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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K

(Mark One)

|    |  |                                                                                    
|--- |  | -----------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2003

OR

|     |  |                                                                                        
|---- |  | ---------------------------------------------------------------------------------------
|[  ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIESEXCHANGE 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 of incorporation or organization) |  | (I.R.S. Employer 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of Act). [  ] Yes [X] 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]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 30, 2002, was approximately $12.9 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 9,
2003 was 6,630,334.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive proxy statement relating to its 2003
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.





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TABLE OF CONTENTS



|               |                                                                                               |  |  |  |  |  |  | 
|-------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I        
|               | Item 1. Business                                                                             
|               | Item 2. Properties                                                                           
|               | Item 3. Legal Proceedings                                                                    
|               | Item 4. Submission of Matters to a Vote of Securities Holders                                
|PART II       
|               | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|               | Item 6. Selected Financial Data                                                              
|               | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|               | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|               | Item 8. Financial Statements and Supplementary Data                                          
|               | Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 
|PART III      
|               | Item 10. Directors and Executive Officers of the Registrant                                  
|               | Item 11. Executive Compensation                                                              
|               | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|               | Item 13. Certain Relationships and Related Transactions                                      
|PART IV       
|               | Item 14. Controls and Procedures                                                             
|               | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES    
|EXHIBIT INDEX 
|EXHIBIT 10.1.1
|EXHIBIT 10.1.2
|EXHIBIT 23    
|EXHIBIT 99.1  



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TABLE OF CONTENTS

|         |  |                                                                                       |  |  |      |  |  | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | ---- |  |  | 
|Item     |  |                                                                                       |  |  | Page
|         |  |                                                                                       |  |  |     
|PART I   |  |                                                                                       |  |  |      | 
|1.       |  | Business                                                                              |  |  | 1    | 
|2.       |  | Properties                                                                            |  |  | 4    | 
|3.       |  | Legal Proceedings                                                                     |  |  | 7    | 
|4.       |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 7    | 
|PART II  |  |                                                                                       |  |  |      | 
|5.       |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  |  | 8    | 
|6.       |  | Selected Financial Data                                                               |  |  | 9    | 
|7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operation  |  |  | 10   | 
|7A.      |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |  | 19   | 
|8.       |  | Financial Statements and Supplementary Data                                           |  |  | 19   | 
|9.       |  | Changes In and Disagreements With Accountants on Accounting and Financial Disclosures |  |  | 19   | 
|PART III |  |                                                                                       |  |  |      | 
|10.      |  | Directors and Executive Officers of the Registrant                                    |  |  | 20   | 
|11.      |  | Executive Compensation                                                                |  |  | 20   | 
|12.      |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 20   | 
|13.      |  | Certain Relationships and Related Transactions                                        |  |  | 20   | 
|PART IV  |  |                                                                                       |  |  |      | 
|14.      |  | Controls and Procedures                                                               |  |  | 21   | 
|15.      |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |  | 21   | 





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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. (the Company), founded in 1959, is a leading operator
of 28 full service, specialty sporting goods superstores in Southern California
and Nevada. The Company has 26 locations in California consisting of eleven
located in Los Angeles County, six in Orange County, three in each of San Diego
and San Bernardino Counties, two in Riverside, and one in Ventura County. Both
Nevada locations are in Clark County. These stores average 38,800 square feet
in size. In addition, the Company operates a retail e-commerce store through
GSI Commerce, Inc. at www.sportchalet.com. The Companys executive offices are
located at One Sport Chalet Drive, La Canada, California 91011, and its
telephone number is (818) 949-5300.

Operating History and Growth Plans

In 1959 Norbert Olberz, the Companys 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 1,000 little things better
and to focus on being the best, not the biggest. Over the last 44 years
Sport Chalet has grown into a chain of 28 specialty retail superstores serving
both Southern California and Nevada.

The Companys growth strategy had historically focused on Southern
California, but now contemplates opening new stores throughout California and
Nevada as suitable locations are found over the next several fiscal years.
Over the past three years, the Company has opened six new stores, two of which
include the Companys recent expansion into the Las Vegas market, and relocated
one store. The Company currently plans to open at least three stores during
the next 12 months, of which two will be the Companys initial expansion into
Northern California. The first Northern California location will be in the
East Bay city of Antioch and the second will be in central Sacramento. The
Companys third location will be in the San Bernardino County city of Redlands.
Future store openings are subject to availability of satisfactory store
locations based on local competitive conditions, site availability and cost and
the Companys ability to provide and maintain high service levels and quality
brand merchandising at competitive prices. For fiscal 2003, average sales per
store for stores open throughout both fiscal 2003 and fiscal 2002 were $9.2
million, with corresponding average sales per square foot of $241.

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. The Companys stores generally require three years to
attract a stable, mature customer base. The Company estimates the cost of
opening an average new store to be approximately $2.5 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 the Companys required improvements.

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The Companys 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 have had, and may in the future
have, a materially adverse effect on the Companys results of operations.

The Companys corporate offices in prior years were spread over seven
nearby buildings in La Canada, California neighboring the store where the
Company was founded. To facilitate growth related to the expansion plans, the
Company 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. The Company expects this building to support its growth plans
for the foreseeable future.

Stores and Merchandising

The Companys new 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 the Company to offer its customers a high level of product
knowledge and service for the beginner to the professional sports enthusiast.

The Companys new prototype format boasts a natural and outdoor-feel color
scheme, clear-coated fixtures, 30-foot clear ceilings, large sport-specific
graphics, pools for SCUBA and watersports instruction and demonstrations, and a
100 foot shoe wall, among other improvements. In coming years the Company
plans to retro-fit certain mature stores to conform to the new prototype.
During fiscal 2004, two stores will be remodeled, with expected grand
re-openings in early summer 2003. The Company continually updates its prototype
format to remain relevant and continually enhance the customer shopping
experience. While the Company has taken advantage of unusual building layouts
in the past and when appropriate may continue to do so in the future, it will
utilize as many prototype design elements as possible.

The 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, the
Companys stores offer over 35 services for the serious sports enthusiast,
including custom golf club fitting and repair, golf lessons, ski/snowboard
rental and repair, full SCUBA training and certification programs, dive
charters, team sales, racquet stringing, and bicycle tune up and repair. The
Companys 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,
|          |       |  |                     
|          |       |  | 2003                 |     | 2002 |  | 2001
|          |       |  |                      |     |      |  |     
|Hardlines |       |  | 53                   | %   |      |  | 53   | %   |   |  | 55 | %  
|Apparel   |       |  | 28                   | %   |      |  | 29   | %   |   |  | 28 | %  
|Footwear  |       |  | 19                   | %   |      |  | 18   | %   |   |  | 17 | %  
|          |       |  |                      |     |      |  |      |     |   |  |    |    
|          | Total |  |                      | 100 | %    |  |      | 100 | % |  |    | 100 | %
|          |       |  |                      |     |      |  |      |     |   |  |    |    

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The Company operates its 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. The Company receives 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, the Companys business is heavily affected by sales of
merchandise during the Holiday season. In addition, the Companys product mix
has historically emphasized cold weather sporting goods merchandise,
particularly winter-sports related products. 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

The Company generates all of its marketing campaigns in-house, with
production support from outside vendors as needed. The campaigns are designed
to reinforce the strategic direction of the Company through its brand and
product offerings, as well as communicate a focused and consistent theme/event
calendar for every store location utilizing newspaper, direct mail, radio,
billboards, magazines and the Internet. Through the Team Sales Division the
Company reaches out to communities in which its stores do business contributing
to local teams and leagues. The Companys 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 the Company purchases merchandise from over 1,200 vendors.
Vendor payment terms typically range from 30 to 120 days from the Companys
receipt, and there are no long term purchase commitments. The Companys largest
vendor, Nike, Inc., accounted for approximately 8.0% and 7.3% of the Companys
total inventory purchases for fiscal 2003 and 2002, respectively.

In February 2002, the Company moved its distribution operations to a new
326,000 square foot facility located in Ontario, California. This facility
replaced the Companys 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 will further improve warehousing
and logistical cost management.

The distribution center serves as the primary receiving, distribution and
warehousing facility. Common carriers deliver merchandise to the Nevada stores,
while the Companys own trucks deliver merchandise from the distribution center
to the Southern California stores. A minimal amount of merchandise is shipped
directly by vendors to the 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, the Company encourages
its vendors to pre-package and ticket their products. Some of the merchandise
is held at the distribution center for future allocation to the stores based on
current sales trends as directed by the replenishment system to optimize
inventory levels. The company believes that advantages to a single
distribution center include reduced per store inventory levels, quicker
inventory replenishment, consolidated vendor returns, and reduced
transportation costs.

3



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In November 2001 the Company implemented a JDA/E3 inventory replenishment
system. The 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)
advanced optimization, which synchronizes the two systems. Currently, inventory
management utilizes the E3 system to manage approximately 65% of the companys
inventory dollars. The remaining 35% of the inventory purchases are managed by
traditional methods conducted by the buying staff on a short-term purchase
order basis.

Information Systems

The Company uses 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. Consistent with the stated
direction to upgrade the legacy systems, those applications were migrated to a
new Sun computer in May 2002. With this enhancement in place, the foundation
has been established for future developments. 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. Future projects may include: EDI software from SPS Commerce,
customer relationship software, the switch from gift certificates to gift
cards, and continual on-going enhancements to the legacy system, among other
projects.

Trademarks and Trade Names

The Company uses the Sport Chalet name as a service mark in connection
with its business operations. The Company has registered Sport Chalet as a
service mark with the State of California, and has obtained federal
registration for certain purposes, which has been successfully defended in the
past against attack by third parties. The Company also retains common law
rights to the name, which it has used since 1959. The lack of federal
registration for certain purposes might pose a problem if the Company 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. The Company competes with a variety of other retailers, including
the following:



| |  |  | full-line sporting goods chains, such as The Sports
Authority, Galyans, Dicks Sporting Goods and Big 5;                       
| | - |  | -------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | specialty stores, such as REI, Footaction, Turners, Foot Locker and West Marine;                                              
|
| |  |  | supplier-owned stores, such as Nike, The North Face, adidas and New Balance;                                                   
|
| |  |  | mass merchandisers, club stores, discount stores and
department stores, such as Wal-Mart, Costco, Target, Macys and
Sears; and
|
| |  |  | E-tailers and catalog merchandisers.                                                                                           

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

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Historically, the Company has distinguished itself from its 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 Southern California and Nevada areas. The Company believes
that its broad selection of high quality name brands and numerous specialty
items at competitive prices, showcased by its well-trained sales associates,
differentiates its self from discount and department stores, traditional and
specialty sporting goods stores and other superstore operations. Management
believes the Companys format takes advantage of several significant trends and
conditions in the sporting goods industry. These trends 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, 2003, the Company had 2,274 full and part-time employees,
2,060 of whom were employed in the Companys stores and 214 of whom were
employed in warehouse and delivery operations or in executive office positions.
None of the employees are covered by a collective bargaining agreement. The
Company believes that its employee relations are good. A typical store has
approximately 75 employees, of whom 15 to 30 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.

The Company is committed to the growth and training of its employees in
order to provide the Expert product knowledge and service to its customers.
A Certified Pro program where employees attend product line specific clinics
in addition to receiving hands-on training ensures that sales associates have
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.

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ITEM 2. PROPERTIES

At June 9, 2003, the Company had 28 store locations. The following table
summarizes the key information on the Companys retail properties:

|                               |  |               |  |         |        |           |  | 
|------------------------------ |  | ------------- |  | ------- | ------ | --------- |  | 
|                               |  |               |  |         |        | Gross    
|                               |  |               |  |         |        | Square   
|Location                       |  | Opening Date  |  | Footage
|                               |  |               |  |        
|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 (2)(4)               |  | November 2001 |  |         | 42,000 |          
|Costa Mesa  South Coast
Plaza |  | November 2001 |  |         | 40,300 |          
|Summerlin (2)(4)               |  | November 2002 |  |         | 40,300 |          
|Riverside                      |  | November 2002 |  |         | 44,000 |          
|                               |  |               |  |         |        |           |  | 
|                               |  |               |  |         | Total  | 1,087,100 | 
|                               |  |               |  |         |        |           |  | 



---

|(1) |  | The original store opened in 1959. The existing store includes four nearby facilities.
|--- |  | --------------------------------------------------------------------------------------
|   
|(2) |  | Includes swimming pool facility for SCUBA and kayaking instruction.                   
|   
|(3) |  | Outlet store relocated to a nearby regional shopping center in October 2000.          
|
|   
|(4) |  | State of Nevada location.                                                             

6



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All facilities are located on leased property. The initial terms of the
retail leases expire in 2004 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, the Company expects that percentage
rent will more than offset the base rental amounts.

The Company leases from corporations controlled by Norbert Olberz, the
Chairman Emeritus and the Companys Principal Stockholder (the Principal
Stockholder), its corporate office space in La Canada and its stores in La
Canada, Huntington Beach and Porter Ranch, California. In prior years the
Company also leased its warehouse and distribution facility in Montclair,
California and although the term of this lease ran to 2007, the Principal
Stockholder agreed to cancel the lease when the Company moved to the new
distribution center in February 2002. The new distribution center located in
Ontario, California is leased from an unrelated third party. The Company has
incurred rental expense to the Principal Stockholder of $2.2 million, $2.4
million and $2.5 million in fiscal 2003, 2002 and 2001, respectively.

The Companys corporate offices in prior years were spread over seven
nearby buildings in La Canada, California neighboring the store where the
Company was founded. To facilitate growth related to the expansion plans, the
Company 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. The Company expects this building to support its 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

The Company is involved in various routine legal proceedings incidental to
the conduct of its 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 of the Company, either due to the
nature of the claims, or because management believes that such claims should
not exceed the limits of the Companys insurance coverage.




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

No matters were submitted to the Companys stockholders during the fourth
quarter of fiscal 2003.

7



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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Price for Common Shares

The Companys Common Stock is traded on The Nasdaq Stock Markets National
Market under the symbol SPCH. The following table reflects the range of high
and low sale prices of the Companys Common Stock by quarter over the last two
fiscal years as reported by Nasdaq:

|               |  |      |        |     |  |   |       | 
|-------------- |  | ---- | ------ | --- |  | - | ----- | 
|Fiscal 2002    |  | High |        | Low
|               |  |      |        |    
|First Quarter  |  | $    | 10.000 |     |  | $ | 7.750 | 
|Second Quarter |  | $    | 9.390  |     |  | $ | 7.460 | 
|Third Quarter  |  | $    | 9.900  |     |  | $ | 7.650 | 
|Fourth Quarter |  | $    | 10.750 |     |  | $ | 9.000 | 

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|Fiscal 2003    |  | High |       | Low
|               |  |      |       |     |  |   |       | 
|First Quarter  |  | $    | 9.400 |     |  | $ | 8.490 | 
|Second Quarter |  | $    | 9.050 |     |  | $ | 6.540 | 
|Third Quarter  |  | $    | 7.340 |     |  | $ | 6.120 | 
|Fourth Quarter |  | $    | 7.410 |     |  | $ | 6.500 | 

|                                     |  |      |       |     |  |   |       | 
|------------------------------------ |  | ---- | ----- | --- |  | - | ----- | 
|Fiscal 2004                          |  | High |       | Low
|                                     |  |      |       |     |  |   |       | 
|First Quarter (through June 9, 2003) |  | $    | 7.400 |     |  | $ | 6.500 | 

On June 9, 2003, the closing price of the Companys Common Stock as
reported by Nasdaq was $7.25. 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 the Companys Common
Stock as of June 9, 2003 was 183 (excluding individual participants in nominee
security position listings), and as of that date, the Company estimates that
there were approximately 1,000 beneficial owners holding stock in nominee or
street name.

Dividend Policy

The Company has not paid any dividends to stockholders since its initial
public offering in November 1992. It is currently contemplated that the
Company will retain earnings for use in the operation and potential expansion
of its business and, therefore, Management does 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 the Companys
earnings, financial condition, capital needs and other factors deemed relevant
by the Board of Directors.

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ITEM 6. SELECTED FINANCIAL DATA

The following sets forth selected financial data as of and for the periods
presented. This data should be read in conjunction with the financial
statements and related notes thereto and other financial information included
herein.

|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |       | 
|---------------------------------------------- | ------- | - | ----------------------------------------------------- | ----- | ---- | - | ------- | ----- | ---- | - | ------- | ----- |  | - | ------- | ----- |  | - | ------- | ----- | 
|                                               |         |   | Year Ended March 31,                                 
|                                               |         |   |                                                      
|                                               |         |   | 2003                                                  |       | 2002 |   | 2001    |       | 2000 |   | 1999   
|                                               |         |   |                                                       |       |      |   |         |       |      |   |        
|                                               |         |   | (In thousands, except per share, square foot amounts)
|Statements of Income Data:                     |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Net sales                                      |         | $ | 238,033                                               |       |      | $ | 227,349 |       |      | $ | 214,842 |       |  | $ | 175,846 |       |  | $ | 154,573 |      
|Cost of goods sold, buying and occupancy
Costs |         |   | 168,739                                               |       |      |   | 162,091 |       |      |   | 148,619 |       |  |   | 123,496 |       |  |   | 106,921 |      
|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Gross profit                                   |         |   | 69,294                                                |       |      |   | 65,258  |       |      |   | 66,223  |       |  |   | 52,350  |       |  |   | 47,652  |      
|Selling, general and administrative expenses   |         |   | 62,168                                                |       |      |   | 57,126  |       |      |   | 54,406  |       |  |   | 43,524  |       |  |   | 38,872  |      
|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Income from operations                         |         |   | 7,126                                                 |       |      |   | 8,132   |       |      |   | 11,817  |       |  |   | 8,826   |       |  |   | 8,780   |      
|Interest expense (income)                      |         |   | 307                                                   |       |      |   | 71      |       |      |   | (361    | )     |  |   | (284    | )     |  |   | (243    | )    
|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Income before taxes                            |         |   | 6,819                                                 |       |      |   | 8,061   |       |      |   | 12,178  |       |  |   | 9,110   |       |  |   | 9,023   |      
|Income tax provision                           |         |   | 2,659                                                 |       |      |   | 3,267   |       |      |   | 4,913   |       |  |   | 3,626   |       |  |   | 3,609   |      
|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Net income                                     |         | $ | 4,160                                                 |       |      | $ | 4,794   |       |      | $ | 7,265   |       |  | $ | 5,484   |       |  | $ | 5,414   |      
|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Earnings per share  basic                     |         | $ | 0.63                                                  |       |      | $ | 0.73    |       |      | $ | 1.10    |       |  | $ | 0.83    |       |  | $ | 0.83    |      
|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Earnings per share  diluted                   |         | $ | 0.60                                                  |       |      | $ | 0.69    |       |      | $ | 1.07    |       |  | $ | 0.81    |       |  | $ | 0.80    |      
|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Weighted average shares outstanding:           |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|                                               | Basic   |   |                                                       | 6,615 |      |   |         | 6,587 |      |   |         | 6,580 |  |   |         | 6,577 |  |   |         | 6,530 | 
|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|                                               | Diluted |   |                                                       | 6,947 |      |   |         | 6,995 |      |   |         | 6,805 |  |   |         | 6,756 |  |   |         | 6,731 | 
|                                               |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Selected Operating Data:                       |         |   |                                                       |       |      |   |         |       |      |   |         |       |  |   |         |       |  |   |         |      
|Comparable store sales increase (decrease) (1) |         |   | (0.9                                                  | %)    |      |   | (1.1    | %)    |      |   | 14.5    | %     |  |   | 2.0     | %     |  |   | 3.2     | %    
|Net cash provided by operating activities      |         | $ | 5,745                                                 |       |      | $ | 7,350   |       |      | $ | 11,512  |       |  | $ | 1,067   |       |  | $ | 9,612   |      
|EBITDA (2)                                     |         | $ | 12,606                                                |       |      | $ | 13,274  |       |      | $ | 16,036  |       |  | $ | 12,540  |       |  | $ | 11,995  |      
|Stores open at end of period                   |         |   | 28                                                    |       |      |   | 26      |       |      |   | 23      |       |  |   | 22      |       |  |   | 19      |      
|Total square feet at end of period (3)         |         |   | 1,087                                                 |       |      |   | 1,002   |       |      |   | 881     |       |  |   | 841     |       |  |   | 715     |      
|Net Sales per square foot (4)                  |         | $ | 241                                                   |       |      | $ | 247     |       |      | $ | 256     |       |  | $ | 229     |       |  | $ | 216     |      
|Average net sales per store (4)                |         | $ | 9,220                                                 |       |      | $ | 9,453   |       |      | $ | 9,642   |       |  | $ | 8,480   |       |  | $ | 7,991   |      

|                           |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|-------------------------- |  | --------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                           |  | As of March 31,
|                           |  |                
|                           |  | 2003            |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                           |  |                 |        |      |  |      |        |      |  |     
|                           |  | (In thousands) 
|Balance Sheet Data:        |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Working capital            |  | $               | 37,279 |      |  | $    | 32,133 |      |  | $    | 33,238 |  |  | $ | 29,239 |  |  | $ | 22,999 | 
|Total assets               |  |                 | 86,901 |      |  |      | 83,310 |      |  |      | 75,822 |  |  |   | 64,454 |  |  |   | 58,380 | 
|Debt                       |  |                 |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   |       | 
|Total stockholders equity |  |                 | 59,274 |      |  |      | 54,924 |      |  |      | 50,040 |  |  |   | 42,622 |  |  |   | 36,980 | 



|(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. The Company believes 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 the ability of the Company 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 the Companys operating
performance or to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. The Companys 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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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
Financial Data and the Companys financial statements and related notes
thereto.

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).

|                                             |         |   |                      |      |         |  |        |   |         |   |         |      |         |  |       |   |  |   |         |      |  |  |       |   | 
|-------------------------------------------- | ------- | - | -------------------- | ---- | ------- |  | ------ | - | ------- | - | ------- | ---- | ------- |  | ----- | - |  | - | ------- | ---- |  |  | ----- | - | 
|                                             |         |   | Year ended March 31,
|                                             |         |   |                     
|                                             |         |   | 2003                 |      | 2002    |  | 2001  
|                                             |         |   |                      |      |         |  |       
|                                             |         |   | Amount               |      | Percent |  | Amount |   | Percent |   | Amount  |      | Percent
|                                             |         |   |                      |      |         |  |        |   |         |   |         |      |        
|Net sales                                    |         | $ | 238,033              |      |         |  | 100.0  | % |         | $ | 227,349 |      |         |  | 100.0 | % |  | $ | 214,842 |      |  |  | 100.0 | %
|Gross profit                                 |         |   | 69,294               |      |         |  | 29.1   |   |         |   | 65,258  |      |         |  | 28.7  |   |  |   | 66,223  |      |  |  | 30.8  |  
|Selling, general and
administrative expenses |         |   | 62,168               |      |         |  | 26.1   |   |         |   | 57,126  |      |         |  | 25.1  |   |  |   | 54,406  |      |  |  | 25.3  |  
|Income from operations                       |         |   | 7,126                |      |         |  | 3.0    |   |         |   | 8,132   |      |         |  | 3.6   |   |  |   | 11,817  |      |  |  | 5.5   |  
|Interest expense (income)                    |         |   | 307                  |      |         |  | 0.1    |   |         |   | 71      |      |         |  | 0.0   |   |  |   | (361    | )    |  |  | (0.2  | )
|Income before taxes                          |         |   | 6,819                |      |         |  | 2.9    |   |         |   | 8,061   |      |         |  | 3.5   |   |  |   | 12,178  |      |  |  | 5.7   |  
|Net income                                   |         |   | 4,160                |      |         |  | 1.7    |   |         |   | 4,794   |      |         |  | 2.1   |   |  |   | 7,265   |      |  |  | 3.4   |  
|Earnings per share:                          |         |   |                      |      |         |  |        |   |         |   |         |      |         |  |       |   |  |   |         |      |  |  |       |  
|                                             | Basic   |   | $                    | 0.63 |         |  |        |   |         |   | $       | 0.73 |         |  |       |   |  |   | $       | 1.10 |  |  |       |   | 
|                                             | Diluted |   | $                    | 0.60 |         |  |        |   |         |   | $       | 0.69 |         |  |       |   |  |   | $       | 1.07 |  |  |       |   | 

|                                             |         |  |                         |  |      |   |        |      |         |  |       |   |  |  |  |  |  |  |        |  |         |   |        |      |  |  |       |   | 
|-------------------------------------------- | ------- |  | ----------------------- |  | ---- | - | ------ | ---- | ------- |  | ----- | - |  |  |  |  |  |  | ------ |  | ------- | - | ------ | ---- |  |  | ----- | - | 
|                                             |         |  | Quarter ended March 31,
|                                             |         |  |                        
|                                             |         |  | 2003                    |  | 2002
|                                             |         |  |                         |  |     
|                                             |         |  |                         |  |      |   | Amount |      | Percent |  |       |   |  |  |  |  |  |  | Amount |  | Percent
|                                             |         |  |                         |  |      |   |        |      |         |  |       |   |  |  |  |  |  |  |        |  |        
|Net sales                                    |         |  |                         |  |      | $ | 58,230 |      |         |  | 100.0 | % |  |  |  |  |  |  |        |  |         | $ | 57,312 |      |  |  | 100.0 | %
|Gross profit                                 |         |  |                         |  |      |   | 16,083 |      |         |  | 27.6  |   |  |  |  |  |  |  |        |  |         |   | 15,073 |      |  |  | 26.3  |  
|Selling, general and
administrative expenses |         |  |                         |  |      |   | 15,936 |      |         |  | 27.4  |   |  |  |  |  |  |  |        |  |         |   | 14,984 |      |  |  | 26.1  |  
|Income from operations                       |         |  |                         |  |      |   | 147    |      |         |  | 0.3   |   |  |  |  |  |  |  |        |  |         |   | 89     |      |  |  | 0.2   |  
|Interest expense                             |         |  |                         |  |      |   | 34     |      |         |  | 0.1   |   |  |  |  |  |  |  |        |  |         |   | 41     |      |  |  | 0.1   |  
|Income before taxes                          |         |  |                         |  |      |   | 113    |      |         |  | 0.2   |   |  |  |  |  |  |  |        |  |         |   | 48     |      |  |  | 0.1   |  
|Net income                                   |         |  |                         |  |      |   | 53     |      |         |  | 0.1   |   |  |  |  |  |  |  |        |  |         |   | 2      |      |  |  | 0.0   |  
|Earnings per share:                          |         |  |                         |  |      |   |        |      |         |  |       |   |  |  |  |  |  |  |        |  |         |   |        |      |  |  |       |  
|                                             | Basic   |  |                         |  |      |   | $      | 0.01 |         |  |       |   |  |  |  |  |  |  |        |  |         |   | $      | 0.00 |  |  |       |   | 
|                                             | Diluted |  |                         |  |      |   | $      | 0.01 |         |  |       |   |  |  |  |  |  |  |        |  |         |   | $      | 0.00 |  |  |       |   | 

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Fiscal 2003 Compared to Fiscal 2002.Sales increased from $227.3 million
for the fiscal year ending March 31, 2002 to $238.0 million for fiscal 2003, a
4.7% increase. The increase is 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 decrease reflects a prolonged sluggish retail environment,
lackluster economic recovery, and the war in Iraq. In addition, the decrease
reflects a second year of increasingly unseasonable warm and dry winter weather
conditions at the resorts frequented by those residing in Southern California
throughout the third and fourth quarters 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 for the year increased as a percent of sales from 28.7% to
29.1%. The 40 basis point increase for fiscal 2003 compared to fiscal 2002
resulted from better inventory procurement and administration compared to
fiscal 2002, when additional markdowns on winter-related merchandise were taken
to stimulate sales and turn inventory in reaction to an increasingly weakening
economic climate. 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 as a percent of
sales from 25.1% in fiscal 2002 to 26.1% in fiscal 2003, caused by increases in
utility expenses, advertising expense, professional fees, incentive-based labor
and employment-based insurance costs.

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

The effective tax rate as a percent of pretax income is 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 is the result of reduced blended
state income tax rate, from the Companys 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 to $4.2 million, or $0.60 per diluted share, from
$4.8 million, or $0.69 per diluted share, in the prior year, primarily due to
higher selling, general and administrative expenses partially offset by higher
sales and improved merchandise margins.

Fourth Quarter 2003 Compared to Fourth Quarter 2002.Sales increased from
$57.3 million for the quarter ended March 31, 2002 to $58.2 million for the
same period in fiscal 2003, a 1.6% increase. The increase results from the
opening of two stores in fiscal 2003, offset by a comparable store sales
decrease of 4.0%. The comparable store sales decrease reflects a prolonged
sluggish retail environment, lackluster economic recovery, and the war in Iraq.
In addition, unseasonably warm and dry winter weather conditions resulted in
decreased sales of winter-related merchandise. Sales exclusive of
winter-related merchandise increased 7.4% in total and 0.9% on a comparable
store basis.

Gross profit for the period increased as a percent of sales from 26.3% to
27.6%. The 130 basis point increase in the period ended March 31, 2003 was a
result of better inventory procurement and administration compared to the same
period ended March 31, 2002 when additional markdowns were taken on
winter-related merchandise to stimulate sales and turn inventory. The
improvement in merchandise margins were partially offset by the effects of
decreased comparable store sales which caused occupancy costs to increase as a
percent of sales in the current period compared to the same period last year.

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Selling, general and administrative expenses increased as a percent of
sales from 26.1% in the period ended March 31, 2002 to 27.4% for the period
ended March 31, 2003 primarily reflecting increases in advertising expense
attributable to the timing of vendor-funded participation compared to the same
period last year.

Interest expense decreased from $41,000 to $34,000 due to decreased use of
the Companys credit facility in the period ended March 31, 2003, compared to
the same period ended March 31, 2002.

The effective income tax rate as a percent of pretax income for the fourth
quarter of 2003 is 53.0% compared to 94.9% for the same period of fiscal 2002.
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.

Net income increased to $53,000, or $0.01 per diluted share, for the
period ended March 31, 2003 from $2,000, or $0.00 per diluted share, for the
period ended March 31, 2002, primarily due to higher sales and improved
merchandise margins partially offset by higher selling, general and
administrative expenses.

Fiscal 2002 Compared to Fiscal 2001.Sales increased from $214.8 million
for the fiscal year ending March 31, 2001 to $227.3 million for fiscal 2002, a
5.8% increase. The increase was the result of opening three stores in fiscal
2002 and one in fiscal 2001, offset by a comparable store sales decrease of
1.1%. In addition to a generally weak economic climate, the comparable store
sales decrease reflected unseasonably warm and dry winter weather conditions
experienced in the third and fourth quarters compared to the same quarters of
the prior year, along with a decline in consumer demand for in-line scooters,
sales of which were significant in the prior year. Sales exclusive of
winter-related merchandise and scooters increased 12.3%, and comparable store
sales increased by 5.2%.

Gross profit for fiscal 2002 decreased as a percent of sales from 30.8% to
28.7%. The decrease for fiscal 2002, as compared to fiscal 2001, was the
result of higher markdowns taken to stimulate sales and turn inventory.
Additionally, the decrease in comparable store sales caused occupancy costs to
increase as a percent of sales in fiscal 2002 as compared to fiscal 2001.

Selling, general and administrative expenses decreased as a percent of
sales from 25.3% to 25.1%, as decreases in litigation and incentive-based labor
were partially offset by costs related to the Companys expansion plans.
Expenses related to expansion include the opening of three new stores, one of
which is the Companys first store outside Southern California, and costs
related to opening a new larger distribution center, most of which related to
the disposal of leasehold improvements from the old facility.

Interest income decreased from $361,000 to an expense of $71,000 due to
the use of the Companys credit facility in fiscal 2002, as compared to fiscal
2001 when the credit facility was not utilized. Invested cash was used to fund
expansion including new stores, a larger distribution center and computer
upgrades. The Company borrowed up to $10 million during the third quarter for
the seasonal build up of inventory.

The effective tax rate as a percent of pretax income is 40.5% for fiscal
2002 and 40.3% for fiscal 2001. 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 decreased to $4.8 million, or $0.69 per diluted share, from
$7.3 million, or $1.07 per diluted share, in the prior year primarily due to
decreased gross profit as markdowns were taken to drive consumer demand in the
face of a difficult retail sales environment.

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Liquidity and Capital Resources

The Companys 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 the Companys liquidity
needs. The Company believes that these sources will be sufficient to fund
currently anticipated cash requirements for the foreseeable future.

Net cash provided by operating activities of $5.7 million, $7.3 million
and $11.5 million for fiscal 2003, 2002 and 2001, 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 from year-to-year increase due to the addition
of new stores. The addition of two stores in fiscal 2003 and three stores in
2002, increased inventories $3.0 million and $5.4 million, respectively, while
in fiscal 2001 the inventory increase of $5.6 million was a result of a
significant increase in comparable store sales along with the purchase of John
Wells Golf Shops and the addition of one new store.

Bank overdraft represents the total of checks in transit in excess of cash
on hand. Beginning in fiscal 2002, invested cash built-up in prior years was
used to fund the Companys expansion plan. The overdraft is expected to
continue and fluctuate due to the timing of vendor payments. Accounts payable
historically increases as inventory increases. However, in fiscal 2003,
accounts payable combined with the bank overdraft decreased by $2.9 million
primarily as the result of the timing of payments to vendors, while in fiscal
2002, accounts payable combined with the bank overdraft increased by $6.0
million primarily due to increased inventory. During fiscal 2001, accounts
payable increased only $371,000 as part of the inventory increase occurred
early in the year due to a new store and the purchase of John Wells Golf Shops
and vendors were paid before year end.

Other accrued expenses increased by $1.0 million for fiscal 2003, compared
to a decrease of $1.8 million for fiscal 2002, 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 $5.9 million, $12.1 million, and
$8.0 million for fiscal 2003, 2002 and 2001, respectively. In fiscal 2003,
2002 and 2001, capital expenditures for information technology totaled $2.2
million, $993,000, and $3.7 million, respectively, while ongoing capital
expenditures for the Companys existing stores totaled $500,000, $2.8 million,
and $3.0 million, respectively. The Company spent less in fiscal 2003 as it
evaluated a new prototype store format.

In fiscal 2003, two stores were opened in addition to the relocation of
the corporate headquarters, while in fiscal 2002, three stores were opened and
the distribution center was relocated, and in fiscal 2001 one store was opened,
one was remodeled and one was relocated.

As a result of the Companys ongoing growth and strategic initiatives,
forecasted capital expenditures for fiscal 2004 are expected to be
approximately $11.0 million. Approximately $3.6 million of this amount will be
used to open three new stores. In addition, expenditures on information
technology and existing store improvements, which include two large scale
remodels, are expected to approximate $3.6 million and $3.5 million,
respectively.

Net cash provided by financing activities reflects advances and repayments
of borrowings under the Companys revolving credit facility. As of March 31,
2003, 2002, and 2001, the Company had no outstanding borrowings on this
facility.

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The Companys credit facility with
Bank of America National Trust and Savings Association, Inc. (the Lender)
provides for advances up to $20 million, less the amount of any outstanding
draws, up to a $1.5 million maximum in authorized letters of credit. Interest
accrues at the Lenders prime rate plus 0.25% (4.5% at March 31, 2003) 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. This credit facility expires on
September 30, 2003, 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.

The Companys primary contractual obligations and commitments are its
store leases with initial terms expiring from 2004 through 2020 and typically
provide for multiple five-year renewal options:

|                        |  |                  |             | 
|----------------------- |  | ---------------- | ----------- | 
|Payments due by period: |  | Operating Leases
|                        |  |                 
|Within 1 year           |  | $                | 16,210,179  | 
|2 - 3 years             |  |                  | 34,067,581  | 
|4 - 5 years             |  |                  | 30,257,199  | 
|After 5 years           |  |                  | 62,902,620  | 
|                        |  |                  |             | 
|Total                   |  | $                | 143,437,579 | 
|                        |  |                  |             | 

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, the Company expects that percentage rent will more than
offset the base rental amounts.

No cash dividends have been declared on Common Stock in fiscal 2003. The
Company intends to retain earnings for use in the operation and expansion of
its business and, therefore, does not anticipate paying any cash dividends in
the foreseeable future.

Critical Accounting Policies and Use of Estimates

The Companys 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, the Company is 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. The Company
believes that the following summarizes critical accounting policies which
require significant judgments and estimates in the preparation of its 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. The Company considers cost to include direct cost of merchandise, plus
internal costs associated with merchandise procurement, storage and handling.
The Company regularly reviews 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 the Companys historical
markdown experience and anticipated markdowns based on future merchandising and
advertising plans, seasonal considerations, expected business trends and other
factors.

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Gift Certificate Redemption.The Company offers its customers the option
of purchasing gift certificates which may be used toward the future purchase of
the Companys product offerings. These gift certificates have no expiration
dates. The Company records unredeemed gift certificates as a liability until
the point of redemption. The Companys historical experience indicates that
not all issued gift certificates are ultimately redeemed. Accordingly, the
Company periodically adjusts the carrying value of the gift certificate
liability. The Company monitors redemption rates as a percent of issuances and
uses this information to estimate probable redemption of all outstanding gift
certificates. This calculation is based on historical experience, and future
redemption rates may vary if consumer purchasing practices change.

Impairment of Long-Lived Assets.The Company accounts 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. 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.

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 the Company operates. 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 the Companys history of
operating earnings, no valuation allowance has been recorded as of March 31,
2003. 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 the Companys financial position and results of
operations.

Provisions for income taxes for 2003, 2002 and 2001 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 the Company does business.

Impact of Recent Accounting Pronouncements.In June 2002, the Financial
Accounting Standards Board (FASB) issued Statement of Accounting Standards
(SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, which supercedes Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit and Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 addresses the accounting and reporting for
one-time employee termination benefits, certain contract termination costs, and
other costs associated with exit of disposal activities such as facility
closing or consolidations and employee relocations. The standard is effective
for exit or disposal activities initiated after December 31, 2002.

In November 2002, the FASB issued Emerging Issues Task Force Issue No.
02-16 (Issue 02-16), Accounting by a Reseller for Cash Consideration
Received from a Vendor. Issue 02-16 addresses the issue of how a reseller of
a vendors product should account for cash consideration received from a
vendor. The adoption of Issue 02-16, effective with agreements entered into
after November 21, 2002, did not have a material impact on the Companys
financial position or results of operations. The Company is in the process of
reviewing the effect that the application of Issue 02-16 will have on the
financial statements of fiscal 2004.

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In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. This statement amends
SFAS No. 123 to provide alternative methods of transition for voluntary change
to the fair value based method of accounting for stock based employee
compensation. In addition, this statement amends the disclosure requirements
of SAFS No. 123 to require disclosures in both 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
provision of SFAS No. 148 are effective for financial statements for fiscal
years and interim periods ending after December 15, 2002. The Company has
adopted the disclosure provisions of SFAS No. 148. SFAS No. 148 did not
require the Company to change to the fair value based method of accounting for
stock-based compensation.

Factors That May Affect Future Results

The Companys short and long-term success is subject to many factors that
are beyond the Companys 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. The Companys actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors including those set forth below.

Economic Conditions.The retail industry historically has been subject to
substantial cyclical variations. The merchandise sold by the Company 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 the Companys results of operations.

Competition.The sporting goods business and the retail environment are
highly competitive, and the Company competes with national, regional and local
full-line sporting goods chains, specialty stores, supplier owned stores,
discount and department stores, and e-tailers. A number of the Companys
competitors are larger and have greater resources than the Company.

Regional Market Concentration.Currently, all of the Companys stores are
located in Southern California and the Las Vegas area of Nevada. Accordingly,
the Company is 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 Southern California residents has
affected sales in the past. If the region were to suffer an economic downturn
or if other adverse events were to occur, there could be an adverse effect on
the Companys net sales and profitability and its ability to implement its
planned growth. Several of the Companys competitors operate stores across the
United States and, thus, are not as vulnerable as the Company to such regional
risks.

Reliance on a Single Distribution Center.The Company currently relies 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 the Companys inventory
and could materially impair both the Companys ability to adequately stock its
stores and the Companys net sales and profitability.

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Expansion Plan.The Companys 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:



| |  |  | suitable sites may not be available for leasing;                                                   
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | the Company may not be able to negotiate acceptable lease terms;                                   
|
| |  |  | the Company might not be able to hire and retain qualified store personnel; and                    
|
| |  |  | the Company might not have the financial resources necessary
to fund the Companys expansion plans.

In addition, the Companys 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 the Companys stores, added strain on the Companys distribution center,
additional information to be processed by the Companys management information
systems and diversion of management attention from ongoing operations. The
Company faces additional challenges in entering new markets, including
consumers lack of awareness of the Company, difficulties in hiring personnel
and problems due to the Companys unfamiliarity with local real estate markets
and demographics. New markets may also have different competitive conditions,
consumer tastes and discretionary spending patterns than the Companys existing
markets. To the extent that the Company is not able to meet these new
challenges, net sales could decrease and operating costs could increase.
Furthermore, a decline in the Companys overall financial performance,
increased rents or any other adverse effects arising from the commercial real
estate market in the Companys markets may adversely affect the Companys
current growth plan. There can be no assurance that the Company will possess
sufficient funds to finance the expenditures related to its 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.

Future Capital Requirements.The Company may not be able to fund its
future growth or react to competitive pressures if it lacks sufficient funds.
Unexpected conditions could cause the Company to be in violation of its
Lenders operating covenants. Currently, the Company feels it has sufficient
cash available through its bank credit facilities and cash from operations to
fund existing operations for the foreseeable future. The Company cannot be
certain that additional financing will be available in the future if necessary.

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

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

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Seasonality.The Companys sales volume increases significantly during
the Holiday season as is typical with other sporting goods retailers. In
addition, the Companys product mix has historically emphasized cold weather
sporting goods increasing the seasonality of the Companys business. In recent
years the months of November, December and January represent between 31% and
33%, of the Companys total net sales in recent years, 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 those living in Southern California. 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 the Company 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, the Company places its 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, the Company may
be required to mark down its winter apparel and equipment.

Variability of Quarterly Results.The Company has experienced, and
expects to continue to experience, a substantial variation in its net sales and
operating results from quarter to quarter. The Company believes 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 the Companys introduction of new products, the
level of consumer acceptance of each new product, the seasonality of the
markets in which the Company participates, the weather and actions of
competitors. Accordingly, a comparison of the Companys results of operations
from period to period is not necessarily meaningful, and the Companys results
of operations for any period are not necessarily indicative of future
performance.

Closely Controlled Stock.At June 9, 2003, Norbert Olberz, the Companys
founder, Chairman Emeritus, director and Principal Stockholder, owned
approximately 66% of the Company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 the Companys assets, and to control the Companys management and affairs.

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



| |  |  | earthquake, fire, flood and other natural disasters;                                                                                                                                                                                
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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
|
| |  |  | computer viruses, penetration by hackers seeking to disrupt
operations or misappropriate information and other breaches of
security.                                                                                                

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

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The Companys Business Depends on Anticipating Consumer Tastes.If the
Company fails to anticipate changes in consumer preferences, it 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. The
Companys 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 the Company generally makes
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.The Companys Common Stock is thinly traded making it
difficult to sell large amounts. The market price of the Companys 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 analyst and
investors, changes in financial estimates, changes in market valuations of
competitors, announcements by the Company or its 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 the Companys Common Stock.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys exposure to interest rate risk consists primarily of
borrowings under its 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.

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PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the directors and executive officers of the
Company is incorporated here 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

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.

20



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PART IV




ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report, the Chief
Executive Officer and the Chief Financial Officer of the Company, 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-14. Based upon that evaluation, the Chief Executive
Officer and the Chief Financial Officer believe that, as of the date of the
evaluation, the Companys disclosure controls and procedures are effective in
making known to them material information relating to the required to be
included in this report.

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 objections 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 significant changes in the Companys internal controls or in
other factors that could significantly affect internal controls, known to the
Chief Executive Officer or the Chief Financial Officer, subsequent to the date
of the evaluation.




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 Financial Statements are filed as part of this report.
|    |  |     |  |                                                                                                                                                   
|    |  | (2) |  | Schedules - Not applicable.                                                                                                                       

|    |  |                                        
|--- |  | ---------------------------------------
|(b) |  | Reports on Form 8-K - None             
|    |  |                                        
|(c) |  | Exhibits - See Index on Page E-1 hereof

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Sport Chalet, Inc.

Index to Audited Financial Statements

|                                                                                                  |  |      |    | 
|------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                  |  | Page
|                                                                                                  |  |     
|Report of Independent Auditors                                                                    |  |      | 23 | 
|Statements of Income for each of the three years in the
period ended March 31, 2003               |  |      | 24 | 
|Balance Sheets as of March 31, 2003 and 2002                                                      |  |      | 25 | 
|Statements of Stockholders Equity for each of the three
years in the period ended March 31, 2003 |  |      | 26 | 
|Statements of Cash Flows for each of the three years in the
period ended March 31, 2003           |  |      | 27 | 
|Notes to Financial Statements                                                                     |  |      | 28 | 

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Report of Independent Auditors

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

We have audited the accompanying balance sheets of Sport Chalet, Inc. as
of March 31, 2003 and 2002, and the related statements of income, stockholders
equity, and cash flows for each of the three years in the period ended March
31, 2003. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial position of Sport Chalet, Inc. at March
31, 2003 and 2002, and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 2003, in conformity with
accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP


Los Angeles, California
May 15, 2003

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Sport Chalet, Inc.

Statements of Income

|                                                      |         |         |             |                     |           |      |             |      |           |   |             |      |           | 
|----------------------------------------------------- | ------- | ------- | ----------- | ------------------- | --------- | ---- | ----------- | ---- | --------- | - | ----------- | ---- | --------- | 
|                                                      |         |         |             | Year ended March 31
|                                                      |         |         |             | 2003                |           | 2002 |             | 2001
|                                                      |         |         |             |                     |           |      |             |     
|Net sales                                             |         | $       | 238,033,375 |                     |           | $    | 227,348,772 |      |           | $ | 214,841,536 |     
|Cost of goods sold, buying and occupancy costs        |         |         | 168,739,502 |                     |           |      | 162,090,636 |      |           |   | 148,619,057 |     
|                                                      |         |         |             |                     |           |      |             |      |           |   |             |     
|Gross profit                                          |         |         | 69,293,873  |                     |           |      | 65,258,136  |      |           |   | 66,222,479  |     
|Selling, general and administrative expenses          |         |         | 62,167,771  |                     |           |      | 57,126,198  |      |           |   | 54,405,689  |     
|                                                      |         |         |             |                     |           |      |             |      |           |   |             |     
|Income from operations                                |         |         | 7,126,102   |                     |           |      | 8,131,938   |      |           |   | 11,816,790  |     
|Interest expense (income)                             |         |         | 306,755     |                     |           |      | 70,791      |      |           |   | (361,682    | )   
|                                                      |         |         |             |                     |           |      |             |      |           |   |             |     
|Income before taxes                                   |         |         | 6,819,347   |                     |           |      | 8,061,147   |      |           |   | 12,178,472  |     
|Income tax provision                                  |         |         | 2,659,000   |                     |           |      | 3,267,000   |      |           |   | 4,913,000   |     
|                                                      |         |         |             |                     |           |      |             |      |           |   |             |     
|Net income                                            |         | $       | 4,160,347   |                     |           | $    | 4,794,147   |      |           | $ | 7,265,472   |     
|                                                      |         |         |             |                     |           |      |             |      |           |   |             |     
|Earnings per share:                                   |         |         |             |                     |           |      |             |      |           |   |             |     
|                                                      | Basic   |         | $           | 0.63                |           |      | $           | 0.73 |           |   | $           | 1.10 |          
|                                                      |         |         |             |                     |           |      |             |      |           |   |             |     
|                                                      | Diluted |         | $           | 0.60                |           |      | $           | 0.69 |           |   | $           | 1.07 |          
|                                                      |         |         |             |                     |           |      |             |      |           |   |             |     
|Weighted average number of common shares
outstanding: |         |         |             |                     |           |      |             |      |           |   |             |     
|                                                      |         | Basic   |             |                     | 6,614,544 |      |             |      | 6,586,904 |   |             |      | 6,580,001 | 
|                                                      |         | Diluted |             |                     | 6,947,343 |      |             |      | 6,994,514 |   |             |      | 6,804,735 | 

See accompanying notes.

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Sport Chalet, Inc.

Balance Sheets

|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |        | 
|------------------------------------------------ | --------------------------------------------------------------- | ----------------------------------------------------------------------- | ---------- | ---------- | ------ | ---- | ---------- | ---------- | ------ | 
|                                                 |                                                                 |                                                                         |            | March 31  
|                                                 |                                                                 |                                                                         |            | 2003       |        | 2002
|                                                 |                                                                 |                                                                         |            |            |        |     
|Assets                                           |                                                                 |                                                                         |            |            |        |      |            |           
|Current assets:                                  |                                                                 |                                                                         |            |            |        |      |            |           
|                                                 | Cash and cash equivalents                                       |                                                                         | $          | 4,230,003  |        |      | $          | 4,273,485  |       
|                                                 | Accounts receivable, less allowance of $25,000 in 2003
and 2002 |                                                                         |            | 1,090,519  |        |      |            | 678,709    |       
|                                                 | Merchandise inventories                                         |                                                                         |            | 50,886,630 |        |      |            | 47,916,553 |       
|                                                 | Prepaid expenses and other current assets                       |                                                                         |            | 2,038,588  |        |      |            | 1,757,007  |       
|                                                 | Refundable income taxes                                         |                                                                         |            | 58,990     |        |      |            | 448,760    |       
|                                                 | Deferred income taxes                                           |                                                                         |            | 1,325,249  |        |      |            | 1,258,795  |       
|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |       
|Total current assets                             |                                                                 |                                                                         | 59,629,979 |            |        |      | 56,333,309 |           
|Furniture, equipment and leasehold improvements: |                                                                 |                                                                         |            |            |        |      |            |           
|                                                 | Furniture, fixtures and office equipment                        |                                                                         |            | 26,922,764 |        |      |            | 23,076,486 |       
|                                                 | Rental equipment                                                |                                                                         |            | 3,892,903  |        |      |            | 3,709,955  |       
|                                                 | Vehicles                                                        |                                                                         |            | 553,670    |        |      |            | 667,456    |       
|                                                 | Leasehold improvements                                          |                                                                         |            | 20,610,682 |        |      |            | 18,864,837 |       
|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |       
|                                                 |                                                                 |                                                                         | 51,980,019 |            |        |      | 46,318,734 |           
|                                                 | Less allowance for depreciation and amortization                |                                                                         |            | 24,884,705 |        |      |            | 19,741,693 |       
|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |       
|                                                 |                                                                 |                                                                         | 27,095,314 |            |        |      | 26,577,041 |           
|Deferred income tax                              |                                                                 |                                                                         | 66,281     |            |        |      | 184,492    |           
|Other assets                                     |                                                                 |                                                                         | 109,905    |            |        |      | 215,468    |           
|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |       
|Total assets                                     |                                                                 | $                                                                       | 86,901,479 |            |        | $    | 83,310,310 |           
|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |       
|Liabilities and stockholders equity             |                                                                 |                                                                         |            |            |        |      |            |           
|Current liabilities:                             |                                                                 |                                                                         |            |            |        |      |            |           
|                                                 | Bank overdraft                                                  |                                                                         | $          | 5,764,355  |        |      | $          | 7,192,258  |       
|                                                 | Accounts payable                                                |                                                                         |            | 9,353,444  |        |      |            | 10,815,241 |       
|                                                 | Salaries and wages payable                                      |                                                                         |            | 2,191,335  |        |      |            | 2,184,509  |       
|                                                 | Other accrued expenses                                          |                                                                         |            | 5,041,753  |        |      |            | 4,008,208  |       
|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |       
|Total current liabilities                        |                                                                 |                                                                         | 22,350,887 |            |        |      | 24,200,216 |           
|Deferred rent                                    |                                                                 |                                                                         | 5,276,696  |            |        |      | 4,185,625  |           
|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  6,628,334 in 2003
and 6,595,500 in 2002 |            |            | 66,283 |      |            |            | 65,955 | 
|                                                 | Additional paid-in capital                                      |                                                                         |            | 22,121,369 |        |      |            | 21,932,617 |       
|                                                 | Retained earnings                                               |                                                                         |            | 37,086,244 |        |      |            | 32,925,897 |       
|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |       
|Total stockholders equity                       |                                                                 |                                                                         | 59,273,896 |            |        |      | 54,924,469 |           
|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |       
|Total liabilities and stockholders equity       |                                                                 | $                                                                       | 86,901,479 |            |        | $    | 83,310,310 |           
|                                                 |                                                                 |                                                                         |            |            |        |      |            |            |       

See accompanying notes.

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Sport Chalet, Inc.

Statements of Stockholders Equity

|                          |                                      |  |              |        |            |   |                 |     |          |   |            |         |  |   |            |           |  |   |            |           | 
|------------------------- | ------------------------------------ |  | ------------ | ------ | ---------- | - | --------------- | --- | -------- | - | ---------- | ------- |  | - | ---------- | --------- |  | - | ---------- | --------- | 
|                          |                                      |  | Common Stock |        | Additional |   | Retained        |     |          |   |           
|                          |                                      |  | Shares       |        | Amount     |   | Paid-in Capital |     | Earnings |   | Total     
|                          |                                      |  |              |        |            |   |                 |     |          |   |           
|Balance at March 31, 2000 |                                      |  | 6,577,000    |        |            | $ | 65,770          |     |          | $ | 21,689,607 |         |  | $ | 20,866,278 |           |  | $ | 42,621,655 |          
|                          | Exercise of stock options            |  |              | 3,001  |            |   |                 | 30  |          |   |            | 13,287  |  |   |            |          |  |   |            | 13,317    | 
|                          | Shares granted to officers           |  |              |       |            |   |                 |    |          |   |            | 134,769 |  |   |            |          |  |   |            | 134,769   | 
|                          | Tax benefit from exercise
of options |  |              |       |            |   |                 |    |          |   |            | 4,677   |  |   |            |          |  |   |            | 4,677     | 
|                          | Net income for 2001                  |  |              |       |            |   |                 |    |          |   |            |        |  |   |            | 7,265,472 |  |   |            | 7,265,472 | 
|                          |                                      |  |              |        |            |   |                 |     |          |   |            |         |  |   |            |           |  |   |            |          
|Balance at March 31, 2001 |                                      |  | 6,580,001    |        |            |   | 65,800          |     |          |   | 21,842,340 |         |  |   | 28,131,750 |           |  |   | 50,039,890 |          
|                          | 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                  |  |              |       |            |   |                 |    |          |   |            |        |  |   |            | 4,794,147 |  |   |            | 4,794,147 | 
|                          |                                      |  |              |        |            |   |                 |     |          |   |            |         |  |   |            |           |  |   |            |          
|Balance at March 31, 2002 |                                      |  | 6,595,500    |        |            |   | 65,955          |     |          |   | 21,932,617 |         |  |   | 32,925,897 |           |  |   | 54,924,469 |          
|                          | 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                  |  |              |       |            |   |                 |    |          |   |            |        |  |   |            | 4,160,347 |  |   |            | 4,160,347 | 
|                          |                                      |  |              |        |            |   |                 |     |          |   |            |         |  |   |            |           |  |   |            |          
|Balance at March 31, 2003 |                                      |  | 6,628,334    |        |            | $ | 66,283          |     |          | $ | 22,121,369 |         |  | $ | 37,086,244 |           |  | $ | 59,273,896 |          
|                          |                                      |  |              |        |            |   |                 |     |          |   |            |         |  |   |            |           |  |   |            |          

See accompanying notes.

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Sport Chalet, Inc.

Statements of Cash Flows

|                                                                                  |              |                                              |                                           |           |                     |            |             |           |           |            |            |           |           |            |  
|--------------------------------------------------------------------------------- | ------------ | -------------------------------------------- | ----------------------------------------- | --------- | ------------------- | ---------- | ----------- | --------- | --------- | ---------- | ---------- | --------- | --------- | ---------- | -
|                                                                                  |              |                                              |                                           |           | Year ended March 31
|                                                                                  |              |                                              |                                           |           | 2003                |            | 2002        |           | 2001     
|                                                                                  |              |                                              |                                           |           |                     |            |             |           |          
|Operating activities                                                              |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|Net income                                                                        |              | $                                            | 4,160,347                                 |           |                     | $          | 4,794,147   |           |           | $          | 7,265,472  |          
|Adjustments to reconcile net income to net cash
provided by operating activities: |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|                                                                                  |              | Depreciation and amortization                |                                           |           | 5,479,628           |            |             |           | 5,142,507 |            |            |           | 4,220,312 |           
|                                                                                  |              | Loss on disposal of equipment                |                                           |           | 31,730              |            |             |           | 659,931   |            |            |           | 85,598    |           
|                                                                                  |              | Stock compensation                           |                                           |           |                    |            |             |           |          |            |            |           | 134,769   |           
|                                                                                  |              | Deferred income taxes                        |                                           |           | 51,756              |            |             |           | 580,856   |            |            |           | (898,193  | )         
|                                                                                  |              | Tax benefit on employee stock options        |                                           |           | 53,473              |            |             |           | 34,249    |            |            |           | 4,677     |           
|                                                                                  |              | Changes in operating assets and liabilities: |                                           |           |                     |            |             |           |           |            |            |           |           |           
|                                                                                  |              |                                              | Accounts receivable                       |           |                     | (411,810   | )           |           |           | (159,032   | )          |           |           | 2,289,092  |  
|                                                                                  |              |                                              | Merchandise inventories                   |           |                     | (2,970,077 | )           |           |           | (5,425,021 | )          |           |           | (5,570,366 | )
|                                                                                  |              |                                              | Prepaid expenses and other current assets |           |                     | (281,581   | )           |           |           | (432,960   | )          |           |           | (28,965    | )
|                                                                                  |              |                                              | Refundable income taxes                   |           |                     | 389,770    |             |           |           | (448,760   | )          |           |           |           |  
|                                                                                  |              |                                              | Bank overdraft                            |           |                     | (1,427,903 | )           |           |           | 7,192,258  |            |           |           |           |  
|                                                                                  |              |                                              | Accounts payable                          |           |                     | (1,461,797 | )           |           |           | (1,135,443 | )          |           |           | 371,135    |  
|                                                                                  |              |                                              | Salaries and wages payable                |           |                     | 6,826      |             |           |           | (775,658   | )          |           |           | 1,144,691  |  
|                                                                                  |              |                                              | Other accrued expenses                    |           |                     | 1,033,545  |             |           |           | (1,764,802 | )          |           |           | 2,394,703  |  
|                                                                                  |              |                                              | Income taxes payable                      |           |                     |           |             |           |           | (1,286,861 | )          |           |           | (380,693   | )
|                                                                                  |              |                                              | Deferred rent                             |           |                     | 1,091,071  |             |           |           | 374,379    |            |           |           | 480,061    |  
|                                                                                  |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|Net cash provided by operating activities                                         |              |                                              | 5,744,978                                 |           |                     |            | 7,349,790   |           |           |            | 11,512,293 |          
|Investing activities                                                              |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|Purchases of furniture, equipment and leasehold
improvements                      |              |                                              | (6,042,631                                | )         |                     |            | (12,127,475 | )         |           |            | (8,196,063 | )        
|Other assets                                                                      |              |                                              | 105,564                                   |           |                     |            | 49,953      |           |           |            | 100,318    |          
|Proceeds from sale of assets                                                      |              |                                              | 13,000                                    |           |                     |            |            |           |           |            | 46,779     |          
|                                                                                  |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|Net cash used in investing activities                                             |              |                                              | (5,924,067                                | )         |                     |            | (12,077,522 | )         |           |            | (8,048,966 | )        
|Financing activities                                                              |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|Proceeds from bank borrowings                                                     |              |                                              | 57,563,424                                |           |                     |            | 15,100,000  |           |           |            |           |          
|Repayment of bank borrowings                                                      |              |                                              | (57,563,424                               | )         |                     |            | (15,100,000 | )         |           |            |           |          
|Proceeds from exercise of stock options                                           |              |                                              | 135,607                                   |           |                     |            | 56,183      |           |           |            | 13,317     |          
|                                                                                  |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|Net cash provided by financing activities                                         |              |                                              | 135,607                                   |           |                     |            | 56,183      |           |           |            | 13,317     |          
|                                                                                  |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|(Decrease) increase in cash and cash equivalents                                  |              |                                              | (43,482                                   | )         |                     |            | (4,671,549  | )         |           |            | 3,476,644  |          
|Cash and cash equivalents at beginning of year                                    |              |                                              | 4,273,485                                 |           |                     |            | 8,945,034   |           |           |            | 5,468,390  |          
|                                                                                  |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|Cash and cash equivalents at end of year                                          |              | $                                            | 4,230,003                                 |           |                     | $          | 4,273,485   |           |           | $          | 8,945,034  |          
|                                                                                  |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|Cash paid during the year for:                                                    |              |                                              |                                           |           |                     |            |             |           |           |            |            |          
|                                                                                  | Income taxes |                                              | $                                         | 2,164,000 |                     |            | $           | 4,587,516 |           |            | $          | 6,202,000 |          
|                                                                                  | Interest     |                                              |                                           | 323,304   |                     |            |             | 91,727    |           |            |            |          |          

See accompanying notes.

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Sport Chalet, Inc.

Notes to Financial Statements

1. Description of Business

Sport Chalet, Inc. (the Company), founded in 1959, is a leading operator
of 28 full service, specialty sporting goods superstores in Southern California
and Nevada. The Company has 26 locations in California consisting of eleven
located in Los Angeles County, six in Orange County, three in each of San Diego
and San Bernardino Counties, two in Riverside, and one in Ventura County; both
Nevada locations are in Clark County.

The Chairman of the Board (Principal Stockholder) owned approximately 66%
of the Companys outstanding Common Stock at March 31, 2003.

2. Summary of Significant Accounting Policies

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.

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.

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

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.

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. Issuance of gift certificates and store credits are recorded
as a liability until redeemed for merchandise.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense, net of
vendor reimbursement, amounted to $6,125,976, $5,145,848 and $5,111,472 for the
years ended March 31, 2003, 2002 and 2001, 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.

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

2. 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:

|                                                         |                          |                                                       |       |                                       |       |      |       |          |       |   |       |       |       | 
|-------------------------------------------------------- | ------------------------ | ----------------------------------------------------- | ----- | ------------------------------------- | ----- | ---- | ----- | -------- | ----- | - | ----- | ----- | ----- | 
|                                                         |                          |                                                       |       |                                       |       |      |       | March 31 |       |   |       |      
|                                                         |                          |                                                       |       | 2003                                  |       | 2002 |       | 2001    
|                                                         |                          |                                                       |       |                                       |       |      |       |         
|                                                         |                          |                                                       |       | (in thousands, except per share data)
|Basic EPS computation:                                   |                          |                                                       |       |                                       |       |      |       |          |       |   |       |      
|                                                         | Numerator                |                                                       | $     | 4,160                                 |       |      | $     | 4,794    |       |   | $     | 7,265 |      
|                                                         | Denominator:             |                                                       |       |                                       |       |      |       |          |       |   |       |       |      
|                                                         |                          | Weighted average
common shares
outstanding            |       |                                       | 6,615 |      |       |          | 6,587 |   |       |       | 6,580 | 
|                                                         |                          |                                                       |       |                                       |       |      |       |          |       |   |       |       |      
|                                                         | Basic earnings per share |                                                       | $     | 0.63                                  |       |      | $     | 0.73     |       |   | $     | 1.10  |      
|                                                         |                          |                                                       |       |                                       |       |      |       |          |       |   |       |       |      
|Diluted EPS computation:                                 |                          |                                                       |       |                                       |       |      |       |          |       |   |       |      
|                                                         | Numerator                |                                                       | $     | 4,160                                 |       |      | $     | 4,794    |       |   | $     | 7,265 |      
|                                                         | Denominator:             |                                                       |       |                                       |       |      |       |          |       |   |       |       |      
|                                                         |                          | Weighted average
common shares
outstanding            |       |                                       | 6,615 |      |       |          | 6,587 |   |       |       | 6,580 | 
|                                                         |                          | Incremental shares
from assumed
conversion of
options |       |                                       | 332   |      |       |          | 408   |   |       |       | 225   | 
|                                                         |                          |                                                       |       |                                       |       |      |       |          |       |   |       |       |      
|Total weighted average
common shares  assuming
dilution |                          |                                                       | 6,947 |                                       |       |      | 6,995 |          |       |   | 6,805 |      
|                                                         |                          |                                                       |       |                                       |       |      |       |          |       |   |       |       |      
|Diluted earnings per share                               |                          | $                                                     | 0.60  |                                       |       | $    | 0.69  |          |       | $ | 1.07  |      
|                                                         |                          |                                                       |       |                                       |       |      |       |          |       |   |       |       |      

Deferred Rent

The Company is a party to various lease agreements which require scheduled
rent increases over the noncancelable lease term. Rent expense for such leases
is recognized on a straight-line basis over the related lease term. The
difference between rent based upon scheduled monthly payments and rent expense
recognized on a straight-line basis is recorded as deferred rent.

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

2. 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.

Reclassification

Certain reclassifications were made to the prior year financial statements
to conform to current year presentation.

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

New Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which supercedes Emerging Issues
Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit and Activity (including Certain
Costs Incurred in a Restructuring). SFAS No. 146 addresses the accounting and
reporting for one-time employee termination benefits, certain contract
termination costs, and other costs associated with exit of disposal activities
such as facility closing or consolidations and employee relocations. The
standard is effective for exit or disposal activities initiated after December
31, 2002. The adoption of the standard did not have a material impact on the
Companys financial statements.

In November 2002, the FASB issued Emerging Issues Task Force Issue No.
02-16 (Issue 02-16), Accounting by a Reseller for Cash Consideration
Received from a Vendor. Issue 02-16 addresses the issue of how a reseller of
a vendors product should account for cash consideration received from a
vendor. The adoption of Issue 02-16, effective with agreements entered into
after November 21, 2002 did not have a material impact on the Companys
financial position or results of operations. The Company is in the process of
reviewing the effect that the application of EITF 02-16 will have on the
financial statements of fiscal 2004.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. This statement amends
SFAS No. 123 to provide alternative methods of transition for voluntary change
to the fair value based method of accounting for stock based employee
compensation. In addition, this statement amends the disclosure requirements
of SAFS No. 123 to require disclosures in both 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
provisions of SFAS No. 148 are effective for financial statements for fiscal
years and interim periods ending after December 15, 2002. The Company has
adopted the disclosure provisions of SFAS No. 148. SFAS No. 148 did not
require the Company to change to the fair value based method of accounting for
stock-based compensation.

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

3. Loans Payable to Bank

The Companys credit facility with Bank of America National Trust and
Savings Association, Inc. (the Lender) provides for advances up to $20
million, less the amount of any outstanding draws, up to a $1.5 million maximum
in authorized letters of credit. Interest accrues at the Lenders prime rate
plus 0.25% (4.5% at March 31, 2003) 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. This credit facility expires on September 30, 2003, 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.
As of March 31, 2003 the Company was in compliance with the debt covenants.

At March 31, 2003, there were no outstanding borrowings under the
facility. Letters of credit amounting to $617,044 relating to purchase
commitments were outstanding as on March 31, 2003.

The weighted average interest rate on borrowings during the year ended
March 31, 2003 was 6.89%.

The agreement, as amended, provides for an annual non-utilization fee of
0.20 percent, plus a one-time facility fee of $20,000.

4. 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.

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

4. 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, 2003:

|           |  |   |             | 
|---------- |  | - | ----------- | 
|2004       |  | $ | 16,210,179  | 
|2005       |  |   | 16,980,374  | 
|2006       |  |   | 17,087,207  | 
|2007       |  |   | 15,715,587  | 
|2008       |  |   | 14,541,612  | 
|Thereafter |  |   | 62,902,620  | 
|           |  |   |             | 
|           |  | $ | 143,437,579 | 
|           |  |   |             | 

Total rent expense amounted to $19,994,428, $16,912,075 and $15,504,720
for the years ended March 31, 2003, 2002 and 2001, respectively, of which
$2,168,753, $2,351,571 and $2,469,373, respectively, was paid on 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
$1,277,879, $1,105,928 and $977,592 for the years ended March 31, 2003, 2002
and 2001, respectively. Included in the accompanying balance sheets are amounts
representing prepaid rent to the Principal Stockholder of $128,959 at March 31,
2003 and $141,818 at March 31, 2002.

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

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

5. Income Taxes

The provision for income taxes for the years ended March 31, 2003, 2002
and 2001 consists of the following:

|         |          |   |           |           |      |   |           |           |  |   |           |           |  
|-------- | -------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | -
|         |          |   | 2003      |           | 2002 |   | 2001     
|         |          |   |           |           |      |   |          
|Federal: |          |   |           |           |      |   |           |           |  |   |           |          
|         | Current  |   | $         | 1,843,000 |      |   | $         | 2,018,000 |  |   | $         | 4,631,000 |  
|         | Deferred |   |           | 210,000   |      |   |           | 491,000   |  |   |           | (811,000  | )
|         |          |   |           |           |      |   |           |           |  |   |           |          
|         |          |   | 2,053,000 |           |      |   | 2,509,000 |           |  |   | 3,820,000 |          
|State:   |          |   |           |           |      |   |           |           |  |   |           |          
|         | Current  |   |           | 764,000   |      |   |           | 668,000   |  |   |           | 1,202,000 |  
|         | Deferred |   |           | (158,000  | )    |   |           | 90,000    |  |   |           | (109,000  | )
|         |          |   |           |           |      |   |           |           |  |   |           |          
|         |          |   | 606,000   |           |      |   | 758,000   |           |  |   | 1,093,000 |          
|         |          |   |           |           |      |   |           |           |  |   |           |          
|         |          | $ | 2,659,000 |           |      | $ | 3,267,000 |           |  | $ | 4,913,000 |          
|         |          |   |           |           |      |   |           |           |  |   |           |          

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, 2003 and
2002 are as follows:

|                               |                             |   |           |         |         |   |          |          |         |   |           |         |      |   |         |         |  
|------------------------------ | --------------------------- | - | --------- | ------- | ------- | - | -------- | -------- | ------- | - | --------- | ------- | ---- | - | ------- | ------- | -
|                               |                             |   | 2003      |         | 2002   
|                               |                             |   |           |         |        
|                               |                             |   |           |         |         |   | Non-     |          |         |   |           |         | Non-
|                               |                             |   | Current   |         | current |   | Current  |          | current
|                               |                             |   |           |         |         |   |          |          |        
|Deferred tax liabilities:      |                             |   |           |         |         |   |          |          |         |   |           |         |      |   |         |        
|                               | Tax over book depreciation  |   | $         |        |         |   | $        | (680,757 | )       |   | $         |        |      |   | $       | (36,193 | )
|                               |                             |   |           |         |         |   |          |          |         |   |           |         |      |   |         |        
|Total deferred tax liabilities |                             |   |          |         |         |   | (680,757 | )        |         |   |          |         |      |   | (36,193 | )      
|Deferred tax assets:           |                             |   |           |         |         |   |          |          |         |   |           |         |      |   |         |        
|                               | Uniform cost capitalization |   |           | 96,435  |         |   |          |         |         |   |           | 162,061 |      |   |         |        |  
|                               | Markdown reserve            |   |           | 828,556 |         |   |          |         |         |   |           | 547,723 |      |   |         |        |  
|                               | Accrued vacation            |   |           | 271,143 |         |   |          |         |         |   |           | 250,379 |      |   |         |        |  
|                               | Deferred rent               |   |           |        |         |   |          | 747,038  |         |   |           |        |      |   |         | 220,685 |  
|                               | Other                       |   |           | 129,115 |         |   |          |         |         |   |           | 298,632 |      |   |         |        |  
|                               |                             |   |           |         |         |   |          |          |         |   |           |         |      |   |         |        
|Total deferred tax assets      |                             |   | 1,325,249 |         |         |   | 747,038  |          |         |   | 1,258,795 |         |      |   | 220,685 |        
|                               |                             |   |           |         |         |   |          |          |         |   |           |         |      |   |         |        
|Total deferred tax asset       |                             | $ | 1,325,249 |         |         | $ | 66,281   |          |         | $ | 1,258,795 |         |      | $ | 184,492 |        
|                               |                             |   |           |         |         |   |          |          |         |   |           |         |      |   |         |        

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

5. Income Taxes (continued)

A reconciliation of the provision for income taxes for the years ended
March 31, 2003, 2002 and 2001 with the amount computed using the federal
statutory rate follows:

|                                                   |  |      |           |      |  |      |           |  |  |   |           | 
|-------------------------------------------------- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                                   |  | 2003 |           | 2002 |  | 2001
|                                                   |  |      |           |      |  |     
|Statutory rate, 34% applied to income
before taxes |  | $    | 2,319,000 |      |  | $    | 2,741,000 |  |  | $ | 4,141,000 | 
|State taxes, net of federal tax effect             |  |      | 398,000   |      |  |      | 500,000   |  |  |   | 711,000   | 
|Other, net                                         |  |      | (58,000   | )    |  |      | 26,000    |  |  |   | 61,000    | 
|                                                   |  |      |           |      |  |      |           |  |  |   |           | 
|                                                   |  | $    | 2,659,000 |      |  | $    | 3,267,000 |  |  | $ | 4,913,000 | 
|                                                   |  |      |           |      |  |      |           |  |  |   |           | 

6. 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, amended from
1,200,000 in fiscal 2003, 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 10 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, 2003
and 2002, there were 431,999 and 191,999 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.

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

6. Award Plans and Stock Award (continued)

Award Plan (continued)

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 2003, 2002 and 2001: weighted-average risk-free interest rates of
4.0%, 4.5% and 6%, respectively; dividend yields of 0%; weighted-average
volatility factors of the expected market price of the Companys common stock
of 0.41 for 2003, 0.45 for 2002 and 0.48 for 2001; 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.

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 (currently 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.

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

6. Award Plans and Stock Award (continued)

Award Plan (continued)

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, the Company will not be 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 0.407 and an expected life of the option of 180 days. For purposes of pro
forma disclosures, the estimated fair value of $3,872,000 for the option is
being amortized to expense over the options vesting period, which has been
estimated at nine years.

|                                         |                                                                                                                                            |   |           |         |      |   |           |         |  |   |           |         | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | - | --------- | ------- | ---- | - | --------- | ------- |  | - | --------- | ------- | 
|                                         |                                                                                                                                            |   |           |         |      |   | March 31  |         |  |   |          
|                                         |                                                                                                                                            |   | 2003      |         | 2002 |   | 2001     
|                                         |                                                                                                                                            |   |           |         |      |   |          
|Net income as reported                   |                                                                                                                                            | $ | 4,160,347 |         |      | $ | 4,794,147 |         |  | $ | 7,265,472 |        
|Add:                                     |                                                                                                                                            |   |           |         |      |   |           |         |  |   |           |        
|                                         | Stock based compensation expense
included in reported net income, net
of related tax effects                                               |   |           |        |      |   |           |        |  |   |           |        | 
|Deduct:                                  |                                                                                                                                            |   |           |         |      |   |           |         |  |   |           |        
|                                         | Total stock-based employee
compensation expense determined
under fair market value based method
for all awards, net of related tax
effects |   |           | 391,938 |      |   |           | 286,556 |  |   |           | 237,737 | 
|                                         |                                                                                                                                            |   |           |         |      |   |           |         |  |   |           |        
|Pro forma net income                     |                                                                                                                                            | $ | 3,768,409 |         |      | $ | 4,507,591 |         |  | $ | 7,027,735 |        
|                                         |                                                                                                                                            |   |           |         |      |   |           |         |  |   |           |        
|Net Income per share  basic and diluted |                                                                                                                                            |   |           |         |      |   |           |         |  |   |           |        
|                                         | As reported  basic                                                                                                                        |   | $         | 0.63    |      |   | $         | 0.73    |  |   | $         | 1.10    | 
|                                         | As reported  diluted                                                                                                                      |   | $         | 0.60    |      |   | $         | 0.69    |  |   | $         | 1.07    | 
|                                         | Pro forma  basic                                                                                                                          |   | $         | 0.57    |      |   | $         | 0.68    |  |   | $         | 1.07    | 
|                                         | Pro forma  diluted                                                                                                                        |   | $         | 0.55    |      |   | $         | 0.66    |  |   | $         | 1.03    | 

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

6. Award Plans and Stock Award (continued)

Award Plan (continued)

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

|                                                               |           |  |                |         |                |   |                |      |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |      | 
|-------------------------------------------------------------- | --------- |  | -------------- | ------- | -------------- | - | -------------- | ---- | ----- |  | ------- | ------- | -------- | - | ---- | ---- |  |  | -------- | ------- | - | - | ---- | ---- | 
|                                                               |           |  | March 31, 2003 |         | March 31, 2002 |   | March 31, 2001
|                                                               |           |  |                |         |                |   |               
|                                                               |           |  |                |         |                |   | Weighted       |      |       |  |         |         | Weighted |   |      |      |  |  | Weighted
|                                                               |           |  |                |         |                |   | Average        |      |       |  |         |         | Average  |   |      |      |  |  | Average 
|                                                               |           |  |                |         |                |   | Exercise       |      |       |  |         |         | Exercise |   |      |      |  |  | Exercise
|                                                               |           |  | Options        |         | Price          |   | Options        |      | Price |  | Options |         | Price   
|                                                               |           |  |                |         |                |   |                |      |       |  |         |         |         
|Outstanding at
beginning of year                               |           |  | 912,501        |         |                | $ | 5.18           |      |       |  | 851,333 |         |          | $ | 4.57 |      |  |  | 760,000  |         |   | $ | 4.65 |     
|                                                               | Granted   |  |                | 60,000  |                |   |                | 7.77 |       |  |         | 154,000 |          |   |      | 8.54 |  |  |          | 120,000 |   |   |      | 3.96 | 
|                                                               | Exercised |  |                | (32,834 | )              |   |                | 4.13 |       |  |         | (15,499 | )        |   |      | 3.62 |  |  |          | (3,001  | ) |   |      | 4.44 | 
|                                                               | Forfeited |  |                |        |                |   |                |     |       |  |         | (77,333 | )        |   |      | 5.67 |  |  |          | (25,666 | ) |   |      | 4.15 | 
|                                                               |           |  |                |         |                |   |                |      |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Outstanding at end
of year                                     |           |  | 939,667        |         |                | $ | 5.09           |      |       |  | 912,501 |         |          | $ | 5.18 |      |  |  | 851,333  |         |   | $ | 4.57 |     
|                                                               |           |  |                |         |                |   |                |      |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Exercisable at end
of year                                     |           |  | 706,467        |         |                | $ | 4.35           |      |       |  | 704,301 |         |          | $ | 4.71 |      |  |  | 571,222  |         |   | $ | 3.97 |     
|                                                               |           |  |                |         |                |   |                |      |       |  |         |         |          |   |      |      |  |  |          |         |   |   |      |     
|Weighted average
fair value of
options granted
during the year |           |  |               |         |                | $ | 3.45           |      |       |  |        |         |          | $ | 4.16 |      |  |  |         |         |   | $ | 2.37 |     

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Sport Chalet, Inc.

Notes to Financial Statements (continued)

6. Award Plans and Stock Award (continued)

The following table provides certain information with respect to stock
options outstanding and stock options exercisable at year end 2003:

|                  |  |                           |         |                           |  |          |      |           |  |          |     |  |  |          |         |          |  |   |      | 
|----------------- |  | ------------------------- | ------- | ------------------------- |  | -------- | ---- | --------- |  | -------- | --- |  |  | -------- | ------- | -------- |  | - | ---- | 
|                  |  | Stock Options Outstanding |         | Stock Options Exercisable
|                  |  |                           |         |                          
|                  |  |                           |         |                           |  |          |      |           |  | Weighted |     |  |  |          |         | Weighted
|                  |  |                           |         |                           |  | Weighted |      | Average   |  |          |     |  |  | Average 
|Range of Exercise |  |                           |         |                           |  | Average  |      | Remaining |  |          |     |  |  | Exercise
|Prices            |  | Shares                    |         | Exercise Price            |  | g Life   |      | Shares    |  | Price   
|                  |  |                           |         |                           |  |          |      |           |  |         
|Under $3.00       |  |                           | 153,000 |                           |  | $        | 2.38 |           |  |          | 2.9 |  |  |          | 153,000 |          |  | $ | 2.38 | 
|$3.00-$4.99       |  |                           | 547,667 |                           |  |          | 4.56 |           |  |          | 5.7 |  |  |          | 487,667 |          |  |   | 4.54 | 
|$5.00-$6.99       |  |                           | 45,000  |                           |  |          | 5.98 |           |  |          | 5.5 |  |  |          | 22,000  |          |  |   | 5.59 | 
|$7.00-$8.99       |  |                           | 181,000 |                           |  |          | 8.47 |           |  |          | 8.1 |  |  |          | 36,533  |          |  |   | 8.41 | 
|Above $8.99       |  |                           | 13,000  |                           |  |          | 9.16 |           |  |          | 6.0 |  |  |          | 7,267   |          |  |   | 9.15 | 
|                  |  |                           |         |                           |  |          |      |           |  |          |     |  |  |          |         |          |  |   |      | 
|                  |  |                           | 939,667 |                           |  | $        | 5.09 |           |  |          | 5.7 |  |  |          | 706,467 |          |  | $ | 4.35 | 
|                  |  |                           |         |                           |  |          |      |           |  |          |     |  |  |          |         |          |  |   |      | 

Stock Award

During the year ended March 31, 2001, the Principal Stockholder and his
spouse, through their Family Trust, awarded 27,645 registered shares to certain
employees. Award recipients were not required to pay consideration for the
shares. The fair market value of the shares was treated as a capital
contribution by the Principal Stockholder and expensed as compensation to
recipients as of March 31, 2001.

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, 2003 and 2002 the loan balance was $109,905 and $215,468,
respectively.

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7. Employee Retirement Plan

Effective April 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 (provided that
such service represents a minimum of 1,000 hours worked during the year) and
are at least 21 years of age are eligible to participate. Employees may
contribute to the 401(k) Plan up to 24% of their current compensation, 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 $147,291, $123,158 and $118,742 for the years
ended March 31, 2003, 2002 and 2001, respectively.

8. Quarterly Results of Operations (Unaudited)

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

|                           |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        | 
|-------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ | 
|                           |  | First   |        | Second  |  | Third   |        | Fourth 
|                           |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                           |  |         |        |         |  |         |        |        
|Fiscal 2003               
|Net sales                  |  | $       | 51,205 |         |  | $       | 56,327 |         |  | $ | 72,271 |  |  | $ | 58,230 | 
|Gross profit               |  |         | 13,781 |         |  |         | 16,786 |         |  |   | 22,644 |  |  |   | 16,083 | 
|Income from operations     |  |         | 182    |         |  |         | 2,445  |         |  |   | 4,352  |  |  |   | 147    | 
|Net income                 |  |         | 84     |         |  |         | 1,417  |         |  |   | 2,606  |  |  |   | 53     | 
|Basic earnings per share   |  | $       | 0.01   |         |  | $       | 0.21   |         |  | $ | 0.39   |  |  | $ | 0.01   | 
|Diluted earnings per share |  | $       | 0.01   |         |  | $       | 0.20   |         |  | $ | 0.38   |  |  | $ | 0.01   | 

|                           |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        | 
|-------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ | 
|                           |  | First   |        | Second  |  | Third   |        | Fourth 
|                           |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                           |  |         |        |         |  |         |        |        
|Fiscal 2002                |  | $       | 47,949 |         |  | $       | 54,658 |         |  | $ | 67,429 |  |  | $ | 57,312 | 
|Net sales                  |  | $       | 47,949 |         |  | $       | 54,658 |         |  | $ | 67,429 |  |  | $ | 57,312 | 
|Gross profit               |  |         | 14,975 |         |  |         | 15,666 |         |  |   | 19,544 |  |  |   | 15,073 | 
|Income from operations     |  |         | 2,062  |         |  |         | 2,215  |         |  |   | 3,767  |  |  |   | 89     | 
|Net income                 |  |         | 1,283  |         |  |         | 1,324  |         |  |   | 2,185  |  |  |   | 2      | 
|Basic earnings per share   |  | $       | 0.19   |         |  | $       | 0.20   |         |  | $ | 0.33   |  |  | $ | 0.00   | 
|Diluted earnings per share |  | $       | 0.18   |         |  | $       | 0.19   |         |  | $ | 0.31   |  |  | $ | 0.00   | 

9. Other Accrued Expenses

Other accrued expenses consist of the following:

|                                                |  |          |           |      |  |   |           | 
|----------------------------------------------- |  | -------- | --------- | ---- |  | - | --------- | 
|                                                |  | March 31
|                                                |  | 2003     |           | 2002
|                                                |  |          |           |     
|Outstanding gift certificates and store credits |  | $        | 1,973,474 |      |  | $ | 1,613,258 | 
|Accrued sales tax                               |  |          | 1,400,646 |      |  |   | 1,551,435 | 
|Other                                           |  |          | 1,667,633 |      |  |   | 843,515   | 
|                                                |  |          |           |      |  |   |           | 
|Other accrued expenses                          |  | $        | 5,041,753 |      |  | $ | 4,008,208 | 
|                                                |  |          |           |      |  |   |           | 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized, on June 20, 2003.

| |  |                                          |  |                                                                                                                                           
| |  | ---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
| |  | SPORT CHALET, INC.
         (Registrant)
|
| |  | By:                                      |  | /s/ CRAIG L. LEVRA                                                                                                                        
| |  |                                          |  |                                                                                                                                           
| |  |                                          |  | Craig L. Levra, Chairman,
Chief Executive Officer and President
(Principal Executive Officer)                                             
| |  |                                          |  |                                                                                                                                           
| |  | 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/ JOHN R. ATTWOOD                           
| |  |                                               
| |  | John R. Attwood, 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              

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CERTIFICATION

I, Craig Levra, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Sport Chalet, Inc.;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant. as of and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                     



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |  |  |                                     
|------------------- |  |  |  | ------------------------------------
|Date: June 20, 2003 |  |  |  | /s/ Craig Levra                     
|                    |  |  |  |                                     
|                    |  |  |  | Craig Levra,
Chief Executive Officer

43



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##### Table of Contents



CERTIFICATION

I, Howard Kaminsky, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Sport Chalet, Inc.;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed based on
our most recent evaluation, to the registrants auditors and the audit
committee registrants board of directors (or persons performing the
equivalent function):
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |  |  |                                         
|------------------- |  |  |  | ----------------------------------------
|Date: June 20, 2003 |  |  |  | /s/ Howard Kaminsky                     
|                    |  |  |  |                                         
|                    |  |  |  | Howard Kaminsky,
Chief Financial Officer

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EXHIBIT INDEX

|        |  |                                                                                                                                                            |  |  |     |  
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --- | -
|EXHIBIT |  |                                                                                                                                                            |  |  |     |  
|NUMBER  |  | DESCRIPTION                                                                                                                                                |  |  |     |  
|3.1     |  | Certificate of Incorporation.                                                                                                                              |  |  | (1  | )
|        |  |                                                                                                                                                            |  |  |     |  
|3.2     |  | Bylaws.                                                                                                                                                    |  |  | (1  | )
|        |  |                                                                                                                                                            |  |  |     |  
|3.2.1   |  | Amendment to Bylaws effective August 1, 2001.                                                                                                              |  |  | (9  | )
|        |  |                                                                                                                                                            |  |  |     |  
|4.1     |  | Form of Certificate for the Common Stock.                                                                                                                  |  |  | (1  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.1    |  | 1992 Incentive Award Plan of the Company.                                                                                                                  |  |  | (2  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.1.1  |  | Amendments to 1992 Plan                                                                                                                                    |  |  |    |  
|        |  |                                                                                                                                                            |  |  |     |  
|10.1.2  |  | Amendments to 1992 Plan                                                                                                                                    |  |  |    |  
|        |  |                                                                                                                                                            |  |  |     |  
|10.2    |  | Form of Nonemployee Director Stock Option Incentive Award Agreement.                                                                                       |  |  | (2  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.3    |  | Form of Key Employee Stock Option Incentive Award Agreement.                                                                                               |  |  | (2  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.4    |  | Form of Director and Officer Indemnification Agreement.                                                                                                    |  |  | (2  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.5    |  | Form of Employee Stock Option Incentive Award Agreement.                                                                                                   |  |  | (3  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.6    |  | Huntington Beach store lease between the Company and Huntington Beach Properties, Inc., a
California Corporation, dated August 25, 1994.                   |  |  | (4  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.7    |  | Business Loan Agreement dated as of June 19, 1998, between the Company and Bank of America
National Trust and Savings Association.                         |  |  | (5  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.8    |  | Lease for Porter Ranch store dated as of May 7, 1999, between the Company and North San
Fernando Valley Properties, Inc.                                   |  |  | (6  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.9    |  | Employment Agreement dated as of April 1, 2000, between the Company and Norbert J. Olberz.                                                                 |  |  | (7  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.10   |  | Amendment No. 2 to Business Loan Agreement dated as of June 19,1998, between the Company
and Bank of America, National Trust and Savings Association.      |  |  | (8  | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.11   |  | Amendment No. 3 to Business Loan Agreement dated as of November 20, 2001, between the
Company and Bank of America, National Trust and Savings Association. |  |  | (10 | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.12   |  | Amendment No. 4 to Business Loan Agreement dated as of June 10, 2002, between the Company
and Bank of America, National Trust and Savings Association.     |  |  | (11 | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.13   |  | Lease for La Canada office dated a of October 1, 2002,between the Company and La Canada
Properties, Inc.                                                   |  |  | (12 | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.14   |  | Employment agreement dated as of November 15, 2002, between the Company and Craig L. Levra.                                                                |  |  | (13 | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.15   |  | Employment agreement dated as of November 15, 2002, between the Company and Howard K.
Kaminsky.                                                            |  |  | (13 | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.16   |  | Employment agreement dated as of November 15, 2002, between the Company and Dennis D.
Trausch.                                                             |  |  | (13 | )
|        |  |                                                                                                                                                            |  |  |     |  
|10.17   |  | Employment agreement dated as of November 15, 2002, between the Company and Claudia G.
Reich.                                                              |  |  | (13 | )

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|        |  |                                                                                                                                                           |   |  |  | 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------- | - |  |  | 
|EXHIBIT |  |                                                                                                                                                           |   |  |  | 
|NUMBER  |  | DESCRIPTION                                                                                                                                               |   |  |  | 
|23      |  | Consent of Independent Auditors                                                                                                                           |  |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|99.1    |  | Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                     |  |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|       |  | Filed as part of this Annual Report on Form 10-K                                                                                                          |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(1)     |  | Incorporated by reference to Exhibits 3.1, 3.2 and 4.1 to
the Companys Registration Statement on Form S-1
(Registration Statement No. 33-53120).         |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(2)     |  | Incorporated by reference to Exhibits 10.17 through 10.23,
to the Companys Registration Statement on Form S-1
(Registration Statement and No. 33-53120). |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(3)     |  | Incorporated by reference to Exhibits 4.5 to the Companys
Registration Statement on Form S-8 (Registration Statement
and No. 33-61612).                  |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(4)     |  | Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ending
September 30, 1994.                       |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(5)     |  | Incorporated by reference to Exhibit 10.37, 10.38 and 10.39
to the Companys Annual Report on Form 10-K for the fiscal
year ended March 31, 1998.         |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(6)     |  | Incorporated by reference to Exhibit 10.41 to the Companys
Annual Report on Form 10-K for the fiscal year ended June
30, 1999.                           |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(7)     |  | Incorporated by reference to Exhibit 10.45 through Exhibit
10.49 to the Companys Annual Report on Form 10-K for the
fiscal year ended June 30, 2000.     |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(8)     |  | Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ending June
30, 2000.                            |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(9)     |  | Incorporated by reference to Exhibit 3.2.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ending June
September 30, 2001.                 |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(10)    |  | Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ending
December 31, 2001.                        |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(11)    |  | Incorporated by reference to Exhibits 10.54 and 10.55 to the
Companys Annual Report on Form 10-K for the fiscal year
ended June 21, 2002.                |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(12)    |  | Incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ending
September 30, 2002.                       |   |  |  | 
|        |  |                                                                                                                                                           |   |  |  | 
|(13)    |  | Incorporated by reference to Exhibits 10.1, 10.2, 10.3 and
10.4 to the Companys Quarterly Report on Form 10-Q for the
quarter ending December 31, 2002.  |   |  |  | 

46