**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**


(Mark
      One)





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





For
      the
      quarterly period ended July 1, 2007





OR





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





For
      the
      transition period from ______ to ______





Commission
      File Number: 0-20736





**Sport
                Chalet, Inc.**(Exact
                name of registrant as specified in its
                charter)




Delaware
            95-4390071(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer Identification No.)One
                Sport Chalet Drive, La Canada, CA 91011
              (Address
                of principal executive offices) (Zip Code)(818)
                949-5300
              (Registrant’s
                telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o





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


Large
                  Accelerated Filer o
              Accelerated
                  Filer o
              Non-Accelerated
                  Filer x




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





At
      August
      3, 2007, there were 12,334,820 shares of Class A Common Stock outstanding and
      1,741,572 shares of Class B Common Stock outstanding.





1





**SPORT
      CHALET, INC.**





Table
      of
      Contents to Form 10-Q





PART
      I -
      FINANCIAL INFORMATION




PageItem
                  1.
              Financial
                  Statements
              3Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Conditionand
                  Results of Operations
              10Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              21Item
                  4T.
              Controls
                  and Procedures
              21PART
                  II - OTHER INFORMATIONItem
                  1.
              Legal
                  Proceedings
              22Item
                  1A.
              Risk
                  Factors
              22Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              22Item
                  3.
              Defaults
                  Upon Senior Securities
              22Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              22Item
                  5.
              Other
                  Information
              22Item
                  6.
              Exhibits
              23





2




**PART
      I - FINANCIAL INFORMATION**





**Item
      1.** **Financial
      Statements.**





**SPORT
      CHALET, INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**




Three
                  months endedJuly
                  1, 2007
              
              July
                  2, 2006Net
                  sales
              
              $
              91,553,910
              
              $
              84,418,339Cost
                  of goods sold, buying andoccupancy
                  costs
              
              
              65,401,225
              
              
              59,669,496Gross
                  profit
              
              
              26,152,685
              
              
              24,748,843Selling,
                  general and administrativeexpenses
              
              
              26,908,688
              
              
              23,828,887(Loss)
                  income from operations
              
              
              (756,003
              )
              
              919,956Interest
                  expense
              
              
              359,017
              
              
              38,520(Loss)
                  Income before taxes
              
              
              (1,115,020
              )
              
              881,436Income
                  tax (benefit) provision
              
              
              (450,696
              )
              
              351,025Net
                  (loss) income
              
              $
              (664,324
              )
              $
              530,411(Loss)
                  earnings per share:Basic
              
              $
              (0.05
              )
              $
              0.04Diluted
              
              $
              (0.05
              )
              $
              0.04Weighted
                  average number ofcommon
                  shares outstanding:Basic
              
              
              14,016,224
              
              
              13,773,398Diluted
              
              
              14,016,224
              
              
              14,191,130




**See
      accompanying notes.**




3





**SPORT
      CHALET, INC.**





**CONDENSED
      CONSOLIDATED BALANCE SHEETS**





July
                  1,
              
              April
                  1,2007
              
              2007**Assets**
              
              
              (Unaudited)Current
                  assets:Cash
                  and cash equivalents
              
              $
              4,882,043
              
              $
              3,840,757Accounts
                  receivable, net
              
              
              7,102,720
              
              
              6,894,282Merchandise
                  inventories
              
              
              90,799,204
              
              
              87,066,998Prepaid
                  expenses and other current assets
              
              
              4,856,515
              
              
              4,827,232Prepaid
                  income taxes
              
              
              1,979,611
              
              
              1,481,914Deferred
                  income taxes
              
              
              3,007,698
              
              
              3,145,502Total
                  current assets
              
              
              112,627,791
              
              
              107,256,685Fixed
                  assets, net
              
              
              62,142,093
              
              
              59,487,415Deferred
                  income taxes
              
              
              4,862,299
              
              
              4,504,986Total
                  assets
              
              $
              179,632,183
              
              $
              171,249,086**Liabilities
                  and stockholders' equity**Current
                  liabilities:Accounts
                  payable
              
              $
              35,413,124
              
              $
              29,407,673Loan
                  payable to bank
              
              
              17,658,555
              
              
              11,776,278Salaries
                  and wages payable
              
              
              3,369,563
              
              
              4,999,139Other
                  accrued expenses
              
              
              13,236,605
              
              
              15,580,770Total
                  current liabilities
              
              
              69,677,847
              
              
              61,763,860Deferred
                  rent
              
              
              23,690,122
              
              
              23,059,084Commitments
                  and contingenciesStockholders’
                  equity:Preferred
                  stock, $.01 par value:Authorized
                  shares - 2,000,000Issued
                  and outstanding shares – none
              
              
              -
              
              
              -Class
                  A Common Stock, $.01 par value:Authorized
                  shares - 46,000,000Issued
                  and outstanding shares – 12,334,820 atJuly
                  1, 2007 and 12,252,654 at April 1, 2007
              
              
              123,348
              
              
              122,527Class
                  B Common Stock, $.01 par value:Authorized
                  shares - 2,000,000Issued
                  and outstanding shares – 1,741,572 atJuly
                  1, 2007 and 1,741,489 at April 1, 2007
              
              
              17,416
              
              
              17,415Additional
                  paid-in capital
              
              
              33,692,326
              
              
              33,190,752Retained
                  earnings
              
              
              52,431,124
              
              
              53,095,448Total
                  stockholders’ equity
              
              
              86,264,214
              
              
              86,426,142Total
                  liabilities and stockholders’ equity
              
              $
              179,632,183
              
              $
              171,249,086





**See
      accompanying notes.**




4




**SPORT
      CHALET, INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**




Three
                  months endedJuly
                  1, 2007
              
              July
                  2, 2006**Operating
                  activities**Net
                  (loss) income
              
              $
              (664,324
              )
              $
              530,411Adjustments
                  to reconcile net (loss) income to net cashprovided
                  by operating activities:Depreciation
                  and amortization
              
              
              3,162,519
              
              
              2,522,826Loss
                  on disposal of equipment
              
              
              6,241
              
              
              116,910Share-based
                  compensation
              
              
              44,336
              
              
              45,000Deferred
                  income taxes
              
              
              (219,509
              )
              
              993,839Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (208,439
              )
              
              (2,222,016
              )Merchandise
                  inventories
              
              
              (3,732,206
              )
              
              (7,909,067
              )Prepaid
                  expenses and other current assets
              
              
              (29,283
              )
              
              18,788Prepaid
                  income taxes
              
              
              (497,697
              )Accounts
                  payable
              
              
              6,005,451
              
              
              13,647,102Salaries
                  and wages payable
              
              
              (1,629,576
              )
              
              (1,602,516
              )Other
                  accrued expenses
              
              
              (2,344,165
              )
              
              (1,257,092
              )Income
                  taxes payable
              
              
              -
              
              
              (1,765,059
              )Deferred
                  rent
              
              
              631,038
              
              
              1,132,535Net
                  cash provided by operating activities
              
              
              524,386
              
              
              4,251,661**Investing
                  activities**Purchase
                  of fixed assets
              
              
              (5,823,437
              )
              
              (4,974,732
              )Proceeds
                  from sale of fixed assets
              
              
              -
              
              
              50Net
                  cash used in investing activities
              
              
              (5,823,437
              )
              
              (4,974,682
              )**Financing
                  activities**Proceeds
                  from bank borrowing
              
              
              29,336,693
              
              
              5,778,063Repayments
                  of bank borrowing
              
              
              (23,454,416
              )
              
              (5,778,063
              )Proceeds
                  from exercise of stock options
              
              
              191,551
              
              
              351,880Optionee
                  withholding taxes from exercise of stock options
              
              
              -
              
              
              (890,264
              )Tax
                  benefit on employee stock options
              
              
              266,509
              
              
              822,245Net
                  cash provided by financing activities
              
              
              6,340,337
              
              
              283,861Increase
                  (decrease) in cash and cash equivalents
              
              
              1,041,286
              
              
              (439,160
              )Cash
                  and cash equivalents at beginning of period
              
              
              3,840,757
              
              
              2,563,930Cash
                  and cash equivalents at end of period
              
              $
              4,882,043
              
              $
              2,124,770**Supplemental
                  Disclosure of Cash Flow Information**Cash
                  paid during the period for:Income
                  taxes
              
              $
              -
              
              $
              250,000Interest
              
              
              317,982
              
              
              19,534




**See
      accompanying notes** **.**




5




**SPORT
      CHALET, INC.**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**




1.  Basis
            of Presentation


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





The
      accompanying condensed consolidated financial statements should be read in
      conjunction with the audited consolidated financial statements included in
      the
      Company’s Annual Report on Form 10-K for the fiscal year ended April 1, 2007.
      Interim results are not necessarily indicative of results for the full
      year.





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the amounts reported in the financial statements
      and
      accompanying notes. Actual results could differ from those
      estimates.





Beginning
      April 1, 2006, our fiscal year end was changed from March 31 to the Sunday
      closest to March 31. Each fiscal year will consist of four 13 week quarters,
      with an extra week added onto the last quarter every five to seven years. This
      fiscal calendar is widely used in the retail industry. As a result, the three
      months ended July 2, 2006 includes two additional days as compared to the three
      months ended July 1, 2007.




2.  Earnings
      (loss) per Share




Earnings
      (loss) per share, basic, is computed based on the weighted average number of
      common shares outstanding for the period. Earnings (loss) per share, diluted,
      is
      computed based on the weighted average number of common and potentially dilutive
      common equivalent shares outstanding for the period.





6


A
      reconciliation of the numerators and denominators of the basic and diluted
      earnings (loss) per share computations are set forth below:




Three
                  months endedJuly
                  1, 2007
              
              July
                  2, 2006Net
                  (loss) income
              
              $
              (664,324
              )
              $
              530,411Weighted
                  average number of common shares:Basic
              
              
              14,016,224
              
              
              13,773,398Effect
                  of dilutive securities-stock
                  options
              
              
              -
              
              
              417,732Diluted
              
              $
              14,016,224
              
              $
              14,191,130Class
                  A and Class B(loss)
                  earnings per share:Basic
              
              $
              (0.05
              )
              $
              0.04Effect
                  of dilutive securities-stock
                  options
              
              
              -
              
              
              -Diluted
              
              $
              (0.05
              )
              $
              0.04





An
      aggregate of 1,817,689 and 159,000 options for the three months ended July
      1,
      2007 and July 2, 2006, respectively, are excluded from the computation of
      diluted earnings per share as their effect would have been
      anti-dilutive.





3. Share-based
      Compensation





Total
      share-based compensation expense recognized for the three months ended July
      1,
      2007 and July 2, 2006 was $44,335 and $45,000, respectively, before income
      taxes. The related tax benefit was $18,000 for each of the periods.





The
      fair
      value of each option granted is estimated on the date of grant using the
      Black-Scholes option-pricing model. The Black-Scholes option valuation model
      was
      developed for use in estimating the fair value of traded options which have
      no
      vesting restrictions and are fully transferable. In addition, option valuation
      models require the input of highly subjective assumptions including the expected
      stock price volatility. There were no options granted during the quarter ended
      July 1, 2007. For the quarter ended July 2, 2006 the following weighted average
      assumptions were used to estimate the fair value for stock options granted
      in
      that period:




Three
                  months endedJuly
                  2, 2006Risk-free
                  interest rate
              
              
              5.0
              %Expected
                  volatility
              
              
              46.1
              %Expected
                  dividend yield
              
              
              0.0
              %Expected
                  life in years
              
              
              7.5
  7


The
      stock
      option activity during the three months ended July 1, 2007 is presented in
      the
      following table:




Options
              
              Weighted
                  Average Exercise Price
              
              Weighted-Average
                  Remaining Contractual Term (Years)
              
              Aggregate
                  Intrinsic ValueOutstanding
                  as of April 1, 2007
              
              
              1,507,586
              
              $
              4.84Granted
              
              
              -
              
              
              -Exercised
              
              
              (82,249
              )
              
              2.31Forfeited
                  or expired
              
              
              (500
              )
              
              2.33Outstanding
                  as of July 1, 2007
              
              
              1,424,837
              
              $
              4.98
              
              
              5.4
              
              $
              7,238,821Exercisable
                  as of July 1, 2007
              
              
              1,315,275
              
              $
              4.75
              
              
              5.1
              
              $
              6,983,062





The
      aggregate intrinsic value in the table above is based on the Company’s closing
      stock price of $10.07 and $10.00 for Class A and Class B, respectively, as
      of
      the last trading day of the period ended July 1, 2007.





4. Income
      Taxes





We
      adopted the provisions of Financial Standards Accounting Board (“FASB”)
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN
      48”), an interpretation of FASB Statement No. 109 (“SFAS 109”), on April 2,
      2007. We have no unrecognized income tax benefits. When applicable, we recognize
      interest and penalties related to uncertain tax positions in income tax expense.
      The tax years ending March 31, 2004 to April 1, 2007 remain open to examination
      by the Internal Revenue Service. The year ended March 31, 2005 has been selected
      for audit by the Internal Revenue Service. The tax years ending March 31, 2003
      to April 1, 2007 remain open to examination by the state of California. The
      tax
      years ending March 31, 2006 to April 1, 2007 remain open to examination by
      the
      state of Arizona.





5. Recently
      Issued Accounting Pronouncements





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




8




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
      for Financial Assets and Financial Liabilities.” SFAS No. 159 permits
      companies to choose to measure many financial instruments and certain other
      items at fair value. The objective is to improve financial reporting by
      providing companies with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions. SFAS No. 159 is
      effective for fiscal years beginning after November 15, 2007. Companies are
      not allowed to adopt SFAS No. 159 on a retrospective basis unless they
      choose early adoption. The Company plans to adopt SFAS No. 159 at the
      beginning of fiscal 2009 and does not expect the adoption to have a material
      impact on net earnings or financial position.




9




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


**Results
      of Operations.**





*This
      Quarterly Report on Form 10-Q contains statements that constitute
      forward-looking statements within the meaning of Section 27A of the Securities
      Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
      1934,
      as amended. These forward-looking statements are made pursuant to the safe
      harbor provisions of the Private Securities Litigation Reform Act of 1995.
      These
      forward-looking statements include statements relating to trends in, or
      representing management’s beliefs about, our future strategies, operations and
      financial results, as well as other statements including words such as
“believe,” “anticipate,” “expect,” “estimate,” “predict,” “intend,” “plan,”
“project,” “will,” “could,” “may,” “might” or any variations of such words or
      other words with similar meanings. Forward-looking statements are made based
      upon management’s current expectations and beliefs concerning trends and future
      developments and their potential effects on the Company. Prospective investors
      are cautioned that they should not place undue reliance on forward-looking
      statements as predictions of actual results. These statements are not guarantees
      of future performance and involve risks and uncertainties that are difficult
      to
      predict. Further, certain forward-looking statements are based upon assumptions
      as to future events that may not prove to be accurate. Actual results may differ
      materially from those suggested by forward-looking statements as a result of
      risks and uncertainties which are discussed in further detail under “- Factors
      That May Affect Future Results.” We do not assume, and specifically disclaim,
      any obligation to update any forward-looking statements, which speak only as
      of
      the date made.*





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





**Overview**





We
      are a
      leading operator of 47 full service specialty sporting goods stores in
      California, Nevada and Arizona. In 1959, Norbert Olberz, our founder (the
“Founder”), purchased a small ski and tennis shop in La Cañada, California. A
      focus on providing quality merchandise with outstanding customer service was
      the
      foundation of Norbert’s vision. We continue this tradition and are focused on
      growth through a number of initiatives, including: continuing new store
      development; remodeling stores to conform to our prototype; and improving
      information systems to increase product flow-through, improve in-stock positions
      and optimize merchandise assortment.




Our
      growth strategy had historically focused on Southern California, but now
      includes opening new stores throughout California, Nevada, Arizona and Utah
      as
      suitable locations are found. We have opened two stores during the three months
      ended July 1, 2007, sixteen stores in the last three years and twenty-one in
      the
      last five years. We currently anticipate opening five additional new stores
      during the remainder of this fiscal year including our first store in Utah.
      Future store openings are subject to availability of satisfactory store
      locations based on local competitive conditions, site availability and cost
      and
      our ability to provide and maintain high service levels and quality brand
      merchandising at competitive prices. Store openings are expected to have a
      favorable impact on sales volume, but will negatively affect profit in the
      short
      term. New stores tend to have higher costs as a percent of sales in the early
      years of operation, due primarily to pre-opening and promotional costs and
      lower
      than average sales, which reduces the leverage needed to offset direct and
      indirect store expenses. As the store matures, sales tend to level off and
      expenses decline as a percent of sales. We believe our stores require three
      to
      four years to attract a stable, mature customer base, but because of our
      relatively low number of stores, reliable statistical trends are not available
      and there can be no assurance that our stores will mature at that rate. A slower
      rate of maturity would cause reduced profitability as a percent of sales. In
      addition, we continue to invest in infrastructure improvements to more
      efficiently manage the increasing store base. These improvements generally
      increase overhead expenses in the form of computer hardware and software
      maintenance and depreciation as well as staff to operate these systems. At
      some
      point, the growth in sales from new and mature stores is expected to exceed
      the
      growth in infrastructure costs, but there can be no assurance that this will
      occur.




10




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





We
      believe that the overall growth of our business should allow us to maintain
      or
      increase our operating margins. Increased merchandise volumes should enable
      us
      to improve our purchasing leverage and achieve greater support throughout the
      supply chain.  Gross profit, which includes occupancy costs, as a percent
      of sales has increased from 29.2% to 30.9% over the past five fiscal years.
      However, improvements in merchandise procurement have been offset by increased
      occupancy costs as a percent of sales from new stores. For the three months
      ended July 1, 2007, gross profit was 28.6% compared to 29.3% for the same period
      of the prior year primarily as a result of increased occupancy costs from newer
      stores. Our overall growth should leverage our investments in infrastructure
      such as the distribution center, corporate facilities and computer systems.
      However, these increased efficiencies and improvements have been offset by
      the
      operating costs of new and maturing stores. Selling, general and administrative
      expenses, excluding the cost of the recapitalization plan during fiscal 2006,
      as
      a percent of sales have increased from 26.3% to 27.8% over the past five fiscal
      years. For the three months ended July 1, 2007, selling, general and
      administrative expenses were 29.4% compared to 28.2% for the same period of
      the
      prior year primarily as a result of the operating costs of newer stores.





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




11




**Results
      of Operations**





***Three
      months ended July 1, 2007 Compared to Three months ended July 2,
      2006***





The
      following table sets forth statements of operations data and relative
      percentages of net sales for the three months ended July 1, 2007 and the three
      months ended July 2, 2006 (dollar amounts in thousands, except per share
      amounts).




**Three
                  months ended**July
                  1, 2007
              
              July
                  2, 2006
              
              Dollar
                Increase
              
              Percentage
                IncreaseAmount
              
              Percent
              
              Amount
              
              Percent
              
              (Decrease)
              
              (Decrease)Net
                  sales
              
              $
              91,554
              
              
              100.0
              %
              $
              84,418
              
              
              100.0
              %
              $
              7,136
              
              
              8.5
              %Gross
                  profit
              
              
              26,153
              
              
              28.6
              %
              
              24,749
              
              
              29.3
              %
              
              1,404
              
              
              5.7
              %Selling,
                  general and administrative expenses
              
              
              26,909
              
              
              29.4
              %
              
              23,829
              
              
              28.2
              %
              
              3,080
              
              
              12.9
              %(Loss)
                  income from operations
              
              
              (756
              )
              
              (0.8
              %)
              
              920
              
              
              1.1
              %
              
              (1,676
              )
              
              (182.2
              %)Interest
                  expense
              
              
              359
              
              
              0.4
              %
              
              39
              
              
              0.0
              %
              
              320
              
              
              820.5
              %(Loss)
                  income before taxes
              
              
              (1,115
              )
              
              (1.2
              %)
              
              881
              
              
              1.0
              %
              
              (1,996
              )
              
              (226.6
              %)Income
                  tax (benefit) provision
              
              
              (451
              )
              
              (0.5
              %)
              
              351
              
              
              0.4
              %
              
              (802
              )
              
              (228.5
              %)Net
                  (loss) income
              
              
              (664
              )
              
              (0.7
              %)
              
              530
              
              
              0.6
              %
              
              (1,194
              )
              
              (225.3
              %)(Loss)
                  earnings per share:Basic
              
              $
              (0.05
              )
              
              
              
              $
              0.04
              
              
              
              
              $
              (0.09
              )
              
              (225.0
              %)Diluted
              
              $
              (0.05
              )
              
              
              
              $
              0.04
              
              
              
              
              $
              (0.09
              )
              
              (225.0
              %)





Sales
      increased $7.1 million, or 8.5%, to $91.6 million for the three months ended
      July 1, 2007 from $84.4 million for three months ended July 2, 2006. The sales
      growth is due to seven new stores, not included in the same store sales
      calculation, which resulted in a $7.9 million increase in sales on a same day
      basis, or 9.4%, combined with a same store sales increase of $1.0 million,
      or
      1.3%. Sales growth was partially offset by $2.1 million, or 2.6%, from two
      additional days in the three months ended July 2, 2006 as a result of our
      calendar change last year. Two new stores were opened this quarter, three in
      the
      third quarter of fiscal 2007 and one in each of the first and second quarter
      of
      fiscal 2007. Same store sales are based upon stores open throughout both periods
      presented and exclude team sales.





Gross
      profit increased $1.4 million, or 5.7%, as gross profit from increased sales
      of
      $2.7 million was partially offset by increased rent of $1.3 million, primarily
      from new stores. As a percent of sales, gross profit decreased 70 basis points
      to 28.6% from 29.3%. The decrease is primarily the result of increased rent
      as a
      percent of sales in newer stores which take time to reach operating efficiency.
      Continued improvements in merchandise procurement of 30 basis points were offset
      by increases in reserves for aging merchandise.





Selling,
      general and administrative expenses increased $3.1 million, or 12.9%, for the
      three months ended July 1, 2007 over the three months ended July 2, 2006
      primarily from expenses related to additional stores. As a percent of sales,
      these expenses increased to 29.4% from 28.2%. The increase as a percent of
      sales
      is primarily from newer stores which take time to reach operating
      efficiency.





We
      incurred a net loss $664,000, $(0.05) per diluted share, for the three months
      ended July 2, 2007 compared to net income of $530,000, $0.04 per diluted share,
      for the three months ended July 1, 2006, primarily the result of new stores
      which take time to reach operating efficiency.




12




**Liquidity
      and Capital Resources**





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





Net
      cash
      provided by operating activities of $524,000 and $4.2 million for the periods
      ended July 1, 2007 and July 2, 2006, respectively is primarily the result of
      net
      income or loss, adjusted for depreciation and amortization, and increases in
      accounts payable partially offset by inventory purchases.




Inventories
      increased by $3.7 million and $7.9 million for the periods ended July 1, 2007
      and July 2, 2006, respectively, compared to the respective year-end balances
      primarily due to the build-up of seasonal merchandise and new stores. We ended
      fiscal 2007 with 14.2% more average inventory per store than fiscal year end
      2006. We reduced purchases during the period ended July 1, 2007 to lower our
      average inventory per store and average inventory per store is now 7.2% higher
      than the same period last year. The increase is primarily from returning to
      a
      more normal historical pattern of carrying more winter related merchandise
      over
      the summer months this year than we did for the same period last year which
      was
      unusually low due to demand created by snowfall late in the season of the
      preceding fiscal year.





Historically,
      accounts payable has increased as inventory increases. Accounts payable
      increased by $6.0 million as compared to an increase of $13.6 million for the
      periods ended July 1, 2007 and July 2, 2006, respectively. The relative change
      as compared to inventory levels is the result of timing differences in the
      receipt of inventory during the respective quarter.





Net
      cash
      used for the purchase of fixed assets was $5.8 million and $5.0 million for
      the
      periods ended July 1, 2007 and July 2, 2006, respectively. We opened two new
      stores in the period ended July 1, 2007 as compared to one in the same period
      last year. The costs to open new stores can vary significantly depending on
      the
      terms of the lease. As a result of our ongoing growth and strategic initiatives,
      forecasted capital expenditures for fiscal 2008 are expected to be approximately
      $25 million, which will be funded by cash flow from operations and our bank
      credit line, as needed. Approximately $11 million of this amount will be used
      to
      open seven new stores, two of which are now open. In addition, two stores are
      planned to be remodeled for approximately $2 million. In addition to normal
      expenditures for existing stores and rental equipment, the remainder is
      primarily for expenditures on information systems, the most significant portion
      of which is for the replacement of our legacy merchandise and financial systems.





Our
      credit facility with Bank of America, N.A. (the “Lender”) provides for advances
      up to $25 million, increasing to $35.0 million for the period October 1, through
      December 31, each year, less the amount of any outstanding draws, up to a $4.0
      million maximum in authorized letters of credit. Interest accrues at the
      Lender’s prime rate (8.25% at July 1, 2007) or can be fixed for a period of time
      at the then current rate established under one of several indices, all at the
      Company’s option. In addition, there is an unused commitment fee of 0.20% per
      year, based on a weighted average formula. This credit facility expires on
      September 30, 2007, and we expect to renegotiate and extend the term of this
      agreement or obtain another form of financing before that date. Our obligation
      to the Lender is presently secured by a first priority lien on substantially
      all
      of our non-real estate assets, and we are subject to several restrictive
      covenants. The principal operating covenants require we maintain certain minimum
      cash flow coverage and debt to equity ratios and restrict the level of capital
      expenditures, calculated on a quarterly basis. We currently are in compliance
      with the covenants. The Company believes its credit line with the Lender is
      sufficient to fund capital expenditures for the foreseeable future and to meet
      seasonal fluctuations in cash flow requirements. However, unexpected conditions
      could require the Company to request additional borrowing capacity from the
      Lender or alter its expansion plans or operations.





13




The
      Company’s primary contractual obligations and commitments as of July 1, 2007 are
      its store leases with initial terms expiring from 2007 through 2020, which
      typically provide for multiple five-year renewal options, and employment
      contracts:





**Payments
                due by period:**
            
            **Operating**
              **Leases****.**********
            
            **Employment****Contracts**Within
                1 year
            
            $
            31,531,606
            
            $
            169,5002
                -
                3 years
            
            
            67,037,299
            
            
            339,0004
                -
                5 years
            
            
            61,773,778
            
            
            339,000After
                5 years
            
            
            127,462,201
            
            
            466,125Total
            
            $
            287,804,884
            
            $
            1,313,625




The
      Company leases all of its existing store locations. The leases for most of
      the
      existing stores are for approximately ten-year terms with multiple option
      periods under non-cancelable operating leases with scheduled rent increases.
      The
      leases provide for contingent rent based upon a percentage of sales in excess
      of
      specified minimums. If there are any free rent periods, they are accounted
      for
      on a straight line basis over the lease term, beginning on the date of initial
      possession, which is generally when the Company enters the space and begins
      the
      construction build-out. The amount of the excess of straight line rent expense
      over scheduled payments is recorded as a deferred rent liability. Construction
      allowances and other such lease incentives are recorded as deferred credits,
      and
      are amortized on a straight line basis as a reduction of rent expense over
      the
      lease term. Generally, our purchase obligations are cancelable 45 days prior
      to
      shipment from our vendors. Letters of credit amounting to approximately $2.4
      million relating to purchase commitments were outstanding as of July 1, 2007
      and
      expire within one year.





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





**Critical
      Accounting Policies and Use of Estimates**





In
      preparing our consolidated financial statements we are required to make
      estimates and judgments which affect the results of our operations and the
      reported value of assets and liabilities. Actual results may differ from these
      estimates. As discussed in Item 7, “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations” section of the Company’s Annual
      Report on Form 10-K for the fiscal year ended April 1, 2007, we consider our
      policies on inventory valuation, revenue recognition, gift card redemption,
      self
      insurance reserves, impairment of long-lived assets, accounting for income
      taxes
      and stock-based compensation to be the most critical in understanding the
      significant estimates and judgments that are involved in preparing our
      consolidated financial statements.





**Factors
      That May Affect Future Results**





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




14





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




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




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




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





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





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




15




**A
        downturn in the economy may affect consumer purchases of discretionary items,
        which would reduce our net sales.**
  The
        retail industry historically has been subject to substantial cyclical
        variations. The merchandise sold by us is generally a discretionary expense
        for
        our customers. A recession in the general economy or uncertainties regarding
        future economic prospects that affect consumer spending habits has had, and
        in
        the future may have, a materially adverse effect on our results of operations.
 
 **Terrorist
        attacks or acts of war may harm our business.**
 
 Terrorist
        attacks may cause damage or disruption to our employees, facilities, information
        systems, vendors and customers, which could significantly impact net sales,
        costs and expenses and financial condition. The potential for future terrorist
        attacks, the national and international responses to terrorist attacks, and
        other acts of war or hostility may cause greater uncertainty and cause us
        to
        suffer in ways that we currently cannot predict. Our geographical focus in
        California, Nevada and Arizona may make us more vulnerable to such uncertainties
        than other comparable retailers who may not have similar geographical
        concentration.
 
 **Intense
        competition in the sporting goods industry could limit our growth and reduce
        our
        profitability.**
 
 The
        sporting goods business and the retail environment are highly competitive,
        and
        we compete with national, regional and local full-line sporting goods chains,
        specialty stores, supplier owned stores, discount and department stores,
        and
        internet retailers. A number of our competitors are larger and have greater
        resources.
 
 **Because
        our stores are concentrated in the western portion of the United States,
        we are
        subject to regional risks.**
 
 Currently,
        most of our stores are located in Southern California and the remaining are
        located in Northern California, Central California, Nevada and Arizona.
        Accordingly, we are subject to regional risks, such as the economy, weather
        conditions, natural disasters and government regulations. For example, warm
        winter weather in the resorts frequented by our customers has affected sales
        in
        the past. When the region suffers an economic downturn or when other adverse
        events occur, historically there has been an adverse effect on our sales
        and
        profitability and this could also affect our ability to implement our planned
        growth. In addition, many of our vendors rely on the Ports of Los Angeles
        and
        Long Beach to process our shipments. Any disruption or congestion at the
        ports
        could impair our ability to adequately stock our stores. Several of our
        competitors operate stores across the United States and, thus, are not as
        vulnerable to such regional risks.
  **We
        rely on one distribution center and any disruption could reduce our
        sales.**





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




16




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





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





·
            suitable
                sites may not be available for leasing;




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




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




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




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




**We
        may pursue strategic acquisitions, which could have an adverse impact on
        our
        business.**
 
 We
        may
        from time to time acquire complementary companies or businesses. Acquisitions
        may result in difficulties in assimilating acquired companies, and may result
        in
        the diversion of our capital and our management’s attention from other business
        issues and opportunities. We may not be able to successfully integrate
        operations that we acquire, including their personnel, financial systems,
        distribution, operations and general store operating procedures. If we fail
        to
        successfully integrate acquisitions, our business could suffer. In addition,
        the
        integration of any acquired business, and their financial results, into ours
        may
        adversely affect our operating results. We currently do not have any agreements
        with respect to any such acquisitions.
 
 **Our
        future growth will be dependent on the availability of additional
        financing.**
 
 We
        may
        not be able to fund our future growth or react to competitive pressures if
        we
        lack sufficient funds. Unexpected conditions could cause us to be in violation
        of our lender’s operating covenants. Currently, we believe we have sufficient
        cash available through our bank credit facilities and cash from operations
        to
        fund existing operations for the foreseeable future. We cannot be certain
        that
        additional financing will be available in the future if necessary.
  **If
        we are unable to successfully implement our controlled growth strategy or
        manage
        our growing business, our future operating results could
        suffer.**
  17
 
  Since
            our
            inception, we have experienced periods of rapid growth. No assurance
            can be
            given that we will be successful in maintaining or increasing our sales
            in the
            future. Any future growth in sales will require additional working capital
            and
            may place a significant strain on our management, management information
            systems, inventory management, distribution facilities and receivables
            management. Any failure to timely enhance our operating systems, or unexpected
            difficulties in implementing such enhancements, could have a material
            adverse
            effect on our results of operations.
 
 **If
            we lose key management or are unable to attract and retain talent, our
            operating
            results could suffer.**
 
 We
            depend
            on the continued service of our senior management. The loss of the services
            of
            any key employee could hurt our business. Also, our future success depends
            on
            our ability to identify, attract, hire, train and motivate other highly
            skilled
            personnel. Failure to do so may adversely affect future results.
  **Seasonal
            fluctuations in the sales of sporting goods could cause our annual operating
            results to suffer.**
 
 Our
            sales
            volume increases significantly during the Holiday season as is typical
            with
            other sporting goods retailers. In addition, our product mix has historically
            emphasized cold weather sporting goods increasing the seasonality of
            our
            business. In recent years, our third fiscal quarter, which includes the
            Holiday
            season, represented approximately 30% of our annual net sales. Winter-related
            products represent approximately 17% of our annual net sales and have
            ranged
            from 27% to 31% of our fourth fiscal quarter. We anticipate this seasonal
            trend
            in sales will continue. The operating results historically have been
            influenced
            by the amount and timing of snowfall at the resorts frequented by our
            customers.
            An early snowfall often has influenced sales because it generally extends
            the
            demand for winter apparel and equipment, while a late snowfall may have
            the
            opposite effect. Suppliers in the ski and snowboard industry require
            us to make
            commitments for purchases of apparel and equipment by early spring for
            fall
            delivery, and only limited quantities of merchandise can be reordered
            during the
            fall. Consequently, we place our orders in the spring anticipating snowfall
            in
            the winter. If the snowfall does not at least provide an adequate base
            or occurs
            late in the season, or if sales do not meet projections, we may be required
            to
            mark down our winter apparel and equipment.
  **Our
            quarterly operating results may fluctuate substantially, which may adversely
            affect our business.**
 
 We
            have
            experienced, and expect to continue to experience, a substantial variation
            in
            our net sales and operating results from quarter to quarter. We believe
            that the
            factors which influence this variability of quarterly results include
            general
            economic and industry conditions that affect consumer spending, changing
            consumer demands, the timing of our introduction of new products, the
            level of
            consumer acceptance of each new product, the seasonality of the markets
            in which
            we participate, the weather and actions of competitors. Accordingly,
            a
            comparison of our results of operations from period to period is not
            necessarily
            meaningful, and our results of operations for any period are not necessarily
            indicative of future performance.
  **We
            are controlled by our Founder and management, whose interests may differ
            from
            other stockholders.**




18




At
      August
      3, 2007, Norbert Olberz, the Company's founder, Craig Levra, the Company’s
      Chairman and Chief Executive Officer, and Howard Kaminsky, the Company’s Chief
      Financial Officer, owned approximately 21%, 33% and 11%, respectively, of the
      Company’s outstanding voting Class A and Class B Common Stock. Messrs. Olberz,
      Levra and Kaminsky effectively have the ability to control the outcome on all
      matters requiring stockholder approval, including, but not limited to, the
      election and removal of directors, and any merger, consolidation or sale of
      all
      or substantially all of the Company’s assets, and to control the Company’s
      management and affairs. Transactions may be pursued that could enhance Messrs.
      Olberz, Levra and Kaminsky’s interests in the Company while involving risks to
      the interests of the Company’s other stockholders, and there is no assurance
      that their interests will not conflict with the interests of the Company’s other
      stockholders.





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





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





·
            earthquake,
                fire, flood and other natural disasters;




·
            power
                loss, computer systems failures, internet and telecommunications
                or data
                network failure, operator negligence, improper operation by or supervision
                of employees, physical and electronic loss of data and similar events;
                and




·
            computer
                viruses, penetration by hackers seeking to disrupt operations or
                misappropriate information and other breaches of security.





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





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




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





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





If
      we
      fail to anticipate changes in consumer preferences, we may experience lower
      net
      sales, higher inventory markdowns and lower margins. Products must appeal to
      a
      broad range of consumers whose preferences cannot be predicted with certainty.
      These preferences are also subject to change. Sporting goods are often subject
      to short-lived trends, such as the short-lived popularity of in-line scooters.
      Outdoor wear is significantly influenced by fashion. Our success depends upon
      the ability to anticipate and respond in a timely manner to trends in sporting
      goods merchandise and consumers’ participation in sports on an individual market
      basis. Failure to identify and respond to these changes may cause net sales
      to
      decline. In addition, because we generally make commitments to purchase products
      from vendors up to nine months in advance of the proposed delivery, misjudging
      the market may over-stock unpopular products and force inventory markdowns
      that
      could have a negative impact on profitability, or have insufficient inventory
      of
      a popular item that can be sold at full markup.




19




**The
        price of our Class A Common Stock and Class B Common Stock may be volatile.**
 
 Our
        Class
        A Common Stock and Class B Common Stock are thinly traded making it difficult
        to
        sell large amounts. The market prices of our Class A Common Stock and Class
        B
        Common Stock are likely to be volatile and could be subject to significant
        fluctuations in response to factors such as quarterly variations in operating
        results, operating results which vary from the expectations of securities
        analysts and investors, changes in financial estimates, changes in market
        valuations of competitors, announcements by us or our competitors of a material
        nature, additions or departures of key personnel, future sales of Class A
        Common
        Stock and Class B Common Stock and stock volume fluctuations. Also, general
        political and economic conditions such as a recession or interest rate
        fluctuations may adversely affect the market price of our Class A Common
        Stock
        and Class B Common Stock.
  **Provisions
        in the Company's charter documents could discourage a takeover that stockholders
        may consider favorable.**
 
 At
        August
        3, 2007, Norbert Olberz, the Company's founder, Craig Levra, the Company’s
        Chairman and Chief Executive Officer, and Howard Kaminsky, the Company’s Chief
        Financial Officer, owned approximately 21%, 33% and 11%, respectively, of
        the
        Company’s outstanding voting Class A and Class B Common Stock. The holder of a
        share of Class B Common Stock is entitled to one vote on each matter presented
        to the stockholders whereas the holder of a share of Class A Common Stock
        has
        1/20th of one vote on each matter presented to the stockholders. Subject
        to the
        Class A protection provisions described below, Messrs. Olberz, Levra and
        Kaminsky will be able to sell shares of Class A Common Stock and use the
        proceeds to purchase additional shares of Class B Common Stock, thereby
        increasing their collective voting power. Subject to the prohibition on the
        grant, issuance, sale or transfer of Class B Common Stock to Messrs. Levra
        and
        Kaminsky, the Company will also be able to issue Class B Common Stock (subject
        to the applicable rules of the NASD and the availability of authorized and
        unissued shares of Class B Common Stock) to persons deemed by the Board of
        Directors to be preferable to a potential acquirer, thereby diluting the
        voting
        power of that potential acquirer. The Class A protection provisions in the
        Company's Certificate of Incorporation could also make acquisition of voting
        control more expensive by requiring an acquirer of 10% or more of the
        outstanding shares of Class B Common Stock to purchase a corresponding
        proportion of Class A Common Stock.
 
 The
        Company's Certificate of Incorporation contains certain other provisions
        that
        may have an "anti-takeover" effect. The Company's Certificate of Incorporation
        does not provide for cumulative voting and, accordingly, a significant minority
        stockholder could not necessarily elect any designee to the Board of Directors.
        The Company's Certificate of Incorporation also provides that the Board of
        Directors shall be divided into three classes, as nearly equal in number
        as
        possible, which are elected for staggered three-year terms and, accordingly,
        it
        could take at least two annual meetings to change a majority of the Board
        of
        Directors. As a result of these provisions in the Company's Certificate of
        Incorporation, stockholders of the Company may be deprived of an opportunity
        to
        sell their shares at a premium over prevailing market prices and it would
        be
        more difficult to replace the directors and management of the Company.
  **We
        may be subject to product liability claims and our insurance may not be
        sufficient to cover damages related to those claims.**




20




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





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





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





**Item
      3.** **Quantitative
      and Qualitative Disclosures About Market Risk.**





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





**Item
      4T.** **Controls
      and Procedures.**





The
      Company’s Chief Executive Officer, Craig Levra, and Chief Financial Officer,
      Howard Kaminsky, with the participation of the Company’s management, carried out
      an evaluation of the effectiveness of the Company’s disclosure controls and
      procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that
      evaluation, the Chief Executive Officer and the Chief Financial Officer
      concluded that, as of the end of the period covered by this report, the
      Company’s disclosure controls and procedures are effective at the “reasonable
      assurance” level in identifying to them material information relating to the
      Company (including its consolidated subsidiaries) required to be included in
      this report.




Disclosure
      controls and procedures, no matter how well designed and implemented, can
      provide only reasonable assurance of achieving an entity's disclosure
      objectives. The likelihood of achieving such objectives is affected by
      limitations inherent in disclosure controls and procedures. These include the
      fact that human judgment in decision-making can be faulty and that breakdowns
      in
      internal control can occur because of human failures such as simple errors
      or
      mistakes or intentional circumvention of the established process.




There
      were no changes in the Company's internal controls over financial reporting,
      identified by the Chief Executive Officer or the Chief Financial Officer that
      occurred during the period covered by this report that have materially affected,
      or are reasonably likely to materially affect, the Company’s internal control
      over financial reporting.




21







**Part
      II - OTHER INFORMATION**





**Item
      1.**  **** **Legal
      Proceedings.**





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





**Item
      1A.** **Risk
      Factors.**





There
      were no material changes to the risk factors from those disclosed in our Annual
      Report on Form 10-K for the year ended April 1, 2007. Our short- and long-term
      success is subject to many factors that are beyond our control. Stockholders
      and
      prospective stockholders in the Company should consider carefully the risk
      factors set forth in Part I, “Item 2. Management’s Discussion and
      Analysis of Financial Condition and Results of Operations - Factors That May
      Affect Future Results.”




**Item
      2.**  **** **Unregistered
      Sales of Equity Securities and Use of Proceeds.**





Not
      Applicable.





**Item
      3.**  **** **Defaults
      Upon Senior Securities.**





Not
      Applicable.





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





Not
      Applicable.





**Item
      5.**  **** **Other
      Information.**





**Stockholder
      Proposals**





The
      proxy
      materials for the 2007 annual meeting of the stockholders to be held on August
      10, 2007 were mailed to stockholders of the Company on July 16, 2007.





Under
      certain circumstances, stockholders are entitled to present proposals at
      stockholder meetings. SEC rules provide that any such proposal to be included
      in
      the proxy statement for the Company’s 2007 annual meeting of stockholders must
      be received by the Secretary of the Company at the Company’s office at One Sport
      Chalet Drive, La Canada, California 91011 not less than 120 calendar days before
      the date of the Company’s proxy statement released to stockholders in connection
      with the 2006 annual meeting in a form that complies with applicable
      regulations. The date of the Company’s proxy statement for the 2006 annual
      meeting was June 21, 2006. If the date of the 2007 annual meeting is advanced
      or
      delayed more than 30 days from the date of the 2006 annual meeting, stockholder
      proposals intended to be included in the proxy statement for the 2007 annual
      meeting must be received by the Company within a reasonable time before the
      Company begins to print and mail the proxy statement for the 2007 annual
      meeting.




22




SEC
        rules
        also govern a company's ability to use discretionary proxy authority with
        respect to stockholder proposals that were not submitted by the stockholders
        in
        time to be included in the proxy statement. SEC rules provide that if a
        stockholder proposal is not submitted to the Company at least 45 calendar
        days
        before the date on which the Company first mailed the Company’s proxy statement
        for the 2006 annual meeting, the proxies solicited by the Board for the 2007
        annual meeting of stockholders will confer authority on the proxyholders
        to vote
        the shares in accordance with the recommendations of the Board if the proposal
        is presented at the 2007 annual meeting of stockholders without any discussion
        of the proposal in the proxy statement for such meeting. If the date of the
        2007
        annual meeting is advanced or delayed more than 30 days from the date of
        the
        2006 annual meeting, then the stockholder proposal must not have been submitted
        to the Company within a reasonable time before the Company mails the proxy
        statement for the 2007 annual meeting.
 
 **Item
        6.**  **** **Exhibits.**
 
 Exhibits:
 
 3.1
              Amended
                  and Restated Certificate of Incorporation (incorporated by reference
                  to
                  Exhibit 3.1 of the Company’s Registration Statement on Form S-1, File No.
                  33-53120)
  3.2
              Bylaws
                  of Sport Chalet, Inc. as amended (incorporated by reference to
                  Exhibit 3.2
                  of the Company’s Registration Statement on Form S-8, File No.
                  333-107683)
  3.3
              Certificate
                  of Amendment to the Amended and Restated Certificate of Incorporation
                  of
                  Sport Chalet, Inc. (incorporated by reference to Exhibit 3.1 of
                  the
                  Company’s Form 8-K filed on September 22,
                  2005)
  4.1
              Form
                  of Certificate for Class A Common Stock, par value $0.01 per share
                  (incorporated by reference to Exhibit 4.1 to the Company's Form
                  8-A filed
                  on September 29, 2005)
  4.2
              Form
                  of Certificate for Class B Common Stock, par value $0.01 per share
                  (incorporated by reference to Exhibit 4.2 to the Company's Form
                  8-A filed
                  on September 29, 2005)
  31.1
              Certification
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002
  31.2
              Certification
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002
  32.1
              Certification
                  Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section
                  906 of
                  the Sarbanes-Oxley Act of 2002
  23
  **SIGNATURE**
  Pursuant
          to the requirements of the Securities Exchange Act of 1934, the registrant
          has
          duly caused this report to be signed on its behalf by the undersigned thereunto
          duly authorized.
  SPORT
                  CHALET,
                  INC.DATE:August
                  3, 2007
                
                By: /s/
                  Howard K. KaminskyHoward
                  K. KaminskyExecutive
                    Vice President-Finance,
                  Chief
                    Financial Officer and Secretary
                  (On
                    behalf of the Registrant and as
                  Principal
                    Financial and Accounting Officer)
  24