         ending September 30, 1994.

(8)      Incorporated  by reference to Exhibit 10.37 to the  Company's  Annual Report on Form 10-K for the fiscal
         year ended March 31, 1998.

(9)      Incorporated  by reference to Exhibit 10.41 to the  Company's  Annual Report on Form 10-K for the fiscal
         year ended March 31, 1999.

(10)     Incorporated  by reference to Exhibit 10.45 to the  Company's  Annual Report on Form 10-K for the fiscal
         year ended March 31, 2000.

(11)     Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
         ending June 30, 2000.

(12)     Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
         ending December 31, 2001.

(13)     Incorporated  by reference to Exhibit 10.55 to the  Company's  Annual Report on Form 10-K for the fiscal
         year ended March 31, 2002.

(14)     Incorporated  by  reference  to Exhibits  10.1 to the  Company's  Quarterly  Report on Form 10-Q for the
         quarter ending September 30, 2003.

(15)     Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
         ending September 30, 2002.

(16)     Incorporated by reference to Exhibits 10.1, 10.2 and 10.3 to the Company's Quarterly Report on Form 10-Q
         for the quarter ending December 31, 2002.

(17)     Incorporated by reference to Appendix D to the Company's  definitive proxy statement for the 2004 annual
         meeting of stockholders. Exhibit 14.1
</TABLE>


                                       49