** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

** **

**FORM 10-Q**

 

**(MARK ONE)**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIESEXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2005.**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIESEXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                 TO                  **

 

**COMMISSION FILE NUMBER 0-50659.**

 

**GANDER MOUNTAIN COMPANY**

(EXACTNAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 
| **MINNESOTA**                                                   | ** ** | **41-1990949**                       |
|-----------------------------------------------------------------|------------|--------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer Identification No.) |
| ** **                                                      | ** ** | ** **                           |
| **180 EAST FIFTH STREET, SUITE 1300  ST PAUL, MINNESOTA**       | ** ** | **55101**                            |
| (Address of Principal Executive Offices)                        |       | (Zip Code)                           |

 

**(651) 325-4300**

(Registrant’sTelephone Number, Including Area Code)

 

 

(FormerName, Former Address and Former Fiscal Year, If Changed Since Last Report)

 

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 duringthe preceding 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 ý No o

 

Indicate bycheck mark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Securities Exchange Act of 1934) Yes o No ý

 

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; 14,256,925 shares outstanding as of June 1,2005.

 

 

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**GANDER MOUNTAIN COMPANY**

**QUARTERLY PERIOD ENDED APRIL 30, 2005**

**Form 10-QIndex**

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

 

2

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**PART I****. FINANCIAL INFORMATION**

 

**ITEM 1****.  FINANCIALSTATEMENTS**

 

**Gander Mountain Company**

**Condensed Statements of Operations****- Unaudited**

**(In thousands, exceptper share data)**

 
| ** **                                                          | ** ** | **13 Weeks Ended** | ** ** |
|---------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                          | ** ** | **April 30,** | ** ** | **May 1,** | ** ** |
| ** **                                                          | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** **                                                          | ** ** | ** **         | ** ** | **(Restated)** | ** ** |
| Sales                                                               |       | $                  | 135,128    |   | $ | 98,719 |   |
| Cost  of goods sold                                                 |       | 109,949            |       | 79,326 |   |
| Gross  profit                                                       |       | 25,179             |       | 19,393 |   |
| Operating  expenses:                                                |       |               |       |   |   |
| Store  operating expenses                                           |       | 32,570             |       | 23,825 |   |
| General  and administrative expenses                                |       | 5,753              |       | 6,498 |   |
| Pre-opening  expenses                                               |       | 2,759              |       | 1,373 |   |
| Loss  from operations                                               |       | (15,903            | )          | (12,303 | ) |
| Interest  expense, net                                              |       | 1,665              |       | 1,502 |   |
| Loss  before income taxes                                           |       | (17,568            | )          | (13,805 | ) |
| Income  tax provision                                               |       | —             |       | — |   |
| Net  loss                                                           |       | (17,568            | )          | (13,805 | ) |
| Less  preferred stock dividends                                     |       | —             |       | 4,305 |   |
| Loss  applicable to common shareholders                             |       | $                  | (17,568    | ) | $ | (18,110 | ) |
|                                                                |       |               |       |   |   |
| Basic  and diluted loss applicable to common shareholders per share |       | $                  | (1.23      | ) | $ | (10.65 | ) |
|                                                                |       |               |       |   |   |
| Weighted  average common shares outstanding                         |       | 14,235             |       | 1,701 |   |

 

3

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**Gander Mountain CompanyCondensed Balance Sheets(In thousands)**

 
| ** **                                       | ** ** | **April 30,** | ** ** | **January 29,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **2005**           | ** ** | **2005 (1)**         | ** ** |
| ** **                                       | ** ** | **(Unaudited)**    | ** ** | ** **           | ** ** |
| **Assets**                                       | ** ** | ** **         | ** ** | ** **           | ** ** |
| Current  assets:                                 |       |               |       |                 |       |
| Cash  and cash equivalents                       |       | $                  | 1,221      |                 | $          | 1,033 |   |
| Accounts  receivable                             |       | 16,205             |       | 9,347                |       |
| Inventories                                      |       | 308,482            |       | 264,138              |       |
| Prepaids  and other current assets               |       | 6,562              |       | 5,806                |       |
| Total  current assets                            |       | 332,470            |       | 280,324              |       |
|                                             |       |               |       |                 |       |
| Property  and equipment, net                     |       | 111,529            |       | 101,430              |       |
| Other  assets                                    |       | 4,568              |       | 4,089                |       |
| Total  assets                                    |       | $                  | 448,567    |                 | $          | 385,843 |   |
|                                             |       |               |       |                 |       |
| **Liabilities and shareholders’ equity**    |       |               |       |                 |       |
| Current  liabilities:                            |       |               |       |                 |       |
| Borrowings  under credit facility                |       | $                  | 141,186    |                 | $          | 114,441 |   |
| Accounts  payable                                |       | 89,949             |       | 38,808               |       |
| Accrued  and other current liabilities           |       | 39,848             |       | 39,348               |       |
| Total  current liabilities                       |       | 270,983            |       | 192,597              |       |
|                                             |       |               |       |                 |       |
| Long  term liabilities                           |       | 32,623             |       | 30,938               |       |
|                                             |       |               |       |                 |       |
| Shareholders’  equity                       |       | 144,961            |       | 162,308              |       |
| Total  liabilities and shareholders’ equity |       | $                  | 448,567    |                 | $          | 385,843 |   |

 

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(1)  The balance sheet as of January 29,2005 has been condensed from the audited financial statements.

 

See accompanying notes to unaudited condensedfinancial statements.                                                      

 

4

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**Gander Mountain CompanyCondensed Statements of Cash Flows - Unaudited(In thousands)**

 
| ** **                                                                   | ** ** | **13 Weeks Ended** | ** ** |
|------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                   | ** ** | **April 30,** | ** ** | **May 1,** | ** ** |
| ** **                                                                   | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** **                                                                   | ** ** | ** **         | ** ** | **(Restated)** | ** ** |
| **Operating activities**                                                     |       |               |       |   |   |
| Net  loss                                                                    |       | $                  | (17,568    | ) | $ | (13,805 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |               |       |   |   |
| Depreciation  and amortization                                               |       | 3,727              |       | 2,512 |   |
| Property  and equipment write-offs                                           |       | —             |       | 165 |   |
| Change  in operating assets and liabilities:                                 |       |               |       |   |   |
| Accounts  receivable                                                         |       | (6,858             | )          | (5,380 | ) |
| Inventories                                                                  |       | (44,344            | )          | (45,678 | ) |
| Prepaid  expenses and other assets                                           |       | (1,323             | )          | (1,678 | ) |
| Accounts  payable and other liabilities                                      |       | 53,325             |       | 34,172 |   |
| Net  cash used in operating activities                                       |       | $                  | (13,041    | ) | $ | (29,692 | ) |
|                                                                         |       |               |       |   |   |
| **Investing activities**                                                     |       |               |       |   |   |
| Purchase  of property and equipment, net                                     |       | $                  | (13,723    | ) | $ | (9,807 | ) |
| Net  cash used in investing activities                                       |       | $                  | (13,723    | ) | $ | (9,807 | ) |
|                                                                         |       |               |       |   |   |
| **Financing activities**                                                     |       |               |       |   |   |
| Proceeds  from sale of common stock, net of expenses                         |       | $                  | —     |   | $ | 96,216 |   |
| Proceeds  from exercise of stock options                                     |       | 207                |       | — |   |
| Repayments  of notes with affiliates                                         |       | —             |       | (9,840 | ) |
| Borrowings  (repayments) under credit facility, net                          |       | 26,745             |       | (46,778 | ) |
| Net  cash provided by financing activities                                   |       | $                  | 26,952     |   | $ | 39,598 |   |
|                                                                         |       |               |       |   |   |
| Net  increase in cash                                                        |       | 188                |       | 99 |   |
| Cash,  beginning of period                                                   |       | 1,033              |       | 970 |   |
|                                                                         |       |               |       |   |   |
| Cash,  end of period                                                         |       | $                  | 1,221      |   | $ | 1,069 |   |

 
| See accompanying notes to unaudited condensed  financial statements. |   |   |
|----------------------------------------------------------------------|--------|--------|

 

5

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**Gander Mountain Company**

**Notes to****Unaudited Condensed Financial Statements**

**Quarterly Period Ended April 30, 2005**

 

**1. Basis ofPresentation**

 

The accompanying unaudited condensedfinancial statements of Gander Mountain Company (“we” or “us”) have beenprepared in accordance with the requirements for Form 10-Q and do not includeall the disclosures normally required in annual financial statements preparedin accordance with U.S. generally accepted accounting principles. The interimfinancial information as of April 30, 2005, and for the 13 weeks ended April 30,2005 and May 1, 2004, is unaudited and has been prepared on the same basis asthe audited annual financial statements. In the opinion of management, thisunaudited information includes all adjustments necessary for a fairpresentation of the interim financial information. All of these adjustments areof a normal recurring nature. These interim financials statements filed on thisForm 10-Q and the discussions contained herein should be read in conjunctionwith the annual financial statements and notes included in our Annual Report onForm 10-K for the fiscal year ended January 29, 2005, as filed with theSecurities and Exchange Commission, which includes audited financial statementsfor our three fiscal years ended January 29, 2005.

 

Our business is seasonal in nature andinterim results may not be indicative of results for a full year. Historically,we have realized more of our sales in the latter half of our fiscal year, whichincludes the hunting and holiday seasons. Our business is also impacted by thetiming of new store openings. Both variation in seasonality and new storeopenings impact the analysis of the results of operations and financialcondition for comparable periods.

 

**2. Recent AccountingPronouncements**

 

In December 2004,the Financial Accounting Standards Board issued Statement No. 123R, “Share-BasedPayment,” which replaces Statement of Financial Accounting Standards No. 123, “Accountingfor Stock-Based Compensation” and supercedes Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees.”  SFAS No. 123R eliminates the option of usingthe intrinsic value method to record compensation expense related tostock-based awards to employees and instead requires companies to recognize thecost of these awards based on their grant-date fair value over the relatedservice period of these awards.  Weexpect to adopt the provisions of this standard at the beginning of fiscal 2006.Until that time, we will continue to apply APB No. 25 and relatedinterpretations in accounting for our stock-based employee compensationplans.  Accordingly, any compensationcost for stock options is measured as the excess, if any, of the fair market valueof our stock at the measurement date over the employee’s option exercise price.Any resulting compensation expense is amortized ratably over the relatedvesting period.

 

Prior to the effective date of SFAS No. 123R, we will continue toprovide the pro forma disclosures for past award grants as required under SFASNo. 123 and SFAS No. 148, “Accounting for Stock-Based Compensation — Transitionand Disclosure.”  SFAS No. 148 requiresexpanded and more prominent disclosure in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method on reported results.

 

We are currentlyevaluating the requirements under SFAS No. 123R and expect that the adoption ofthe provisions of SFAS No. 123R could have a material impact on net income andnet income per common share.

 

**Note 3.  Restatement of Previously Issued FinancialStatements**

 

During the fourth quarter of fiscal 2004, we performed a comprehensivereview of our lease accounting practices. As a result, we restated our financial statements for periods prior tofiscal 2004 and for the first three quarters of fiscal 2004.  The restatements arose from revisions toaccounting for (i) the amortization lives for leasehold improvements, (ii) constructionallowances from landlords and (iii) certain pre-opening period rentholidays.  The restatement adjustmentswere non-cash and had no impact on revenues or net cash flows.  The following table shows the impact of theseadjustments for the quarterly period ended May 1, 2004 (in thousands, exceptper share data):

 

6

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| ** **                                                          | ** ** | **13 Weeks Ended May 1, 2004** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                          | ** ** | **As  Previously  Reported**   | ** ** | **Adjustments** | ** ** | **As  Restated** | ** ** |
|                                                                |       |                           |       |   |   |   |   |
| **Balance Sheet Data**                                              |       |                           |       |   |   |   |   |
| Property  and equipment, net                                        |       | $                              | 59,748     |   | $ | 1,373 |   | $ | 61,121 |   |
| Accrued  and other current liabilities                              |       | 26,873                         |       | 367 |   | 27,240 |   |
| Long  term liabilities                                              |       | 3,359                          |       | 6,508 |   | 9,867 |   |
| Shareholders’  equity                                          |       | $                              | 152,411    |   | $ | (5,502 | ) | $ | 146,909 |   |
|                                                                |       |                           |       |   |   |   |   |
| **Statement of Operations Data**                                    |       |                           |       |   |   |   |   |
| Cost  of goods sold                                                 |       | $                              | 79,452     |   | $ | (126 | ) | $ | 79,326 |   |
| Store  operating expenses                                           |       | 23,632                         |       | 193 |   | 23,825 |   |
| General  and administrative expenses                                |       | 6,498                          |       | — |   | 6,498 |   |
| Pre-opening  expenses                                               |       | 1,230                          |       | 143 |   | 1,373 |   |
| Loss  from operations                                               |       | (12,093                        | )          | (210 | ) | (12,303 | ) |
| Loss  before income taxes                                           |       | (13,596                        | )          | (210 | ) | (13,805 | ) |
| Loss  applicable to common shareholders                             |       | $                              | (17,901    | ) | $ | (210 | ) | $ | (18,110 | ) |
| Basic  and diluted loss applicable to common shareholders per share |       | $                              | (10.52     | ) | $ | (0.13 | ) | $ | (10.65 | ) |
|                                                                |       |                           |       |   |   |   |   |
| **Statement of Cash Flows Data**                                    |       |                           |       |   |   |   |   |
| Net  cash used in operating activities                              |       | $                              | (31,828    | ) | $ | 2,136 |   | $ | (29,692 | ) |
| Net  cash used in investing activities                              |       | (7,671                         | )          | (2,136 | ) | (9,807 | ) |
| Net  cash provided by financing activities                          |       | 39,598                         |       | — |   | 39,598 |   |
| Net  increase in cash                                               |       | $                              | 99         |   | $ | — |   | $ | 99 |   |
|                                                                     |            |                                |            |  |  |  |  |  |  |  |  |

 

**4.Capital Stock**

 

Uponcompletion of our initial public offering on April 26, 2004, and thefiling of our Amended and Restated Articles of Incorporation in connectiontherewith, the authorized capital stock of our company consists of 100,000,000shares of common stock, par value $.01 per share, and 5,000,000 shares ofpreferred stock, par value $.01 per share. As of April 30, 2005, therewere 14,246,925 shares of common stock outstanding.

 

In February 2005, our board of directors approved theestablishment of an employee stock purchase plan that enables substantially allfull-time employees to purchase our common stock by contributions throughpayroll deductions.  Purchases of commonstock are made from accumulated employee contributions at the end of designatedsix-month purchase periods and currently are executed at 100% of the marketprice on the last payday of the purchase period.

 

**5. CreditFacility**

 

In February 2005, we amended our credit facility to increase ouravailablility under the facility from $175,000,000 to $225,000,000 and extendedthe maturity date to June 2009. Availability under the facility can be further increased to $300,000,000if we are not in default under the agreement. Other substantial terms and provisions of the agreement were not materiallychanged in the amendment.  Outstandingborrowings under the credit facility, including letters of credit, were $147.4million and $57.5 million as of April 30, 2005 and May 1, 2004,respectively. Our total remaining borrowing capacity under the credit facility,after subtracting letters of credit, was $63.5 million as of April 30,2005 and $87.1 million as of May 1, 2004.

 

7

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**6. Stock-BasedCompensation**

 

Wecontinue to apply APB No. 25 and related interpretations in accounting forstock-based compensation plans. Accordingly, compensation expense has not beenrecognized for employee stock options as the exercise price for options grantedhas been greater than or equal to our stock price on the date of grant.

 

In February 2004,we adopted the Gander Mountain Company 2004 Omnibus Stock Plan, which as of April 30,2005, authorizes the granting of stock-based awards up to 2,144,000 shares ofcommon stock. This plan was approved by shareholders in March 2004.  Under this plan, awards may be made toemployees, directors, and consultants. The types of awards that may be granted under the plan includerestricted and unrestricted stock, incentive and nonstatutory stock options,stock appreciation rights and other stock awards. Under this plan, as of April 30,2005, there were 1,858,680 options to purchase common stock outstanding, with aweighted average exercise price of $14.27 and a weighted average remaining lifeof 9.4 years. The options granted under this plan vest in three equal annualincrements from the date of grant.

 

On March 2, 2005,the compensation committee of our board of directors accelerated the vestingfor certain outstanding options to purchase common stock that had exerciseprices greater than $10.53, the closing price of our common stock on thatdate.  We accelerated options to purchase1,186,728 shares of common stock, which included all options issued andoutstanding under our 2004 Omnibus Stock Plan as of January 29, 2005, aswell as options held by two executive officers under February 2004 optiongrants that were outstanding on March 2, 2005.  As a result of the acceleration, all of theseoptions were fully exercisable as of March 2, 2005 and will remainexercisable through their respective termination dates, which vary, but do notextend past 2014.

 

We took this actionbecause it will produce a more favorable impact on our results from operationsonce we adopt SFAS No. 123R.  Also,because these options have exercise prices in excess of our stock price on thedate the acceleration was approved, we believed that these options may not beoffering sufficient incentive to the employees when compared to the potentialfuture compensation expense that would have been attributable to the options underSFAS No. 123R.  Assuming we adopt SFASNo. 123R beginning in fiscal 2006, we estimate that we will eliminate a maximumof $3,900,000 of future expense.

 

As of April 30, 2005, there werea total of 3,004,407 options to purchase common stock outstanding, under all ofour stock option plans and non-plan stock options, with a weighted averageexercise price of $12.17 and a weighted average remaining life of 8.4 years.

 

The table belowillustrates the effect on our net loss and net loss per share applicable tocommon shareholders as if we had applied the fair value recognition provisionsof SFAS No. 123 to stock-based employee compensation for the periods presented.

 
| ** **                                                                                 | ** ** | **13 Weeks Ended** | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                                                 | ** ** | **April 30,** | ** ** | **May 1,** | ** ** |
| **(in  thousands, except per share data)**                                                 | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** **                                                                                 | ** ** | ** **         | ** ** | **(Restated)** | ** ** |
| Net  loss applicable to common shareholders, as reported                                   |       | $                  | (17,568    | ) | $ | (18,110 | ) |
| Add:  Stock-based employee compensation expense  included in reported net loss        |       | —             |       | — |   |
| Deduct:  Stock-based employee compensation expense determined under the fair value  method |       | (7,165             | )          | (191 | ) |
|                                                                                       |       |               |       |   |   |
| Pro  forma net loss applicable to common shareholders                                      |       | $                  | (24,733    | ) | $ | (18,301 | ) |
|                                                                                       |       |               |       |   |   |
| Basic  and diluted loss applicable to common shareholders per share - as reported          |       | $                  | (1.23      | ) | $ | (10.65 | ) |
|                                                                                       |       |               |       |   |   |
| Basic  and diluted loss applicable to common shareholders per share - pro-forma            |       | $                  | (1.74      | ) | $ | (10.76 | ) |

 

8

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The stock-basedcompensation expense, determined under the fair value method, of $7,165,000includes $6,589,000 of expense related to the acceleration of vesting thatotherwise would have been expensed over the remaining vesting period. Theweighted average fair value of options granted during the 13 weeks ended April 30,2005 and May 1, 2004, was $5.14 and $7.61, respectively, per option share. Thefair value of each grant is estimated on the date of grant using theBlack-Scholes option pricing model with the following assumptions:

 
| ** **                       | ** ** | **13 Weeks Ended** | ** ** |
|----------------------------------|------------|--------------------|------------|
| ** **                       | ** ** | **April 30,** | ** ** | **May 1,** | ** ** |
| ** **                       | ** ** | **2005**           | ** ** | **2004** | ** ** |
| Risk-free  interest rate         |       | 4.34               | %          | 3.67 | % |
| Expected  dividend yield         |       | 0                  | %          | 0 | % |
| Expected  stock price volatility |       | 0.50               |       | 0.50 |   |
| Expected  life of stock options  |       | 5 years            |       | 5 years |   |

 

**7. Earnings PerShare**

 

Basic anddiluted loss applicable to common shareholders per share is based upon the weightedaverage number of shares outstanding. All potentially dilutive stock optionshave been excluded from the calculation of weighted average shares outstandingfor the periods presented because their inclusion would have an anti-dilutiveeffect on loss per share. As of April 30, 2005 and May 1, 2004, there werea total of 3,004,407 and 2,013,315 options to purchase common stockoutstanding, respectively.  

 

Theaccompanying condensed unaudited financial statements report loss applicable tocommon shareholders and loss applicable to common shareholders per share, inaccordance with U.S. generally accepted accounting principles. We also disclosethis information on a pro forma basis below. We closed our initial public offering of shares of common stock on April 26,2004. The pro forma amounts assume that the conversion of the convertiblepreferred shares to common shares, our 32-for-1 stock split and our initialpublic offering took place at the beginning of the 13 week periods ended April 30,2005, and May 1, 2004. The pro forma amounts exclude the preferred stockdividends that are assumed extinguished and the interest expense on theportions of our indebtedness that would have been paid down with the proceedsfrom the initial public offering, net of $0 taxes. We believe the use of proforma amounts provides meaningful information due to the significant increasein outstanding shares as a result of our initial public offering and theelimination of our preferred stock dividends.

 
| ** **                                                        | ** ** | **13 Weeks Ended** | ** ** |
|-------------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                        | ** ** | **April 30,** | ** ** | **May 1,** | ** ** |
| **(in  thousands, except per share data)**                        | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** **                                                        | ** ** | ** **         | ** ** | **(Restated)** | ** ** |
| **Pro Forma Data**                                                | ** ** | ** **         | ** ** | ** ** | ** ** |
| ***Basic and Diluted***                                           |       |               |       |   |   |
| Pro  forma loss applicable to common shareholders                 |       | $                  | (17,568    | ) | $ | (12,863 | ) |
| Pro  forma loss applicable to common shareholders per share       |       | $                  | (1.23      | ) | $ | (0.90 | ) |
| Pro  forma weighted average common shares outstanding             |       | 14,235             |       | 14,222 |   |
|                                                              |       |               |       |   |   |
| **Reconciliation of Pro Forma Data to GAAP**                      |       |               |       |   |   |
| Loss  applicable to common shareholders (GAAP)                    |       | $                  | (17,568    | ) | $ | (18,110 | ) |
| Preferred  stock dividends                                        |       | —             |       | 4,305 |   |
| Interest  expense reduction                                       |       | —             |       | 942 |   |
| Net  loss applicable to common shareholders (Pro forma)           |       | $                  | (17,568    | ) | $ | (12,863 | ) |
|                                                              |       |               |       |   |   |
| Weighted  average common shares outstanding (GAAP)                |       | 14,235             |       | 1,701 |   |
| Conversion  of preferred stock                                    |       | —             |       | 6,299 |   |
| Additional  shares issued in IPO                                  |       | —             |       | 6,222 |   |
| Pro  forma weighted average common shares outstanding (Pro forma) |       | 14,235             |       | 14,222 |   |

 

9

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Wecontinued to reflect the accretion of cumulative unpaid dividends on ourpreviously outstanding Class A, B and C convertible preferred stock, inaccordance with U.S. generally accepted accounting principles, until theclosing of our initial public offering. None of these dividends were paid andany unpaid cumulative dividends were extinguished with the changes in capitalstructure completed in connection with our initial public offering.Accordingly, no related obligation or reduction to net income (loss) isreflected in our quarterly results of operations after May 1, 2004.

 

**8. Related PartyTransactions**

 

On March 17, 2005,we amended the Shared Services Agreement dated as of February 2, 2004 byand between us and Holiday Companies. The amendment substantially reduced thenumber of services provided to us by Holiday Companies as we either providethese sevices internally or independently secure these services from thirdparty providers. For the first quarter of fiscal 2005, the services provided byHoliday Companies were $365,000 as compared to $1,014,000 for the first quarterof fiscal 2004.

 

**9. ContractSettlement**

 

In March 2005, wereceived $2,500,000 relating to the termination of our contract with the formerprovider of our co-branded credit card services in consideration of the lostopportunity This payment to us is reflected as a reduction of general andadministrative expenses in the quarter ended April 30, 2005.

 

**ITEM 2****.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward LookingStatements**

 

Thefollowing discussion may contain forward-looking statements regarding us, ourbusiness prospects and our results of operations that are subject to certainrisks and uncertainties posed by many factors and events that could cause ouractual business, prospects and results of operations to differ materially fromthose that may be anticipated by such forward-looking statements.  Factors that could cause or contribute tosuch differences include, but are not limited to, those described in the “RiskFactors Affecting Current and Future Results” section of our Form 10-K,and other reports, as filed with the Securities and Exchange Commission.  Readers are cautioned not to place unduereliance on these forward-looking statements, which speak only as of the dateof this report.  We undertake noobligation to revise any forward-looking statements in order to reflect eventsor circumstances that may subsequently arise. Readers are urged to carefullyreview and consider the various disclosures made by us in this report and inour other reports filed with the Securities and Exchange Commission that adviseinterested parties of the risks and factors that may affect our business.

 

The interim financials statementsfiled on this Form 10-Q and the discussions contained herein should be read inconjunction with the annual financial statements and notes included in our Form10-K, as filed with the Securities and Exchange Commission, which includesaudited financial statements for our three fiscal years ended January 29,2005.

 

**Overview**

 

The Gander Mountain brandname has a 45-year heritage and strong appeal to outdoor lifestyle customers,beginning with the brand’s 36-year history as a nationwide catalog operationfrom 1960 to 1996, which by 1996, was augmented with 17 retail stores. In 1996and 1997, Holiday Companies, which at the time owned and operated a group ofretail sporting goods stores, acquired these Gander Mountain retail stores,formed our company and began to build a new outdoor lifestyle business. We haveexpanded our store base from 26 stores in 1997 to 87 Gander Mountain stores in14 states as of April 30, 2005.

 

We have built our business by offering our customers abroad and deep assortment of national, regional and owned brand hunting,fishing and camping equipment, accessories and related technical apparel andfootwear at low prices, accompanied by knowledgeable customer service. Oursuccess will depend on our ability to grow our business by building new storesand by increasing sales in our existing stores.

 

We have embarked on a series of strategic andoperating initiatives aimed at improving our merchandise offerings, enhancingprofitability and accelerating new store openings.  We are transforming our market position froma traditional specialty store to a larger format, category-focused store byopening larger format stores and increasing the selling space within ourexisting stores.  The larger formatstrategy has allowed us to offer our 

 

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customers a broader and deeper assortment ofmerchandise.

 

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. These results translate into store operating contribution, which weuse to evaluate overall performance on an individual store basis. Storeoperating contribution is calculated by deducting a store’s operating expensesfrom its gross margin. In addition, general and administrative expenses aremonitored in absolute amounts, as well as on a percentage of sales basis.Pre-opening expenses are analyzed based on the number of store openings, marketattributes and store size.

 

We also measure and evaluate investments in our retaillocations, including inventory and property and equipment. Inventoryperformance is primarily measured by inventory turns, or the number of timesstore inventory 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 gross margins. Increased merchandise volumes enable us to improveour purchasing leverage and achieve greater support throughout the supplychain. The mix of merchandise in our total sales also influences our grossmargins. As we continue sales and store growth, a number of other factors mayimpact, positively or negatively, our gross margin percentage, including:

 

•                  the introductionof new product categories with varying gross margin percentage characteristics,

 

•                  changes in themerchandise mix at our current locations,

 

•                  differences inmerchandise mix by geographic location,

 

•                  pricecompetition,

 

•                  closeout salesin connection with store relocations,

 

•                  sourcing ofproducts from locations outside the United States,

 

•                  vendor programs,and

 

•                  supply chainenhancements.

 

The most significant store operating expenses arelabor and related employee benefits and advertising. We believe the combinationof increased sales volume and improved labor management within our stores willallow us to better leverage payroll expenses over time. Our employee benefitsinclude health insurance, the cost of which continues to increase faster thanthe general rate of inflation. We continually monitor this cost and reviewstrategies to effectively control increases, but we are subject to the overalltrend of increases in health care costs. Advertising costs are monitored as apercentage of sales.  These costs arelargely variable, which allows us to actively manage them to facilitateachieving our sales, gross margin percentage and store operating contributionobjectives.

 

Store operating contribution is measured as apercentage of sales. It gives us an overall measure as to whether or notindividual locations and markets are meeting our financial objectives.

 

General and administrative expenses are monitored andcontrolled as a percentage of sales.  Inanticipation of our accelerated growth plans, we have made significantinvestments in infrastructure, including our information systems, distributioncapabilities and management. Oracle and RetekOur current infrastructurefacilitates the opening of stores at an accelerated rate, which we believeenables us to leverage our expenses. Accordingly, we expect these expenses to decrease as a percentage ofsales over time.

 

Pre-opening expenses will continue to be related tostore openings, including relocations. These expenses will fluctuate based onthe number and timing of new store openings.

 

Inventory turns are based on cost of sales and averageinventory for the applicable period. We recognize that our inventory turns maybe lower than those of other retailers, which we believe is due to thecategories of merchandise we carry, including firearms, and the largequantities of merchandise we use in our in-store displays. We believe we havethe opportunity to enhance our supply chain to improve our inventory turns.Additionally, in merchandise categories that experience slower inventory turns,we continue to work with vendors to increase our trade credit terms to reduceour investment in owned inventory. We cannot assure you that we will be able to

 

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improve our inventory turns or inventory investment.

 

Identification of appropriate new store sites isessential to our growth strategy. We believe our focus on our larger store sizeand our flexible real estate strategy provides us with increased opportunitiesto find optimal real estate locations on attractive terms. We evaluate andinvest in new stores based on site-specific projected returns on investment.

 

**Critical AccountingPolicies and Use of Estimates**

 

Our financial statements are preparedin accordance with U.S. generally accepted accounting principles.  In connection with the preparation of thefinancial statements, we are required to make assumptions, make estimates andapply judgments that affect the reported amounts of assets, liabilities,revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historicalexperience, current trends and other factors that we believe to be relevant atthe time the financial statements are prepared. On a regular basis, we review the accounting policies, assumptions,estimates and judgments to ensure that our financial statements are presentedfairly and in accordance with U.S. generally accepted accounting principles.However, because future events and their effects cannot be determined withcertainty, actual results could differ from our assumptions and estimates, andsuch 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 January 29,2005.

 

**Results ofOperations**

 

The followingtable includes selected items in the Unaudited Condensed Statements ofOperations, reflected as a percentage of sales: 

 
| ** **                           | ** ** | **13 Weeks Ended** | ** ** |
|--------------------------------------|------------|--------------------|------------|
| ** **                           | ** ** | **April 30,** | ** ** | **May 1,** | ** ** |
| ** **                           | ** ** | **2005**           | ** ** | **2004** | ** ** |
| ** **                           | ** ** | ** **         | ** ** | **(Restated)** | ** ** |
| Sales                                |       | 100.0              | %          | 100.0 | % |
| Cost  of goods sold                  |       | 81.4               | %          | 80.4 | % |
| Gross  profit                        |       | 18.6               | %          | 19.6 | % |
|                                 |       |               |       |   |   |
| Operating  expenses:                 |       |               |       |   |   |
| Store  operating expenses            |       | 24.1               | %          | 24.1 | % |
| General  and administrative expenses |       | 4.3                | %          | 6.6 | % |
| Pre-opening  expenses                |       | 2.0                | %          | 1.4 | % |
| Loss  from operations                |       | (11.8              | )%         | (12.5 | )% |
| Interest  expense, net               |       | 1.2                | %          | 1.5 | % |
| Loss  before income taxes            |       | (13.0              | )%         | (14.0 | )% |
| Income  tax provision                |       | 0.0                | %          | 0.0 | % |
| Net  loss                            |       | (13.0              | )%         | (14.0 | )% |

 

A store is included inthe comparable store base in its fifteenth full month of operations.  A relocated store returns to the comparablestore base in its fifteenth full month after relocation. Non-comparable storesales include sales from our stores before they have begun their fifteenthmonth of operation. During the quarter ended July 31, 2004, we changedthis internal measurement from the fourteenth month to the fifteenth month tobetter reflect comparable sales activity in the stores and minimize the effectof grand opening activities. This change did not have a material impact on thecomparable store sales measurement.

 

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Cost of goods sold includes the cost of merchandise,freight, distribution, inventory shrinkage and store occupancy costs. Storeoccupancy costs include rent, real estate taxes and common area maintenancecharges.

 

Store operating expenses include store associatepayroll, taxes and fringe benefits, advertising, maintenance, utilities,depreciation, insurance, bank and credit card charges and other store levelexpenses.

 

General and administrative expenses include allexpenses associated with operating our corporate headquarters.

 

Pre-opening expenses consist primarily of payroll,rent, recruiting, advertising and other costs incurred prior to a new storeopening.

 

***ThirteenWeeks Ended April 30, 2005  comparedto Thirteen Weeks Ended May 1, 2004***

 

*Sales.*  Sales increased by $36.4 million, or 36.9%,to $135.1 million in the first quarter of fiscal 2005, from $98.7 million inthe first quarter of fiscal 2004. This increase primarily resulted from salesof $40.5 million from new stores not yet included in the comparable store salesbase.  This increase was partially offsetby a comparable store sales decrease of $0.9 million, or 1.0%, and a $3.2million sales decrease from closed stores. We opened six new stores during the first quarter of fiscal 2005,including one relocated store, compared to two new stores during the firstquarter of fiscal 2004.  Total squarefootage as of April 30, 2005, increased 52% to 4.1 million square feet, ascompared to May 1, 2004.

 

Comparable store sales decreased 1.0% after anincrease of 8.7% in the first quarter of fiscal 2004. Comparable store salesperformance was impacted by lower levels of clearance merchandise, particularlyin the apparel category, as a result of positive clearance activities at theend of fiscal 2004. For certain of our stores, sales were also negativelyimpacted by cannibalization from some of the new Gander Mountain storeopenings, as well as competition entering our markets. However, the huntingproduct category had positive comparable store sales for the quarter, primarilydue to strong sales of firearms and firearm securities products, driven bytargeted promotions. Marine accessories also had positive comparable storesales for the quarter as a result of expansion of the product mix in thatcategory and our focus on the marine market.

 

The ATV categoryincreased its share of the sales mix for the first quarter of fiscal 2005,driven largely by larger format store sales and ATV accessories, while thefishing category declined in the sales mix. Lower levels of clearance merchandise during the quarter, resulted in adecrease in the apparel/footwear category as a percentage of total sales.

 

*Gross Profit.* Gross profitincreased by $5.8 million, or 29.8%, to $25.2 million in the first quarter offiscal 2005 from $19.4 million in the first quarter of fiscal 2004. As apercentage of sales, gross profit decreased 100 basis points to 18.6% in thefirst quarter of fiscal 2005 from 19.6% in the first quarter of fiscal2004.  Factorsaffecting gross margin were:

•                  anegative impact of approximately 60 basis points resulting from the absence ofa co-branded credit card program,

•                  anegative impact of 30 basis points due to the liquidation of inventory at arelocated store,

•                  higherdistribution costs as a result of (i) higher fuel costs, (ii) costs associatedwith the re-layout of our distribution center and (iii) incremental costsassociated with handling inventory for a greater number of new stores,

•                  increasedstore occupancy costs, as a percentage of sales, as a result of reducedleverage stemming from comparable lower store sales and lower sales per squarefoot at our newer, less mature stores, and

•                  apositive impact of approximately 90 basis points resulting from increases invendor incentive programs.

 

*StoreOperating Expenses.* Store operating expenses increased by $8.8 million, or 36.7%, to $32.6million in the first quarter of fiscal 2005 from $23.8 million in the firstquarter of fiscal 2004. As a percentage of sales, store operating expensesremained at 24.1% in the first quarters of both fiscal 2005 and fiscal2004.  A 60 basis point gain in ourleverage of branded marketing expenses was partially offset by the costsassociated with relocating one store.

 

*Generaland Administrative Expenses.* General and administrative expenses decreased by $0.7 million, or 11.5%,to $5.8 million in the first quarter of fiscal 2005 from $6.5 million in thefirst quarter of fiscal 2004. As a percentage of sales, general andadministrative expenses decreased 230 basis points to 4.3% in the first quarterof 

 

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fiscal 2005 from 6.6% inthe first quarter of fiscal 2004. The termination and settlement of ourcontract with the provider of our co-branded credit card during the firstquarter of fiscal 2005 resulted in a payment to us of $2.5 million, or 190basis points, in consideration of the lost opportunity from the early termination.  Other costs decreased as a percentage ofsales due to effective cost controls combined with increased sales.

 

*Pre-openingExpenses.*  Pre-openingexpenses increased $1.4 million, or 101.1%, to $2.8 million in the firstquarter of fiscal 2005 from $1.4 million in the first quarter of fiscal 2004.We opened six new stores in the first quarter of fiscal 2005, including onestore relocation, compared to the two new stores we opened in the first quarterof fiscal 2004. Pre-opening expenses in the first quarter of fiscal 2005 alsoincluded expenses for two new stores opened in May 2005. Pre-opening expensesper store in the first quarter of fiscal 2005 were approximately 10% lower thanthe first quarter of fiscal 2004.

 

*InterestExpense, net.*  Interestexpense increased by $0.2 million, or 10.8%, to $1.7 million in the firstquarter of fiscal 2005 from $1.5 million in the first quarter of fiscal 2004.The increase resulted from higher average borrowings for the period, incurredto fund our growth, as well as higher average interest rates during the firstquarter of fiscal 2005, as compared to the first quarter of fiscal 2004.

 

*IncomeTax Provision.* We did not record an income tax benefit forthe first quarters of fiscal 2005 or fiscal 2004 due to the uncertainty of therealization of the net operating loss carryforwards. We have determined therealization of the tax benefit related to our net deferred tax asset isuncertain at this time and a valuation allowance was recorded for the entirebalance of our net deferred tax asset.

 

*Net Loss.*As a result of the factors discussed above, the net loss of$17.6 million for the first quarter of fiscal 2005 represented an increase of$3.8 million from the net loss of $13.8 million for the first quarter of fiscal2004.

 

*PreferredStock Dividend. *Untilthe closing of our initial public offering in April 2004, we continued toreflect the accretion of cumulative unpaid dividends on our previouslyoutstanding Class A, B and C convertible preferred stock in accordance withaccounting standards.  No such dividendswere paid and any unpaid cumulative dividends were extinguished with thechanges in capital structure associated with the closing of our initial publicoffering.  No such obligation orreduction to net income (loss) is reflected in our quarterly results ofoperations after May 1, 2004.

 

**Liquidity and Capital Resources**

 

Our primary capitalrequirements are for inventory, capital improvements, pre-opening expenses tosupport our new store growth plans, and, to the extent of the highly seasonalnature of our business, operating losses. Until the completion of our initial public offering, our main sources ofliquidity were equity investments by, and advances from, Holiday Companies andits affiliated entities, and borrowings under our credit facility.

 

*Operating Activities. *Net cash used in operating activities for the first quarter of fiscal 2005decreased by $16.7 million to $13.0 million, as compared to the first quarterof fiscal 2004. The decrease was primarily the result of higher accountspayable levels, including approximately $9.4 million in accounts payableincurred for purchases of property and equipment, offset primarily by thehigher net loss.  The growth ininventories the first quarter of fiscal 2005 was representative of seasonalinventory levels, but also included growth in inventories for the six newstores opened this quarter, as compared to only two new stores opened in thefirst quarter of fiscal 2004. However, growth in overall inventories was offsetby lower inventory levels in recently opened stores and the success ofour efforts to reduce inventory in all our stores.

 

*InvestingActivities*.  Net cashused in investing activities was $13.7 million in the first quarter of fiscal2005 and $9.8 million in the first quarter of fiscal 2004, consisting ofpurchases of property and equipment. We used cash primarily for tenantimprovements and equipment to open new stores and to remodel and upgradeexisting stores. There were six new stores opened in the first quarter offiscal 2005 and two new stores opened in the first quarter of fiscal 2004.Purchases of property and equipment in the first quarter of fiscal 2005 alsoincluded information technology equipment at our corporate headquarters and anupgrade to our distribution center.

 

*FinancingActivities*. * *Net cash provided by financingactivities was $27.0 million in the first quarter of fiscal 2005, as comparedto $39.6 million in the first quarter of fiscal 2004. During the first quarterof fiscal 2004, we received net proceeds from our initial public offering of$96.2 million, reduced debt by $96.2 million in total (including $9.8 millionin indebtedness to Holiday Companies) and borrowed $39.6 million under ourcredit facility. The borrowings during these periods were primarily related tofinancing increased inventory levels, property and 

 

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equipment purchases fornew store openings, and operating losses.

 

On April 26, 2004, we closed theinitial public offering of our common stock, selling 6,583,750 shares of commonstock, including the underwriters’ over-allotment, at a price of $16.00 pershare, resulting in net proceeds to us of $96.2 million.  Transaction costs were $9.1 million and havebeen reflected as a reduction of paid-in-capital.

 

*CreditFacility.* In February 2005,we completed an amendment to our credit facility that increased the amount ofthe facility from $175.0 million to $225.0 million and extended the maturitydate to June 2009.  The facility canbe increased to $300.0 million if we are not in default under the creditagreement.  The actual availability underour credit facility is limited to 85% of eligible credit card receivables, plusthe lesser of 68.25% to 75.50% of our eligible inventory, or 85% of ourinventory’s liquidation value, in each case net of specified reserves and lessany letters of credit outstanding. Interest on the outstanding indebtednessunder the credit facility currently accrues at the lender’s prime commerciallending rate plus 0% to 0.5% depending on our EBITDA, as defined in the creditagreement, or, if we elect, at the one, two, three or six month LIBOR plus1.25% to 2.25% depending on such EBITDA. Interests in substantially all of our assets secure our obligations underthe credit facility. As of April 30, 2005, we were in compliance with allcovenants under this facility.

 

As of April 30,2005, outstanding borrowings under the credit facility were $147.4 million,including letters of credit of $6.2 million. As of April 30, 2005, ourtotal remaining borrowing capacity under the credit facility, after subtractingletters of credit, was $63.5 million.

 

*FutureCapital Requirements*. Our future capital requirements will primarily depend on the number ofnew stores we open and the timing of those openings within a given fiscal year.These requirements will include costs directly related to opening new storesand may also include costs necessary to ensure that our infrastructure,including technology and distribution capabilities, is able to support a largerstore base. We opened six new stores during the first quarter of fiscal 2005,including one relocated store, and our cash used in investing activities was$13.7 million. We currently plan to open 18 to 20 stores in fiscal 2005,including three or four relocations and consolidations. However, businessconditions, business strategy or other factors may cause us to adjust suchplans.

 

Additional needs for capital include funding seasonalinventory levels and losses from operations due to our seasonality.  We may also increase our direct productsourcing activities, requiring additional funding possibly through increasedletters of credit or trade credit. We intend to satisfy our capital requirementsover the next twelve months with cash flows from operations, funds availableunder our credit facility and equipment financing leases. However, if capitalrequirements for our business strategy change, or other factors change ourcapital requirements, we may need to seek additional financing in the public orprivate markets. There is no assurance that financing will be available to uson acceptable terms.

 

**Contractual Obligations and Other Commitments**

 

Our material off-balance sheet arrangements areoperating lease obligations and letters of credit.  We excluded these items from the balancesheet in accordance with U.S. generally accepted accounting principles. As of April 30,2005, the minimum operating lease payments due within one year were $42.9million. As of April 30, 2005, total minimum operating lease paymentsremaining over the life of the operating leases were $530.2 million. Theseoperating leases generally provide for payment of direct operating costs,primarily common area costs and real estate taxes, in addition to rent. Theseobligation amounts include future minimum lease payments and exclude directoperating costs.

 

Issued and outstanding letters of credit were $6.2million at April 30, 2005, and were related primarily to importing ofmerchandise and funding insurance program liabilities.

 

In theordinary 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 otherpenalties if cancelled, they are not included as outstanding contractualobligations.

 

**Quarterly Results of Operations and Seasonality**

 

Our quarterly operating results may fluctuate significantly because ofseveral factors, including the timing of new store openings and relatedexpenses, profitability of new stores, weather conditions and general economicconditions. Our business is also subject to seasonal fluctuation, withapproximately 65% of our sales activity normally occurring during the third andfourth quarters of our fiscal year, which are primarily associated with thefall hunting seasons and the holiday season. The first half of our fiscal years have averaged approximately 35% of 

 

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our annual sales,including new store sales, over the past two years. However, this factor cannotnecessarily be used as an indicator of future results. Our customers’ demandfor our products and therefore our sales, can be significantly impacted byunseasonable weather conditions that affect outdoor activities and the demandfor related apparel and equipment. This seasonality also impacts our inventorylevels, which tend to rise beginning approximately in April, reach a peak inNovember, and decline to lower levels after the December holiday season.

 

Our pre-opening expenses have and will continue tovary significantly from quarter to quarter, primarily due to the timing ofstore openings.  We typically incur mostpre-opening expenses for a new store during the three months preceding, and themonth of, its opening.  In addition, ourlabor and operating costs for a newly opened store can be greater during thefirst one to two months of operation than what can be expected after that time,both in aggregate dollars and as a percentage of sales.  Accordingly, the volume and timing of newstore openings in any quarter has had and is expected to continue to have asignificant impact on quarterly pre-opening costs and store labor and operatingexpenses.  Due to these factors, resultsfor any particular quarter may not be indicative of results to be expected forany other quarter or for a full fiscal year.

 

**ITEM 3****.  QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We are exposed to market risk from changes in interestrates on borrowings under our credit facility. This floating rateindebtedness was $141.2 million at April 30, 2005 and averaged $127.1million during the first quarter of fiscal 2005. If short-term floatinginterest rates on our average variable rate debt for the first fiscal quarterof 2005 had changed by 100 basis points, our interest expense would haveincreased by approximately $0.3 million, assuming comparable borrowing levels.These amounts are determined by considering the impact of the hypotheticalinterest rates on our average amount of floating rate indebtedness outstandingand cash equivalents balances for each of the respective fiscal years.

 

We haveno derivative financial instruments or derivative commodity instruments in ourcash and cash equivalents.

 

We haveno international sales; however, we import certain items for sale in ourstores.  Substantially all of ourpurchases are denominated in U.S. dollars and are paid under trade termssimilar to our U.S vendors.

 

**ITEM 4****.  CONTROLS ANDPROCEDURES**

 

As of theend of the period covered by this report, we conducted an evaluation, under thesupervision and with the participation of the principal executive officer andprincipal financial officer, of our disclosure controls and procedures (asdefined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of1934 (the “Exchange Act”)).  Based onthis evaluation, the principal executive officer and principal financialofficer concluded that our disclosure controls and procedures are effective toensure that information required to be disclosed by us in reports that we fileor submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in Securities and ExchangeCommission rules and forms.  There was nochange in our internal control over financial reporting identified inconnection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of theExchange Act that occurred during the period covered by this report that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

 

#### **PART II**. OTHER INFORMATION

#### ** **

**ITEM 1****.  LEGALPROCEEDINGS**

 

***Cabela’s Incorporated***

* *

As reported in ourAnnual Report on Form 10-K for the fiscal year ended January 29, 2005, on July 2,2004, we filed an Arbitration Demand with the American Arbitration Associationseeking arbitration of certain issues arising under our NoncompetitionAgreement dated May 16, 1996, with Cabela’s Incorporated.  On July 2,2004, we also filed a Complaint in the U.S. District Court for the District ofMinnesota seeking a declaratory judgment that a trademark licensing provisionof the Noncompetition Agreement is unenforceable.  Although thenoncompetition provisions of the Noncompetition Agreement expired in June 2003,Cabela’s contends that the Noncompetition Agreement may require us to grantCabela’s a license to certain of our trademarks that were in existence in 1996if it is determined that we have engaged in active steps to re-enter a “directmarketing business” (as defined in the Noncompetition Agreement).  Wefiled the Arbitration Demand and the Complaint to seek 

 

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clarification as to the interpretation andenforceability of the Noncompetition Agreement.  Cabela’s has denied theclaims in the Complaint and the Arbitration Demand.

 

In May 2005, weterminated the arbitration proceeding as moot and moved to lift the stay of thefederal court action so that our declaratory judgment action, seeking unenforceabilityof the trademark licensing provision of the Noncompetition Agreement, couldproceed.  The stay was lifted on June 2,2005. Cabela’s has filed a counterclaim seeking to enforce the trademarklicensing provision, or alternatively, enjoining our use of certain trademarksin a direct marketing business.  We arenot able to predict the ultimate outcome of this litigation, but it may becostly and disruptive. The total costs may not be reasonably estimated at thistime.  The outcome of this dispute may impact the manner in which wemarket our products in the future.  It is not expected to affect themarketing of our products through retail stores.

 

**Securities Litigation**

 

Our company and eight ofour present and former directors and executive officers were named asdefendants in six virtually identical actions, which were filed between January 28,2005 and March 4, 2005, in the U.S. District Court for the District ofMinnesota. These actions are titled as *Joseph Merrelli v. GanderMountain Company, et al.*, *George Patchan v. GanderMountain Company, et al.*, *John Stainbrook v. GanderMountain Company, et al*., *Robert Schuck v. GanderMountain Company, et al., William C. Fernalld, Jr. v. Gander Mountain Company,et al.,*and *Sean Peter Sloan v. GanderMountain Company, et al*. Each action is a purported class actionbrought on behalf of all persons (except defendants) who purchased stock in ourinitial public offering on April 20, 2004, or in the open market between April 20,2004 and January 13, 2005. The complaints allege that the defendants madefalse and misleading public statements about our company, and our business andprospects, in the registration statement and prospectus for our initial publicoffering, and in filings with the SEC and press releases issued thereafter, andthat the market price of our stock was artificially inflated as a result. Thecomplaints allege claims under Sections 11 and 15 of the Securities Act of1933, and under Sections 10(b) and 20(a) of the Securities and Exchange Act of1934. The plaintiffs in all six cases seek compensatory damages on behalf ofthe alleged class, an award of attorneys’ fees and costs of litigation, andunspecified equitable/injunctive relief. All plaintiffs have moved for consolidation of the six cases.

 

We believe that we, andthe other defendants, have meritorious defenses to the claims made in thecomplaints and we intend to contest the lawsuits vigorously. We are not able topredict the ultimate outcome of this litigation, but it may be costly and disruptive.The total costs may not be reasonably estimated at this time. Securities classaction litigation can result in substantial costs and divert our management’sattention and resources, which may have a material adverse effect on ourbusiness and results of operations, including our cash flows.

 

**Derivative Litigation**

 

Our company, as a nominaldefendant, and 12 of our present and former directors have been named asdefendants in a purported derivative action that was filed on February 11,2005 in the U.S. District Court for the District of Minnesota. This action istitled as *Kurt Haberle v. Mark R. Baker, et al.*Inhis complaint, the shareholder-plaintiff alleges claims of breach of fiduciaryduty, abuse of control, gross mismanagement, waste of corporate assets andunjust enrichment against the individual defendants arising out of the sameevents that are alleged in the federal securities actions that are describedabove. Essentially, the complaint asserts that wrongful conduct by theindividual defendants resulted in our company making false and misleadingpublic statements, which in turn led to our company getting sued for federalsecurities fraud, which in turn has caused our company to lose marketcapitalization, reputation and goodwill. The complaint seeks compensatorydamages from the individual defendants for the loss allegedly sustained by ourcompany, restitution and disgorgement of all profits, benefits and othercompensation obtained by the individual defendants and an award of attorneys’fees and costs of litigation.  Defendantshave moved to dismiss the complaint.

 

We are not able topredict the ultimate outcome of this litigation, but it may be costly anddisruptive. The total costs may not be reasonably estimated at this time.Derivative litigation can result in substantial costs and divert our management’sattention and resources, which may have a material adverse effect on ourbusiness and results of operations, including our cash flows.

 

**ITEM 2****.  UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

Notapplicable.

 

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**ITEM 3****.  DEFAULTS UPONSENIOR SECURITIES**

 

Notapplicable.

 

**ITEM 4****.  SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS**

 

None

 

**ITEM 5****.  OTHERINFORMATION**

 

The following unaudited earnings statement for thetwelve month period (52 weeks) ended April 30, 2005 covers a period oftwelve months beginning six days after the effective date of the registrationstatement (File No. 333-1124194) for our April 26, 2004 public offering, andis hereby made available to security holders pursuant to Section 11(a) ofthe Securities Act of 1933.

 

**Gander Mountain Company**

**Earnings Statement - Unaudited**

**Twelve Month Period Ended April 30, 2005**

**(In thousands, exceptper share data)**

 

| Sales                                                               |   | $       | 678,549 |   |
|---------------------------------------------------------------------|--------|---------|---------|--------|
| Cost  of goods sold                                                 |   | 510,285 |    |
| Gross  profit                                                       |   | 168,264 |    |
| Operating  expenses:                                                |   |    |    |
| Store  operating expenses                                           |   | 130,320 |    |
| General  and administrative expenses                                |   | 25,257  |    |
| Pre-opening  expenses                                               |   | 9,580   |    |
| Income  from operations                                             |   | 3,107   |    |
| Interest  expense, net                                              |   | 5,300   |    |
| Loss  before income taxes                                           |   | (2,193  | )       |
| Income  tax provision                                               |   | —  |    |
| Net  loss                                                           |   | (2,193  | )       |
| Less  preferred stock dividends                                     |   | —  |    |
| Loss  applicable to common shareholders                             |   | $       | (2,193  | )      |
|                                                                |   |    |    |
| Basic  and diluted loss applicable to common shareholders per share |   | $       | (0.15   | )      |
|                                                                |   |    |    |
| Weighted  average common shares outstanding                         |   | 14,225  |    |

 

18

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**ITEM 6****.  EXHIBITS**

 

***(a) Exhibits filed with this report***

 
| **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) |
|             |       |                                                                                   |       |                           |
| 14               |       | Code of Conduct of the  Registrant (as amended through June 7, 2005)              |       | Filed Electronically           |
|             |       |                                                                                   |       |                           |
| 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 by referenceto Exhibit 3.4 to Amendment No. 1 to the Registrant’s Registration Statement onForm S-1 (Registration No. 333-112494), filed with the Commission on 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 13,  2005 | By:                                                                                                                              | /s/  Mark R. Baker |   |
|                      | Mark R.  Baker 

*President and  Chief Executive Officer*(Principal Executive Officer)                                           |
|                      |                                                                                                                             |
|                      |                                                                                                                             |
| Date: June 13,  2005 | By:                                                                                                                              | /s/  Dennis M. Lindahl |   |
|                      | Dennis  M. Lindahl*Executive Vice President, Chief Financial Officer  and Treasurer*(Principal Financial and Accounting Officer) |
|                           |                                                                                                                                  |  |  |  |

 

19

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## ***EXHIBIT INDEX***

 
| **Exhibit  No.** | ** ** | **Description**                                                                        | ** ** | **Method of Filing**       |
|------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------------|
| 3.1              |       | Amended and Restated  Articles of Incorporation of the Registrant                      |       | Incorporated By  Reference |
|             |       |                                                                                   |       |                       |
| 3.2              |       | Amended and Restated  Bylaws of the Registrant                                         |       | Incorporated By  Reference |
|             |       |                                                                                   |       |                       |
| 14               |       | Code of Conduct of the  Registrant (as amended through June 7, 2005)              |       | Filed Electronically       |
|             |       |                                                                                   |       |                       |
| 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       |

 

20

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