**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C. 20549

**FORM 10-Q**

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE   ACTOF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 5, 2007.**

**Commission File Number:  000-50659**

**GANDER MOUNTAIN COMPANY**

(Exact name of Registrantas Specified in its Charter)

| **Minnesota**                    |   | **180  East Fifth Street, Suite 1300**                                                                                      |   | **41-1990949**       |
|----------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------|--------|----------------------|
| (State or Other  Jurisdiction of |   | **Saint  Paul, Minnesota 55101**                                                                                            |   | (I.R.S. Employer     |
| Incorporation or  Organization)  |   | **(651)  325-4300**                                                                                                         |   | Identification  No.) |
|                             |   | (Address,  including zip code, and telephone number, including area code,of Registrant’s  Principal Executive Offices) |   |                 |

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes xNo o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. check one olarge accelerated filer o acceleratedfiler x non-accelerated filer

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).Yes o No x

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date: Common Stock, $.01 par value; 20,284,410 shares outstanding as of June1, 2007.

 

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**GANDER MOUNTAIN COMPANY**

**QUARTERLY PERIOD ENDED MAY 5,2007**

**Index**
|                                | **Page**                                                                                    |
|--------------------------------|---------------------------------------------------------------------------------------------|
| PART  I. FINANCIAL INFORMATION |                                                                                        |
| Item 1.                        | Unaudited Financial  Statements                                                             | 2 |
|                           | Statements of Operations                                                                    | 2 |
|                           | Balance Sheets                                                                              | 3 |
|                           | Statements of Cash Flows                                                                    | 4 |
|                           | Notes to Unaudited Financial Statements                                                     | 5 |
| Item 2.                        | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 8 |
| Item 3.                        | Quantitative  and Qualitative Disclosures About Market Risk                                 | 15 |
| Item 4.                        | Controls and Procedures                                                                     | 16 |
|                           |                                                                                        |
| PART  II. OTHER INFORMATION    |
| Item 1.                        | Legal Proceedings                                                                           | 16 |
| Item 1A.                       | Risk  Factors                                                                               | 17 |
| Item 2.                        | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 17 |
| Item 3.                        | Defaults Upon  Senior Securities                                                            | 17 |
| Item 4.                        | Submission of  Matters to a Vote of Security Holders                                        | 17 |
| Item 5.                        | Other Information                                                                           | 17 |
| Item 6.                        | Exhibits                                                                                    | 17 |
| SIGNATURES                     | 18                                                                                          |
|                                |                                                                                             |  |  |  |

 

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**PART I.FINANCIAL INFORMATION**

**Item 1.  Financial Statements**

**Gander Mountain Company**

**Statements of Operations -Unaudited**

**(In thousands, except per share data)**
| ** **                                 | ** ** | **13 Weeks Ended** | ** ** |
|--------------------------------------------|------------|------------------------------|------------|
| ** **                                 | ** ** | **May 5,**              | ** ** | **April 29,** | ** ** |
| ** **                                 | ** ** | **2007**                     | ** ** | **2006** | ** ** |
| Sales                                      |       | $                            | 175,749    |   | $ | 155,581 |   |
| Cost of goods sold                         |       | 141,872                      |       | 128,589 |   |
| Gross profit                               |       | 33,877                       |       | 26,992 |   |
| Operating expenses:                        |       |                         |       |   |   |
| Store operating  expenses                  |       | 40,552                       |       | 35,855 |   |
| General and  administrative expenses       |       | 11,450                       |       | 9,353 |   |
| Pre-opening  expenses                      |       | 730                          |       | 765 |   |
| Loss from operations                       |       | (18,855                      | )          | (18,981 | ) |
| Interest expense, net                      |       | 3,976                        |       | 3,986 |   |
| Loss before income  taxes                  |       | (22,831                      | )          | (22,967 | ) |
| Income tax provision                       |       | —                       |       | — |   |
| Net loss                                   |       | $                            | (22,831    | ) | $ | (22,967 | ) |
|                                       |       |                         |       |   |   |
| Basic and diluted loss  per share          |       | $                            | (1.14      | ) | $ | (1.61 | ) |
|                                       |       |                         |       |   |   |
| Weighted average common shares outstanding |       | 20,089                       |       | 14,285 |   |

 

See accompanying notes tounaudited financial statements.

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**GanderMountain Company**

**Balance Sheets**

**(In thousands)**
| ** **                                                                                                             | ** ** | **May 5,** | ** ** | **February 3,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|----------------------|------------|
| ** **                                                                                                             | ** ** | **2007**        | ** ** | **2007**             | ** ** |
| ** **                                                                                                             | ** ** | **(Unaudited)** | ** ** | ** **           | ** ** |
| **Assets**                                                                                                             |       |            |       |                 |       |
| Current assets:                                                                                                        |       |            |       |                 |       |
| Cash and cash equivalents                                                                                              |       | $               | 1,364      |                 | $          | 1,342 |   |
| Accounts receivable                                                                                                    |       | 15,583          |       | 10,337               |       |
| Inventories                                                                                                            |       | 393,300         |       | 349,120              |       |
| Prepaids and other current assets                                                                                      |       | 11,577          |       | 10,681               |       |
| Total current  assets                                                                                                  |       | 421,824         |       | 371,480              |       |
| Property and  equipment, net                                                                                           |       | 148,571         |       | 144,439              |       |
| Other assets,  net                                                                                                     |       | 5,680           |       | 5,698                |       |
| Total assets                                                                                                           |       | $               | 576,075    |                 | $          | 521,617 |   |
| ** **                                                                                                             |       |            |       |                 |       |
| **Liabilities  and shareholders’ equity**                                                                         |       |            |       |                 |       |
| Current  liabilities:                                                                                                  |       |            |       |                 |       |
| Borrowings under credit facility                                                                                       |       | $               | 223,605    |                 | $          | 168,485 |   |
| Accounts payable                                                                                                       |       | 85,535          |       | 62,868               |       |
| Accrued and other current liabilities                                                                                  |       | 45,085          |       | 48,032               |       |
| Current maturities of long term debt                                                                                   |       | 2,083           |       | 1,677                |       |
| Total current  liabilities                                                                                             |       | 356,308         |       | 281,062              |       |
|                                                                                                                   |       |            |       |                 |       |
| Long term debt                                                                                                         |       | 16,722          |       | 16,421               |       |
| Other long term  liabilities                                                                                           |       | 27,197          |       | 27,343               |       |
|                                                                                                                   |       |            |       |                 |       |
| Shareholders’  equity:                                                                                            |       |            |       |                 |       |
| Preferred stock ($.01 par value, 5,000,000 shares authorized;  no shares issued and outstanding)                       |       | —          |       | —               |       |
| Common stock ($.01 par value, 100,000,000 shares  authorized; 20,185,140 and 20,027,788 shares issued and outstanding) |       | 202             |       | 200                  |       |
| Additional paid-in-capital                                                                                             |       | 254,294         |       | 252,408              |       |
| Notes receivable from shareholders                                                                                     |       | (4,100          | )          | (4,100               | )          |
| Accumulated deficit                                                                                                    |       | (74,548         | )          | (51,717              | )          |
| Total  shareholders’ equity                                                                                       |       | 175,848         |       | 196,791              |       |
| Total  liabilities and shareholders’ equity                                                                       |       | $               | 576,075    |                 | $          | 521,617 |   |

 

See accompanying notes tounaudited financial statements.

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**GanderMountain Company**

**Statementsof Cash Flows - Unaudited**

**(In thousands)**
| ** **                                                                   | ** ** | **13 Weeks Ended** | ** ** |
|------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                   | ** ** | **May 5,**              | ** ** | **April 29,** | ** ** |
| ** **                                                                   | ** ** | **2007**                     | ** ** | **2006** | ** ** |
| **Operating  activities**                                                    |       |                         |       |   |   |
| Net loss                                                                     |       | $                            | (22,831    | ) | $ | (22,967 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                         |       |   |   |
| Depreciation and amortization                                                |       | 6,202                        |       | 5,462 |   |
| Stock-based compensation expense                                             |       | 393                          |       | 301 |   |
| Loss on disposal of assets                                                   |       | 34                           |       | 111 |   |
| Change in operating assets and liabilities:                                  |       |                         |       |   |   |
| Accounts receivable                                                          |       | (5,246                       | )          | (4,846 | ) |
| Inventories                                                                  |       | (44,180                      | )          | (24,222 | ) |
| Prepaid expenses and other assets                                            |       | (1,069                       | )          | (3,341 | ) |
| Accounts payable and other liabilities                                       |       | 19,566                       |       | 27,720 |   |
| Net cash used in  operating activities                                       |       | (47,131                      | )          | (21,782 | ) |
| ** **                                                                   |       |                         |       |   |   |
| **Investing  activities**                                                    |       |                         |       |   |   |
| Purchase of property  and equipment                                          |       | (8,851                       | )          | (3,668 | ) |
| Net cash used in  investing activities                                       |       | (8,851                       | )          | (3,668 | ) |
|                                                                         |       |                         |       |   |   |
| **Financing  activities**                                                    |       |                         |       |   |   |
| Borrowings under  credit facility, net                                       |       | 55,120                       |       | 25,619 |   |
| Reductions in  long term debt                                                |       | (617                         | )          | (173 | ) |
| Proceeds from  exercise of stock options                                     |       | 1,501                        |       | — |   |
| Net cash  provided by financing activities                                   |       | 56,004                       |       | 25,446 |   |
|                                                                         |       |                         |       |   |   |
| Net increase /  (decrease) in cash                                           |       | 22                           |       | (4 | ) |
| Cash, beginning  of period                                                   |       | 1,342                        |       | 1,580 |   |
| Cash, end of period                                                          |       | $                            | 1,364      |   | $ | 1,576 |   |

 

See accompanying notes tounaudited financial statements.

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**Gander Mountain Company**

**Notes toUnaudited Financial Statements**

**QuarterlyPeriod Ended May 5, 2007**

**1.Basis of Presentation**

The accompanyingunaudited financial statements of Gander Mountain Company (“we” or “us”) havebeen prepared in accordance with the requirements for Form 10-Q and do notinclude all the disclosures normally required in annual financial statementsprepared in accordance with U.S. generally accepted accounting principles. Theinterim financial information as of May 5, 2007 and for the 13 weeks ended May5, 2007 and April 29, 2006, is unaudited and has been prepared on the samebasis as the audited annual financial statements. In the opinion of management,this unaudited information includes all adjustments necessary for a fairpresentation of the interim financial information. All of these adjustments areof a normal recurring nature. These interim financial statements filed on thisForm 10-Q and the discussions contained herein should be read in conjunction withthe annual financial statements and notes included in our Annual Report on Form10-K for the fiscal year ended February 3, 2007, as filed with the Securitiesand Exchange Commission, which includes audited financial statements for ourthree fiscal years ended February 3, 2007.

Our business isseasonal in nature and interim results may not be indicative of results for afull year. Historically, we have realized more of our sales in the latter halfof our fiscal year, which includes the hunting and holiday seasons. Ourbusiness is also impacted by the timing of new store openings. Both variationin seasonality and new store openings impact the analysis of the results ofoperations and financial condition for comparable periods.

**2.Stock-Based Compensation**

We have threeshare-based compensation plans which are the 2004 Omnibus Stock Plan, the 2002Stock Option Plan and the Employee Stock Purchase Plan. In addition certainapproved stock-based option awards were granted in fiscal 1998 and fiscal 2002and were not under a specific option plan program. We are no longer authorizedto grant any awards under the 2002 Stock Option Plan.  As of May 5, 2007, there were a total of3,756,545 options to purchase common stock outstanding under all of our stockoption plans and non-plan option awards, with a weighted average exercise priceof $10.20 and a weighted average remaining life of 7.3 years.  As of May 5, 2007, there were 1,119,638shares available for future grant under the 2004 Omnibus Stock Plan.

Stock-based compensationexpense for the 13 weeks ended May 5, 2007 and April 29, 2006, was $393,000 and$301,000, respectively. As of May 5, 2007, there was $2.2 million ofunrecognized compensation expense related to stock options that is expected tobe recognized over a weighted-average period of 2.1 years.

During our firstquarter of fiscal 2007, there were 157,352 options exercised with an aggregateintrinsic value of $383,821, which generated $1.5 million in net cash proceedsfor the company.  There were no exercisesin the first quarter of fiscal 2006. 
|                                                               | ** ** | **13 weeks - May 5, 2007**       | ** ** | **13 weeks - April 29. 2006**  | ** ** |
|---------------------------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                    | ** ** | **Number of   Shares Under   Option** | ** ** | **Weighted-   Average   Exercise Price** | ** ** | **Number of   Shares Under   Option** | ** ** | **Weighted-   Average   Exercise Price** | ** ** |
| Outstanding -  Beginning                                      |       | 3,945,475                                                 |       | $                                                       | 10.16      |   | 3,680,804 |   | $ | 10.84 |   |
| Granted                                                       |       | 48,700                                                    |       | 10.95                                                   |       | 395,767 |   | 6.45 |   |
| Exercised                                                     |       | (157,352                                                  | )          | 9.55                                                    |       | — |   | — |   |
| Forfeited                                                     |       | (80,278                                                   | )          | 9.02                                                    |       | (118,909 | ) | 10.89 |   |
| Outstanding  -Ending                                          |       | 3,756,545                                                 |       | $                                                       | 10.20      |   | 3,957,662 |   | $ | 10.40 |   |
|                                                          |       |                                                      |       |                                                    |       |   |   |   |   |
| Weighted-average  Black-Scholes fair value of options granted |       |                                                      |       | $                                                       | 5.38       |   |   |   | $ | 3.16 |   |

 

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**3.****New AccountingPronouncement**

InJune 2006, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes* (“FIN 48”), an interpretation of Statement ofFinancial Accounting Standards No. 109, *Accountingfor Income Taxes*.  FIN 48clarifies the accounting for uncertainty in income taxes by prescribing arecognition threshold for tax positions taken or expected to be taken in a taxreturn. The recognition threshold requires that we determine whether it is morelikely than not that a tax position will be sustained upon examination, andthen the position is measured at the largest amount of benefit that is greaterthan 50 percent likely of being realized upon ultimate settlement. Unrecognizedtax benefits are tax benefits claimed on our tax returns that do not meet theserecognition and measurement standards. FIN 48 was effective as of the beginningof this first quarter of fiscal 2007. As of May 5, 2007 and February 4, 2007,we believe that no reserves for uncertain income tax positions need to berecorded pursuant to FIN 48.  As aresult, and due to our full valuation allowance, we do not have any unrecognizedtax benefits. Thus, our adoption of FIN 48 did not have a material impact onour financial position or results of operations. We do not believe there willbe any material changes in our unrecognized tax positions over the next 12months.

Weare subject to audit by the Internal Revenue Service and states in which weoperate, with respect to income taxes for the prior three years. As of May 5,2007, we have federal and state net operating loss carryforwards ofapproximately $54.5 million expiring between 2016 and 2026.

InSeptember 2006, the FASB issued SFAS No. 157, *FairValue Measurements* (“SFASNo. 157”). SFAS No. 157 defines fair value, establishes a framework formeasuring fair value in generally accepted accounting principles and expandsdisclosures about fair value measurements. SFAS No. 157 applies to otheraccounting pronouncements that require or permit fair value measurements, asthe FASB previously concluded in those accounting pronouncements that fairvalue is the relevant measurement attribute. Accordingly, SFAS No. 157 does notrequire any new fair value measurements. SFAS No. 157 is effective for fiscalyears beginning after November 15, 2007. We plan to adopt SFAS No. 157beginning in the first quarter of fiscal 2008. We are currently evaluating theimpact, if any, the adoption of SFAS No. 157 will have on our financialposition and results of operations.

InFebruary 2007, the FASB issued SFAS No. 159, *TheFair Value Option for Financial Assets and Liabilities – Including an Amendmentof FASB Statement No. 115* (“SFAS No. 159”). SFAS No. 159 permits usto choose to measure certain financial assets and liabilities at fair valuethat are not currently required to be measured at fair value (the “Fair ValueOption”). Election of the Fair Value Option is made on aninstrument-by-instrument basis and is irrevocable. At the adoption date,unrealized gains and losses on financial assets and liabilities for which theFair Value Option has been elected would be reported as a cumulative adjustmentto beginning retained earnings. If we elect the Fair Value Option for certainfinancial assets and liabilities, we will report unrealized gains and lossesdue to changes in their fair value in earnings at each subsequent reportingdate. SFAS No. 159 is effective for our 2008 fiscal year. We are currentlyevaluating the potential impact of adopting SFAS No. 159 on our financialposition and results of operations.

**4.Capital Stock**

Since thecompletion of our initial public offering on April 26, 2004, and the filing ofour amended and restated articles of incorporation in connection therewith, theauthorized capital stock of our company consists of 100,000,000 shares ofcommon stock, par value $.01 per share, and 5,000,000 shares of preferredstock, par value $.01 per share. As of May 5, 2007, there were 20,185,140shares of common stock and no shares of preferred stock outstanding.

**5.Credit Facility**

Our creditfacility provides us with the capital to fund the operations of our business.Currently, the revolving credit facility provides availability of $275 million,which may be further increased to $300 million subject to certain conditionsincluding the absence of default. In addition to the existing $275 millionrevolving credit facilty, in March 2006 we added a $20 million term loan for atotal credit facility of $295 million. The credit facility has a maturity dateof June 30, 2009.

EffectiveFebruary 28, 2007, we amended our credit facility in order to have the $30million of cash received from our December 2006 stock sale be taken intoconsideration in determining EBITDA, for pricing purposes only, to allow us toborrow at lower interest rates. At the time of the amendment and based oncurrent 

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EBITDA levels at thattime, this change resulted in a reduced interest rate of 50 basis pointsrelative to the revolving credit facility. Pricing also was modified on the $20million term loan with LIBOR borrowings reduced by 125 basis points.

Outstandingborrowings under the credit facility, including letters of credit, were $238.7million and $207.1 million as of May 5, 2007 and April 29, 2006,respectively.  Actual availability underthe amended credit facility is limited to specific advance rates on eligibleinventory and accounts receivable up to the $295 million facility limit.Typically, availability will be highest in the latter half of our fiscal yearas inventory levels and advance rates increase. Based on eligible inventory andaccounts receivable balances as of May 5, 2007 and April 29, 2006, ouravailable borrowing capacity under the credit facility, after subtractingletters of credit, was $28.3 million and $24.1 million, respectively.

The credit facility continues to specify that testingof the EBITDA covenant is required only when the Company’s availability is lessthan 10% of the lesser of (a) the revolving credit facility maximum on anygiven day or (b) the borrowing base, as defined and adjusted for certainreserves. It also requires quarterly testing of the operating cash flowcovenant. We were in compliance with all covenants as of May 5, 2007 andFebruary 3, 2007.

**6.Earnings Per Share**

Basic and diluted income or loss per share is basedupon the weighted average number of shares outstanding.  Diluted loss per share for the 13 weeks endedMay 5, 2007 and the 13 weeks ended April 29, 2006 excludes potentially dilutivestock options from the calculation of weighted average shares outstandingbecause including them would have an anti-dilutive effect on loss per share.

As of May 5, 2007 and April 29, 2006, there were atotal of 3,756,545 and 3,957,662 options to purchase common stock outstanding,respectively.

**7.Selected Balance Sheet Information (in thousands)**
| ** **                                                                        | ** ** | **May 5,  2007** | ** ** | **February 3,  2007** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------|------------|----------------------------|------------|
| *Accrued and other current liabilities consist of:* | ** ** | ** **            | ** ** | ** **                 | ** ** |
| Gift cards and gift  certificate liabilities                                      |       | $                     | 20,173     |                       | $          | 25,616 |   |
| Payroll and  related fringe benefits                                              |       | 4,429                 |       | 6,456                      |       |
| Sales, property  and use taxes                                                    |       | 5,636                 |       | 5,530                      |       |
| Lease related  costs                                                              |       | 1,356                 |       | 1,325                      |       |
| Insurance  reserves and liabilities                                               |       | 2,004                 |       | 2,014                      |       |
| Interest                                                                          |       | 697                   |       | 391                        |       |
| Due-to-related  parties                                                           |       | 22                    |       | 22                         |       |
| Other accruals  and current liabilities                                           |       | 10,768                |       | 6,678                      |       |
| **Accrued and other current liabilities**                                         |       | $                     | 45,085     |                       | $          | 48,032 |   |

 
| ** **                         | ** ** | **May 5,  2007** | ** ** | **February 3,  2007** | ** ** |
|------------------------------------|------------|------------------|------------|-----------------------|------------|
| *Long  term debt consists of:*     |       |             |       |                  |       |
| Capitalized  lease obligations (1) |       | $                | 11,785     |                  | $          | 11,428 |   |
| Term note                          |       | 4,937            |       | 4,993                 |       |
| **Long term debt**                 |       | $                | 16,722     |                  | $          | 16,421 |   |

 
| ** **                                 | ** ** | **May 5,  2007** | ** ** | **February 3,  2007** | ** ** |
|--------------------------------------------|------------|------------------|------------|-----------------------|------------|
| *Other  long-term liabilities consist of:* |       |             |       |                  |       |
| Deferred rent                              |       | $                | 25,443     |                  | $          | 25,310 |   |
| Insurance  reserves and other liabilities  |       | 1,754            |       | 2,033                 |       |
| **Other  long-term liabilities**           |       | $                | 27,197     |                  | $          | 27,343 |   |

 

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(1)   During the first quarters offiscal 2007 and fiscal 2006, we purchased equipment totaling $1.3 million and$0, respectively, financed through capital lease transactions, which arenon-cash investing activities.

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**8.Contingencies**

***Trademark Litigation—***On July 2,2004, we filed a complaint in the U.S. District Court for the District ofMinnesota seeking declaratory relief that the contingent trademark licensingprovision of a noncompetition agreement dated May 16, 1996, made betweenits predecessor and Cabela’s Incorporated, is invalid and unenforceable.Although the noncompetition provisions of the noncompetition agreement expiredin June 2003, Cabela’s contends that a contingent trademark licensing provisionof the noncompetition agreement now requires us to grant Cabela’s a licensethat would preclude our use of certain of its trademarks for direct marketingpurposes.

On August 18,2005, the court ruled that the contingent trademark licensing provision is notlegally invalid as a noncompetition agreement and dismissed our complaint. Thecourt also acknowledged that it had not been asked at that point to determine,and was not determining, the scope of the contingent trademark license or theparties’ respective rights thereunder. In December 2005, the court grantedour motion to file an amended reply to Cabela’s counterclaim, in which weraised multiple additional issues regarding the validity, enforceability, andinterpretation of any trademark rights allegedly possessed by Cabela’s, and anylimitations upon our rights to engage in certain marketing activities under thetrademarks at issue. These issues remain before the court.

We are not able topredict the ultimate outcome of this litigation, but it could be costly anddisruptive. The total costs may not be reasonably estimated at thistime. The outcome of this dispute may impact the manner in which we marketour products in certain distribution channels in the future. An adverseresult is not expected to have an affect on our marketing of products throughour retail stores. Nor would an unfavorable result preclude us from engaging indirect marketing activities using trademarks not in dispute. A favorable resultwould confirm our right to use the subject trademarks in all direct marketingactivities.

***Other Legal Claims—***Various claims andlawsuits arising in the normal course of business may be pending against usfrom time to time. The subject matter of these proceedings typically relate tocommercial disputes and employment issues. As of the date of this report, weare not a party to any legal proceedings that are expected, individually or inthe aggregate, to have a material adverse effect on our financial condition orresults of operations.

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

**Forward Looking Statements**

The followingdiscussion may contain forward-looking statements regarding us, our businessprospects and our results of operations that are subject to certain risks anduncertainties posed by many factors and events that could cause our actualbusiness, prospects and results of operations to differ materially from thosethat may be anticipated by such forward-looking statements. Factors that couldcause or contribute to such differences include, but are not limited to, thosedescribed in Item 1A - “Risk Factors” in our annual report on Form 10-K for thefiscal year ended February 3, 2007, as filed with the Securities and ExchangeCommission.  Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date of this report. Weundertake no obligation to revise any forward-looking statements in order toreflect events or circumstances that may subsequently arise. Readers are urgedto carefully review and consider the various disclosures made by us in thisreport and in our other reports filed with the Commission that adviseinterested parties of the risks and factors that may affect our business.

Theinterim financials statements filed on this Form 10-Q and the discussionscontained herein should be read in conjunction with the annual financialstatements and notes included in our Form 10-K, as filed with the Securitiesand Exchange Commission, which includes audited financial statements for ourthree fiscal years ended February 3, 2007.

**Overview**

Gander MountainCompany operates the nation’s largest retail network of stores specializing inhunting, fishing, camping, marine and outdoor lifestyle products and services.As of May 5, 2007, we expanded our store base to 105 conveniently locatedGander Mountain outdoor lifestyle stores, providing approximately 5.5 millionsquare feet of retail space in 22 states: Alabama, Arkansas, Colorado, Florida,Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Minnesota, NewYork, North Carolina, North Dakota, Ohio, Pennsylvania, 

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Tennessee, Texas,Virginia, West Virginia and Wisconsin. We anticipate opening 13 new stores in2007, including three relocations. One new store was opened in the firstquarter of fiscal 2007.

Our core strategyand focus is to provide our target customers with a unique combination of abroad assortment of outdoor equipment, accessories, related technical appareland footwear; expert services; convenient locations and value pricing. Ourstores feature an extensive selection of leading national and regional brandsas well as our company’s owned brands. We tailor our merchandise assortments totake advantage of our customers’ seasonal and regional or local preferences. Weseek to combine this broad product offering with superior customer servicebased on our store associates’ extensive product knowledge and outdoor-relatedexperience.

Since its originin 1960, our brand name has had a heritage of strong appeal and relevance toconsumers who participate in outdoor sports and recreation activities, based onour “We Live Outdoors” culture and theme. From 1960 to 1996, our predecessoroperated a nationwide catalog business that, by 1996, included 17 retailstores. In 1996 and 1997, Holiday Companies, which at the time owned andoperated a group of retail sporting goods stores, acquired these GanderMountain retail stores, formed our company and began to build a new outdoorlifestyle business.

In March 2003,we began transforming our market position from a traditional specialty store toa large-format, category-focused store by opening new stores in a large formatand increasing the selling space within our original, small-format stores. Priorto March 2003, our typical store was approximately 31,000 square feet. Ourlarge-format stores range from approximately 50,000 to 100,000 square feet,with our current focus primarily upon stores of 60,000 to 65,000 square feetwith an outside selling area. Our large-format stores generally are locatedwith convenient access to a major highway and have a warehouse-style shoppingenvironment characterized by concrete floors, open-bar joist ceilings,high-density racking and wide aisles. To further build upon our brand’sreputation for high quality and exceptional value, we are outfitting certainstores with additional features such as brick and stone accents, log-wrappedcolumns, and improved branding, fixture, flooring and signage elements.

The larger formatenables us to offer more products and services to our customers. Most of ourlarge-format stores offer all-terrain vehicles (ATVs). Our large-format storesoffer unique features and specialized services, including a full-servicegunsmith shop, a full-service archery pro shop, archery target lanes, and apower shop performing repairs for ATVs, boats and other engines. Some of thelarge-format stores also include a bait shop that opens early for theconvenience of our customers. Nearly all of our stores have a Gander MountainLodge, which is an in-store meeting room available for public use, where weprovide hunter safety classes, outdoor-skills seminars and othercommunity-focused activities. We utilize outside selling areas adjacent to someof our large-format stores to display additional offerings of larger items suchas ATVs, boats, kayaks, trailers and canoes. The outside selling areas increasethe efficiency of our stores and also give those products displayed within itgreater visibility. As of May 5, 2007, 56 of our 105 stores were in our largeformat.

InJanuary 2007, we and Tracker Marine Group, a division of Bass Pro Shops,announced that the popular Tracker Marine Group boat brands will be featured inour stores. Our roll-out of this expanded boat program, which also features theCrestliner, Mercury and Yamaha brands, began mid-quarter of our first quarterof 2007.  Brand offerings are tailored ineach location based on market and store dynamics and customer preferences. Therollout of the Tracker brands occurred in approximately 33 of our large-formatstores and will encompass approximately 35 to 40 stores when fully deployed. In2006, approximately 10 stores carried an assortment of fishing and recreationalboats.

We utilize severalstrategic and operating initiatives aimed at improving our merchandiseofferings, enhancing profitability and expanding the number and geographicdiversity of our stores. We measure performance using such key operatingstatistics as comparable store sales, sales per square foot, gross marginpercentage and store operating expenses, with a focus on labor, as a percentageof sales.

We also measureand evaluate investments in our retail locations, including inventory andproperty and equipment. Inventory performance is primarily measured byinventory per square foot and by inventory turns, or the number of times storeinventory turns over in a given period, and amounts of owned inventory atvarious times based on payment terms from our vendors. The most significantinvestments in property and equipment are made at the time a store is opened byus.

We believe thatthe overall growth of our business will allow us to generally maintain orincrease our product gross margins. Increased merchandise volumes should enableus to improve our purchasing leverage and achieve greater support throughoutthe supply chain. The mix of merchandise in our total sales also influences our

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product gross margins. Aswe continue sales and store growth, a number of other factors may impact,positively or negatively, our product gross margin percentage, including:

·                  theintroduction of new product categories with varying gross margin percentagecharacteristics,

·                  changesin the merchandise mix at our current locations,

·                  differencesin merchandise mix by geographic location,

·                  pricecompetition,

·                  clearanceactivities in connection with seasonal inventory management,

·                  closeoutsales in connection with store relocations and consolidations,

·                  sourcingof products from locations outside the United States,

·                  vendorprograms, and

·                  supplychain enhancements.

In addition, ourgross margin is impacted by store occupancy and distribution costs. We monitorthese costs in absolute dollars and as a percentage of sales.

The mostsignificant store operating expenses are labor and related employee benefitsand advertising. Our employee benefits include health insurance, the cost ofwhich continues to increase faster than the general rate of inflation. Wecontinually monitor this cost and review strategies to effectively controlincreases, but we are subject to the overall trend of increases in health carecosts. Advertising costs are monitored as a percentage of sales. These costsare largely variable, which allows us to actively manage them to facilitateachieving our sales, gross margin percentage and store operating contributionobjectives.

Store operatingcontribution, which is calculated by deducting a store’s operating expensesfrom its gross margin, is used to evaluate overall performance on an individualstore basis.

General andadministrative expenses are monitored and controlled as a percentage of sales.We have made significant investments in infrastructure, including ourinformation systems, distribution capabilities and personnel. Our currentinfrastructure facilitates our planned opening of stores. We expect theseexpenses to decrease as a percentage of sales over time.

Pre-openingexpenses will continue to be related to store openings, including relocations.These expenses will fluctuate based on the number and timing of new storeopenings.

Inventory turnsare based on cost of sales and average inventory for the applicable period. Werecognize that our inventory turns may be lower than those of other retailers,which we believe is due, in part, to the categories of merchandise we carry,including firearms, and the large quantities of merchandise we use in ourin-store displays. We believe we have the opportunity to enhance our supplychain to improve our inventory turns. Additionally, in merchandise categories thatexperience slower inventory turns, we continue to work with vendors to increaseour trade credit terms to reduce our investment in owned inventory. We cannotassure you that we will be able to improve our inventory turns or inventoryinvestment.

Identification ofappropriate new store sites is essential to our growth strategy. We believe ourfocus on our larger store size and our ability to utilize either recycled, orsecond-use, facilities or build-to-suit locations provides us with increasedopportunities to find optimal real estate locations on attractive terms. Weevaluate and invest in new stores based on site-specific projected returns oninvestment.

**CriticalAccounting Policies and Use of Estimates**

Ourfinancial statements are prepared in accordance with U.S. generally acceptedaccounting principles.  In connectionwith the preparation of the financial statements, we are required to makeassumptions, make estimates and apply judgments that affect the reported amountsof assets, liabilities, revenue, expenses and the related disclosures.  We base our assumptions, estimates andjudgments on historical experience, current trends and other factors that webelieve to be relevant at the time the financial statements are prepared.  On a regular basis, we review the accountingpolicies, assumptions, estimates and judgments to ensure that our financialstatements are presented fairly and in accordance with U.S. generally acceptedaccounting principles. However, because future events and 

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their effectscannot be determined with certainty, actual results could differ from ourassumptions and estimates, and such differences could be material.

Ourcritical accounting policies and use of estimates are discussed and should beread in conjunction with the annual financial statements and notes included inour Form 10-K, as filed with the Securities and Exchange Commission, whichincludes audited financial statements for our three fiscal years ended February3, 2007.

**Resultsof Operations**

Thefollowing table represents our unaudited statements of operations reflected asa percentage of sales:
|                                     | ** ** | **13 Weeks Ended** | ** ** |
|-------------------------------------|------------|------------------------------|------------|
| ** **                          | ** ** | **May 5,**              | ** ** | **April 29,** | ** ** |
| ** **                          | ** ** | **2007**                     | ** ** | **2006** | ** ** |
| Sales                               |       | 100.0                        | %          | 100.0 | % |
| Cost of goods  sold                 |       | 80.7                         | %          | 82.7 | % |
| Gross profit                        |       | 19.3                         | %          | 17.3 | % |
| Operating expenses:                 |       |                         |       |   |   |
| Store operating expenses            |       | 23.1                         | %          | 23.0 | % |
| General and administrative expenses |       | 6.5                          | %          | 6.0 | % |
| Pre-opening expenses                |       | 0.4                          | %          | 0.5 | % |
| Loss from  operations               |       | (10.7                        | )%         | (12.2 | )% |
| Interest  expense, net              |       | 2.3                          | %          | 2.6 | % |
| Loss before  income taxes           |       | (13.0                        | )%         | (14.8 | )% |
| Income tax  provision               |       | —                       |       | — |   |
| Net loss                            |       | (13.0                        | )%         | (14.8 | )% |

 

Astore is included in the comparable store base in its fifteenth full month ofoperations.  A relocated store returns tothe comparable store base in its fifteenth full month after relocation.Non-comparable store sales include sales from our stores before they have beguntheir fifteenth month of operation.

Cost of goods soldincludes the cost of merchandise, freight, distribution, inventory shrinkageand store occupancy costs. Store occupancy costs include rent, real estatetaxes and common area maintenance charges. Initial product margin representssales less the supplier’s cost of merchandise only.

Store operating expensesinclude store associate payroll, taxes and fringe benefits, advertising,maintenance, utilities, depreciation, insurance, bank and credit card chargesand other store level expenses.

General andadministrative expenses include all expenses associated with operating ourcorporate headquarters.

Pre-opening expensesconsist primarily of payroll, rent, recruiting, advertising and other costsincurred prior to a new store opening.

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***ThirteenWeeks Ended May 5, 2007  compared toThirteen Weeks Ended April 29, 2006***

*Sales.*  Sales increased by $20.2 million, or 13.0%,to $175.7 million in the first quarter of fiscal 2007 from $155.6 million inthe first quarter of fiscal 2006. This increase primarily resulted from salesof $19.7 million from new stores not yet included in the comparable store salesbase. This increase was supplemented by a comparable store sales increase of$1.5 million, and was partially offset by a $1.0 million sales decrease fromrelocated or consolidated stores and changes in other revenues. Comparablestore sales increased 1.0% compared to a decrease of 10.4% in the first quarterof fiscal 2006. We opened one new store during the first quarter of fiscal 2007compared to two new stores during the first quarter of fiscal 2006. Totalsquare footage as of May 5, 2007 increased 8.5% to 5.5 million square feet, ascompared to April 29, 2006.

The comparable store sales increase was impacted bythe strong performance of our southern stores, but was offset by less thanexpected sales in our northern stores. This regional sales softness wasprimarily attributable to  reduced clearanceactivity and unfavorable weather. Firearms/ammunition continued its positive trend, Footwear was strongand certain Apparel categories were soft during the quarter.

*Gross Profit.*Gross profit increased by $6.9 million, or 25.5%, to $33.9 million in the firstquarter of fiscal 2007 from $27.0 million in the first quarter of fiscal 2006.As a percentage of sales, gross profit increased  195 basis points to 19.3% in the firstquarter of fiscal 2007 from 17.3% in the first quarter of fiscal 2006.  The primary factor affecting gross profit inthe current quarter was an initial product margin increase of approximately 130basis points as a result of continued benefits from buying leverage/increasingscale, the positive impact of our Everyday-Low-Price strategy on our pricingstructure, lower clearance activities and regional pricing adjustments.   Sales mix had a negative impact in thequarter reflecting increased penetration of lower-margin powersports anddecreased penetration of higher-margin apparel.

Wealso gained leverage in distribution and occupancy expenses while increasedrevenues from our co-branded credit card also contributed positively to grossprofit.

*Store Operating Expenses.*  Store operating expenses increased by $4.7million, or 13.1%, to $40.6 million in the first quarter of fiscal 2007 from$35.9 million in the first quarter of fiscal 2006. As a percentage of sales,store operating expenses increased 5 basis points to 23.1% in the first quarterof fiscal 2007 from 23.0% in the first quarter of fiscal 2006.

Improvedstore labor productivity and favorable trends in insurance claims for which weare self-insured, resulted in leverage as a percentage of sales, but was offsetby additional costs of approximately $800,000 related to the roll-out of theTracker Marine boat program and increased maintenance costs in certainstores.  Advertising and marketingexpenditures as a percentage of sales were approximately the same in thecomparable quarters.

*General and Administrative Expenses.*  General and administrative expenses increasedby $2.1 million, or 22.4%, to $11.5 million in the first quarter of fiscal 2007from $9.4 million in the first quarter of fiscal 2006. As a percentage ofsales, general and administrative expenses increased to 6.5% in the firstquarter of fiscal 2007 from 6.0% in the first quarter of fiscal 2006. Theincrease as a percentage of sales was primarily due to increased investment insystems infrastructure, logistics consulting, travel and severance costs.

*Pre-opening Expenses.*  Pre-opening expenses decreased $0.1 million,or 4.6%, to $0.7 million in the first quarter of fiscal 2007 from $0.8 millionin the first quarter of fiscal 2006. We opened one new store in the firstquarter of fiscal 2007 and we opened two new stores in the first quarter offiscal 2006.

*Interest Expense, net.*  Interest expense of $4.0 million in the firstquarter of fiscal 2007 was approximately the same as in the first quarter offiscal 2006. Average outstanding borrowings for the current quarter werelowered by approximately 2% versus average outstanding borrowings for the firstquarter of fiscal 2006, due to the equity infusion in December 2006. Thisrelated savings in interest expense was offset by interest rates which were 15basis points higher.

*Income Tax Provision.* We did notrecord an income tax provision for the first quarters of fiscal 2007 or fiscal2006 due to the uncertainty of the realization of the net operating loss carryforwards. We have determined the realization of the tax benefit related to ournet deferred tax asset is uncertain at this time and a valuation allowance wasrecorded for the entire balance of our net deferred tax asset.

*Net Loss.*As a result of thefactors discussed above, the net loss of $22.8 million for the first quarter offiscal 2007 represented a decrease of $136,000 from the net loss of $23.0million for the first quarter of fiscal 2006.

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**Liquidityand Capital Resources**

Ourprimary capital requirements are for inventory, capital improvements andpre-opening expenses to support our new store growth plans, and, to the extentof the highly seasonal nature of our business, operating losses.

*Operating Activities.*  Net cash used in operating activities for thefirst quarter of fiscal 2007 increased by $25.3 million to $47.1 million, ascompared to $21.8 million for the first quarter of fiscal 2006. This wasprimarily the result of an additional $20.0 million of inventory growth in thefirst quarter of fiscal 2007 as compared to the first quarter of fiscal 2006.Increased inventory levels in powersports resulting from the roll-out of the TrackerMarine boat program, increased ATV inventory as a result of more large-formatstores that carry ATVs and our tactical efforts to merchandise certain seasonalinventory in our stores earlier, all contributed to the increased inventories.

Therealso was $8.1 million of less cash generated from accounts payable and otherliabilities funding, primarily due to reductions in accounts payable in theperiod immediately preceding the first quarter of fiscal 2006, which caused ahigher level of accounts payable funding to be reflected in our cash flows forthe first quarter of fiscal 2006. Other factors affecting our accounts payablefunding include improved timing of accounts payable reductions for vendorallowances and increased foreign product sourcing activities which ofteninvolve the use of letters of credit or other arrangements.

*Investing Activities*.  Net cash used in investing activities was$8.9 million in the first quarter of fiscal 2007 and $3.7 million in the firstquarter of fiscal 2006. We used cash primarily for equipment to open newstores, for information technology equipment at our corporate offices and toupgrade existing stores. The increase in net cash used of $5.2 million wasprimarily due to the timing of expenditures as we opened three additionalstores within 30 days after May 5, 2007. In addition, we purchased $1.3 millionof non-cash equipment expenditures financed through capital lease transactionsduring the first quarter of fiscal 2007.

*Financing Activities*. * *Net cash provided byfinancing activities for the first quarter of fiscal 2007 increased by $30.6million to $56.0 million, as compared to $25.4 million in the first quarter offiscal 2006. Net borrowings under our credit facility were $29.5 million ofthis increase and these borrowings were due to the increase in cash used inoperations of $25.3 million and $5.2 million of additional cash used forinvesting activities.  Our financingactivities were utilized to fund our continued store and business expansion,including inventory, property and equipment, and to fund our operating losses.In addition, we received proceeds of $1.5 million from the exercise of stockoptions during the first quarter of fiscal 2007.

*CreditFacility. *Our creditfacility provides us with the capital to fund the operations of our business.Currently, the revolving credit facility provides availability of $275 million,which may be further increased to $300 million subject to certain conditions including the absence of default.In addition to the existing $275 million revolving credit facilty, in March2006 we added a $20 million term loan for a total credit facility of $295 million.The credit facility has a maturity date of June 30, 2009.

EffectiveFebruary 28, 2007, we amended our credit facility in order to have the $30million of cash received from our December 2006 stock sale be taken intoconsideration in determining EBITDA, for pricing purposes only, to allow us toborrow at lower interest rates. At the time of the amendment and based oncurrent EBITDA levels at that time, this change resulted in a reduced interestrate of 50 basis points relative to the revolving credit facility. Pricing alsowas modified on the $20 million term loan with LIBOR borrowings reduced by 125basis points.

Outstanding borrowingsunder the credit facility, including letters of credit, were $238.7 million and$207.1 million as of May 5, 2007 and April 29, 2006, respectively.  Actual availability under the amended creditfacility is limited to specific advance rates on eligible inventory andaccounts receivable up to the $295 million facility limit. Typically,availability will be highest in the latter half of our fiscal year as inventorylevels and advance rates increase. Based on eligible inventory and accountsreceivable balances as of May 5, 2007 and April 29, 2006, our availableborrowing capacity under the credit facility after subtracting letters ofcredit, was $28.3 million and $24.1 million, respectively.

The credit facility continues to specify that testingof the EBITDA covenant is required only when the Company’s availability is lessthan 10% of the lesser of (a) the revolving credit facility maximum on anygiven day or (b) the borrowing base, as defined and adjusted for certainreserves. It also requires quarterly testing of the operating cash flowcovenant. We were in compliance with all covenants as of May 5, 2007 andFebruary 3, 2007.

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*Income Taxes.*Due to theuncertainty of the realization of net operating loss carry forwards, we havedetermined the realization of the tax benefit related to our net deferred taxasset is uncertain at this time and a valuation allowance was recorded for theentire balance of our net deferred tax asset.

*FutureCapital Requirements*. Our future capital requirements willprimarily depend on the number of new stores we open, the timing of thoseopenings within a given fiscal year and the need to fund seasonal operatinglosses. These requirements will include costs directly related to opening newstores and will also include costs necessary to ensure that our infrastructure,including technology and distribution capabilities, is able to support a largerstore base. We opened 8, 19 and 19 new stores in each of fiscal years 2006,2005 and 2004, respectively, including one or two relocated/consolidated storesin each year. Our cash used in investing activities was approximately $28million in fiscal 2006 and approximately $50 million in fiscal 2005 and fiscal2004. We currently plan to open 13 new stores in fiscal 2007, including threerelocations and expect our total capital expenditures in fiscal 2007 to beapproximately $40 to $45 million, including capital expenditures to improvecertain existing stores. However, business conditions, business strategy orother factors may cause us to adjust these plans. Additional needs for capitalinclude funding seasonal inventory levels, including foreign purchases andseasonal losses from operations.

In 2006, we begana significant effort to upgrade our merchandise and information systems thatwill provide enhanced efficiencies in buying, receiving, payables managementand provide better and more detailed operating information for decision makingand continued supply chain improvement. We expect to continue to evaluate,modify and update our information systems over the next several years.

We believe that wewill be able to service our existing stores from our distribution centerthrough fiscal 2007 and into fiscal 2008. We have undertaken a study to analyzeour future distribution requirements. We believe we will need to expand ourdistribution capabilities in the next two to three years as we continue to addnew stores.

Other futurecapital requirements may include an investment for an expansion into otherdistribution channels in addition to our retail channel.

We intend tosatisfy our capital requirements in fiscal 2007 with cash flows fromoperations, funds available under our credit facility and equipment financingtransactions. However, if capital requirements for our business strategy changeor other factors change our capital requirements, we may need to seekadditional debt or equity financing in the public or private markets. There isno assurance that financing will be available to us on acceptable terms. Beyondfiscal 2007, we anticipate needing additional financing to grow our business.

**Contractual Obligations and Other Commitments**

Our material off-balancesheet arrangements are operating lease obligations for substantially all of ourretail stores, our distribution center and corporate office and letters ofcredit.  We excluded these items from thebalance sheet in accordance with U.S. generally accepted accounting principles.As of May 5, 2007, the minimum operating lease payments due within one yearwere $60.9 million. As of May 5, 2007, total minimum operating lease paymentsremaining over all of our operating leases were $722.2 million. These leaseshave an average remaining term of approximately 10 years. These obligationamounts include future minimum lease payments and exclude direct operating costssuch as common area costs and real estate taxes.

Issued and outstanding letters of credit were $15.1million and $6.6 million at May 5, 2007 and April 29, 2006, respectively, andwere related primarily to importing of merchandise and supporting potentialinsurance program liabilities.

Inthe ordinary course of business, we enter into arrangements with vendors topurchase merchandise in advance of expected delivery. Because most ofthese purchase orders do not contain any termination payments or other penaltiesif canceled, they are not included as outstanding contractual obligations. Themerchandise purchases, for which we do have firm commitments outstanding, inaddition to letters of credit, were $12.8 million and $0.6 million as of May 5,2007 and April 29, 2006, respectively.

**Quarterly Results of Operationsand Seasonality**

Our quarterlyoperating results may fluctuate significantly because of several factors,including the timing of new store openings and related expenses, profitabilityof new stores, weather conditions and general economic conditions. Our businessis also subject to seasonal fluctuation, with approximately 62% to 65% of oursales activity normally occurring during the third and fourth quarters of ourfiscal year, which are primarily associated with the 

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fall hunting seasons andthe holiday season.  However, this factorcannot necessarily be used as an indicator of future results. Our customers’demand for our products and therefore our sales can be significantly impactedby unseasonable weather conditions that affect outdoor activities and thedemand for related apparel and equipment. This seasonality also impacts ourinventory levels, which tend to rise beginning approximately in April, reach apeak in November, and decline to lower levels after the December holidayseason.

Our pre-opening expenseshave and will continue to vary significantly from quarter to quarter, primarilydue to the timing of store openings.  Wetypically incur most pre-opening expenses for a new store during the threemonths preceding, and the month of, its opening.  In addition, our labor and operating costsfor a newly opened store can be greater during the first one to two months ofoperation than what can be expected after that time, both in aggregate dollarsand as a percentage of sales. Accordingly, the volume and timing of new store openings in any quarterhas had and is expected to continue to have a significant impact on quarterlypre-opening costs and store labor and operating expenses.  Due to these factors, results for anyparticular quarter may not be indicative of results to be expected for anyother quarter or for a full fiscal year.

**New Accounting Pronouncements**

InJune 2006, the Financial Accounting Standards Board issued FASBInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes*, an interpretation of Statement of FinancialAccounting Standards No. 109, *Accounting for IncomeTaxes*.  FIN 48 clarifies theaccounting for uncertainty in income taxes by prescribing a recognitionthreshold for tax positions taken or expected to be taken in a tax return. Therecognition threshold requires that we determine whether it is more likely thannot that a tax position will be sustained upon examination, and then theposition is measured at the largest amount of benefit that is greater than 50%likely of being realized upon ultimate settlement. Unrecognized tax benefitsare tax benefits claimed on our tax returns that do not meet these recognitionand measurement standards. FIN 48 was effective as of the beginning of thisfirst quarter of fiscal 2007. As of May 5, 2007 and February 4, 2007, webelieve that no reserves for uncertain income tax positions need to be recordedpursuant to FIN 48.  As a result, and dueto our full valuation allowance, we do not have any unrecognized tax benefits.Thus, our adoption of FIN 48 did not have a material impact on our financialposition or results of operations. We do not believe there will be any materialchanges in our unrecognized tax positions over the next 12 months.

Weare subject to audit by the Internal Revenue Service and states in which weoperate, with respect to income taxes, for the prior three years. As of May 5,2007, we have federal and state net operating loss carryforwards ofapproximately $54.5 million expiring between 2016 and 2026.

InSeptember 2006, the FASB issued SFAS No. 157, *FairValue Measurements*.  SFAS 157defines fair value, establishes a framework for measuring fair value ingenerally accepted accounting principles and expands disclosures about fairvalue measurements. SFAS 157 applies to other accounting pronouncements thatrequire or permit fair value measurements, as the FASB previously concluded inthose accounting pronouncements that fair value is the relevant measurementattribute. Accordingly, SFAS 157 does not require any new fair valuemeasurements. SFAS 157 is effective for fiscal years beginning after November15, 2007. We plan to adopt SFAS 157 beginning in the first quarter of fiscal2008. We are currently evaluating the impact, if any, the adoption of SFAS 157will have on our financial position and results of operations.

InFebruary 2007, the FASB issued SFAS No. 159, *TheFair Value Option for Financial Assets and Liabilities – Including an Amendmentof FASB Statement No. 115*. SFAS 159 permits us to choose to measurecertain financial assets and liabilities at fair value that are not currentlyrequired to be measured at fair value. Election of the fair value option ismade on an instrument-by-instrument basis and is irrevocable. At the adoptiondate, unrealized gains and losses on financial assets and liabilities for whichthe fair value option has been elected would be reported as a cumulativeadjustment to beginning retained earnings. If we elect the fair value optionfor certain financial assets and liabilities, we will report unrealized gainsand losses due to changes in their fair value in earnings at each subsequentreporting date. SFAS 159 is effective for our 2008 fiscal year. We arecurrently evaluating the potential impact of adopting SFAS 159 on our financialposition and results of operations.

**Item 3.  Quantitative andQualitative Disclosures About Market Risk**

We are exposed tomarket risk from changes in interest rates on borrowings under our creditfacility. This floating rate indebtedness was $223.6 million at May 5, 2007 andaveraged $212.9 million during the first quarter of 

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fiscal 2007. Our averageinterest rate for the first quarter of fiscal 2007 under our credit facilitywas approximately 7.3% and was approximately 10 basis points higher than thesame period last year due primarily to general interest rate upward movementoffset by reductions we obtained in pricing relative to the revolving creditfacility and term loan. If short-term floating interest rates on our averagevariable rate debt for the first quarter of fiscal 2007 had increased by 100basis points, our interest expense would have increased by approximately$500,000, assuming comparable borrowing levels. These amounts are determined byconsidering the impact of the hypothetical interest rates on our average amountof floating rate indebtedness outstanding and cash equivalents balances.

We have noderivative financial instruments or derivative commodity instruments in ourcash and cash equivalents.  We have nointernational sales, however, we import certain items for sale in ourstores.  Substantially all of ourpurchases are denominated in U.S. dollars.

**Item 4.  Controls and Procedures**

Asof the end of the period covered by this report, we conducted an evaluation,under the supervision and with the participation of the principal executiveofficer and principal financial and accounting officer, of our disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934).  Basedon this evaluation, the principal executive officer and principal financial andaccounting officer concluded that our disclosure controls and procedures areeffective to ensure that information required to be disclosed by us in reportsthat we file or submit under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms. Our principal executiveofficer and principal financial and accounting officer also concluded that ourdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed in the reports we file or submit under the SecuritiesExchange Act of 1934 is accumulated and communicated to our management,including our principal executive officer and principal financial andaccounting officer, to allow timely decisions regarding required disclosure.  There was no change in our internal controlover financial reporting identified in connection with the evaluation requiredby Rule 13a-15(d) and 15d-15(d) of the Securities Exchange Act of 1934 thatoccurred during the period covered by this report that has materially affected,or is reasonably likely to materially affect, our internal control overfinancial reporting.

#### **PARTII. OTHER INFORMATION**

**Item 1.  Legal Proceedings**

***Trademark Litigation—***On July 2,2004, we filed a complaint in the U.S. District Court for the District ofMinnesota seeking declaratory relief that the contingent trademark licensingprovision of a noncompetition agreement dated May 16, 1996, made betweenour predecessor and Cabela’s Incorporated, is invalid and unenforceable.Although the noncompetition provisions of the noncompetition agreement expiredin June 2003, Cabela’s contends that a contingent trademark licensingprovision of the noncompetition agreement now requires us to grant Cabela’s alicense that would preclude our use of certain of our trademarks for directmarketing purposes.

On August 18,2005, the court ruled that the contingent trademark licensing provision is notlegally invalid as a noncompetition agreement and dismissed our complaint. Thecourt also acknowledged that it had not been asked at that point to determine,and was not determining, the scope of the contingent trademark license or theparties’ respective rights thereunder. In December 2005, the court grantedour motion to file an amended reply to Cabela’s counterclaim, in which weraised multiple additional issues regarding the validity, enforceability andinterpretation of any trademark rights allegedly possessed by Cabela’s, and anylimitations upon our rights to engage in certain marketing activities under thetrademarks at issue. These issues remain before the court.

We are not able topredict the ultimate outcome of this litigation, but it could be costly anddisruptive. The total costs may not be reasonably estimated at thistime. The outcome of this dispute may impact the manner in which we marketproducts in certain distribution channels in the future. An adverse resultis not expected to have an affect on our marketing of products through ourretail stores. Nor would an unfavorable result preclude us from engaging indirect marketing activities using trademarks not in dispute. A favorable resultwould confirm our  right to use thesubject trademarks in all direct marketing activities.

***Other Legal Claims—***Various claims andlawsuits arising in the normal course of business may be pending against usfrom time to time. The subject matter of these proceedings typically relate tocommercial disputes and employment issues. As of the date of this report, weare not a party to any legal proceedings that are expected, individually or inthe aggregate, to have a material adverse effect on our financial condition orresults of operations.

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**Item 1A.  Risk Factors**

Thefollowing additional information updates the risk factors set forth in our mostrecent annual report on Form 10-K:

**Failureto protect the integrity and security of our customers’ information couldexpose us to litigation and materially damage our standing with our customers.**

The increasingcosts associated with information security — such as increased investment intechnology, the costs of compliance with consumer protection laws and costsresulting from consumer fraud — could cause our business and results ofoperations to suffer materially.  Therecan be no assurance that our efforts to protect customer and confidentialinformation will be successful.  Inaddition, advances in computer capabilities, new discoveries in the field ofcryptography or other developments may not prevent the compromise of ourcustomer transaction processing capabilities and personal data even if weimplement them.  If any compromise of ourinformation security were to occur, it could have a material adverse effect onour reputation, business, operating results and financial condition and mayincrease the costs we incur to protect against such information securitybreaches or subject us to fines, penalties or litigation.

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds**

Not applicable.

**Item3.  Defaults Upon Senior Securities**

Not applicable.

**Item 4. Submission of Matters to a Vote of Security Holders.**

Not applicable.

**Item 5.  Other Information**

OnJune 8, 2007, the compensation committee of our board of directors adopted anew incentive program for our executive officers which is effective for theremainder of our fiscal 2007 and thereafter unless modified by the compensationcommittee.  Pursuant to this new program,our executive officers are entitled to receive a monthly incentive paymentwhich is calculated as a fraction of our initial margin for each fiscal monthas reflected in our internal financial statements.  This new incentive program has been adoptedin lieu of any other cash incentive program for executive officers.

OnJune 12, 2007, our board of directors adopted a new equity compensation programfor non-employee directors.  Pursuant tothis program, each non-employee director will receive a grant of restrictedstock on the date of his or her election or re-election to our board ofdirectors.  The non-employee directorswill each receive that number of shares of our common stock as is equal to $20,000divided by the closing price of our common stock on the Nasdaq Global Market onthe date of grant, rounded down to the nearest whole share.  The restricted stock will vest if thedirector continues to serve on our board of directors one year following thedate of grant.  This new program replacesour current equity compensation program for non-employee directors, but doesnot change our current cash compensation program for non-employee directors.

**Item 6.  Exhibits**
| Exhibit No. | ** ** | **Description**                                                                       | ** ** | **Method of Filing**          |
|-------------|------------|---------------------------------------------------------------------------------------|------------|-------------------------------|
| 3.1         |       | Amended and Restated Articles of Incorporation of  the Registrant                     |       | Incorporated By Reference (1) |
|        |       |                                                                                  |       |                          |
| 3.2         |       | Amended and Restated Bylaws of the Registrant                                         |       | Incorporated By Reference (2) |
|        |       |                                                                                  |       |                          |
| 31.1        |       | Rule 13a-14(a)/15d-14(a) Certification by Principal  Executive Officer                |       | Filed Electronically          |
|        |       |                                                                                  |       |                          |
| 31.2        |       | Rule 13a-14(a)/15d-14(a) Certification by Principal  Financial and Accounting Officer |       | Filed Electronically          |
|        |       |                                                                                  |       |                          |
| 32          |       | Section 1350 Certifications                                                           |       | Filed Electronically          |

 

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(1)          Incorporated byreference to Exhibit 3.3 to Amendment No. 1 to the Registrant’s RegistrationStatement on Form S-1 (Registration No. 333-112494), filed with the Commissionon March 15, 2004.

(2)          Incorporated byreference to Exhibit 3.4 to Amendment No. 1 to the Registrant’s RegistrationStatement on Form S-1 (Registration No. 333-112494), filed with the Commissionon March 15, 2004.

**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized. 
|                      |   | GANDER MOUNTAIN COMPANY |
|----------------------|--------|-------------------------|
|                 |   |                    |
|                 |   |                    |
| Date: June 14,  2007 |   | By:                     | /s/ Mark R. Baker |   |
|                 |   | * *                | Mark R. Baker |
|                 |   | * *                | *President and Chief Executive Officer* |
|                 |   | * *                | (Principal Executive Officer) |
|                 |   | * *                |   |
|                 |   | * *                |   |
| Date: June 14,  2007 |   | By:                     | /s/ Robert J. Vold |   |
|                 |   | * *                | Robert J. Vold |
|                 |   | * *                | *Senior Vice President, Chief Financial Officer  and Treasurer* |
|                 |   | * *                | (Principal Financial and Accounting Officer) |
|                      |        |                         |  |  |  |

 

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