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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM      TO      

Commission File Number: 0-20736

Sport Chalet, Inc.

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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.

Number of shares outstanding of the registrant’s common stock as of December 31, 2002: 6,618,334

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SPORT CHALET, INC.

Index to Form 10-Q

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Part I – FINANCIAL INFORMATION

     Item 1. Financial Statements.

SPORT CHALET, INC.

CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

See accompanying notes.

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SPORT CHALET, INC.

CONDENSED BALANCE SHEETS

See accompanying notes.

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SPORT CHALET, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying notes.

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SPORT CHALET, INC.

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

1.

Basis of Presentation

     The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of operations for the periods presented have been included.

     The financial data at March 31, 2002 is derived from audited financial statements which are included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2002, and should be read in conjunction with the audited financial statements and notes thereto. Interim results are not necessarily indicative of results for the full year.

     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.

2.

Earnings per Share

     Earnings per share, basic, is computed based on the weighted average number of common shares outstanding for the period. Earnings per share, diluted, is computed based on the weighted average number of common and potentially dilutive common equivalent shares outstanding for the period. A reconciliation is as follows:

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3.

New Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Additionally, Statement 142 requires that goodwill included in the carrying value of equity method investments no longer be amortized. The Company adopted Statement 142 beginning in the first quarter of fiscal 2003 and it did not have a material impact on its results of operations.

     In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations” for a disposal of a segment of a business. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company adopted SFAS 144 in the first quarter of fiscal 2003 and it did not have a material impact on its results of operations.

     In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure” (SFAS 148), which amends SFAS No. 123, “Accounting for Stock-Based Compensation”. Statement 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of Statement 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company does not plan on changing its method of accounting for stock-based employee compensation and will comply with the new disclosure requirements beginning with its annual report and Form 10-K for the year ending March 31, 2003.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Except for the historical information contained herein, the matters addressed in this Item 2 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. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed below under the heading “Factors That May Affect Future Results” and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by the Company’s management. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made on this Quarterly Report on Form 10-Q are made pursuant to the Act.

     The following should be read in conjunction with the Company’s financial statements and related notes thereto provided under Item 1–Financial Statements above.

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).

     Three Months Ended December 31, 2002 Compared to Three Months Ended December 31, 2001. Sales increased from $67.4 million for the three months ended December 31, 2001 to $72.3 million for the same period this year, a 7.2% increase. The increase is the result of opening two new stores in late November 2002, aided by a comparable store sales increase of 2.2%. Even with the increase, management believes that discretionary spending continues to be impacted by weak consumer confidence in reaction to the lack of economic recovery. Comparable store sales are based upon stores opened throughout both periods.

     Gross profit as a percent of sales increased from 29.0% for the three months ended December 31, 2001 to 31.3% for the same period this year primarily due to a tight inventory management focus. This focus reduced the need for promotional pricing as compared to the same period last year producing a near 200 basis point improvement in merchandise margins. Partially offsetting the margin gains is increased occupancy costs resulting from infrastructure improvements consisting of the opening of a new distribution center in February 2002.

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     Selling, general and administrative expenses as a percent of sales increased from 23.4% for the three months ended December 31, 2001 to 25.3% for the same period this year. The increase is primarily the result of increased professional fees and incentive based labor costs as a percent of sales.

     Interest expense was $148,000 for the period ended December 31, 2002, compared to $101,000 for the period ended December 31, 2001, due to the increased use of the Company’s credit facility in the current period as compared to the same period last year.

     The effective income tax rate was 40.2% for the three months ended December 31, 2001, compared to 38.0% for the same period this year. The decrease is the result of a reduced blended state income tax rate, from the effects of the Company’s expansion into Nevada which has no income tax and qualifying tax credits from California not earned in the same period last year.

     Net income increased 18.2% from $2.2 million, or $0.31 per diluted share, for the three months ended December 31, 2001 to $2.6 million, or $0.38 per diluted share, for the same period this year, primarily as a result of increased gross profit resulting from higher sales and better inventory management.

     Nine Months Ended December 31, 2002 Compared to Nine Months Ended December 31, 2001. Sales increased from $170.0 million for the nine months ended December 31, 2001 to $179.8 million for the same period this year, a 5.7% increase. The increase is the result of opening three new stores in the period last year and two new stores in late November 2002. Comparable store sales remained flat compared to the same period last year, as the results from the all important holiday selling period reflected a positive change from the negative comparable store sales experienced in the first half of the fiscal year. Comparable store sales are based upon stores opened throughout both periods.

     Gross profit as a percent of sales increased slightly from 29.5% for the nine months ended December 31, 2001 to 29.6% for the same period this year. In the current period an 80 basis point reduction in markdowns was offset by the increased occupancy costs resulting from infrastructure improvements consisting of the opening of a new distribution center in February 2002.

     Selling, general and administrative expenses as a percent of sales increased from 24.8% for the nine months ended December 31, 2001 to 25.7% for the same period this year. Increased Southern California utility expense combined with increases in professional fees and incentive based labor, as a percent of sales, were the primary factors causing the change in selling and administrative expenses this period as compared to the same period last year.

     Interest expense was $272,000 for the period ended December 31, 2002, compared to $30,000 for the period ended December 31, 2001, due to the increased use of the Company’s credit facility in the current period compared to the same period last year.

     The effective income tax rate was 40.4% for the nine month period ending December 31, 2001, compared to 38.8% for the same period this year. The decrease is the result of a reduced blended state income tax rate, from the effects of the Company’s expansion into Nevada which has no income tax and qualifying tax credits from California not earned in the same period last year.

     Net income decreased from $4.8 million, or $0.68 per diluted share, for the nine months ended December 31, 2001 to $4.1 million, or $0.59 per diluted share, for the same period this year, primarily as a result of increased selling, general and administrative expenses.

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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. Management believes that these sources will be sufficient to fund currently anticipated cash requirements for the foreseeable future.

     Net cash provided by operating activities is the result of net income, adjusted for depreciation and amortization, and increases in accounts payable partially offset by inventory purchases. For the nine months ended December 31, 2002 $8.6 million was generated compared to $6.2 million for the same period last year.

     Inventories increased by $15.0 million and $17.0 million for the nine months ended December 31, 2002 and 2001, respectively, compared to the respective year-end balances primarily due to the seasonal build-up of winter related inventory. Inventory at December 31, 2002 is $3.5 million greater than the same period last year primarily as a result of the opening of two stores since the end of this period in the prior year. The Company evaluates its inventory on a per store basis and in the face of inconsistent sales trends it has focused on inventory management. As a result the average inventory per store decreased by 1.7% from December 31, 2002 as compared to December 31, 2001.

     Historically accounts payable has increased as inventory increases. In fiscal 2002, invested cash built-up in prior years was used to fund the Company’s expansion plans causing a bank overdraft of $6.5 million, which represents the total of checks in transit in excess of cash on hand. For the nine months ended December 31, 2002 and 2001, accounts payable combined with bank overdraft increased $7.5 million and $14.6 million, respectively, primarily as a result of increased inventory levels and the timing of payments to vendors.

     The timing of income tax payments provided $1.9 million of cash for the nine months ended December 31, 2002 versus having used $1.2 million for the same period last year. The improvement was due to changes in the tax code allowing for accelerated depreciation after September 11, 2001 and the relative change in quarterly taxable income as compared to the same period last year.

     Other accrued expenses increased $5.3 million for the nine months ended December 31, 2002, compared to an increase of $2.4 million for the same period last year, as expenses related to the settlement of the class action lawsuit were partially accrued in the nine months ended December 31, 2000, and subsequently paid in the nine months ended December 31, 2001.

     Net cash used in investing activities for the nine months ended December 31, 2002 was $5.1 million, resulting from capital expenditures primarily for two new stores opened in November 2002 and the relocation of the corporate headquarters occupied in October 2002. For the same period last year net cash used in investing activities was $10.2 million, primarily from capital expenditures to enhance merchandising presentation in the Company’s existing stores, capital expenditures related to the Company’s new distribution center and the opening of three new stores. Management has been cautious with its capital expenditures in reaction to lackluster economic conditions; several projects planned for the current year have been deferred to the future periods.

     Net cash provided by financing activities reflects advances and repayment of borrowings under the Company’s revolving credit facility. As of December 31, 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, increasing to $30 million for the period October 1, 2002 through December 31, 2002, 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 1/4% (4.5% at December 31, 2002) 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 amended 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 as of March 31, 2002:

     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 were declared on Common Stock in fiscal 2002. 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 of the Company’s Annual Report on Form 10-K for the year ended March 31, 2002, 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 consolidated financial statements

     Inventory Valuation. Merchandise inventories are stated at the lower of cost (first-in, first-out determined by the retail method of accounting) or market. The Company considers cost to include

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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.

     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 get redeemed. Accordingly, the Company periodically adjusts the carrying value of the gift certificate liability. The Company monitors redemptions 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.

Factors That May Affect Future Results

     The statements which are not historical facts contained in this Quarterly Report on Form 10-Q are “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, that involve risks and uncertainties. These risks and uncertainties include, but are not limited to, those set forth below.

     Economic Conditions. 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.

     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. 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.

     Single Distribution Center. The Company has a single distribution center and if there is a natural disaster or other serious disruption at the facility, merchandise may be lost or undeliverable to our stores, thereby, reducing sales and profitability.

     Expansion Plan. The Company’s continued growth is dependent to a significant degree upon its ability to open new stores on a profitable basis. The Company’s ability to expand will depend, in part, on business conditions and the availability of satisfactory store locations based on local

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competitive conditions, site availability and cost, and the Company’s ability to provide and maintain high service levels and quality brand merchandise at competitive prices. In addition, 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 effect 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.

     Seasonality. The Company’s business is seasonal in nature. As is typical with other sporting goods retailers, the Company’s sales volume increases significantly during the Christmas holiday season and the peak ski and snowboard season generally corresponds to the months of November, December and January. Therefore, the Company’s results of operations are likely to vary during its fiscal year. Historically the Company’s operating results have been influenced by the quantity and timing of snowfall at the resorts frequented by those living in Southern California. An early seasonal snowfall often influences sales as it generally extends the demand for winter related merchandise while a late snowfall will have the opposite effect. Suppliers in the ski and snowboard industry require purchasing commitments in April for a fall delivery. If snowfall does not provide an adequate base, occurs late in the season, or if sales do not meet expectations, 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.

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     Closely Controlled Stock. At January 29, 2003, Norbert Olberz, the Company’s founder, Chairman Emeritus, director and principal stockholder (the “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.

     Stock Price. 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 stock.

     Item 3. Quantitative and Qualitative Disclosures About Market Risk

     The Company’s exposure to interest rate risk consists primarily of borrowings under its credit facility that bears interest at floating rates (primarily LIBOR rates). The impact on earnings or cash flows during the next fiscal year from a one percentage point change in the interest rate would not be significant.

     Item 4. 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 Company (including its consolidated subsidiaries) 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.

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Part II — OTHER INFORMATION

Part II – OTHER INFORMATION

     Item 1. 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 2. Changes in Securities and Use of Proceeds.

     None

     Item 3. Defaults Upon Senior Securities.

     Not Applicable

     Item 4. Submission of Matters to a Vote of Securities Holders.

     None

     Item 5. Other Information.

Stockholder Proposals

     The proxy materials for the 2002 annual meeting of the stockholders to be held on August 1, 2002 were mailed to stockholders of the Company on June 21, 2002. Under certain circumstances, stockholders are entitled to present proposals at stockholders meetings. Any such proposal to be included in the proxy statement for the Company’s 2003 annual meeting of stockholders must be submitted by a stockholder prior to February 22, 2003 in a form that complies with applicable regulations. In the event a stockholder proposal is not submitted to the Company prior to May 7, 2003, the proxies solicited by the Board of Directors for the 2003 annual meeting of the stockholders will confer authority on the holders of the proxy to vote the shares in accordance with their best judgment and discretion if the proposal is presented at the 2003 annual meeting of stockholders without any discussion of the proposal in the proxy statement for such meeting.

Changes in Control

     On December 20, 2002, Norbert J. Olberz, the founder, Chairman Emeritus and principal stockholder of Sport Chalet, Inc. (the “Company”), and his wife, Irene M. Olberz, through The Olberz Family Trust, a revocable grantor trust (the “Trust”), granted to SC Option, LLC, a California limited liability company (the “LLC”), an option (the “Option”) to purchase, under certain circumstances, all of the shares (currently 4,351,972) of the Company’s Common Stock (the “Option Shares”) held by the Trust, pursuant to an Option Agreement dated as of December 20, 2002 (the “Option Agreement”), between the LLC and Norbert J. Olberz and Irene M. Olberz (the “Trustees”) as co-trustees of the Trust. The managers of the LLC currently are Craig L. Levra, the Company’s Chairman of the Board, President, and Chief Executive Officer, and Howard K. Kaminsky, the Company’s Executive Vice President-Finance and Chief Financial Officer, who hold 59.1% and 39.4%, respectively, of the LLC. The members of the LLC are Messrs. Levra and Kaminsky and Dennis D. Trausch, Claudia G. Reich and Jeff Lichtenstein, the Company’s Executive Vice President-Growth and Development, Senior Vice President-Marketing and Advertising, and Vice President-Loss Prevention

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and Risk Management, each of whom holds 0.5% of the LLC. The Option is exercisable upon the death of Norbert J. Olberz. The LLC and the Trustees entered into the Option Agreement to provide for the smooth transition of control of the Issuer in the event of the death of Mr. Olberz, the Company’s founder and Chairman Emeritus.

     Pursuant to the terms of Option Agreement, the LLC acquired the Option for $1,000 to purchase all, but not less than all, of the Option Shares at any time during the period of 181 days from and after the date of death of Mr. Olberz (the “vesting” or “measurement” date). Prior to the vesting date, the Trustees are permitted to encumber the Option Shares and to sell Option Shares privately or in the market or to transfer Option Shares by gift or otherwise as long as the Trust continues to hold at least 51% of the outstanding Common Stock on a fully diluted basis. The purchase price per share for the Option Shares is equal to the closing price of the Common Stock on the day preceding the vesting date.

     The Option Agreement also provides the LLC with a right to negotiate with the Trustee if the Trustee desires to entertain or effect, or commences any activities that might reasonably be expected to result in, any “Acquisition Proposal” (as defined in the Option Agreement). The Option Agreement is subject to termination upon certain events, including the mutual consent of the Trust and the LLC or in the event Craig L. Levra ceases to be the Chief Executive Officer of the Company for any reason. In addition, the purchase of the Option Shares by the LLC upon exercise of the Option is subject to certain conditions, including the ability of the LLC to obtain sufficient financing to purchase the Option Shares. The Option Agreement was negotiated directly between Norbert J. Olberz and the members of the LLC.

     For more information, see the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on December 23, 2002.

     Item 6. Exhibits and Reports on Form 8-K.

(a)

Exhibits:

	(b)		Reports on Form 8-K:
			During the quarter for which this Report on Form 10-Q is filed, the Company filed a Report on Form 8K, dated December 20, 2002, with respect to Item 1. Changes in Control of Registrant.

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized officer and principal financial officer.

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CERTIFICATION

               I, Craig Levra, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Sport Chalet, Inc.;

2.     Based on my knowledge, this quarterly 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 quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 we have:

     a) designed such disclosure controls and procedures to ensure that material information relativing to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly 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 quarterly 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 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 quarterly 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.

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Table of Contents

CERTIFICATION

               I, Howard Kaminsky, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Sport Chalet, Inc.;

2.     Based on my knowledge, this quarterly 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 quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 we have:

     a) designed such disclosure controls and procedures to ensure that material information relativing to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly 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 quarterly 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 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 quarterly 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.

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