-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NdqCmToc6TOPp6iv4D8jSbo7QhJBQ9klLbuTOUbu2tJATsLZKQUsSHJER78UrwNq gTeDQa9RmYhwvVhEd2WhZg== 0001144204-07-031529.txt : 20070613 0001144204-07-031529.hdr.sgml : 20070613 20070613060608 ACCESSION NUMBER: 0001144204-07-031529 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20070401 FILED AS OF DATE: 20070613 DATE AS OF CHANGE: 20070613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPORT CHALET INC CENTRAL INDEX KEY: 0000892907 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 954390071 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20736 FILM NUMBER: 07916303 BUSINESS ADDRESS: STREET 1: ONE SPORT CHALET DRIVE CITY: LA CANADA STATE: CA ZIP: 91101 BUSINESS PHONE: 8187902717X256 MAIL ADDRESS: STREET 1: ONE SPORT CHALET DRIVE CITY: LA CANADA STATE: CA ZIP: 91011 10-K 1 v078142_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

For the fiscal year ended April 1, 2007

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

For the transition period from to .

Commission file number: 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 Cañada, 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:

Title of Each Class:		Name of Each Exchange on Which Registered:
Class A Common Stock, $0.01 par value		The NASDAQ Stock Market LLC
Class B Common Stock, $0.01 par value		The NASDAQ Stock Market LLC

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

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 o 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. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

The aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates of the registrant as of October 1, 2006, was approximately $41.5 million based upon the closing sale prices of Class A Common Stock and Class B Common Stock on that date.

At June 12, 2007, there were 12,332,654 shares of Class A Common Stock outstanding and 1,741,489 shares of Class B Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the 2007 annual meeting of stockholders are incorporated by reference into Part III of this Report. The proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended April 1, 2007.

TABLE OF CONTENTS

Item		Page

PART I

1.	Business	1

1A.	Risk Factors	7

1B.	Unresolved Staff Comments	12

2.	Properties	13

3.	Legal Proceedings	14

4.	Submission of Matters to a Vote of Security Holders	14

PART II

5.	Market for Registrant’s Common Equity, Related Stockholder Matters and
	Issuer Purchases of Equity Securities	15

6.	Selected Financial Data	17

7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

7A.	Quantitative and Qualitative Disclosures About Market Risk	30

8.	Financial Statements and Supplementary Data	30

9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30

9A.	Controls and Procedures	31

9B.	Other Information	31

PART III

10.	Directors, Executive Officers and Corporate Governance	32

11.	Executive Compensation	32

12.	Security Ownership of Certain Beneficial Owners and Management and
	Related Stockholder Matters	32

13.	Certain Relationships and Related Transactions, and Director Independence	32

14.	Principal Accountant Fees and Services	32

PART IV

15.	Exhibits and Financial Statement Schedules	33

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 forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements relating to trends in, or representing management’s beliefs about, our future strategies, operations and financial results, as well as other statements including words such as “believe,” “anticipate,” “expect,” “estimate,” “predict,” “intend,” “plan,” “project,” “will,” “could,” “may,” “might” or any variations of such words or other words with similar meanings. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on the Company. You are cautioned not to place undue reliance on forward-looking statements as predictions of actual results. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual results may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties which are discussed in further detail under “Item 1A. Risk Factors.” We do not assume, and specifically disclaim, any obligation to update any forward-looking statements, which speak only as of the date made.

ITEM 1. BUSINESS

General

Sport Chalet, Inc. (referred to as the “Company,” “Sport Chalet,” “we,” “us,” and “our” unless specified otherwise), is a leading operator of 45 full-service, specialty sporting goods stores in California, Nevada and Arizona. As of April 1, 2007, we had 32 locations in Southern California, seven in Northern California, one in Central California, two in Nevada and three in Arizona. These stores average approximately 40,000 square feet in size. In addition, we operate a retail e-commerce store through GSI Commerce, Inc. at www.sportchalet.com. Originally we were incorporated in California and we reincorporated as a Delaware corporation in 1992. Our executive offices are located at One Sport Chalet Drive, La Cañada, California 91011, and our telephone number is (818) 949-5300.

Operating History and Growth Plans

In 1959, Norbert Olberz, our founder (the “Founder”), purchased a small ski and tennis shop in La Cañada, California. A focus on providing quality merchandise with outstanding customer service was the foundation of Norbert’s vision. As a true pioneer in the industry, Norbert’s mission was three simple things. To “see things through the eyes of the customer”; “to do a thousand things a little bit better”; and to focus on “not being the biggest, but the best.” Over the last 48 years, Sport Chalet has grown into a chain of 45 specialty sporting goods stores serving California, Nevada and Arizona.

Store openings are expected to have a favorable impact on sales volume, but will negatively affect profit in the short term. New stores tend to have higher costs in the early years of operation, due primarily to increased promotional costs and lower sales on a per employee basis until the store matures. As the store matures, sales tend to level off and expenses decline as a percentage of sales. Our stores generally require three to four years to attract a stable, mature customer base. We estimate the cash required to open an average new store is approximately $2.5 million consisting primarily of the investment in inventory (net of average vendor payables), the cost of leasehold improvements (net of landlord reimbursement), fixtures and equipment and pre-opening expenses, such as pre-opening rent and the costs associated with training employees and stocking the store. Cash requirements for opening costs of each new store can vary significantly depending on how much the landlord has agreed to contribute to our required improvements.

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

Stores and Merchandising

Our prototype store is 42,000 square feet in size and showcases 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. Each shop is staffed by trained sales associates with expertise in the merchandise they sell, permitting us to offer our customers a high level of product knowledge and service from the beginner to the professional sports enthusiast.

Our prototype format boasts a natural and outdoor-feel color scheme, clear-coated fixtures, 30-foot clear ceilings, large sport-specific graphics, pool for SCUBA and watersports instruction and demonstrations, and a 100 foot shoe wall, among other improvements. In coming years we plan to retro-fit certain mature stores to conform to the prototype. During fiscal 2008, two stores will be remodeled, with expected completion dates in the fall of 2008. For both new stores and remodels, we continually update our prototype format to remain competitive. While we have taken advantage of unusual building layouts in the past, and when appropriate may do so in the future, we will utilize as many standard prototype design elements as possible. We evaluate stores for remodel based on each store’s age and competitive situation, as well as how much the landlord will contribute to our required improvements. Future store remodeling plans will depend upon several factors, including, but not limited to, general economic conditions, competitive trends and the availability of capital. With the scheduled new store openings and remodels, 71% of our store base will be based on our prototype.

Our stores feature a number of distinct, specialty sports and lifestyle categories, 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 core specialty merchandise such as snowboarding, mountaineering and SCUBA. The merchandise appeals to both experts and moderate users. In addition, our stores offer over 50 services for the serious sports enthusiast, including backpacking, canyoneering, and kayaking instruction, custom golf club fitting and repair, ski rental and repair, SCUBA training and certification, SCUBA boat charters, team sales, racquet stringing, and bicycle tune-up and repair. Although the revenues generated by these support services are not material, these services further differentiate us from our competitors. Our stores are open seven days a week, typically from 9:30 a.m. to 9:30 p.m. Monday through Friday, 9:00 a.m. to 9:00 p.m. Saturday, and 10:00 a.m. to 7:00 p.m. on Sunday.

The following table illustrates our merchandise assortment of hardlines, which are durable items, and softlines, which are non-durable items such as apparel and footwear, as a percentage of total net sales for each of the last three fiscal years:

	Fiscal Year
	2007		2006		2005
Hardlines	53	%	52	%	53	%
Apparel	27	%	29	%	28	%
Footwear	20	%	19	%	19	%
Total	100	%	100	%	100	%

We operate our online store through GSI Commerce, Inc. (“GSI”) at www.sportchalet.com. GSI creates and operates all aspects of the www.sportchalet.com shopping experience, including fulfillment and purchasing, while remaining transparent to the customer. We receive a license fee based on a percentage of sales generated by the website. The licensing fee is not material to total revenues.

Seasonality

The market for retail sporting goods is seasonal in nature. As with many other retailers, our business is heavily affected by sales of merchandise during the Holiday season. In addition, our product mix has historically emphasized cold weather sporting goods merchandise, particularly winter-sports related products. In recent years, our third fiscal quarter, which includes the Holiday season, represented approximately 30% of our annual net sales. Winter-related products represent approximately 17% of our annual net sales and have ranged from 27% to 31% of our fourth fiscal quarter. We anticipate this seasonal trend in sales will continue. We respond to changes in mid-season weather by maintaining flexibility in product placement at the stores and the marketing of product offerings. See “Item 1A. Risk Factors - Seasonal fluctuations in the sales of sporting goods could cause our operating results to suffer.”

Marketing and Advertising

We generate all of our marketing and advertising campaigns in-house, with production support from outside vendors as needed. The campaigns are designed to reflect our strategic direction through our brand and product offerings, as well as communicate a focused and consistent theme/event calendar through media including direct mail, radio, billboards, newspaper, magazines and the internet. Through the Team Sales Division, we reach out to communities in which our stores do business, contributing to local teams and leagues. Our advertising leverage has been boosted by vendor payments under cooperative advertising arrangements as well as vendor participation in sponsoring events, clinics and athletes’ appearances. We are in the process of rolling out our customer relationship program, “Action Pass”, using NSB’s CRM software, the pilot began in spring 2006 in select markets and is expected to be completely implemented in fall 2007. We are directly marketing to individual customers based on their personal shopping information.

Purchasing and Distribution

In order to provide a full line of specialty and sporting goods brands and a wide selection, we purchase merchandise from over 1,000 vendors. Vendor payment terms typically range from 30 to 120 days from our receipt, and there are no long-term purchase commitments. Our largest vendor, Nike, Inc., accounted for approximately 8% of our total inventory purchases for fiscal 2007 and 2006, respectively.

We operate one distribution center, a 326,000 square foot facility located in Ontario, California. The distribution center serves as the primary receiving, distribution and warehousing facility. A minimal amount of merchandise is shipped directly by vendors to our stores. Most of the product received at the distribution center is processed by unpacking and verifying the contents received and then sorting the contents by store for delivery. Some of the product received at the distribution center is pre-packaged and pre-ticketed by the vendor so it can be immediately cross-docked to trucks bound for the stores. Due to the efficiencies cross-docking creates, we encourage vendors to pre-package their merchandise in a floor-ready manner. Some of the merchandise is held at the distribution center for future allocation to the stores based on current sales trends as directed by our computerized replenishment and allocation systems to optimize inventory levels. We believe that the advantages of a single distribution center include reduced individual store inventory levels and better use of store floor space, timely inventory replenishment of store inventory needs, consolidated vendor returns, and reduced transportation costs. Common carriers deliver merchandise to our stores.

We use a sophisticated computerized replenishment system from JDA Software Group, Inc. The JDA E3 system consists of three modules: (i) warehouse replenishment, which manages purchases from vendors, (ii) store replenishment, which manages shipments from the warehouse to stores, and (iii) network optimization, which synchronizes the two systems. In addition, we utilize the JDA Consumer Outlook and Pinpoint seasonal profile software to help identify, create and manage the seasonal trends of our merchandise. Currently, we utilize the E3 system to manage approximately 47% of our total inventory. The remaining 53% of the inventory purchases historically was managed by traditional methods conducted by the buying staff.

During fiscal 2006, for merchandise planning and allocation we began using the SAS Marketmax software solution. The software solution includes merchandise planning, open-to-buy management, assortment planning, store clustering, high performance forecasting, performance analysis and allocation. We have converted our merchandise planning and open-to-buy management from a traditional spreadsheet-based, buyer-managed process to the robust functionality of Marketmax which is managed by our new merchandise planning department. With the deployment of the Marketmax allocation solution, we now allocate merchandise to our stores based on trends and statistical modeling while increasing our flow-through at our distribution center. We believe this technology package will continue to allow us to better plan and forecast our business and leverage the information to create optimal store assortments and allocate merchandise in a more precise and proactive manner.

During fiscal 2008, we are planning on implementing CRS’ EnterpriseSelling software which will replace our manual processes of locating and transferring products for a customer. This software will allow us to quickly close a sale and ship merchandise from our optimal location to the customer’s preferred destination.

Information Systems

Historically we have used a “best of breed” approach to information systems. All systems communicate with a legacy system that is the centralized data repository and the primary financial system. Our inventory systems track purchasing, sales and inventory transfers down to the stock keeping unit or “SKU” level and allow us to manage by identifying individual SKU activity by location and projecting trends and replenishment needs on a timely basis. Although we believe these systems have historically enabled us to increase margins by reducing inventory and markdowns while strengthening our in-stock positions, as part of our comprehensive review of internal control over financial reporting while also enhancing our ability to grow we feel the legacy system should now be replaced.

In October 2006, we selected mySAP2005 ERP from SAP as the replacement system and the implementation process began. We are planning to go live with SAP before the fiscal 2008 Holiday season begins. Selecting SAP is a strategic decision focusing future resources on a single-vendor ERP solution in lieu of the historical “best of breed” approach. Our analysis has revealed that recent improvements in SAP’s solutions provide robust retail functions and we anticipate that future releases will provide additional support for improved retail business processes. This milestone decision will permit us to enjoy the efficiencies of a fully integrated solution without the traditional overhead generally associated with interfacing systems in a multi-vendor solution. BearingPoint, a global management and technology consulting company known for their deep industry experience, assisted with the software selection and is helping with the implementation.

The legacy system currently operates on a Sun computer. Store systems utilize the Retail Store 3.0 Suite of applications from CRS Retail Systems that were upgraded to the current release in the summer of 2006, including a Returns Management application, and new IBM SurePOS hardware. A custom rental program has been added to the store system. Merchandise replenishment is controlled by E3 software from JDA, running on an IBM iSeries. The processing of debit/credit card authorization allows on-line debit and signature capture. The distribution center uses warehouse management software from HighJump Software (a 3M Company). NSB’s CRM software handles data collection for customer purchases via our Action Pass program.

Recapitalization Plan

In September 2005, our stockholders approved a recapitalization plan designed to facilitate the orderly transition of control from our Founder to certain members of management and to increase financial flexibility for the Company and its stockholders. The recapitalization plan consisted of (1) the reclassification of each outstanding share of Common Stock as 0.25 share of Class B Common Stock, (2) the issuance of seven shares of Class A Common Stock for each outstanding share of Class B Common Stock and (3) the transfer of a portion of the Founder’s ownership to Craig Levra, Chairman and Chief Executive Officer, and Howard Kaminsky, Executive Vice President - Finance, Chief Financial Officer and Secretary. The recapitalization doubled our total number of shares outstanding. Therefore, the recapitalization plan had the same effect on earnings per share as a 2-for-1 stock split. Shares transferred by the Founder to Messrs. Levra and Kaminsky were treated as a contribution to the Company’s capital with the offsetting charge as compensation expense. The effect on net income is as follows:

	Fiscal year ended
	March 31, 2006
Compensation expense	$	8,221,826
Professional fees		471,388
		8,693,214
Income tax benefit		(854,000	)
Effect on net income	$	7,839,214

Trademarks and Trade Names

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

Industry and Competition

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

·	specialty stores, such as REI, Sportsman’s Warehouse, Finish Line, Chicks and Adventure 16;

·	full-line sporting goods chains, such as The Sports Authority and Dick's Sporting Goods;

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

·	mass merchandisers, club stores, discount stores and department stores, such as Wal-Mart, Costco, Target and Kohl’s, Macy's and Nordstroms; and

·	Internet retailers and catalog merchandisers, such as Bass Pro, Cabela’s and Sportsman’s Guide.

Many of these competitors have greater financial resources than we do, or better name recognition in regions into which we seek to expand. Our industry is dominated by sporting goods superstore retailers, i.e., full-line sporting goods chains with stores typically larger than 40,000 square feet. 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. Many of these competitors have an online store, offering customers easy access to merchandise.

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

Our format takes advantage of several significant trends and conditions in the sporting goods industry. These conditions include the size of the industry, fragmented competition, 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 April 1, 2007, we had a total of approximately 3,600 full and part-time employees, 3,200 of whom were employed in our stores and 400 of whom were employed in warehouse and delivery operations or in corporate office positions. None of our employees are covered by a collective bargaining agreement. We encourage and welcome the communication of our employees’ ideas, suggestions and concerns and believe this contributes to our strong employee relations. A typical store has approximately 75 employees, of whom 20 to 40 are in the store at any given time on a normal operating basis. Generally, each store employs a general manager, two to three assistant managers, who along with area managers and department heads supervise the sales associates in customer service, merchandising, and operations. Additional part-time employees are typically hired during the Holiday and other peak seasons.

We are committed to the growth and training of our employees in order to provide “The Experts” in product knowledge and service to our customers. Our “Certified Pro” program encourages employees to attend product-line-specific clinics and receive hands-on training to improve technical product and service expertise. Only after completing all of the clinics and training, in addition to passing specific testing, may an associate be considered a Certified Pro. Certified Pro certification is offered in 20 different service disciplines and is a requirement for new associates in their areas of expertise. Being knowledgeable and informed allows our work force to meet the customer's needs and enhance their shopping experience.

Additional Information

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

The public may read any of the items we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding the Company and other issuers that file electronically with the SEC at www.sec.gov.

ITEM 1A. RISK FACTORS

Our short- and long-term success is subject to many factors that are beyond our control. Stockholders and prospective stockholders in the Company should consider carefully the following risk factors, in addition to the information contained in this report. This Annual Report on Form 10-K contains forward-looking statements, which are subject to a variety of risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including those set forth below.

We are replacing our legacy merchandise and financial systems. Changes to our systems may disrupt our supply chain operations and have a material adverse impact on our business and results of operations.

Our business operations are dependent on our logistical systems, which include our merchandise and financial systems. These systems affect our ability to manage the merchandise supply chain, sell products, accomplish payment functions and report financial data. We are in the process of replacing our legacy merchandise and financial systems with software from SAP. There are inherent costs and risks associated with transitioning to new systems, including supply chain and merchandising systems disruptions that affect our ability to get the correct products into the appropriate stores. We may also encounter application program bugs, system conflict crashes, user error, data integrity issues, and integration issues with our remaining systems. Implementing new data standards and converting existing data to accommodate a new system's requirements will also require a significant amount of capital expenditure and effort across our entire organization, which may divert the attention of management. These system disruptions could negatively impact our business and results of operations.

In addition, we are in the process of implementing Section 404 of the Sarbanes-Oxley Act of 2002. Beginning with our 2008 fiscal year, we will be required to perform an evaluation of our internal control over financial reporting, and beginning with our 2009 fiscal year our independent registered public accounting firm will have to test and evaluate the design and operating effectiveness of such internal controls and publicly attest to such evaluation. The risks associated with transitioning to these new systems may cause additional complications which may slow down the review process and delay our ability to complete our evaluation, and the auditors' ability to complete their attestation on time. See "Implementing Section 404 of the Sarbanes-Oxley Act of 2002 will be expensive, time consuming and require significant management attention, and may not be successful."

Implementing Section 404 of the Sarbanes-Oxley Act of 2002 will be expensive, time-consuming and require significant management attention, and may not be successful.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company is a non-accelerated filer and will be required, beginning in our 2008 fiscal year, to perform an evaluation of our internal control over financial reporting, and beginning in our 2009 fiscal year our independent registered public accounting firm will have to test and evaluate the design and operating effectiveness of such internal controls and publicly attest to such evaluation. The implementation process of Section 404 of the Sarbanes-Oxley Act of 2002 will be expensive, time-consuming and will require significant attention of the Company’s management. The Company cannot assure that it will not discover material weaknesses in its internal controls. The Company also cannot assure that it will complete the process of its evaluation and the auditors' attestation on time. If the Company discovers a material weakness, corrective action may be time-consuming, costly and further divert the attention of management. The disclosure of a material weakness, even if quickly remedied, could reduce the market's confidence in the Company’s financial statements, cause the delisting of its Common Stock from Nasdaq and harm its stock price, especially if a restatement of financial statements for past periods were to be necessary.

Our status as a non-accelerated filer is based on the aggregate market value of Class A Common Stock and Class B Common Stock held by our non-affiliates as of the end of our second fiscal quarter, at October 1, 2006, which was approximately $41.5 million. Should the aggregate market value of Class A Common Stock and Class B Common Stock held by our non-affiliates exceed $75 million on September 30, 2007 we would become an accelerated filer and as a result our independent registered public accounting firm would have to test and evaluate the design and operating effectiveness of our internal controls and publicly attest to such evaluation for the 2008 fiscal year. This could add additional expense and an increased risk of noncompliance with Section 404 of the Sarbanes-Oxley Act if the auditors do not complete their attestation on time.

A downturn in the economy may affect consumer purchases of discretionary items, which would reduce our net sales.

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

Terrorist attacks or acts of war may harm our business.

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

Intense competition in the sporting goods industry could limit our growth and reduce our profitability.

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

Because our stores are concentrated in the western portion of the United States, we are subject to regional risks.

Currently, most of our stores are located in Southern California and the remaining are located in Northern California, Central California, Nevada and Arizona. Accordingly, we are subject to regional risks, such as the economy, weather conditions, natural disasters and government regulations. For example, warm winter weather in the resorts frequented by our customers has affected sales in the past. When the region suffers an economic downturn or when other adverse events occur, historically there has been an adverse effect on our sales and profitability and this could also affect our ability to implement our planned growth. In addition, many of our vendors rely on the Ports of Los Angeles and Long Beach to process our shipments. Any disruption or congestion at the ports could impair our ability to adequately stock our stores. Several of our competitors operate stores across the United States and, thus, are not as vulnerable to such regional risks.

We rely on one distribution center and any disruption could reduce our sales.

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

Our ability to expand our business will be dependent upon our ability to meet challenges in new markets.

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

·	suitable sites may not be available for leasing;

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

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

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

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

We may pursue strategic acquisitions, which could have an adverse impact on our business.

We may from time to time acquire complementary companies or businesses. Acquisitions may result in difficulties in assimilating acquired companies, and may result in the diversion of our capital and our management’s attention from other business issues and opportunities. We may not be able to successfully integrate operations that we acquire, including their personnel, financial systems, distribution, operations and general store operating procedures. If we fail to successfully integrate acquisitions, our business could suffer. In addition, the integration of any acquired business, and their financial results, into ours may adversely affect our operating results. We currently do not have any agreements with respect to any such acquisitions.

Our future growth will be dependent on the availability of additional financing.

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

If we are unable to successfully implement our controlled growth strategy or manage our growing business, our future operating results could suffer.

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

If we lose key management or are unable to attract and retain talent, our operating results could suffer.

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

Seasonal fluctuations in the sales of sporting goods could cause our annual operating results to suffer.

Our sales volume increases significantly during the Holiday season as is typical with other sporting goods retailers. In addition, our product mix has historically emphasized cold weather sporting goods increasing the seasonality of our business. In recent years, our third fiscal quarter, which includes the Holiday season, represented approximately 30% of our annual net sales. Winter-related products represent approximately 17% of our annual net sales and have ranged from 27% to 31% of our fourth fiscal quarter. We anticipate this seasonal trend in sales will continue. The operating results historically have been influenced by the amount and timing of snowfall at the resorts frequented by our customers. An early snowfall often has influenced sales because it generally extends the demand for winter apparel and equipment, while a late snowfall may have the opposite effect. Suppliers in the ski and snowboard industry require us to make commitments for purchases of apparel and equipment by early spring for fall delivery, and only limited quantities of merchandise can be reordered during the fall. Consequently, we place our orders in the spring anticipating snowfall in the winter. If the snowfall does not at least provide an adequate base or occurs late in the season, or if sales do not meet projections, we may be required to mark down our winter apparel and equipment.

Our quarterly operating results may fluctuate substantially, which may adversely affect our business.

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

We are controlled by our Founder and management, whose interests may differ from other stockholders.

Problems with our information systems could disrupt our operations and negatively impact our financial results.

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

·	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.

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

Failure to protect the integrity and security of our customers’ information could expose us to litigation and materially damage our standing with our customers.

The increasing costs associated with information security — such as increased investment in technology, the costs of compliance with consumer protection laws and costs resulting from consumer fraud — could cause our business and results of operations to suffer materially. While we are taking significant steps to protect customer and confidential information, there can be no assurance that advances in computer capabilities or other developments will prevent the compromise of our customer transaction processing capabilities and personal data. If any such compromise of our information security were to occur, it could have a material adverse effect on our reputation, business, operating results and financial condition and may increase the costs we incur to protect against such information security breaches.

If we are unable to predict or react to changes in consumer demand, we may lose customers and our sales may decline.

If we fail to anticipate changes in consumer preferences, we may experience lower net sales, higher inventory markdowns and lower margins. Products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty. These preferences are also subject to change. Sporting goods are often subject to short-lived trends, such as the short-lived popularity of in-line scooters. Outdoor wear is significantly influenced by fashion. Our success depends upon the ability to anticipate and respond in a timely manner to trends in sporting goods merchandise and consumers’ participation in sports on an individual market basis. Failure to identify and respond to these changes may cause net sales to decline. In addition, because we generally make commitments to purchase products from vendors up to nine 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.

The price of our Class A Common Stock and Class B Common Stock may be volatile.

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

Provisions in the Company's charter documents could discourage a takeover that stockholders may consider favorable.

At June 12, 2007, Norbert Olberz, the Company's founder, Craig Levra, the Company’s Chairman and Chief Executive Officer, and Howard Kaminsky, the Company’s Chief Financial Officer, owned approximately 21%, 33% and 11%, respectively, of the Company’s outstanding voting Class A and Class B Common Stock. The holder of a share of Class B Common Stock is entitled to one vote on each matter presented to the stockholders whereas the holder of a share of Class A Common Stock has 1/20th of one vote on each matter presented to the stockholders. Subject to the Class A protection provisions described below, Messrs. Olberz, Levra and Kaminsky will be able to sell shares of Class A Common Stock and use the proceeds to purchase additional shares of Class B Common Stock, thereby increasing their collective voting power. Subject to the prohibition on the grant, issuance, sale or transfer of Class B Common Stock to Messrs. Levra and Kaminsky, the Company will also be able to issue Class B Common Stock (subject to the applicable rules of the NASD and the availability of authorized and unissued shares of Class B Common Stock) to persons deemed by the Board of Directors to be preferable to a potential acquirer, thereby diluting the voting power of that potential acquirer. The Class A protection provisions in the Company's Certificate of Incorporation could also make acquisition of voting control more expensive by requiring an acquirer of 10% or more of the outstanding shares of Class B Common Stock to purchase a corresponding proportion of Class A Common Stock.

The Company's Certificate of Incorporation contains certain other provisions that may have an "anti-takeover" effect. The Company's Certificate of Incorporation does not provide for cumulative voting and, accordingly, a significant minority stockholder could not necessarily elect any designee to the Board of Directors. The Company's Certificate of Incorporation also provides that the Board of Directors shall be divided into three classes, as nearly equal in number as possible, which are elected for staggered three-year terms and, accordingly, it could take at least two annual meetings to change a majority of the Board of Directors. As a result of these provisions in the Company's Certificate of Incorporation, stockholders of the Company may be deprived of an opportunity to sell their shares at a premium over prevailing market prices and it would be more difficult to replace the directors and management of the Company.

We may be subject to product liability claims and our insurance may not be sufficient to cover damages related to those claims.

We may be subject to lawsuits resulting from injuries associated with the use of sporting goods equipment that we sell. We may incur losses relating to these claims or the defense of these claims. There is a risk that claims or liabilities will exceed our insurance coverage. In addition, we may be unable to retain adequate liability insurance in the future. In addition, we are subject to regulation by the Consumer Product Safety Commission and similar state regulatory agencies. If we fail to comply with government and industry safety standards, we may be subject to claims, lawsuits, fines and adverse publicity that could have a material adverse effect on our business, results of operations and financial condition.

Our comparable store sales will fluctuate and may not be a meaningful indicator of future performance.

Changes in our comparable store sales results could affect the price of our Class A Common Stock and Class B Common Stock. A number of factors have historically affected, and will continue to affect, our comparable store sales results, including: competition, our new store openings and remodeling, general regional and national economic conditions, actions taken by our competitors, consumer trends and preferences, changes in the shopping centers in which we are located, new product introductions and changes in our product mix, timing and effectiveness of promotional events, lack of new product introductions to spur growth in the sale of various kinds of sports equipment, and weather. Our comparable store sales may vary from quarter to quarter, and an unanticipated decline in revenues or comparable store sales may cause the price of our Class A Common Stock and Class B Common Stock to fluctuate significantly.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

At April 1, 2007, we had 45 store locations. The following table summarizes the key information on our retail properties:

Location	Opening Date		Gross Square Footage
La Cañada (1)		June 1960		28,000
Huntington Beach (2) (4)		June 1981		50,000
La Jolla		June 1983		20,400
Mission Viejo		August 1986		29,900
Point Loma (2)		November 1987		34,600
Valencia (2) (5)		November 1987		40,000
Marina del Rey (6)		November 1989		42,300
Beverly Hills		November 1989		40,500
Brea (2) (5)		April 1990		40,500
Oxnard (2)		June 1990		40,500
West Hills (2) (6)		June 1991		44,000
Burbank (7)		August 1992		45,000
Montclair		November 1992		14,800
Torrance (3)		November 1993		43,700
Glendora		November 1993		40,400
Rancho Cucamonga (2)		June 1994		36,000
Irvine (2)		November 1995		35,000
Laguna Niguel (4)		November 1997		40,000
Mission Valley (3)		June 1998		47,000
Long Beach (7)		May 1999		43,400
Porter Ranch		July 1999		43,000
Temecula (4)		October 1999		40,000
Chino Hills		July 2000		42,000
Palmdale (2)		June 2001		39,400
Henderson, NV (2)		November 2001		42,000
Costa Mesa - South Coast Plaza		November 2001		41,600
Summerlin, NV (2)		November 2002		40,300
Riverside		November 2002		46,100
Antioch (2)		November 2003		40,000
Redlands (2)		November 2003		42,000
Sacramento (2)		December 2003		40,600
Roseville		August 2004		37,000
Pleasanton (2)		August 2004		40,500
Arcadia		October 2004		42,200
Elk Grove (2)		November 2004		42,000
Visalia (2)		November 2004		41,000
Happy Valley, AZ (2)		November 2005		42,000
Chandler, AZ (2)		November 2005		41,200
Scottsdale, AZ (2)		November 2005		41,500
Foothill Ranch (2)		February 2006		43,400
Thousand Oaks (2)		May 2006		40,300
Vacaville (2)		August 2006		41,600
San Jose		November 2006		44,000
San Marcos (2)		November 2006		40,000
Mira Loma (2)		November 2006		39,300
		Total		1,789,000

(1)		The original store opened in 1959. The number of facilities and square footage has fluctuated over the years. We have plans to relocate four buildings which have served the La Canada Flintridge, California market into a single 45,000 square foot store in calendar 2008. The four buildings, which the Company has historically reported as one store, together totaled 40,000 square feet. In preparation for the new store in calendar 2008, there will be construction occurring and the four buildings in La Canada Flintridge have been consolidated into a single temporary location which is approximately 28,000 square feet.
(2)		Includes swimming pool facility for SCUBA and kayaking instruction.
(3)		Remodels completed for fiscal 2007.
(4)		Remodels completed in fiscal 2006.
(5)		Remodels completed in fiscal 2005.
(6)		Remodels completed in fiscal 2004.
(7)		Remodels scheduled for fiscal 2008.

We lease all of our existing store locations. The leases for most of the existing stores are for approximately ten-year terms plus multiple option periods under non-cancelable operating leases with scheduled rent increases. The leases provide for contingent rent based upon a percentage of sales in excess of specified minimums. If there are any free rent periods, they are accounted for on a straight line basis over the lease term, beginning on the date of initial possession, which is generally when we enter the space and begin the construction build-out. The amount of the excess of straight line rent expense over scheduled payments is recorded as a deferred rent liability. Construction allowances and other such lease incentives are recorded as deferred credits, and are amortized on a straight line basis as a reduction of rent expense over the lease term.

We lease from corporations controlled by Norbert Olberz, Sport Chalet’s Founder (the “Founder”); our corporate office space in La Cañada and our stores in La Cañada, Huntington Beach and Porter Ranch, California. We have incurred rental expense to the Founder of $2.5 million, $2.4 million and $2.4 million in fiscal 2007, 2006 and 2005, respectively.

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

ITEM 3. LEGAL PROCEEDINGS

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

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

No matters were submitted to our stockholders during the fourth quarter of fiscal 2007.

PART II

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

Market Price for Common Shares

Pursuant to the stockholder approved recapitalization plan that establishes two classes of Common Stock. On September 21, 2005, each outstanding share of Common Stock (“Old Common Stock”) was reclassified into 0.25 share of Class B Common Stock. On September 30, 2005 a non-taxable stock dividend of seven shares of Class A Common Stock for each one outstanding share of Class B Common Stock was paid. The recapitalization doubled our total number of shares outstanding and, therefore, had the same impact on earnings per share as a 2-for-1 stock split. Our Class A Common Stock and Class B Common Stock are traded on the Nasdaq Stock Market National Market System under the symbol “SPCHA” and “SPCHB”, respectively. The following table reflects the range of high and low sale prices of our Old, Class A, and Class B Common Stock for the periods indicated:

	Old Common Stock
Fiscal 2006	High		Low
First Quarter	$	19.50	$	12.84
Second Quarter	$	18.14	$	16.00

		Class A				Class B
Fiscal 2006		High		Low		High		Low
Second Quarter	$	10.75	$	8.50	$	68.00	$	13.00
Third Quarter	$	10.20	$	6.87	$	15.55	$	8.00
Fourth Quarter	$	8.36	$	7.01	$	8.70	$	7.12

		Class A				Class B
Fiscal 2007		High		Low		High		Low
First Quarter	$	8.45	$	7.46	$	8.34	$	7.50
Second Quarter	$	9.43	$	7.80	$	9.35	$	7.80
Third Quarter	$	10.48	$	7.86	$	9.96	$	8.55
Fourth Quarter	$	10.89	$	8.90	$	11.20	$	9.00

		Class A				Class B
Fiscal 2008		High		Low		High		Low
First Quarter (through June 11, 2007)	$	11.44	$	9.99	$	11.30	$	9.40

On June 11, 2007, the closing price of our Class A Common Stock and Class B Common Stock as reported by Nasdaq was $10.28 and $10.10, respectively. Stockholders are urged to obtain current market quotations for the Class A Common Stock and Class B Common Stock.

Approximate Number of Holders of Common Shares

The number of stockholders of record of our Class A Common Stock and Class B Common Stock as of June 8, 2007 was 145 and 150, respectively (excluding individual participants in nominee security position listings), and as of that date, we estimate that there were approximately 1,400 beneficial owners holding stock in nominee or “street” name.

Performance Graph

The following graph compares the yearly percentage change in cumulative total stockholder return of the Company's Common Stock during the period from April 1, 2002 to April 1, 2007 with (i) the cumulative total return of the Nasdaq Composite Stock Market Index and (ii) the cumulative total return of the S&P Specialty Stores Index. The comparison assumes $100 was invested on April 1, 2002 in the Common Stock and in each of the foregoing indices and the reinvestment of dividends through April 1, 2007. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

In September 2005, the stockholders of the Company approved amendments to the Company's Certificate of Incorporation that resulted in the reclassification of each outstanding share of common stock as 0.25 share of Class B Common Stock and the issuance of seven shares of Class A Common Stock for each outstanding share of Class B Common Stock. For the period commencing on September 30, 2005, the Company has added the share price of one share of Class B Common Stock and seven shares of Class A Common Stock in calculating its cumulative total return for purposes of the following graph.

Dividend Policy

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

ITEM 6. SELECTED FINANCIAL DATA

The following sets forth selected consolidated financial data as of and for the five most recent fiscal years ended April 1, 2007. This data should be read in conjunction with the financial statements and related notes thereto and other financial information included herein. All share and per share information has been adjusted to reflect the reclassification and stock dividend as discussed in “Item 1. Business Recapitalization Plan.”

		Fiscal year ended,
		2007			2006 (3)			2005			2004			2003
Statements of Income Data:		(In thousands, except per share, per square foot amounts)
Net sales	$	388,209		$	343,204		$	309,090		$	264,237		$	238,033
Cost of goods sold, buying and occupancy costs		268,188			237,137			213,429			184,047			168,519
Gross profit		120,021			106,067			95,661			80,190			69,514
Selling, general and administrative expenses		107,776			101,534			85,145			72,360			62,579
Income from operations		12,245			4,533			10,516			7,830			6,935
Interest expense		516			267			263			190			307
Income before taxes		11,729			4,266			10,253			7,640			6,628
Income tax provision		4,630			4,353			4,082			2,996			2,584
Net income (loss)	$	7,099		$	(87	)	$	6,171		$	4,644		$	4,044
Class A and Class B earnings (loss) per share - basic	$	0.51		$	(0.01	)	$	0.46		$	0.35		$	0.31
Class A and Class B earnings (loss) per share - diluted	$	0.49		$	(0.01	)	$	0.44		$	0.33		$	0.29
Weighted average Class A and Class B shares outstanding:
Basic		13,850			13,506			13,361			13,291			13,230
Diluted		14,460			13,506			14,007			14,017			13,894

Selected Operating Data:
Comparable store sales increase (decrease) (1)		2.0	%		1.9	%		5.7	%		3.7	%		(0.9	)%
Gross profit margin		30.9	%		30.9	%		30.9	%		30.3	%		29.2	%
Selling, general and administrative expenses as percentage of net sales		27.8	%		29.6	%		27.5	%		27.4	%		26.3	%
Net cash provided by operating activities	$	10,615		$	16,976		$	17,955		$	7,608		$	6,513
Depreciation and amortization	$	11,419		$	9,226		$	7,692		$	6,447		$	5,890
Stores open at end of period		45			40			36			31			28
Total square feet at end of period		1,789			1,586			1,412			1,210			1,087
Net sales per square foot (2)	$	235		$	238		$	241		$	239		$	241
Average net sales per store (2)	$	9,232		$	9,351		$	9,430		$	9,221		$	9,220

		As of Fiscal year end,
Balance Sheet Data:		2007			2006			2005			2004			2003
Working capital	$	45,493		$	43,446		$	43,116		$	40,746		$	37,329
Total assets		171,249			132,238			118,789			95,057			89,492
Bank debt		11,776			-			-			-			-
Total stockholders’ equity		86,426			77,468			69,110			62,811			57,456

________________

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

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

(3)

For fiscal 2006, the recapitalization plan included the transfer of stock from the Company’s founder to certain members of management with a resulting charge to selling, general and administrative expenses of $8.7 million, primarily related to stock compensation, and a reduction to net income of $7.8 million. Selling, general and administrative expenses for fiscal 2006 without the expense from the recapitalization plan are 27.1% of sales. Basic and diluted earnings per share for fiscal 2006 without the expense of the recapitalization plan are $0.57 and $0.55, respectively.

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 our consolidated financial statements and related notes thereto.

Overview

We are a leading operator of 45 full service specialty sporting goods stores in California, Nevada and Arizona. In 1959, Norbert Olberz, our founder (the “Founder”), purchased a small ski and tennis shop in La Cañada, California. A focus on providing quality merchandise with outstanding customer service was the foundation of Norbert’s vision. We continue this tradition and are focused on growth through a number of initiatives, including: continuing new store development; remodeling stores to conform to our prototype; and improving information systems to increase product flow-through, improve in-stock positions and optimize merchandise assortment.

Our growth strategy had historically focused on Southern California, but now includes opening new stores throughout California, Nevada, Arizona and Utah as suitable locations are found. We have opened five stores this fiscal year, fourteen stores in the last three years and nineteen in the last five years. We currently anticipate opening six to eight new stores during the upcoming year including our first store in Utah. Future store openings are subject to availability of satisfactory store locations based on local competitive conditions, site availability and cost and our ability to provide and maintain high service levels and quality brand merchandising at competitive prices. 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 as a percent of sales in the early years of operation, due primarily to pre-opening and promotional costs and lower than average sales, which reduces the leverage needed to offset direct and indirect store expenses. As the store matures, sales tend to level off and expenses decline as a percent of sales. We believe our stores require three to four years to attract a stable, mature customer base, but because of our relatively low number of stores, reliable statistical trends are not available and there can be no assurance that our stores will mature at that rate. A slower rate of maturity would cause reduced profitability as a percent of sales. In addition, we continue to invest in infrastructure improvements to more efficiently manage the increasing store base, these improvements generally increase overhead expenses in the form of computer hardware and software maintenance and depreciation as well as staff to operate these systems. At some point the growth in sales from new and mature stores is expected to exceed the growth in infrastructure costs, but there can be no assurance that this will occur.

Our prototype store is 42,000 square feet in size and showcases 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. Mature stores are evaluated for remodel based on each store’s age and competitive situation, as well as how much the landlord will contribute to our required improvements. Future store remodeling plans will depend upon several factors, including, but not limited to, general economic conditions, competition trends and the availability of adequate capital. We estimate the cash required to open an average new store is approximately $2.5 million consisting primarily of the investment in inventory (net of average vendor payables), the cost of leasehold improvements (net of landlord reimbursement), fixtures and equipment and pre-opening expenses, such as pre-opening rent and the costs associated with training employees and stocking the store. Cash requirements for opening costs of each new store varies significantly depending on how much the landlord has agreed to contribute to our required improvements.

Comparable store sales are a key performance measurement, a store’s sales are included in the comparable store sales calculation in the quarter following its twelfth full month of operation. Our comparable store sales growth has been positive for the last four fiscal years, many factors effect sales during a fiscal year; such as the overall economic conditions, unseasonable weather in our markets, the appeal of our merchandise assortments and marketing changes. In general our mature stores have leveled off in their growth and although we are focused on constant improvement in all stores, we expect our comparable store sales growth to be driven by maturing stores.

We believe that the overall growth of our business will allow us to maintain or increase our operating margins. Increased merchandise volumes should enable us to improve our purchasing leverage and achieve greater support throughout the supply chain. Gross profit, which includes occupancy costs, as a percent of sales has increased from 29.2% to 30.9% over the past five years. However improvements in merchandise procurement have been offset by increased occupancy costs as a percent of sales from new stores. Our overall growth should leverage our investments in infrastructure such as the distribution center, corporate facilities, E3 replenishment system, HighJump warehouse management software, Marketmax planning and allocation technology and SAP merchandise and financial systems. However, these increased efficiencies and improvements have been offset by the operating costs of new and maturing stores. Selling, general and administrative expenses, excluding the cost of the recapitalization plan during fiscal 2006, as a percent of sales have increased from 26.3% to 27.8% over the past five years.

We are in the process of implementing Section 404 of the Sarbanes-Oxley Act of 2002 which requires an extensive review and remediation of our internal controls. To help meet the requirements of Section 404 and enhance the Company’s ability to grow, we are replacing our legacy merchandise and financial systems with mySAP2005 ERP from SAP. Implementation of this system, as well as the other work required by Section 404, will be expensive, time-consuming and will require significant attention of management. Current rules require our compliance by end of fiscal 2008.

Beginning April 1, 2006, our fiscal year end was changed from March 31 to the Sunday closest to March 31. Each fiscal year will consist of four 13 week quarters, with an extra week added onto the fourth quarter every five to six years. The 2007 fiscal year includes 52 weeks of operating results. This fiscal calendar is widely used in the retail industry.

Results of Operations

Fiscal 2007 Compared to Fiscal 2006.

The following table sets forth statement of operations data determined in accordance with generally accepted accounting principals (“GAAP”), the relative percentages of net sales, and the percentage increase or decrease, for the 2007 and 2006 fiscal years (dollar amounts in thousands, except per share amounts).

	Fiscal year ended

	2007					2006
	Amount		Percent			Amount			Percent			Dollar Change		Percentage Change
Net sales	$	388,209		100.0	%	$	343,204			100.0	%	$	45,005		13.1	%
Gross profit		120,021		30.9	%		106,067			30.9	%		13,954		13.2	%
Selling, general and administrative expenses		107,776		27.8	%		101,534			29.6	%		6,242		6.1	%
Income from operations		12,245		3.2	%		4,533			1.3	%		7,712		170.1	%
Interest expense		516		0.1	%		267			0.1	%		249		93.3	%
Income before taxes		11,729		3.0	%		4,266			1.2	%		7,463		174.9	%
Net income (loss)		7,099		1.8	%		(87	)		(0.0	%)		7,186		(8,259.8	%)

Class A and Class B
Earnings (loss) per share:
Basic	$	0.51				$	(0.01	)				$	0.52		(5,200.0	%)
Diluted	$	0.49				$	(0.01	)				$	0.50		(5,000.0	%)

To supplement consolidated financial statements presented in accordance with GAAP, non-GAAP financial measures are used as the compensation and other expenses related to the recapitalization plan during fiscal 2006 and are not expected to reoccur and their exclusion provides a consistent comparison to current year results. The presentation of this financial information is not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with GAAP. For a reconciliation of non-GAAP results of operations measures to the nearest comparable GAAP measures see “Fiscal 2006 Compared to Fiscal 2005” following.

The following table sets forth statement of operations data and relative percentages of net sales, and the percentage increase or decrease, for the 2007 and 2006 fiscal years without regard to the effect of the recapitalization plan on selling, general and administrative expenses or income taxes (dollar amounts in thousands, except per share amounts).

	Fiscal year ended

	2007					2006
	Amount		Percent			Amount		Percent			Dollar Change			Percentage Change

Net sales	$	388,209		100.0	%	$	343,204		100.0	%	$	45,005			13.1	%
Gross profit		120,021		30.9	%		106,067		30.9	%		13,954			13.2	%
Selling, general and administrative expenses		107,776		27.8	%		92,841		27.1	%		14,935			16.1	%
Income from operations		12,245		3.2	%		13,226		3.9	%		(981	)		(7.4	%)
Interest expense		516		0.1	%		267		0.1	%		249			93.3	%
Income before taxes		11,729		3.0	%		12,959		3.8	%		(1,230	)		(9.5	%)
Net income		7,099		1.8	%		7,752		2.3	%		(653	)		(8.4	%)

Class A and Class B
Earnings per share:
Basic	$	0.51				$	0.57				$	(0.06	)		(10.5	%)
Diluted	$	0.49				$	0.55				$	(0.06	)		(10.9	%)

Sales increased $45.0 million, or 13.1%, to $388.2 million for fiscal 2007 from $343.2 million for fiscal 2006. The sales growth is the result of opening five stores in fiscal 2007 and four in fiscal 2006, which resulted in a $37.3 million increase in sales, in addition to a comparable store sales increase of $6.7 million or 2.0%. The comparable store sales increase was primarily from our newer stores as sales from our mature stores were impacted primarily by: (1) weakness in several hardgoods categories; (2) the expected decrease in sales of three mature stores due to the opening of one new store as part of our strategy to back-fill in our core Southern California market; and (3) the adverse effect on one store during the continuing renovation of the shopping mall in which it is located. Comparable store sales were also negatively impacted by the fact that fiscal 2007 was the driest year on record for Southern California which we believe dampened the demand for winter apparel and equipment primarily in the fourth quarter as shown in the table below (dollar amounts in thousands):

	Change in Comparable Store Sales Fiscal Year 2007 to 2006					Change in Comparable Store Sales Fourth Quarter Fiscal 2007 to 2006
	Dollar Change		Percentage Change			Dollar Change			Percentage Change
Non-winter related	$	5,837		2.1	%	$	1,530			2.5	%
Winter related		877		1.5	%		(2,439	)		(9.4	%)
Comparable store sales	$	6,714		2.0	%	$	(909	)		(1.0	%)

Comparable store sales are based upon stores open throughout both periods presented and exclude team sales.

Gross profit increased $14.0 million, or 13.2%, primarily from increased sales. As a percent of sales, gross profit was unchanged at 30.9% for fiscal 2007 and fiscal 2006. Gross profit gains from merchandise procurement of approximately 20 basis points were offset by increased occupancy expense as a percent of sales in the new stores. We believe that the improvement in merchandise procurement is due to our continued investments in systems along with our growth in importance to our vendors. The increase in occupancy costs as a percent of sales is the result of our new stores which take time to reach operating efficiency.

Selling, general and administrative expenses (“SG&A”) increased $6.2 million, or 6.1%, primarily from expenses related to additional stores partially offset by expenses related to the fiscal year 2006 recapitalization plan which were not repeated in fiscal 2007. Excluding the effect of the recapitalization plan, SG&A expenses increased $14.9 million, or 16.1%, primarily from additional stores. In addition, we experienced increases in utility costs of approximately $800,000 from rate increases and increased corporate labor of approximately $1.1 million to facilitate our growth plans, partially offset by a reduction of incentive pay of approximately $500,000. As a percent of sales excluding the effect of the recapitalization plan, SG&A expenses increased to 27.8% in fiscal 2007 from 27.1% in fiscal 2006 primarily from lower growth in sales from our mature stores described above, the previously mentioned utilities and corporate labor increases and the expenses associated with new stores which take time to reach operating efficiency.

The effective income tax rate was 39.5% for fiscal 2007 compared to 40.2% excluding the effect of the recapitalization plan for fiscal 2006. Generally these rates differ from the statutory rates as a result of permanent differences between financial reporting and tax-basis income. Our statutory rate has increased to 40.7% for fiscal 2007 from 39.8% in fiscal 2006 as a result of a rate increase related to the growth in our taxable income.

Net income increased to $7.1 million, or $0.49 per diluted share, for fiscal 2007, from a net loss of $87,000, or $0.01 loss per diluted share, for fiscal 2006, primarily from expenses related to the recapitalization plan in fiscal 2006. Excluding the effect of the recapitalization plan, net income decreased from $7.8 million, or $0.55 per diluted share, for fiscal 2006.

Fourth Quarter 2007 Compared to Fourth Quarter 2006.

The following tables set forth statement of income data and relative percentages of net sales, and the percentage increase or decrease, for the fourth quarter of fiscal 2007 and 2006 (dollar amounts in thousands, except per share amounts).

	Fourth fiscal quarter ended,

	2007					2006
	Amount		Percent			Amount		Percent			Dollar Increase			Percentage Increase
Net sales	$	97,806		100.0	%	$	89,663		100.0	%	$	8,143			9.1	%
Gross profit		28,681		29.3	%		27,062		30.2	%		1,619			6.0	%
Selling, general and administrative expenses		27,085		27.7	%		24,251		27.0	%		2,834			11.7	%
Income from operations		1,596		1.6	%		2,811		3.1	%		(1,215	)		(43.2	%)
Interest expense		164		0.2	%		77		0.1	%		87			113.0	%
Income before taxes		1,432		1.5	%		2,734		3.0	%		(1,302	)		(47.6	%)
Net income		881		0.9	%		1,638		1.8	%		(757	)		(46.2	%)

Class A and Class B
Earnings per share:
Basic	$	0.06				$	0.12				$	(0.06	)		(50.0	%)
Diluted	$	0.06				$	0.12				$	(0.06	)		(50.0	%)

Sales increased $8.1 million, or 9.1%, to $97.8 million for the fourth quarter 2007 from $89.7 million for the same period in fiscal 2006. The sales growth is the result of opening five stores in fiscal 2007 and one in the fourth quarter of fiscal 2006 which resulted in an $8.0 million increase in sales on a same day basis. In addition, a sales decrease of $909,000, or 1.0%, from comparable stores on a same day basis was more than offset by $1.3 million in additional sales from one extra day relative to the fourth quarter of fiscal 2006 as a result of our calendar change. Comparable store sales were negatively impacted by the fact that fiscal 2007 was the driest year on record for Southern California which we believe dampened the demand for winter apparel and equipment. Winter related product sales were down $2.4 million, or 9.4%, while non-winter related product sales were up $1.5 million, or 2.5%.

Gross profit increased $1.6 million, or 6.0%, primarily from increased sales. As a percent of sales, gross profit decreased to 29.3% from 30.2% for the fourth quarter of fiscal 2006. The 90 basis point decrease is primarily due to increased occupancy expense as a percent of sales in the new stores as new stores take time to reach operating efficiency.

Selling, general and administrative expenses increased $2.8 million, or 11.7%, primarily from expenses related to additional stores. As a percent of sales, SG&A increased to 27.7% in fiscal 2007 from 27.0% for the fourth quarter of fiscal 2006, primarily from the decrease in comparable store sales in addition to expenses related to new stores which take time to reach operating efficiency.

The effective tax rate, as a percent of pretax income, was 38.5% for the fiscal 2007 fourth quarter and 40.1% for the same period in fiscal 2006. Generally these rates differ from the statutory rates as a result of permanent differences between financial reporting and tax-basis income. Our statutory rate has increased to 40.7% for fiscal 2007 from 39.8% in fiscal 2006 as a result of a rate increase related to the growth in our taxable income.

Net income decreased to $881,000, or $0.06 per diluted share, for the fiscal 2007 fourth quarter, from $1.6 million, or $0.12 per diluted share, for the 2006 fiscal fourth quarter.

Fiscal 2006 Compared to Fiscal 2005.

The following table sets forth statement of operations data determined in accordance with generally accepted accounting principals (“GAAP”), the relative percentages of net sales, and the percentage increase or decrease, for the fiscal years ended March 31, 2006 and 2005 (dollar amounts in thousands, except per share amounts).

	Fiscal year ended March 31,

	2006						2005
	Amount			Percent			Amount		Percent			Dollar Change			Percentage Change
Net sales	$	343,204			100.0	%	$	309,090		100.0	%	$	34,114			11.0	%
Gross profit		106,067			30.9	%		95,661		30.9	%		10,406			10.9	%
Selling, general and administrative expenses		101,534			29.6	%		85,145		27.5	%		16,389			19.2	%
Income from operations		4,533			1.3	%		10,516		3.4	%		(5,983	)		(56.9	%)
Interest expense		267			0.1	%		263		0.1	%		4			1.5	%
Income before taxes		4,266			1.2	%		10,253		3.3	%		(5,987	)		(58.4	%)
Net income (loss)		(87	)		(0.0	%)		6,171		2.0	%		(6,258	)		(101.4	%)

Class A and Class B
Earnings (loss) per share:
Basic	$	(0.01	)				$	0.46				$	(0.47	)		(102.2	%)
Diluted	$	(0.01	)				$	0.44				$	(0.45	)		(102.3	%)

All share and per share information has been adjusted to reflect the reclassification and stock dividend as discussed in "Item 1 Business - Recapitalization Plan.”

To supplement consolidated financial statements presented in accordance with GAAP, non-GAAP financial measures are used as the compensation and other expenses related to the recapitalization plan during 2006 and are not expected to reoccur and their exclusion provides a consistent comparison to past results. The presentation of this financial information is not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with GAAP.

The following table sets forth statement of operations data and relative percentages of net sales, and the percentage increase or decrease, for the fiscal years ended March 31, 2006 and 2005 determined without regard to the effect of the recapitalization plan on selling, general and administrative expenses or income taxes (dollar amounts in thousands, except per share amounts).

	Fiscal year ended March 31,

	2006					2005
	Amount		Percent			Amount		Percent			Dollar Change		Percentage Change
Net sales	$	343,204		100.0	%	$	309,090		100.0	%	$	34,114		11.0	%
Gross profit		106,067		30.9	%		95,661		30.9	%		10,406		10.9	%
Selling, general and administrative expenses		92,841		27.1	%		85,145		27.5	%		7,696		9.0	%
Income from operations		13,226		3.9	%		10,516		3.4	%		2,710		25.8	%
Interest expense		267		0.1	%		263		0.1	%		4		1.5	%
Income before taxes		12,959		3.8	%		10,253		3.3	%		2,706		26.4	%
Net income		7,752		2.3	%		6,171		2.0	%		1,581		25.6	%

Class A and Class B
Earnings per share:
Basic	$	0.57				$	0.46				$	0.11		23.9	%
Diluted	$	0.55				$	0.44				$	0.11		25.0	%

All share and per share information has been adjusted to reflect the reclassification and stock dividend as discussed in "Item 1 - Business Recapitalization Plan.”

The following table sets fourth reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures. Compensation and other expenses related to the recapitalization plan are not expected to reoccur and their exclusion provides a consistent comparison to past results (dollar amounts in thousands, except per share amounts).

	Fiscal year ended March 31, 2006

	GAAP			Adjustments			Non-GAAP

Selling, general and administrative expenses	$	101,534		$	(8,693	)	$	92,841
Income from operations		4,533			8,693			13,226
Income before taxes		4,266			8,693			12,959
Income tax provision		4,353			(854	)		5,207
Net income (loss)	$	(87	)	$	7,839		$	7,752

Class A and Class B
earning (loss) per share:
Basic	$	(0.01	)	$	0.58		$	0.57
Diluted	$	(0.01	)	$	0.56		$	0.55

Sales increased $34.1 million, or 11.0%, from $309.1 million for the fiscal year ended March 31, 2005 to $343.2 million for fiscal 2006. The sales growth is the result of opening four stores in fiscal 2006 and five in fiscal 2005, which resulted in a $27.6 million increase in sales, in addition to a comparable store sales increase of $5.4 million or 1.9%. Comparable store sales increased despite the fact that fiscal 2006 did not have the benefit of the colder weather experienced early in our third quarter of fiscal year 2005 that helped stimulate demand for winter apparel and equipment. Comparable store sales excluding winter related products increased $7.7 million or 3.3%. Comparable store sales are based upon stores open throughout both periods presented and exclude team sales.

Gross profit increased $10.4 million, or 10.9%, primarily from increased sales. As a percent of sales, gross profit was unchanged at 30.9% for fiscal 2005 and fiscal 2006. Gross profit gains from better inventory assortments and reduced shrink were offset by markdowns required on winter related products due to the late arrival of cold wet weather in fiscal 2006 as compared to fiscal 2005 in our markets.

Selling, general and administrative expenses (“SG&A”) increased $16.4 million, or 19.2%, primarily from expenses related to the recapitalization plan and additional stores. As a percent of sales, these expenses increased from 27.5% in fiscal 2005 to 29.6% in fiscal 2006. Excluding the effect of the recapitalization plan, SG&A expenses increased $7.7 million, or 9.0%, primarily from additional stores. As a percent of sales, SG&A expenses decreased from 27.5% in fiscal 2005 to 27.1% in fiscal 2006 primarily from increased litigation reserves in fiscal 2005 not required in fiscal 2006, the leverage created by increased sales in mature stores which is partially offset by new stores which take time to reach operating efficiency.

The tax savings related to the recapitalization plan was limited to $854,000 as the transfer of shares resulted in compensation expense in excess of the specified limits for tax purposes as defined by Section 162(m) of the Internal Revenue Code. The effective income tax rate was 39.8% for the year ended March 31, 2005 compared to 40.2% excluding the effect of the recapitalization plan for the same period this year. 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 from $6.2 million, or $0.44 per diluted share, for fiscal 2005, to a net loss of $87,000, or $0.01 loss per diluted share, for fiscal 2006, primarily from expenses related to the recapitalization plan. Excluding the effect of the recapitalization plan, we achieved record net income, having increased from $6.2 million, for fiscal 2005 to $7.8 million for fiscal 2006, primarily as a result of increased sales. Excluding the effect of the recapitalization plan, earnings per share increased from $0.44 per diluted share to $0.55 per diluted share, a 25.0% improvement.

Liquidity and Capital Resources

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

Net cash provided by operating activities of $10.6 million, $17.0 million and $18.0 million for fiscal 2007, 2006 and 2005, respectively, was primarily the result of net income, adjusted for depreciation and amortization, and increases in accounts payable offset by inventory purchases. For fiscal 2006 net income also was impacted by a non-cash charge of $8.2 million from stock compensation related to the recapitalization plan.

Accounts receivable increased $4.4 million for fiscal 2007 primarily from amounts due from our landlords for new store construction, the amounts and timing of landlord reimbursements varies considerably based on individual store lease negotiations and the timing of new store construction.

Typically, inventory levels increase from year to year due to the addition of new stores, while improvements in inventory management decrease inventory required for each store. Inventories increased $19.3 million in fiscal 2007, $2.7 million in fiscal 2006 and $10.9 million in fiscal 2005, primarily from the addition of five stores in fiscal 2007, four stores in fiscal 2006 and five stores in fiscal 2005. In fiscal 2007, average inventory per store increased 14.2% compared to fiscal 2006 for the following reasons: 1) we ended fiscal 2006 with unusually low levels of winter related products due to late winter snowfall that year which caused a greater than expected sell through of winter related products, and 2007 inventory is more in line with historic levels, 2) weakness in sales at our mature stores and in several hardgoods categories, which merchandise will sell down during our first quarter of 2008, and 3) front-loading of water sports inventory in March 2007 to speed the transition from winter.

Historically, accounts payable increases as inventory increases. However, the timing of vendor payments or receipt of merchandise near the end of the fiscal year does influence this relationship. For fiscal 2007, accounts payable increased $12.9 million while inventory increased $19.3 million, the relative difference is the result of beginning the current fiscal year with historically low inventory levels due to an unusual sell through of winter related products in fiscal 2006.

Deferred rent increased $5.4 million, $4.5 million and $3.2 million for fiscal 2007, 2006 and 2005, respectively as we received large landlord reimbursements for improvements made to new stores. The landlord reimbursement varies based on our participation in the construction of a new store.

Net cash used in investing activities was $22.8 million, $19.8 million and $14.9 million for fiscal 2007, 2006 and 2005, respectively, primarily for capital expenditures as shown below, in thousands:

	Year ended April 1,
	2007		2006		2005
New stores	$	11,466	$	10,033	$	9,840
Remodels		2,366		2,625		1,552
Existing stores		2,276		1,393		1,127
Information systems		5,291		4,768		1,152
Rental equipment		1,321		1,161		1,089
Other		136		315		438
Total	$	22,856	$	20,295	$	15,198

We have continued to open new stores, five in fiscal 2007, four in fiscal 2006 and five in fiscal 2005. Net of landlord reimbursement, which is included in deferred rent, the average amount spent per store is $1.1 million, $1.4 million and $1.4 million for fiscal 2007, 2006 and 2005, respectively. In addition, $3.5 million was spent on stores which will open in fiscal 2008. We are also remodeling mature stores; two stores were remodeled in fiscal 2007, four in fiscal 2006 and two in 2005. Information systems are being upgraded with the partial implementation of SAP in fiscal 2007 in addition to merchandise planning and allocation software and an upgrade to our store systems during fiscal 2006.

As a result of our ongoing growth and strategic initiatives, forecasted capital expenditures for fiscal 2008 are expected to be approximately $25 million, which will be funded by cash flow from operations and our bank credit line, as needed. Approximately $11 million of this amount will be used to open seven new stores with an additional $5 million for stores expected to open in fiscal 2009. These planned store openings are dependant on our landlords completing our buildings and surrounding retail centers on time. In addition, two stores are planned to be remodeled for approximately $2 million. In addition to the normal expenditures for existing stores and rental equipment, the remainder is primarily for expenditures on information systems, the most significant portion of which is the replacement of our legacy merchandise and financial systems.

Net cash provided by financing activities reflects advances and repayments of borrowings under our revolving credit facility. For the first time in nine years we ended the year with outstanding bank debt which totaled $11.8 million. The debt is the result of funding new stores and information systems as well as ending the year overstocked with inventory.

Our credit facility with bank, Bank of America, N.A. (the “Lender”) provides for advances up to $25.0 million, amended from $20.0 million in April 2007, increasing to $35.0 million for the period October 1, through December 31, each year, less the amount of any outstanding draws, up to a $4.0 million maximum in authorized letters of credit. Interest accrues at the Lender’s prime rate (8.25% at April 1, 2007) or can be fixed for a period of time at the then current rate established under one of several indices, all at our option. In addition, there is an unused commitment fee of .20% per year, based on a weighted average formula. This credit facility expires on September 30, 2007 and we expect to renegotiate and extend the term of this agreement or obtain another form of financing before that date. Our obligation to the Lender is presently secured by a first priority lien on substantially all of our non-real estate assets, and we are subject to several restrictive covenants. The principal operating covenants require us to maintain certain minimum cash flow coverage and debt-to-equity ratios and restrict the level of capital expenditures, calculated on a quarterly basis. We are currently in compliance with the covenants. We believe our credit line with the Lender is sufficient to fund capital expenditures for the foreseeable future and to meet seasonal fluctuations in cash flow requirements. However, unexpected conditions could require us to request additional borrowing capacity from the Lender or alter our expansion plans or operations.

Our off-balance sheet contractual obligations and commitments relate to operating lease obligations, employment contracts and letters of credit which are excluded from the balance sheet in accordance with generally accepted accounting principles. The following table summarizes such obligations as of April 1, 2007:

Payments due by period:	Operating Leases		Employment Contracts
Within 1 year	$	29,812,296	$	169,500
2 - 3 years		64,066,206		339,000
4 - 5 years		59,348,550		339,000
After 5 years		127,402,040		508,500
Total	$	280,629,092	$	1,356,000

We lease all of our existing store locations. The leases for most of the existing stores are for approximately ten-year terms with multiple option periods under non-cancelable operating leases with scheduled rent increases. The leases provide for contingent rent based upon a percentage of sales in excess of specified minimums. If there are any free rent periods, they are accounted for on a straight line basis over the lease term, beginning on the date of initial possession, which is generally when we enter the space and begin the construction build-out. The amount of the excess of straight line rent expense over scheduled payments is recorded as a deferred rent liability. Construction allowances and other such lease incentives are recorded as deferred credits, and are amortized on a straight line basis as a reduction of rent expense over the lease term.

Generally, our purchase obligations are cancelable 45 days prior to shipment from our vendors. Letters of credit amounting to approximately $3.0 million relating to purchase commitments were outstanding as of April 1, 2007 and expire within one year.

No cash dividends have been declared on Class A Common Stock and Class B Common Stock in fiscal 2007. We intend to retain earnings for use in the operation and expansion of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future.

Critical Accounting Policies and Use of Estimates

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

Inventory Valuation. Merchandise inventories are stated at the lower of cost (first-in, first-out “FIFO” basis determined by the retail method of accounting) or market. We consider cost to include direct cost of merchandise and inbound freight, plus internal costs associated with merchandise procurement, storage and handling. The retail method is widely used in the retail industry due to its practicality. Under the retail method, cost is determined by applying a calculated cost-to-retail ratio across groupings of similar items, known as departments. As a result, the retail method results in an averaging of inventory costs across similar items within a department. The cost-to-retail ratio is applied to ending inventory at its current owned retail valuation to determine the cost of ending inventory on a department basis. Current owned retail represents the retail price for which merchandise is offered for sale on a regular basis reduced for any permanent or clearance markdowns. As a result, the retail method normally results in an inventory valuation that is lower than a traditional FIFO cost basis.

Inherent in the retail method calculation are certain significant management judgments and estimates including initial mark-up, markdowns and shrinkage, which can significantly impact the owned retail and, therefore, the ending inventory valuation at cost. Specifically, the failure to take permanent or clearance markdowns on a timely basis can result in an overstatement of carrying cost under the retail method. Management believes that its application of the retail method reasonably states inventory at the lower of cost or market.

We regularly review aged and excess inventories to determine if the carrying value of such inventories exceeds market value. A reserve is recorded to reduce the carrying value to market value as necessary. A determination of market value requires estimates and judgment based on our historical markdown experience and anticipated markdowns based on future merchandising and advertising plans, seasonal considerations, expected business trends and other factors.

Revenue Recognition. Sales are recognized upon the purchase by customers at our retail store locations, less merchandise returned by customers. Revenue from gift cards, gift certificates and store merchandise credits is recognized at the time of redemption. We generally accept returns up to 30 days from the date of purchase with a sales receipt or proof of purchase. Typically refunds are in the same form of payment originally received from the customer. We accommodate customers who do not have a receipt or proof of purchase by offering an exchange or store credit. When available we track the original sale date with each return and provide a reserve for projected merchandise returns based on this historical experience. As the reserve for merchandise returns is based on estimates, the actual returns could differ from the reserve, which could impact sales.

We have a customer loyalty program, Action Pass, which allows members to earn points for each purchase completed at our stores. Points earned enable members to receive a certificate that may be redeemed on future purchases. The value of points earned are included in accrued expenses and recorded as a reduction in sales at the time the points are earned, based on the retail value of points that are projected to be redeemed.

Gift Card/Certificate Redemption. We offer our customers the option of purchasing gift cards and, in the past, gift certificates which may be used toward the future purchase of our products. Revenue from gift cards, gift certificates and store merchandise credits (the “Gift Cards”) is recognized at the time of redemption. The Gift Cards have no expiration dates. We record unredeemed Gift Cards as a liability until the point of redemption.

Our historical experience indicates that not all issued Gift Cards are redeemed (the “Breakage”). Based upon over five years of redemption data, approximately 90% of Gift Cards are redeemed within the year after issuance, and approximately 95% are redeemed within 36 months of the date of issuance, after which redemption activity is negligible. Accordingly, we recognize Breakage as revenue by periodically decreasing the carrying value of the Gift Card liability by approximately 5% of the aggregate amount.

During the fiscal year ended March 31, 2005, Breakage was recognized at the time of issuance of Gift Cards. For fiscal years subsequent to March 31, 2005, the method of accounting has been changed to recognize Breakage at the time of redemption of Gift Cards. The effect of the change in accounting to record Breakage at the time of redemption was immaterial. The revenue from Breakage is included in the income statement line item net sales and amounted to approximately $532,000, $397,000 and $263,000 for fiscal years 2007, 2006 and 2005, respectively.

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

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

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

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. Based on our history of operating earnings, no valuation allowance has been recorded as of April 1, 2007. In the event that actual results differ from these estimates, or these estimates are adjusted in future periods, a valuation allowance may need to be established, which could impact our financial position and results of operations.

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

Stock-Based Compensation. Prior to the April 1, 2006 adoption of the Financial Accounting Standards Board (“FASB”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), stock-based compensation was included as a pro forma disclosure in the notes to the consolidated financial statements. Effective April 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123R, using the modified-prospective transition method. Under this transition method, stock-based compensation expense was recognized in the consolidated financial statements for granted, modified or settled stock options. The provisions of SFAS 123R apply to new stock options and stock options outstanding, but not yet vested, on the effective date of April 1, 2006. Results for prior periods have not been restated, as provided for under the modified-prospective transition method. Total stock-based compensation expense recognized for the 2007 fiscal year was $166,178 before income taxes, and the related tax benefit was $67,711. On March 31, 2006 we accelerated the vesting of options to purchase an aggregate of 209,514 shares of Class A Common Stock and 29,931 shares of Class B Common Stock. The purpose of accelerating the vesting of the options is to reduce the non-cash compensation expense that we otherwise would be required to recognize.

Recently Issued Accounting Pronouncements

In July 2006, the Emerging Issues Task Force promulgated Issue No. 06-3 (“Issue”), How Taxes Collected from Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (i.e., Gross Versus Net Presentation). The Task Force concluded that entities should present these taxes in the income statement on either a gross or a net basis based upon their accounting policy. However, this Issue states that if such taxes are significant, and are presented on a gross basis, the amounts of those taxes should be disclosed. This Issue should be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006. Since we currently record taxes on a net basis (i.e., sales tax is not included in sales, but is instead recorded as a liability under accrued expenses), the adoption of this Issue will not have a material impact on our net earnings or financial position.

In July 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. FIN No. 48 provides guidance regarding the recognition, measurement, presentation and disclosure in the financial statements of tax positions taken or expected to be taken on a tax return, including the decision whether to file or not to file in a particular jurisdiction. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. We will adopt FIN No. 48 beginning in the first quarter of fiscal 2008. The cumulative effect of applying the provisions of FIN No. 48 upon initial adoption will be reported as an adjustment to retained earnings as of the beginning of fiscal 2008. We are evaluating the impact, if any, the adoption of FIN No. 48 will have on our operating income, net earnings or retained earnings.

In May 2007, the FASB issued FSP FIN No. 48-1, Definition of “Settlement” in FASB Interpretation No. 48. FSP FIN No. 48-1 provides guidance on how a company should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. FSP FIN No. 48-1 is effective upon initial adoption of FIN No. 48, which we will adopt in the first quarter of fiscal 2008, as indicated above.

In September 2006, the U.S. Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, which provides interpretive guidance on the consideration of the effects of prior-year misstatements in quantifying current-year misstatements for the purpose of a materiality assessment. SAB No. 108 is effective for fiscal years ending after November 15, 2006. We adopted SAB No. 108 in the fourth quarter of fiscal 2007. The cumulative effect of initially applying the provisions of SAB No. 108 may be reported as a cumulative adjustment to retained earnings at the beginning of the year of adoption. The adoption of SAB No. 108 had no impact on our net earnings or financial position.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is effective for fiscal years beginning after December 15, 2007. We plan to adopt SFAS No. 157 beginning in the first quarter of fiscal 2009. We are evaluating the impact, if any, the adoption of SFAS No. 157 will have on our operating income or net earnings.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Companies are not allowed to adopt SFAS No. 159 on a retrospective basis unless they choose early adoption. We are evaluating the impact, if any, the adoption of SFAS No. 159 will have on our operating income or net earnings.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

Our Chief Executive Officer, Craig Levra, and Chief Financial Officer, Howard Kaminsky, with the participation of our management, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of the end of the period covered by this report 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 objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.

There were no changes in the Company's internal controls over financial reporting, known to the Chief Executive Officer or the Chief Financial Officer, which occurred during the quarter ended April 1, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

ITEM 11. EXECUTIVE COMPENSATION

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

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

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information concerning principal accountant fees and services is incorporated herein by reference from the section entitled “Independent Registered Public Accounting Firm” contained in the Proxy Statement.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

(1)

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

(2)

Schedules - Valuations and Qualifying Accounts.

For fiscal years 2007, 2006 and 2005.

Allowance for Sales Returns (Year ended)	Balance at beginning of period		Additions		Deductions		Balance at end of period
4/1/2007	$	386,000	$	19,763,851	$	19,755,851	$	394,000
3/31/2006	$	330,000	$	16,769,528	$	16,713,528	$	386,000
3/31/2005	$	240,000	$	15,302,119	$	15,212,119	$	330,000

Allowances for estimated returns are recorded at the estimated gross profit based upon our historical return patterns. Sales return allowances are recorded in other accrued expenses on the Consolidated Balance Sheets.

			Page
Report of Independent Registered Public Accounting Firm			35

Consolidated Statements of Operations for each of the three years in the
period ended April 1, 2007			36

Consolidated Balance Sheets as of April 1, 2007 and March 31, 2006			37

Consolidated Statements of Stockholders’ Equity for each of the three
years in the period ended April 1, 2007			38

Consolidated Statements of Cash Flows for each of the three years in the
period ended April 1, 2007			39

Notes to Consolidated Financial Statements			40

	April 1,		March 31,
	2007		2006
Assets
Current assets:
Cash and cash equivalents	$	3,840,757	$	2,563,930
Accounts receivable		6,894,282		2,479,386
Merchandise inventories		87,066,998		67,777,059
Prepaid expenses and other current assets		4,827,232		3,857,570
Prepaid income taxes		1,481,914		-
Deferred income taxes		3,145,502		3,920,192
Total current assets		107,256,685		80,598,137

Fixed assets, net		59,487,415		48,365,653
Deferred income taxes		4,504,986		3,274,015
Total assets	$	171,249,086	$	132,237,805

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	29,407,673	$	16,467,120
Loan payable to bank		11,776,278		-
Salaries and wages payable		4,999,139		5,473,610
Income taxes payable		-		302,274
Other accrued expenses		15,580,770		14,909,439
Total current liabilities		61,763,860		37,152,443

Deferred rent		23,059,084		17,616,994
Commitments and contingencies

Stockholders’ equity:
Preferred stock, $.01 par value:
Authorized shares - 2,000,000 Issued and outstanding shares - none		-		-

Class A Common stock, $.01 par value:
Authorized shares - 46,000,000 Issued and outstanding shares - 12,252,654 in 2007 and 11,927,146 in 2006		122,527		119,271

Class B Common stock, $.01 par value:
Authorized shares - 2,000,000 Issued and outstanding shares - 1,741,489 in 2007 and 1,703,909 in 2006		17,415		17,039

Additional paid-in capital		33,190,752		31,335,324
Retained earnings		53,095,448		45,996,734
Total stockholders’ equity		86,426,142		77,468,368
Total liabilities and stockholders’ equity	$	171,249,086	$	132,237,805

	Common Stock
	Class A				Class B
	Share		Amount		Share		Amount		Additional Paid-in Capital			Retained Earnings			Total

Balance at March 31, 2004		11,678,338	$	116,783		1,668,363	$	16,684	$	22,764,174		$	39,912,866		$	62,810,507
Options exercised		22,456		225		3,208		32		59,101			-			59,358
Related income tax benefit										69,244			-			69,244
Shares granted				-				-					-			-
Net income for 2005													6,171,057			6,171,057
Balance at March 31, 2005		11,700,794		117,008		1,671,571		16,716		22,892,519			46,083,923			69,110,166

Options exercised		226,352		2,263		32,338		323		471,603			-			474,189
Related income tax benefit										1,013,895			-			1,013,895
Optionee withholding
taxes from exercise of stock options										(1,264,519	)		-			(1,264,519	)
Shares granted				-				-		8,221,826			-			8,221,826
Net loss for 2006													(87,189	)		(87,189	)
Balance at March 31, 2006		11,927,146		119,271		1,703,909		17,039		31,335,324			45,996,734			77,468,368

Options exercised		325,508		3,256		37,580		376		1,353,850			-			1,357,482
Related income tax benefit										1,225,662			-			1,225,662
Optionee withholding
taxes from exercise of stock options										(890,264	)		-			(890,264	)
Shares granted				-				-		166,180			-			166,180
Net income for 2007													7,098,714			7,098,714
Balance at April 1, 2007		12,252,654	$	122,527		1,741,489	$	17,415	$	33,190,752		$	53,095,448		$	86,426,142

Fixtures and equipment			5-7 years
Computer software and equipment			3-7 years
Rental equipment			3 years
Vehicles			5 years
Leasehold improvements			10-15 years

	Fiscal Year ended,
	2007			2006			2005
Risk-free interest rate		4.9	%		4.0	%		4.0	%
Expected volatility		41.1	%		38.0	%		35.0	%
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected life in years		7.5			5.0			5.0

	Leases with Founder		Unrelated Leases		Total
2008	$	2,026,441	$	27,785,855	$	29,812,296
2009		2,026,441		29,630,352		31,656,793
2010		2,026,441		30,382,972		32,409,413
2011		1,972,275		28,053,984		30,026,259
2012		1,376,441		27,945,851		29,322,292
Thereafter		2,182,591		125,219,448		127,402,039
	$	11,610,630	$	269,018,462	$	280,629,092

	2007					2006
	Current			Non- current		Current			Non- current
Deferred tax assets:
Fixed assets	$	-		$	3,202,490	$	-		$	1,752,668
Uniform cost capitalization		471,711			-		309,007			-
Inventory reserves		1,100,142			-		876,357			-
Accrued vacation		409,566			-		337,170			-
Bonus accrual		236,327			-		730,961			-
Self-insurance accruals		582,016			-		1,049,847			-
Allowance for bad debt and sales returns		220,098			-		205,546			-
State income taxes		378,614			-		591,745			-
Deferred rent					1,302,496		-			1,521,347
Other		(252,972	)				(180,441	)		-
Total deferred tax assets	$	3,145,502		$	4,504,986	$	3,920,192		$	3,274,015

	Options			Weighted Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding as of March 31, 2006		1,950,168		$	4.29
Granted		97,500			8.04
Exercised		(363,090	)		4.23
Forfeited or expired		(176,992	)		3.74
Outstanding as of April 1, 2007		1,507,586		$	4.84		5.4	$	9,117,296

Exercisable as of April 1, 2007		1,380,890		$	4.57		5.1	$	8,717,100

	Shares			Weighted Average Fair Value
Nonvested, March 31, 2006		89,642		$	3.68
Granted		97,500			4.32
Vested		(40,948	)		3.46
Forfeited		(19,498	)		3.90
Nonvested, April 1, 2007		126,696			4.16

	Options Outstanding						Options Exercisable
Range of Exercise Price	Shares		Weighted average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Under $3		551,500		2.32	$	2.29		551,500	$	2.29
$3.00 to $4.490		314,000		4.77		4.09		314,000		4.09
$4.50 to $5.99		1,250		4.14		4.55		1,250		4.55
$6.00 to $7.50		413,836		8.31		6.98		378,140		7.01
$7.51 to $10.00		225,500		8.68		8.15		136,000		8.17
$0.00 to $10.00		1,506,086		5.43		4.83		1,380,890		4.57

	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
Fiscal 2007
Net sales	$	84,418	$	91,303		$	114,683	$	97,806
Gross profit		24,749		29,360			37,231		28,681
Income from operations		920		2,800			6,929		1,596
Net income		530		1,682			4,005		881
Basic earnings per share		0.04		0.12			0.29		0.06
Diluted earnings per share	$	0.04	$	0.12		$	0.28	$	0.06

		First Quarter		Second Quarter			Third Quarter		Fourth Quarter
Fiscal 2006
Net sales	$	72,144	$	81,732		$	99,665	$	89,663
Gross profit		21,304		25,958			31,743		27,062
Income (loss) from operations		655		(4,241	)		5,308		2,811
Net income (loss)		389		(5,163	)		3,049		1,638
Basic earnings (loss) per share		0.03		(0.38	)		0.22		0.12
Diluted earnings (loss) per share	$	0.03	$	(0.38	)	$	0.22	$	0.12


	SPORT CHALET, INC. (Registrant)

Date: June 12, 2007	By:	/s/ Howard K. Kaminsky
		Howard K. Kaminsky, Executive Vice President - Finance, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)


		/s/ Craig L. Levra	Date: June 12, 2007
		Craig L. Levra, Chairman, Chief Executive Officer and President (Principal Executive Officer)


		/s/ John R. Attwood	Date: June 12, 2007
		John R. Attwood, Director


		/s/ Donald J. Howard	Date: June 12, 2007
		Donald J. Howard, Director


		/s/ Al D. McCready	Date: June 12, 2007
		Al D. McCready, Director


		/s/ Eric S. Olberz	Date: June 12, 2007
		Eric S. Olberz, Director


		/s/ Frederick H. Schneider	Date: June 12, 2007
		Frederick H. Schneider, Director

Number	Description

3.1	Amended and Restated Certificate of Incorporation.	(1)

3.2	Certificate of Amendment to the Amended and Restated Certificate of Incorporation.	(2)

3.3	Bylaws, of Sport Chalet, Inc., as amended.	(3)

4.1	Form of Certificate for the Class A Common Stock.	(4)

4.2	Form of Certificate for the Class B Common Stock.	(4)

10.1	1992 Incentive Award Plan.	(5)

10.2	2004 Equity Incentive Plan.	(6)

10.3*	Form of Director and Officer Indemnification Agreement.	(21)

10.4	Lease for La Cañada stores dated as of September 1, 1992, between the Company and La Cañada Properties, Inc.	(7)

10.5	Amendment to Lease for La Cañada stores dated as of June 12, 2006, between the Company and La Cañada Properties, Inc.	(21)

10.6	Lease for Huntington Beach store dated as of August 25, 1994, between the Company and Huntington Beach Properties, Inc.	(8)

10.7	Amendment to Lease for Huntington Beach store dated as of June 12, 2006, between the Company and Huntington Beach Properties, Inc.	(21)

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

10.9	Lease for La Cañada offices dated as of October 1, 2002, between the Company and La Cañada Properties, Inc.	(10)

10.10	Business Loan Agreement dated as of June 19, 1998, between the Company and Bank of America, N.A.	(11)

10.11	Amendment No. 2 to Business Loan Agreement dated as of June 19,1998, between the Company and Bank of America, N.A.	(12)

10.12	Amendment No. 3 to Business Loan Agreement dated as of November 20, 2001, between the Company and Bank of America, N.A.	(13)

10.13	Amendment No. 4 to Business Loan Agreement dated as of June 10, 2002, between the Company and Bank of America, N.A.	(14)

10.14	Amendment No. 5 to Loan Agreement, dated as of September 25, 2003, between the Company and Bank of America, N.A.	(15)

10.15	Amendment No. 6 to Loan Agreement, dated as of September 30, 2006, between the Company and Bank of America, N.A.	(16)

10.16	Amendment No. 7 to Loan Agreement, dated as of March 31, 2006, between the Company and Bank of America, N.A.	(21)

10.17	Amendment No. 8 to Loan Agreement, dated as of April 19, 2007, between the Company and Bank of America, N.A.	†

10.18*	Employment Agreement dated as of April 1, 2000, between the Company and Norbert J. Olberz.	(17)

10.19*	Amendment No. 1 to Employment Agreement, dated as of December 9, 2005, between Sport Chalet, Inc. and Norbert J. Olberz.	(18)

10.20*	Employment Agreement dated as of November 15, 2002, between the Company and Craig L. Levra.	(19)

Number	Description

10.21*	Employment Agreement dated as of November 15, 2002, between the Company and Howard K. Kaminsky.	(19)

10.22*	Employment Agreement dated as of November 15, 2002, between the Company and Dennis D. Trausch.	(19)

10.31*	Form of letter agreement re acceleration of vesting of options between the Company and certain of its executive officers and key employees.	(22)

14.1	Code of Conduct	(20)

23.1	Report of Independent Registered Public Accounting Firm.	†

24.1	Power of attorney (see signature page).

31.1	Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	†

31.2	Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	†

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

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

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

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

(2)	Incorporated by reference to Exhibit A to the Company's definitive proxy statement for the 2005 annual meeting of stockholders.

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

(4)	Incorporated by reference to Exhibit 4.1 and 4.2 to the Company’s Registration of Certain Classes of Securities on Form 8-A (Registration Statement No. 000-20736).

(5)	Incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1 (Registration Statement No. 33-53120).

(6)	Incorporated by reference to Appendix D to the Company's definitive proxy statement for the 2005 annual meeting of stockholders.

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

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

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

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

(11)	Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
(12)	Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

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


	BANK:

	Bank of America, N.A.

	By:	Matthew Koenig,
		Authorized Signer


	BORROWER(S):

	Sport Chalet, Inc.

	By:	/s/ Howard Kaminsky
		Howard Kaminsky, Executive vice President-Finance, Chief Financial Officer and Secretary


Date: June 12, 2007		/s/ Craig Levra
		Craig Levra,
		Chief Executive Officer


Date: June 12, 2007		/s/ Howard Kaminsky
		Howard Kaminsky,
		Chief Financial Officer


Date: June 12, 2007		/s/ Craig L. Levra
		Chairman of the Board, Chief Executive Officer and President


		/s/ Howard K. Kaminsky
		Executive Vice President-Finance,
		Chief Financial Officer and Secretary