**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**


(Mark
      One)





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





For
      the
      quarterly period ended September 30, 2007





OR





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





For
      the
      transition period from ______ to ______





Commission
      File Number: 0-20736


**Sport
                  Chalet, Inc.**(Exact
                  name of registrant as specified in its charter)Delaware
              95-4390071(State
                  or other jurisdiction of
                incorporation
                  or organization)
              (I.R.S.
                  Employer Identification 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
      November 7, 2007, there were 12,342,019 shares of Class A Common Stock
      outstanding and 1,742,571 shares of Class B Common Stock
      outstanding.





**SPORT
                  CHALET, INC.**Table
                  of Contents to Form 10-QPART
                  I - FINANCIAL INFORMATIONPageItem
                  1.
              Financial
                  Statements
              3Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              10Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              22Item
                  4T.
              Controls
                  and Procedures
              23PART
                  II - OTHER INFORMATIONItem
                  1.
              Legal
                  Proceedings
              23Item
                  1A.
              Risk
                  Factors
              23Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              23Item
                  3.
              Defaults
                  Upon Senior Securities
              23Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              24Item
                  5.
              Other
                  Information
              24Item
                  6.
              Exhibits
              25










**PART
      I - FINANCIAL INFORMATION**





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





**SPORT
      CHALET, INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME**


**(UNAUDITED)**


Three
                  months ended
              
              Six
                  months endedSeptember
                  30, 2007
              
              October
                  1, 2006
              
              September
                  30, 2007
              
              October
                  1, 2006Net
                  sales
              
              $
              97,669,443
              
              $
              91,302,660
              
              $
              189,223,353
              
              $
              175,720,999Cost
                  of goods sold, buying andoccupancy
                  costs
              
              
              67,959,881
              
              
              61,942,265
              
              
              133,361,106
              
              
              121,611,761Gross
                  profit
              
              
              29,709,562
              
              
              29,360,395
              
              
              55,862,247
              
              
              54,109,238Selling,
                  general and administrativeexpenses
              
              
              28,101,716
              
              
              26,560,046
              
              
              55,010,404
              
              
              50,388,933Income
                  from operations
              
              
              1,607,846
              
              
              2,800,349
              
              
              851,843
              
              
              3,720,305Interest
                  expense
              
              
              357,178
              
              
              22,667
              
              
              716,195
              
              
              61,187Income
                  before taxes
              
              
              1,250,668
              
              
              2,777,682
              
              
              135,648
              
              
              3,659,118Income
                  tax provision
              
              
              511,247
              
              
              1,095,979
              
              
              60,551
              
              
              1,447,004Net
                  income
              
              $
              739,421
              
              $
              1,681,703
              
              $
              75,097
              
              $
              2,212,114Earnings
                  per share:Basic
              
              $
              0.05
              
              $
              0.12
              
              $
              0.01
              
              $
              0.16Diluted
              
              $
              0.05
              
              $
              0.12
              
              $
              0.01
              
              $
              0.15Weighted
                  average number ofcommon
                  shares outstanding:Basic
              
              
              14,077,833
              
              
              13,796,374
              
              
              14,046,527
              
              
              13,735,804Diluted
              
              
              14,734,728
              
              
              14,405,180
              
              
              14,750,402
              
              
              14,303,114







**See
      accompanying notes.**


3


**SPORT
      CHALET, INC.**





**CONDENSED
      CONSOLIDATED BALANCE SHEETS**




September
                  30,
              
              April
                  1,2007
              
              2007**Assets**
              
              (Unaudited)Current
                  assets:Cash
                  and cash equivalents
              
              $
              769,258
              
              $
              3,840,757Accounts
                  receivable, net
              
              
              3,464,839
              
              
              6,894,282Merchandise
                  inventories
              
              
              103,680,310
              
              
              87,066,998Prepaid
                  expenses and other current assets
              
              
              4,970,475
              
              
              4,827,232Prepaid
                  income taxes
              
              
              739,844
              
              
              1,481,914Deferred
                  income taxes
              
              
              3,402,889
              
              
              3,145,502Total
                  current assets
              
              
              117,027,615
              
              
              107,256,685Fixed
                  assets, net
              
              
              65,259,196
              
              
              59,487,415Deferred
                  income taxes
              
              
              5,192,834
              
              
              4,504,986Total
                  assets
              
              $
              187,479,645
              
              $
              171,249,086**Liabilities
                  and stockholders' equity**Current
                  liabilities:Accounts
                  payable
              
              $
              40,713,813
              
              $
              29,407,673Loan
                  payable to bank
              
              
              18,642,158
              
              
              11,776,278Salaries
                  and wages payable
              
              
              4,182,269
              
              
              4,999,139Other
                  accrued expenses
              
              
              13,574,899
              
              
              15,580,770Total
                  current liabilities
              
              
              77,113,139
              
              
              61,763,860Deferred
                  rent
              
              
              23,250,621
              
              
              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 - 12,336,186 atSeptember
                  30, 2007 and 12,252,654 at April 1, 2007
              
              
              123,362
              
              
              122,527Class
                  B Common Stock, $.01 par value:Authorized
                  shares - 2,000,000Issued
                  and outstanding shares - 1,741,738 atSeptember
                  30, 2007 and 1,741,489 at April 1, 2007
              
              
              17,417
              
              
              17,415Additional
                  paid-in capital
              
              
              33,804,561
              
              
              33,190,752Retained
                  earnings
              
              
              53,170,545
              
              
              53,095,448Total
                  stockholders’ equity
              
              
              87,115,885
              
              
              86,426,142Total
                  liabilities and stockholders’ equity
              
              $
              187,479,645
              
              $
              171,249,086
  **See
        accompanying notes.**


4


**SPORT
      CHALET, INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**


Six
                  months endedSeptember
                  30, 2007
              
              October
                  1, 2006**Operating
                  activities**Net
                  income
              
              $
              75,097
              
              $
              2,212,114Adjustments
                  to reconcile net income to net cashprovided
                  by operating activities:Depreciation
                  and amortization
              
              
              6,487,902
              
              
              5,385,095Loss
                  on disposal of equipment
              
              
              6,241
              
              
              135,145Share-based
                  compensation
              
              
              144,243
              
              
              100,712Deferred
                  income taxes
              
              
              (945,235
              )
              
              708,824Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              3,429,442
              
              
              (496,926
              )Merchandise
                  inventories
              
              
              (16,613,312
              )
              
              (27,952,962
              )Prepaid
                  expenses and other current assets
              
              
              (143,243
              )
              
              29,828Prepaid
                  income taxes
              
              
              742,070
              
              
              -Accounts
                  payable
              
              
              11,306,140
              
              
              32,519,644Salaries
                  and wages payable
              
              
              (816,870
              )
              
              (1,177,897
              )Other
                  accrued expenses
              
              
              (2,005,871
              )
              
              (545,820
              )Income
                  taxes payable
              
              
              -
              
              
              (1,279,979
              )Deferred
                  rent
              
              
              191,537
              
              
              780,422Net
                  cash provided by operating activities
              
              
              1,858,141
              
              
              10,418,200**Investing
                  activities**Purchase
                  of fixed assets
              
              
              (12,265,923
              )
              
              (11,789,351
              )Proceeds
                  from sale of fixed assets
              
              
              -
              
              
              2,379Net
                  cash used in investing activities
              
              
              (12,265,923
              )
              
              (11,786,972
              )**Financing
                  activities**Proceeds
                  from bank borrowing
              
              
              49,674,859
              
              
              5,778,063Repayments
                  of bank borrowing
              
              
              (42,808,979
              )
              
              (5,778,063
              )Proceeds
                  from exercise of stock options
              
              
              201,605
              
              
              651,079Optionee
                  withholding taxes from exercise of stock options
              
              
              -
              
              
              (890,264
              )Tax
                  benefit on employee stock options
              
              
              268,798
              
              
              958,159Net
                  cash provided by financing activities
              
              
              7,336,283
              
              
              718,974Increase
                  (decrease) in cash and cash equivalents
              
              
              (3,071,499
              )
              
              (649,798
              )Cash
                  and cash equivalents at beginning of period
              
              
              3,840,757
              
              
              2,563,930Cash
                  and cash equivalents at end of period
              
              $
              769,258
              
              $
              1,914,132**Supplemental
                  Disclosure of Cash Flow Information**Cash
                  paid during the period for:Income
                  taxes
              
              $
              -
              
              $
              1,060,000Interest
              
              
              637,113
              
              
              11,834


**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 six
      months ended October 1, 2006 includes two additional days, included in the
      first
      quarter, as compared to the six months ended September 30, 2007.





2.  Earnings
      per Share





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





6


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




Three
                  months ended
              
              Six
                  months endedSeptember
                  30, 2007
              
              October
                  1, 2006
              
              September
                  30, 2007
              
              October
                  1, 2006Net
                  income
              
              $
              739,421
              
              $
              1,681,703
              
              $
              75,097
              
              $
              2,212,114Weighted
                  average number of common shares:Basic
              
              
              14,077,833
              
              
              13,796,374
              
              
              14,046,527
              
              
              13,735,804Effect
                  of dilutive securities-stock
                  options
              
              
              656,895
              
              
              608,806
              
              
              703,875
              
              
              567,310Diluted
              
              $
              14,734,728
              
              $
              14,405,180
              
              $
              14,750,402
              
              $
              14,303,114Class
                  A and Class Bearnings
                  per share:Basic
              
              $
              0.05
              
              $
              0.12
              
              $
              0.01
              
              $
              0.16Effect
                  of dilutive securities-stock
                  options
              
              
              -
              
              
              -
              
              
              -
              
              
              (0.01
              )Diluted
              
              $
              0.05
              
              $
              0.12
              
              $
              0.01
              
              $
              0.15


An
      aggregate of 160,300 and 146,000 options for the three and six months ended
      September 30, 2007, respectively, and an aggregate of 19,875 options for the
      six
      months ended October 1, 2006, 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 and the related income tax benefit recognized
      for the three and six months ended September 30, 2007 and October 1,
      2006:




Three
                  months ended
              
              Six
                  months endedSeptember
                  30, 2007
              
              October
                  1, 2006
              
              September
                  30, 2007
              
              October
                  1, 2006Compensation
                  expense
              
              $
              99,907
              
              $
              55,712
              
              $
              144,243
              
              $
              100,712Income
                  tax benefit
              
              $
              40,000
              
              $
              22,000
              
              $
              58,000
              
              $
              40,000





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. For the three months and six months ended September
      30,
      2007 and October 1, 2006 the following weighted average assumptions were used
      to
      estimate the fair value for stock options granted in that period:




Three
                  months ended
              
              Six
                  months endedSeptember
                  30, 2007
              
              October
                  1, 2006
              
              September
                  30, 2007
              
              October
                  1, 2006Risk-free
                  interest rate
              
              
              5.0
              %
              
              5.0
              %
              
              5.0
              %
              
              5.0
              %Expected
                  volatility
              
              
              36.6
              %
              
              41.1
              %
              
              36.6
              %
              
              41.4
              %Expected
                  dividend yield
              
              
              0.0
              %
              
              0.0
              %
              
              0.0
              %
              
              0.0
              %Expected
                  life in years
              
              
              7.5
              
              
              7.5
              
              
              7.5
              
              
              7.5


7




The
      stock
      option activity during the six months ended September 30, 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
              
              
              89,000
              
              
              10.21Exercised
              
              
              (83,781
              )
              
              2.42Forfeited
                  or expired
              
              
              (500
              )
              
              2.41Outstanding
                  as of September 30, 2007
              
              
              1,512,305
              
              $
              5.28
              
              
              5.4
              
              $
              5,664,622Exercisable
                  as of September 30, 2007
              
              
              1,339,437
              
              $
              4.81
              
              
              4.9
              
              $
              5,558,357





The
      aggregate intrinsic value in the table above is based on the Company’s closing
      stock price of $9.00 and $8.61 for Class A and Class B, respectively, as of
      the
      last trading day of the period ended September 30, 2007.





4.  Income
      Taxes





We
      adopted the provisions of Financial Accounting Standards 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 48 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 three stores during the six months
      ended September 30, 2007, sixteen stores in the last three years and twenty-one
      in the last five years. We currently anticipate opening four 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. 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




The
      terms
      comparable store sales or same store sales are used interchangeably and are
      considered a key performance measurement. The sales of a store are first
      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. However, for the quarter ended
      September 30, 2007 comparable store sales declined 2.7% due to, among other
      things, the opening new stores by the Company and competitors and weak
      macroeconomic trends. 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, subject to the trends mentioned above.





We
      believe that the overall growth of our business should allow us to maintain
      or
      increase our operating margins over time. Increased merchandise volumes should
      enable us to improve our purchasing leverage and achieve greater efficiencies
      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
      six
      months ended September 30, 2007, gross profit margin was 29.5% compared to
      30.8%
      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 six months ended
      September 30, 2007, selling, general and administrative expenses were 29.1%
      of
      sales compared to 28.7% 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 the end of fiscal 2008.




11


**Results
      of Operations**





***Three
      months ended September 30, 2007 compared to three months ended October 1,
      2006***





The
      following table sets forth statements of operations data and relative
      percentages of net sales for the three months ended September 30, 2007 and
      the
      three months ended October 1, 2006 (dollar amounts in thousands, except per
      share amounts).




**Three
                  months ended**Dollar
                Increase
                  (Decrease)
              
              Percentage
                Increase
                  (Decrease)September
                  30, 2007
              
              October
                  1, 2006Amount
              
              Percent
              
              Amount
              
              PercentNet
                  sales
              
              $
              97,669
              
              
              100.0
              %
              $
              91,303
              
              
              100.0
              %
              $
              6,366
              
              
              7.0%Gross
                  profit
              
              
              29,710
              
              
              30.4
              %
              
              29,360
              
              
              32.2
              %
              
              350
              
              
              1.2%Selling,
                  general and administrative expenses
              
              
              28,102
              
              
              28.8
              %
              
              26,560
              
              
              29.1
              %
              
              1,542
              
              
              5.8%Income
                  from operations
              
              
              1,607
              
              
              1.6
              %
              
              2,800
              
              
              3.1
              %
              
              (1,193
              )
              
              (42.6%)Interest
                  expense
              
              
              357
              
              
              0.4
              %
              
              23
              
              
              0.0
              %
              
              334
              
              
              1,452.2%Income
                  before taxes
              
              
              1,250
              
              
              1.3
              %
              
              2,778
              
              
              3.0
              %
              
              (1,528
              )
              
              (55.0%)Income
                  tax provision
              
              
              511
              
              
              0.5
              %
              
              1,096
              
              
              1.2
              %
              
              (585
              )
              
              (53.4%)Net
                  income
              
              
              739
              
              
              0.8
              %
              
              1,682
              
              
              1.8
              %
              
              (943
              )
              
              (56.1%)Earnings
                  per share:Basic
              
              $
              0.05
              
              
              
              
              $
              0.12
              
              
              
              
              $
              (0.07
              )
              
              (58.3%)Diluted
              
              $
              0.05
              
              
              
              
              $
              0.12
              
              
              
              
              $
              (0.07
              )
              
              (58.3%)


Sales
      increased $6.4 million, or 7.0%, to $97.7 million for the three months ended
      September 30, 2007 from $91.3 million for three months ended October 1, 2006.
      The sales growth is due to seven new stores, not included in the same store
      sales calculation, which resulted in an $8.0 million increase in sales, or
      9.1%,
      partially offset by a same store sales decrease of $1.9 million, or 2.2%. Same
      store sales were impacted by the opening new stores by the Company and
      competitors and weak macroeconomic trends. We believe the macroeconomic trends
      also negatively affected our new stores. One new store was opened this quarter,
      two in the first quarter of this fiscal year, three in the third quarter of
      fiscal 2007 and one in the second quarter of fiscal 2007. Same store sales
      are
      based upon stores open throughout both periods presented and exclude team sales.





Gross
      profit increased $350,000, or 1.2%, as gross profit from increased sales of
      approximately $1.7 million was partially offset by increased rent of $1.4
      million, primarily from new stores. As a percent of sales, gross profit
      decreased 180 basis points to 30.4% from 32.2%. The decrease is primarily the
      result of increased rent as a percent of sales in newer stores which take time
      to reach operating efficiency. In addition, promotional markdowns taken in
      an
      attempt to stimulate sales offset continued improvements in merchandise
      procurement.





Selling,
      general and administrative expenses increased $1.5 million, or 5.8%, for the
      three months ended September 30, 2007 over the three months ended October 1,
      2006 primarily from approximately $2.8 million in expenses related to additional
      stores. A focus on cost control helped save approximately $1.4 million in
      existing stores and overhead. As a percent of sales, these expenses decreased
      to
      28.8% from 29.1%. The increase as a percent of sales associated with newer
      stores, which take time to reach operating efficiency, was offset by cost
      savings from existing stores and overhead.





Net
      income of $739,000, $0.05 per diluted share, decreased $943,000, $0.07 per
      diluted share, for the three months ended September 30, 2007 compared to the
      three months ended October 1, 2006. The decrease is primarily the result of
      a
      decrease in same store sales and the expenses associated with new stores which
      take time to reach operating efficiency.




12


***Six
      months ended September 30, 2007 compared to six months ended October 1,
      2006***





The
      following table sets forth statements of operations data and relative
      percentages of net sales for the six months ended September 30, 2007 and the
      six
      months ended October 1, 2006 (dollar amounts in thousands, except per share
      amounts).






**Six
                  months ended**Dollar
                Increase
                  (Decrease)
              
              Percentage
                Increase
                  (Decrease)September
                  30, 2007
              
              October
                  1, 2006Amount
              
              Percent
              
              Amount
              
              PercentNet
                  sales
              
              $
              189,223
              
              
              100.0
              %
              $
              175,721
              
              
              100.0
              %
              $
              13,502
              
              
              7.7%Gross
                  profit
              
              
              55,862
              
              
              29.5
              %
              
              54,109
              
              
              30.8
              %
              
              1,753
              
              
              3.2%Selling,
                  general and administrative expenses
              
              
              55,010
              
              
              29.1
              %
              
              50,389
              
              
              28.7
              %
              
              4,621
              
              
              9.2%Income
                  from operations
              
              
              852
              
              
              0.5
              %
              
              3,720
              
              
              2.1
              %
              
              (2,868
              )
              
              (77.1%)Interest
                  expense
              
              
              716
              
              
              0.4
              %
              
              61
              
              
              0.0
              %
              
              655
              
              
              1,073.8%Income
                  before taxes
              
              
              136
              
              
              0.1
              %
              
              3,659
              
              
              2.1
              %
              
              (3,523
              )
              
              (96.3%)Income
                  tax provision
              
              
              61
              
              
              0.0
              %
              
              1,447
              
              
              0.8
              %
              
              (1,386
              )
              
              (95.8%)Net
                  income
              
              
              75
              
              
              0.0
              %
              
              2,212
              
              
              1.3
              %
              
              (2,137
              )
              
              (96.6%)Earnings
                  per share:Basic
              
              $
              0.01
              
              
              
              
              $
              0.16
              
              
              
              
              $
              (0.15
              )
              
              (93.8%)Diluted
              
              $
              0.01
              
              
              
              
              $
              0.15
              
              
              
              
              $
              (0.14
              )
              
              (93.3%)


Sales
      increased $13.5 million, or 7.7%, to $189.2 million for the six months ended
      September 30, 2007 from $175.7 million for six months ended October 1, 2006.
      The
      sales growth is due to eight new stores, not included in the same store sales
      calculation, which resulted in a $15.8 million increase in sales, or 9.6%,
      partially offset by a same store sales decrease of $800,000, or 0.5% and by
      $2.1
      million, or 1.2%, from two additional days in the six months ended October
      1,
      2006 as a result of our calendar change last year. Same store sales were
      impacted by new stores opened by the Company and our competitors and weak
      macroeconomic trends. We believe the macroeconomic trends also negatively
      affected our new stores. Three new stores were opened this fiscal year and
      five
      in fiscal 2007. Same store sales are based upon stores open throughout both
      periods presented and exclude team sales.





Gross
      profit increased $1.8 million, or 3.2%, as gross profit from increased sales
      of
      approximately $4.4 million was partially offset by increased rent of $2.7
      million, primarily from new stores. As a percent of sales, gross profit
      decreased 130 basis points to 29.5% from 30.8%. The decrease is primarily the
      result of increased rent as a percent of sales in newer stores which take time
      to reach operating efficiency. In addition promotional markdowns and increases
      in reserves for aging merchandise offset continued improvements in merchandise
      procurement.





Selling,
      general and administrative expenses increased $4.6 million, or 9.2%, for the
      six
      months ended September 30, 2007 over the six months ended October 1, 2006
      primarily from approximately $5.8 million in expenses related to additional
      stores. A focus on cost control helped save approximately $1.3 million in
      existing stores and overhead. As a percent of sales, these expenses increased
      to
      29.1% from 28.7%. The increase as a percent of sales associated with newer
      stores, which take time to reach operating efficiency, partially offset by
      cost
      savings from existing stores and overhead.





Net
      income of $75,000, $0.01 per diluted share, decreased $2.1 million, $0.14 per
      diluted share, for the six months ended September 30, 2007 compared to the
      six
      months ended October 1, 2006. The decrease is primarily the result of a decrease
      in same store sales and the expenses associated with new stores which take
      time
      to reach operating efficiency.




13


**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 $1.9 million and $10.4 million for the
      periods ended September 30, 2007 and October 1, 2006, respectively, is primarily
      the result of net income, adjusted for depreciation and amortization, and
      increases in accounts payable partially offset by inventory purchases.




Accounts
      receivable decreased by $3.4 million from its year-end balance primarily due
      to
      receipt of landlord reimbursements of leasehold improvement expenditures in
      fiscal 2007 related to new stores. The timing and amounts of such reimbursements
      vary significantly based on the terms of each new store lease.





Inventories
      increased by $16.6 million and $28.0 million for the periods ended September
      30,
      2007 and October 1, 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 six months ended September 30,
      2007 to lower our average inventory per store, and average inventory per store
      is approximately equal to the same period last year. The increase at the end
      of
      fiscal 2007 was 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 $11.3 million during the six months ended September 30, 2007,
      as
      compared to an increase of $32.5 million for the six months ended October 1,
      2006. 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 $12.3 million and $11.8 million for
      the periods ended September 30, 2007 and October 1, 2006, respectively. We
      opened three new stores in the period ended September 30, 2007 as compared
      to
      two 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, three of which
      are
      now open. In addition, two stores are in the process of being 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.


14




Our
      credit facility with Bank of America, N.A. (the “Lender”) provides for advances
      up to $30 million, increasing to $40 million for the period October 1, through
      December 31, each year, less the amount of any outstanding draws, up to a $10
      million maximum in authorized letters of credit. Interest accrues at the
      Lender’s prime rate less 0.25% (7.50% at September 30, 2007) or can be fixed for
      a period of time at LIBOR plus an applicable margin (1.00% or 1.25%), 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, 2012, 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.





The
      Company’s primary contractual obligations and commitments as of September 30,
      2007 are its store leases with initial terms expiring from 2007 through 2025,
      which typically provide for multiple five-year renewal options, and employment
      contracts:





**Payments
                due by period:**
            
            **Operating**
              **Leases****.**********
            
            **Employment****Contracts**Within
                1 year
            
            $
            33,072,052
            
            $
            169,5002
                -
                3 years
            
            
            69,638,107
            
            
            339,0004
                -
                5 years
            
            
            64,008,757
            
            
            339,000After
                5 years
            
            
            126,297,584
            
            
            423,750Total
            
            $
            293,016,499
            
            $
            1,271,250




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 September 30,
      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.


15





**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.





**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.


16


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 September 30, 2007, which was
        approximately $41 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, 2008 we would become an accelerated filer as of the end of
        fiscal
        2009.
 
 **A
        downturn in the economy may affect consumer purchases of discretionary items,
        which could 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.
  17




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





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





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





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





·
            suitable
                sites may not be available for leasing;




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




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




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




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




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




18





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




19


**We
          are controlled by our Founder and management, whose interests may differ
          from
          other stockholders.**
 
 At
          November 7, 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.
  20
  **If
          we are unable to predict or react to changes in consumer demand, we may
          lose
          customers and our sales may decline.**
 
 If
          we
          fail to anticipate changes in consumer preferences, we may experience lower
          net
          sales, higher inventory markdowns and lower margins. Products must appeal
          to a
          broad range of consumers whose preferences cannot be predicted with certainty.
          These preferences are also subject to change. Sporting goods are often
          subject
          to short-lived trends, such as the short-lived popularity of in-line scooters.
          Outdoor wear is significantly influenced by fashion. Our success depends
          upon
          the ability to anticipate and respond in a timely manner to trends in sporting
          goods merchandise and consumers’ participation in sports on an individual market
          basis. Failure to identify and respond to these changes may cause net sales
          to
          decline. In addition, because we generally make commitments to purchase
          products
          from vendors up to nine months in advance of the proposed delivery, misjudging
          the market may over-stock unpopular products and force inventory markdowns
          that
          could have a negative impact on profitability, or have insufficient inventory
          of
          a popular item that can be sold at full markup.
 
 **The
          price of our Class A Common Stock and Class B Common Stock may be volatile.**
 
 Our
          Class
          A Common Stock and Class B Common Stock are thinly traded making it difficult
          to
          sell large amounts. The market prices of our Class A Common Stock and Class
          B
          Common Stock are likely to be volatile and could be subject to significant
          fluctuations in response to factors such as quarterly variations in operating
          results, operating results which vary from the expectations of securities
          analysts and investors, changes in financial estimates, changes in market
          valuations of competitors, announcements by us or our competitors of a
          material
          nature, additions or departures of key personnel, future sales of Class
          A Common
          Stock and Class B Common Stock and stock volume fluctuations. Also, general
          political and economic conditions such as a recession or interest rate
          fluctuations may adversely affect the market price of our Class A Common
          Stock
          and Class B Common Stock.
  **Provisions
          in the Company's charter documents could discourage a takeover that stockholders
          may consider favorable.**
 
 At
          November 7, 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.
  21
 The
          Company's Certificate of Incorporation contains certain other provisions
          that
          may have an "anti-takeover" effect. The Company's Certificate of Incorporation
          does not provide for cumulative voting and, accordingly, a significant
          minority
          stockholder could not necessarily elect any designee to the Board of Directors.
          The Company's Certificate of Incorporation also provides that the Board
          of
          Directors shall be divided into three classes, as nearly equal in number
          as
          possible, which are elected for staggered three-year terms and, accordingly,
          it
          could take at least two annual meetings to change a majority of the Board
          of
          Directors. As a result of these provisions in the Company's Certificate
          of
          Incorporation, stockholders of the Company may be deprived of an opportunity
          to
          sell their shares at a premium over prevailing market prices and it would
          be
          more difficult to replace the directors and management of the Company.
  **We
          may be subject to product liability claims and our insurance may not be
          sufficient to cover damages related to those claims.**
 
 We
          may be
          subject to lawsuits resulting from injuries associated with the use of
          sporting
          goods equipment that we sell. We may incur losses relating to these claims
          or
          the defense of these claims. There is a risk that claims or liabilities
          will
          exceed our insurance coverage. In addition, we may be unable to retain
          adequate
          liability insurance in the future. In addition, we are subject to regulation
          by
          the Consumer Product Safety Commission and similar state regulatory agencies.
          If
          we fail to comply with government and industry safety standards, we may
          be
          subject to claims, lawsuits, fines and adverse publicity that could have
          a
          material adverse effect on our business, results of operations and financial
          condition.
 
 **Our
          comparable store sales will fluctuate and may not be a meaningful indicator
          of
          future performance.**
 
 Changes
          in our comparable store sales results could affect the price of our Class
          A
          Common Stock and Class B Common Stock. A number of factors have historically
          affected, and will continue to affect, our comparable store sales results,
          including: competition, our new store openings and remodeling, general
          regional
          and national economic conditions, actions taken by our competitors, consumer
          trends and preferences, changes in the shopping centers in which we are
          located,
          new product introductions and changes in our product mix, timing and
          effectiveness of promotional events, lack of new product introductions
          to spur
          growth in the sale of various kinds of sports equipment, and weather. Our
          comparable store sales may vary from quarter to quarter, and an unanticipated
          decline in revenues or comparable store sales may cause the price of our
          Class A
          Common Stock and Class B Common Stock to fluctuate significantly.
 
 **Item
          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.
  22
  **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.
  
 **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.
  23
 **Item
            4.**   **Submission
            of Matters to a Vote of Security Holders.**
 
 On
            August
            10, 2007, we held our 2007 annual meeting of stockholders. At the annual
            meeting, there were 12,334,820 shares of Class A Common Stock and 1,741,543
            shares of Class B Common Stock entitled to vote. 12,964,257 shares of
            Class A
            Common Stock and Class B Common Stock were represented at the meeting
            in person
            or by proxy. Each stockholder is entitled to 1/20 th of one
            vote for each share of Class A Common Stock and one vote for each share
            of Class
            B Common Stock.
 
 The
            following summarizes the results for those matters submitted to our stockholders
            for action at the annual meeting:
  1.
                  ***Election
                      of Directors*****.**The election of one Class 3 director to hold office until the
                      annual
                      meeting of stockholders to be held in 2010, or his successor
                      has been
                      elected and qualified. The Board of Directors nominated Donald
                      J. Howard
                      for election as the Class 3 Director.
  **Director**
                    
                    **For**
                    
                    **Withheld**Donald
                        J. Howard
                    
                    2,051,035
                    
                    3,232
  2.
                  ***Ratification
                      of Appointment of Independent Auditors.***The
                      ratification of the appointment of Moss Adams LLP as the Company's
                      independent registered public accounting firm for the fiscal
                      year ending
                      March 30, 2008.
  **For**
                    **Against**
                    **Abstain**2,051,891
                    2,242
                    134
  **Item
            5.**  **** **Other
            Information.**
 
 **Amendments
            to Bylaws**
  On
            November 5, 2007, the Board of Directors of the Company approved an amendment
            to
            the Bylaws of the Company to allow the Company to issue uncertificated
            shares.
            The ability to issue uncertificated shares enables the Company to participate,
            if necessary, in the Direct Registration Program that is being adopted
            by
            certain stock exchanges including The Nasdaq Stock Market LLC. The Direct
            Registration System allows investors to have securities registered in
            their
            names without the issuance of physical certificates and allows investors
            to
            electronically transfer securities to broker-dealers in order to effect
            transactions without the risks and delays associated with transferring
            physical
            certificates.
  **Stockholder
            Proposals**
 
 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 2008 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 2007 annual meeting in a form that complies with applicable
            regulations. The date of the Company’s proxy statement for the 2007 annual
            meeting was July 16, 2007. If the date of the 2008 annual meeting is
            advanced or
            delayed more than 30 days from the date of the 2007 annual meeting, stockholder
            proposals intended to be included in the proxy statement for the 2008
            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 2008 annual
            meeting.
  24
  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 2007 annual meeting, the proxies solicited by the Board for the
            2008
            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 2008 annual meeting of stockholders without any discussion
            of the proposal in the proxy statement for such meeting. If the date
            of the 2008
            annual meeting is advanced or delayed more than 30 days from the date
            of the
            2007 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 2008 annual meeting.
 
 The
            2008
            annual meeting of stockholders is presently expected to be held on or
            about
            August 4, 2008. Upon no determination that the date of the 2008 annual
            meeting
            will be advanced or delayed from this date, the Company will disclose
            the change
            in the earliest practical Quarterly Report on Form 10-Q.
 
 **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. amended as of November 5,
                      2005
  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
  25
  **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:November
                    7, 2007
                  
                  By: /s/
                    Howard K. KaminskyHoward
                      K. Kaminsky
                    Executive
                      Vice President-Finance,
                    Chief
                      Financial Officer and Secretary
                    (On
                      behalf of the Registrant and as
                    Principal
                      Financial and Accounting Officer)
 
 26