UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the ~~quarterly~~ quarterly period ended ~~November~~May 2627, ~~2005~~2006

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: 000-51460

GOLF GALAXY, INC. (Exact name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)

Minnesota	41-1831724
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7275 Flying Cloud Drive
Eden Prairie, Minnesota	55344
(Address of principal executive offices)	(Zip Code)

(952) 941-8848 (Registrant’s telephone number, including area code)

N/A (~~Registrant’s~~Former ~~telephone number~~name, ~~including~~former ~~area~~address ~~code~~and former fiscal year, if changed from last report)

~~N/A~~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

~~(Former~~Indicate ~~name,~~by ~~former~~check ~~address~~mark whether the registrant is a ~~and~~large ~~former~~accelerated ~~fiscal~~filer, ~~year~~an accelerated filer, ifor ~~changed~~a ~~from~~non-accelerated ~~last~~filer. (Check ~~report~~one):

~~Indicate~~Large byaccelerated ~~check~~filer ~~mark whether~~o ~~the~~Accelerated ~~registrant~~filer ~~(1) has~~o ~~filed~~Non-accelerated ~~all~~filer 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 ý ~~No o~~

Indicate by check mark whether the registrant is ana shell ~~accelerated~~company ~~filer~~ (as defined in Rule 12b-2 of the Exchange Act). Yes o No ýx

~~Indicate~~As byof ~~check mark~~July 1, ~~whether~~2006, the ~~registrant~~Company ishad a10,978,859 ~~shell~~shares ~~company~~of ~~(as~~common ~~defined~~stock, inpar ~~Rule 12b-2~~value of$0.01 ~~the~~per ~~Exchange~~share, ~~Act)~~outstanding. ~~Yes o No ý~~

~~APPLICABLE~~GOLF GALAXY, ~~ONLY~~INC. FORM 10-Q TOFOR ~~CORPORATE~~THE QUARTERLY PERIOD ENDED MAY 27, 2006 ~~ISSUERS:~~INDEX

AsPART I-FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Balance Sheets as of ~~December 31~~May 27, 2006 (unaudited), May 28, 2005 (unaudited) and February 25, 2006 Consolidated Statements of Operations for the ~~Company~~Three ~~had 10~~Months Ended May 27,~~663~~ 2006 and May 28,~~894~~ ~~shares~~2005 (unaudited) Consolidated Statements of ~~common~~Cash ~~stock~~Flows for the Three Months Ended May 27, ~~par~~2006 ~~value~~and $0May 28, 2005 (unaudited) Notes to Unaudited Consolidated Financial Statements Item 2.01 ~~per~~Management’s ~~share,~~Discussion ~~outstanding~~and Analysis of Financial Condition and Results of Operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Item 4. Controls and Procedures. PART II-OTHER INFORMATION Item 5. Other Information. Item 6. Exhibits. SIGNATURES

~~GOLF GALAXY, INC.~~2

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 26, 2005

INDEX

PART I-FINANCIAL INFORMATION	3
Item 1. Financial Statements.	3
Balance Sheets as of November 26, 2005 (unaudited), November 27, 2004 (unaudited) and February 26, 2005	3
Statements of Operations for the Three and Nine Months Ended November 26, 2005 and November 27, 2004 (unaudited)	4
Statements of Cash Flows for the Nine Months Ended November 26, 2005 and November 27, 2004 (unaudited)	5
Notes to Unaudited Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	18
Item 4. Controls and Procedures.	18
PART II-OTHER INFORMATION	18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	18
Item 6. Exhibits.	19
SIGNATURES	20

2 PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GOLF GALAXY, INC. CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share and Per Share Amounts)

BALANCE SHEETS

	May 27, 2006 (unaudited)			May 28, 2005 (unaudited)			February 25, 2006
Assets
Current assets:
Cash and cash equivalents	$	2,854		$	9,159		$	11,075
Accounts receivable, net of allowances of $204, $50 and $70, respectively	11,373			9,523			4,523
Inventories, net	69,856			44,492			45,278
Deferred tax assets	2,903			2,219			2,275
Prepaid expenses and other current assets	2,978			1,510			2,921
Total current assets	89,964			66,903			66,072

Property and equipment, net	40,338			23,856			35,218
Intangibles, net	2,154			—			—
Goodwill	7,420			—			—
Deferred tax assets	5,041			2,272			4,700
Other assets	301			447			557
Total assets	$	145,218		$	93,478		$	106,547
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	47,487		$	39,399		$	23,224
Accrued liabilities	16,628			10,880			16,453
Total current liabilities	64,115			50,279			39,677

Deferred tax liabilities	1,836			—			—
Deferred rent credits and other	15,017			10,701			12,177

Redeemable convertible preferred stock, including accumulated preferred stock dividends:
Preferred Series A, par value $1.00, Authorized shares — 80,000; Issued and outstanding — 0, 80,000 and 0, respectively	—			14,338			—
Preferred Series B, par value $1.00, Authorized shares — 35,000; Issued and outstanding — 0, 35,000 and 0, respectively	—			5,863			—
Preferred Series C, par value $1.00, Authorized shares — 100,000; Issued and outstanding — 0, 100,000 and 0, respectively	—			15,945			—
Preferred Series D, par value $1.00, Authorized shares — 150,000; Issued and outstanding — 0, 94,000 and 0, respectively	—			13,593			—
	—			49,739			—
Shareholders’ equity (deficit):
Common stock, par value $0.01 per share:
Authorized shares — 40,000,000; Issued and outstanding — 10,978,859, 1,883,969 and 10,671,803, respectively	110			19			107
Additional paid-in capital	75,895			—			68,961
Accumulated deficit	(11,803		)	(17,260		)	(14,375		)
Accumulated other comprehensive income	48			—			—
Total shareholders’ equity (deficit)	64,250			(17,241		)	54,693
Total liabilities and shareholders’ equity (deficit)	$	145,218		$	93,478		$	106,547

~~(In~~NOTE: ~~Thousands~~The Balance Sheet as of February 25, ~~Except~~2006, ~~Share~~has ~~and~~been ~~Per~~derived ~~Share~~from ~~Amounts)~~the audited financial statements.

	November 26, 2005 (unaudited)			November 27, 2004 (unaudited)			February 26, 2005
Assets
Current assets:
Cash and cash equivalents	$	15,465		$	9,486		$	3,245
Accounts receivable, net of allowances of $70, $50 and $50, respectively	6,143			3,682			3,455
Inventories, net	43,305			29,268			30,415
Deferred tax assets	2,219			3,574			2,219
Prepaid expenses and other current assets	2,459			1,038			1,291
Total current assets	69,591			47,048			40,625
Property and equipment
Property and equipment	43,810			29,359			35,929
Accumulated depreciation	(17,767		)	(13,959		)	(14,097		)
Property and equipment, net	26,043			15,400			21,832
Deferred tax assets	2,272			1,766			2,272
Other assets	236			380			408
Total assets	$	98,142		$	64,594		$	65,137
Liabilities and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	21,923		$	18,010		$	15,826
Accrued liabilities	9,987			9,091			11,675
Total current liabilities	31,910			27,101			27,501
Deferred rent credits and other	11,403			6,368			6,831
Redeemable convertible preferred stock, including accumulated preferred stock dividends:
Preferred Series A, par value $1.00, Authorized shares – 80,000; Issued and outstanding – 0, 80,000 and 80,000, respectively	—			13,781			14,054
Preferred Series B, par value $1.00, Authorized shares – 35,000; Issued and outstanding – 0, 35,000 and 35,000, respectively	—			5,638			5,746
Preferred Series C, par value $1.00, Authorized shares – 100,000; Issued and outstanding – 0, 100,000 and 100,000, respectively	—			15,320			15,623
Preferred Series D, par value $1.00, Authorized shares – 150,000; Issued and outstanding – 0, 94,000 and 94,000, respectively	—			13,063			13,318
	—			47,802			48,741
Shareholders’ equity (deficit):
Common stock, par value $0.01 per share:
Authorized shares – 40,000,000; Issued and outstanding – 10,661,969, 1,863,212 and 1,883,969, respectively	107			19			19
Additional paid-in capital	68,832			—			—
Accumulated deficit	(14,110		)	(16,696		)	(17,955		)
Total shareholders’ equity (deficit)	54,829			(16,677		)	(17,936		)
Total liabilities and shareholders’ equity (deficit)	$	98,142		$	64,594		$	65,137

NOTE: The Balance Sheet as of February 26, 2005, has been derived from the audited financial statements.

See accompanying notes.

GOLF GALAXY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share and Per Share Amounts) (Unaudited)

STATEMENTS OF OPERATIONS

	Three Months Ended
	May 27, 2006			May 28, 2005

Net sales	$	82,517		$	58,570
Cost of sales	56,219			40,342
Gross profit	26,298			18,228
Operating expenses:
Retail operating	15,817			10,932
General and administrative	4,482			3,102
Preopening	1,648			1,310
Total operating expenses	21,947			15,344
Income from operations	4,351			2,884
Interest income, net	8			15
Income before income taxes	4,359			2,899
Income tax expense	(1,787		)	(1,206		)
Net income	2,572			1,693
Less preferred stock dividends	—			(998		)
Net income applicable to common shareholders	$	2,572		$	695
Net income per share:
Basic	$	0.24		$	0.37
Diluted	$	0.22		$	0.21
Weighted average number of shares outstanding:
Basic	10,890,837			1,883,969
Diluted	11,590,229			8,042,819

(In Thousands, Except Share and Per Share Amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	November 26, 2005			November 27, 2004			November 26, 2005			November 27, 2004
Net sales	$	31,800		$	20,281		$	160,005		$	106,240
Cost of sales	23,915			15,192			111,822			74,713
Gross profit	7,885			5,089			48,183			31,527
Operating expenses:
Store operating	7,594			4,793			29,299			18,892
General and administrative	2,527			2,520			7,784			6,509
Preopening	662			599			2,012			1,163
Total operating expenses	10,783			7,912			39,095			26,564
(Loss) income from operations	(2,898		)	(2,823		)	9,088			4,963
Other income	—			8,410			—			8,410
Interest income (expense), net	172			11			287			(21		)
(Loss) income before income taxes	(2,726		)	5,598			9,375			13,352
Income tax benefit (expense)	1,117			(2,247		)	(3,844		)	(5,363		)
Net (loss) income	(1,609		)	3,351			5,531			7,989
Less preferred stock dividends	—			(937		)	(1,721		)	(2,757		)
Net (loss) income applicable to common shareholders	$	(1,609	)	$	2,414		$	3,810		$	5,232
Net (loss) income per share:
Basic	$	(0.15	)	$	1.30		$	0.66		$	2.81
Diluted	$	(0.15	)	$	0.43		$	0.58		$	1.04
Weighted average number of shares outstanding:
Basic	10,653,135			1,862,778			5,768,834			1,862,223
Diluted	10,653,135			7,704,345			9,480,569			7,703,790

See accompanying notes.

GOLF GALAXY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)

STATEMENTS OF CASH FLOWS

	Three Months Ended
	May 27, 2006			May 28, 2005
Operating activities
Net income	$	2,572		$	1,693
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,842			1,142
Disposal of property and equipment	22			4
Amortization of debt issuance costs	3			3
Stock-based compensation	247			—
Change in operating assets and liabilities:
Accounts receivable	(5,248		)	(6,068		)
Inventories	(19,086		)	(14,077		)
Prepaid expenses and other	(10		)	(219		)
Accounts payable	20,804			23,573
Accrued liabilities and other	5,460			4,989
Net cash provided by operating activities	6,606			11,040
Investing activities
Acquisition of The GolfWorks, net of $501 cash acquired	(3,559		)	—
Additions to property and equipment	(6,377		)	(5,126		)
Net cash used in investing activities	(9,936		)	(5,126		)
Financing activities
Proceeds from the exercise of stock options and warrants	242			—
Excess tax benefits from stock-based compensation	222			—
Repayment of debt assumed from The GolfWorks	(5,403		)	—
Net cash used in financing activities	(4,939		)	—
Effect of exchange rate changes on cash and cash equivalents	48			—
Net (decrease) increase in cash and cash equivalents	(8,221		)	5,914
Cash and cash equivalents, beginning of year	11,075			3,245
Cash and cash equivalents, end of quarter	$	2,854		$	9,159
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest	$	46		$	2
Taxes	$	1,198		$	1,319
Supplemental disclosure of non-cash investing and financing activities
Common stock and common stock warrants issued in connection with the acquisition of The GolfWorks	$	6,226		$	—
Purchases of property and equipment awaiting processing for payment, included in accrued liabilities	$	1,860		$	461

(In Thousands)

(Unaudited)

	Nine Months Ended
	November 26, 2005			November 27, 2004
Operating activities
Net income	$	5,531		$	7,989
Adjustments to reconcile net income to net cash provided by operating activities:
Realized gain on Golf Town Canada Inc. stock	—			(8,410		)
Depreciation and amortization	3,714			2,303
Disposal of property and equipment	15			6
Amortization of debt issuance costs	10			16
Noncash compensation	81			—
Change in operating assets and liabilities:
Accounts receivable	(2,688		)	(1,977		)
Inventories	(12,890		)	(3,704		)
Prepaid expenses and other	(1,168		)	(266		)
Accounts payable	6,097			1,442
Accrued liabilities and other	3,048			3,796
Net cash provided by operating activities	1,750			1,195
Investing activities
Additions to property and equipment	(7,940		)	(4,921		)
Proceeds from sale of Golf Town Canada Inc. stock	—			8,304
Net cash (used in) provided by investing activities	(7,940		)	3,383
Financing activities
Proceeds from the issuance of common stock	69			8
Credit facility issuance costs	—			(43		)
Payment of preferred stock dividends	(19,562		)	—
Proceeds from initial public offering, net	37,903			—
Net cash provided by (used in) financing activities	18,410			(35		)
Net increase in cash and cash equivalents	12,220			4,543
Cash and cash equivalents, beginning of year	3,245			4,943
Cash and cash equivalents, end of quarter	$	15,465		$	9,486
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest	$	2		$	2
Taxes	$	4,618		$	3,537
Supplemental disclosure of non-cash financing activities
Conversion of preferred stock into common stock	$	30,900		$	—

See accompanying notes.

GOLF GALAXY, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO UNAUDITED FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying unaudited consolidated financial statements of Golf Galaxy, Inc. (~~the~~ “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Due to the seasonal nature of the Company’s business, interim results are not necessarily indicative of results for the entire fiscal year.

These interim unaudited ~~financial~~consolidated financial statements and the related notes should be read in conjunction with the annual ~~financial~~ financial statements and notes included in the ~~final prospectus relating to the~~ Company’s ~~initial~~ ~~public~~Annual ~~offering~~Report ~~(“IPO”),~~on ~~as filed with the Securities and Exchange~~Form 10-K ~~Commission (the “SEC”), which includes audited financial statements~~ for ~~each of~~ the ~~three~~ fiscal ~~years~~year ~~in the period~~ ended February 2625, ~~2005~~2006.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the period. Ultimate results could differ from those estimates.

2The unaudited consolidated financial statements include the accounts of Golf Galaxy and its wholly owned subsidiary from the date of acquisition. ~~Initial~~All intercompany ~~Public~~transactions ~~Offering~~have been eliminated in consolidation.

The Company ~~completed~~operates ~~its~~one ~~IPO,~~reportable asbusiness ofsegment ~~August 3,~~- ~~2005,~~Retail. ~~issuing~~The ~~3,000,000~~Retail ~~common~~segment ~~shares~~is atprimarily anengaged ~~offering~~in ~~price~~specialty ofgolf ~~$14~~retail within the United States.~~00. As~~ ~~part~~The ofRetail ~~the~~segment ~~IPO,~~includes all of the ~~outstanding~~Company’s retail ~~preferred~~channels ~~stock~~including ~~was~~stores, ~~converted~~catalog ~~into~~and ~~5,752,467~~eCommerce ~~shares~~businesses. ofThe ~~common~~Company identifies ~~stock,~~segments based on the nature of ~~which 1,542,500~~the ~~were~~business ~~sold~~activities inand the processes ~~IPO,~~by ~~resulting~~which inmanagement amakes ~~total~~strategic ~~offering~~and ofoperating 4decisions,~~542,500~~ assesses ~~common~~performance ~~shares. The~~and ~~Company’s~~allocates ~~common stock~~resources. ~~trades~~No onsingle ~~the~~customer ~~Nasdaq~~accounts ~~National~~for ~~Market~~10% ~~under~~or more of the ~~symbol~~Company’s ~~“GGXY~~net sales.”

~~After issuance costs, the Company received net proceeds of $37~~2.9 ~~million,~~Public ofOfferings ~~which $19.6 million was used to pay preferred shareholders all~~ of ~~the~~Common accrued and unpaid dividends due upon the conversion of their shares of preferred stock into shares of the Company’s common stock. The remaining net proceeds are planned to be used to finance the Company’s store growth and for general corporate purposes.Stock

TheInitial holdersPublic of the remaining unregistered shares of common stock resulting from the conversion of the preferred stock have defined demand registration rights, which may be exercised in the future.Offering

The Company completed its initial public offering (“IPO”), as of August 3, 2005, issuing 3,000,000 common shares at an offering price of $14.00. ~~Stock-Based~~As ~~Compensation~~part of the IPO, all of the then outstanding preferred stock was converted into 5,752,467 shares of common stock, of which 1,542,500 were sold in the IPO, resulting in a total offering of 4,542,500 common shares. The Company’s common stock trades on the Nasdaq National Market under the symbol “GGXY.”

~~The Company~~After ~~has~~issuance ~~elected~~costs, ~~to apply~~ the Company ~~disclosure-only~~received ~~provisions~~net ofproceeds ~~Statement~~ of ~~Financial~~ ~~Accounting~~$37.9 ~~Standards~~million, ~~(“SFAS”)~~of Nowhich $19. ~~123,~~6 ~~Accounting~~million ~~for~~was ~~Stock-Based Compensation,~~used asto ~~amended~~pay bypreferred ~~SFAS~~shareholders ~~No. 148,~~all ~~Accounting~~of ~~for~~the ~~Stock-Based~~accrued ~~Compensation—Transition~~ and ~~Disclosure—an~~ ~~amendment~~unpaid ofdividends ~~FASB~~due ~~Statement No. 123.~~upon ~~Accordingly,~~ the ~~Company~~conversion ~~accounts~~of ~~for~~their ~~stock-based~~shares ~~compensation~~of ~~using~~preferred ~~the intrinsic~~stock ~~value~~into ~~method~~shares ~~prescribed~~of inthe ~~Accounting Principles Board (“APB”)~~Company’s ~~Opinion~~common Nostock. ~~25,~~ ~~Accounting~~The ~~for~~remainder ~~Stock Issued~~of tothe ~~Employees,~~net ~~and~~proceeds ~~related~~was ~~interpretations.~~used ~~Compensation~~primarily to fund ~~expense~~capital ~~for~~expenditures ~~stock~~to ~~options~~open isnew ~~measured~~stores asand the ~~excess,~~March 2006 ifacquisition ~~any,~~ of ~~the fair value~~ ofRalph ~~the~~Maltby ~~Company’s~~Enterprises, Inc., ~~common~~now ~~stock~~known atas ~~the~~Golf ~~date~~Galaxy ~~of grant over the stock option~~GolfWorks, Inc. ~~exercise~~(“The ~~price~~GolfWorks”).

~~Prior~~Withdrawn toFollow-on fiscal 2006, all stock options had an exercise price equal to the estimated fair value of the common stock at the time of grant, resulting in no compensation expense recorded for the issuance of stock options.Offering

InCertain ~~May 2005,~~holders of the ~~Board~~unregistered shares of ~~Directors~~common ~~granted~~stock ~~options~~remaining tofrom ~~purchase 138,000~~the ~~shares~~conversion of ~~common~~their preferred stock atconcurrent anwith ~~exercise~~the ~~price~~IPO exercised their demand registration rights during the first quarter of $8fiscal 2007.00 ~~per~~In ~~share~~May 2006, the ~~based~~Company initially filed a registration statement on Form S-1 for an underwritten public offering by the ~~independently~~Company, ~~appraised~~with ~~value~~the asmajority of the ~~most~~shares ~~recent~~in ~~fiscal~~the ~~year-end.~~offering ~~In addition~~provided toby ~~the~~certain selling ~~Company’s~~shareholders. ~~financial~~The registration ~~results~~statement ~~and~~was ~~growth~~later ~~prospects,~~withdrawn ~~the~~due ~~appraisal considered~~to ~~other~~a ~~factors,~~decline ~~including~~in the Company’s stock ~~capital~~price ~~structure~~and asthe ~~a private~~related ~~company~~costs ~~and~~of the ~~relative~~withdrawn ~~subordination~~offering of ~~the~~$346,000, pre-tax, ~~common~~were ~~stock~~included in ~~relation to~~general ~~the~~and ~~preferred~~administrative ~~stock~~expenses atin the ~~date~~first quarter of fiscal 2007. The former preferred shareholders retain their demand registration rights for the ~~appraisal~~existing unregistered common shares.

63. Acquisition of The GolfWorks

~~Because~~ In the ~~exercise~~first ~~price~~quarter of fiscal 2007, Golf Galaxy acquired all of the outstanding shares of The GolfWorks for a combination of cash, common stock ~~options~~and ~~granted~~warrants to purchase common stock. The aggregate purchase price, including direct acquisition costs of $315,000, consisted of $4.1 million in ~~May 2005~~cash ~~was~~($500,000 ~~below~~of ~~the~~which was deposited ~~then-anticipated~~into ~~price~~an ~~range~~indemnification escrow); 250,862 shares of the Company’s ~~proposed~~common ~~IPO~~stock valued at $4.8 million and warrants to purchase 150,000 shares of the Company is’s ~~recognizing~~common ~~compensation~~stock ~~expense~~with ~~ratably~~a ~~over~~fair ~~the~~value ~~four-year~~of ~~vesting~~$1.4 ~~period~~million. The value of the ~~options~~common stock was based on the ~~difference~~average ~~between~~closing ~~the~~price ~~mid-point~~ of the ~~anticipated~~Company’s common stock on the ~~IPO~~Nasdaq ~~price~~National ~~range~~Market atduring a five-day trading period beginning three trading days prior to the ~~time~~announcement of ~~grant~~the ~~and~~acquisition; the ~~exercise~~value ~~price~~ of the ~~options~~warrants was determined using the Black-Scholes option pricing model. The warrants are

If the Company had elected to apply the fair value recognition provisions under SFAS No. 123, the Company’s net (loss) income would have been adjusted to the following pro forma amounts (in thousands, except per share amounts):6

	Three Months Ended (Unaudited)						Nine Months Ended (Unaudited)
	November 26, 2005			November 27, 2004			November 26, 2005			November 27, 2004
Net (loss) income applicable to common shareholders	$	(1,609	)	$	2,414		$	3,810		$	5,232
Add stock-based compensation expense, net of tax	20			—			48			—
Deduct total stock-based compensation determined under fair-value-based method for all awards, net of tax	(96		)	(35		)	(200		)	(107		)
Pro forma net (loss) income applicable to common shareholders	$	(1,685	)	$	2,379		$	3,658		$	5,125
Net (loss) income per share:
Basic—as reported	$	(0.15	)	$	1.30		$	0.66		$	2.81
Basic—pro forma	$	(0.16	)	$	1.28		$	0.63		$	2.75
Diluted—as reported	$	(0.15	)	$	0.43		$	0.58		$	1.04
Diluted—pro forma	$	(0.16	)	$	0.43		$	0.57		$	1.02
Weighted Average Assumptions:
Risk-free interest rate	4.2		%	3.4		%
Expected dividends	—			—
Estimated average life	5 years			6 years
Volatility	50		%	—

immediately exercisable at $17.94 per share with a 10-year term expiring on March 16, 2016. The Company also assumed $5.4 million in existing debt from The GolfWorks. Following the acquisition, the Company repaid all outstanding debt of The GolfWorks with a combination of available cash and borrowings under Golf Galaxy’s credit facility.

The GolfWorks is ~~fair~~primarily ~~value~~a retailer of ~~each~~golf-related ~~option~~products ~~was~~including ~~estimated~~proprietary onclubheads, components ~~the~~and ~~date~~tools offor ~~grant~~club-making, ~~using~~as ~~the~~well ~~weighted~~as golf accessories and name ~~average~~brand ~~assumptions~~shafts ~~provided~~and ~~above~~grips. ~~Prior~~ In addition to ~~the~~its ~~Company’s~~retail ~~IPO~~catalogs and eCommerce website, The ~~fair~~GolfWorks’ ~~value~~products ~~was~~and ~~estimated~~fitting ~~using~~systems ~~the~~are ~~minimum~~featured in many Golf Galaxy ~~value~~stores ~~method.~~and ~~Subsequent~~are planned to ~~the~~be ~~IPO,~~included in all Golf Galaxy retail stores by the end of fiscal 2007. The Company ~~estimates~~believes ~~the~~The ~~fair~~GolfWorks ~~value~~brand ofprovides an ~~each~~opportunity ~~option~~to onexpand ~~the~~our ~~grant~~retail ~~date~~offerings ~~using~~to ~~the~~new ~~Black-Scholes~~and ~~option-pricing~~existing ~~model~~customers. The ~~Based~~Company onintends ~~these~~to ~~assumptions,~~grow ~~the~~The ~~estimated~~GolfWorks ~~weighted~~brand ~~average~~through ~~fair~~an ~~value~~expanded ~~of the~~store-in-store ~~options~~service ~~granted~~area in the ~~third~~Company’s ~~quarter~~stores ofcombined ~~fiscal~~with ~~2006~~integrated marketing and product ~~2005~~offerings. ~~was~~The ~~$7.70~~expanded service area features The GolfWorks brand to highlight the Company’s technical expertise in club repair and upgrade $1services.~~14,~~ ~~respectively. Because~~The store-in-store also features a wide assortment of ~~the~~golf club ~~limited~~components, ~~history~~tools, ofshafts ~~market~~and ~~trading~~grips for customers interested in building or servicing their own equipment. In addition, the acquisition facilitates the continued growth of the Company’s ~~common~~direct-to-consumer ~~stock,~~channel ~~estimated~~on a cost efficient basis. The ~~volatility~~acquired ~~for~~GolfWorks ~~the~~facilities ~~third~~include ~~quarter~~a ofcustomer ~~fiscal~~contact center; distribution center; research, design and light assembly facilities; and a school for club builders. In April 2006, ~~was~~Golf ~~based~~Galaxy oncombined anits ~~average~~contact ofcenter ~~the~~with The ~~volatility~~GolfWorks’ ~~reported~~contact bycenter ato ~~peer~~create ~~group~~a ofmore ~~publicly~~efficient ~~traded~~and ~~companies~~lower-cost operation.

7The acquisition of The GolfWorks was accounted for under the purchase method of accounting. Accordingly, the results of The GolfWorks have been included in the Company’s consolidated financial statements as a wholly owned subsidiary beginning March 16, 2006. The Company allocated the purchase price to the acquired assets and liabilities of The GolfWorks, based on an estimate of their fair values. In developing an estimate of fair value, a number of factors were considered, including historical operating results, expectations of future operations and strategies, and the use of independent appraisals. The excess of the purchase price over the estimated fair value of the acquired assets and assumed liabilities has been assigned to goodwill. The goodwill is not deductible for tax purposes and the acquired assets retain their original income tax basis. The following summarizes the estimated fair values of the acquired assets and liabilities of The GolfWorks at the date of acquisition. The allocation of the purchase price is subject to revision as the Company completes its evaluation of the fair values of the acquired assets and liabilities. Any subsequent revisions to the purchase price allocation are not expected to be material.

Acquisition Allocation
($ in thousands)
Cash	$	3,745
Golf Galaxy, Inc. common stock	4,778
Warrants to purchase common stock	1,448
Direct acquisition costs	315
Total purchase price	$	10,286

Allocation of purchase price to the fair value of acquired assets and liabilities:
Cash and cash equivalents	$	501
Accounts receivable, net of allowances	1,590
Inventories, net	5,474
Prepaid expenses and other	44
Property and equipment, net	3,429
Intangible assets	2,230
Goodwill	7,420
Deferred tax assets	791
Accounts payable	(3,424		)
Accrued liabilities and other	(702		)
Borrowings under credit facility and debt outstanding	(5,403		)
Deferred tax liabilities	(1,664		)
Total purchase price	$	10,286

The estimated fair values of the intangible assets as of the acquisition date were determined based on an independent third party appraisal, and are as follows ($ in thousands):

Intangible asset description	Amount		Estimated useful life
Trademarks	$	1,000	Indefinite
Customer lists	800		4 years
Non-compete agreements	320		5 years
Copyrights	90		Indefinite
Patents	20		8 years
Total	$	2,230

The intangible assets will be amortized over their estimated useful lives where applicable. Based on the results of the independent appraisal, the trademarks and copyrights were deemed to have indefinite lives and accordingly, will not be amortized. Goodwill and the indefinite-lived intangible assets will be subject to periodic evaluation for impairment in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets.

4. Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised), Share-Based Payment (“SFAS No. 123(R)”). SFAS No. 123(R) requires compensation expense to be measured based on the grant-date fair value of the award and recognized over the requisite service period for awards that vest. SFAS No. 123(R) also requires a change in the classification of the benefits of tax deductions in excess of recognized compensation cost from operating cash flow to a financing cash flow in periods after adoption. The Company adopted SFAS No. 123(R) effective February 26, 2006. Prior to February 26, 2006, the Company accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Compensation expense for stock options was measured as the excess, if any, of the fair value of the Company’s common stock at the date of grant over the stock option exercise price. Prior to fiscal 2006, all stock options had an exercise price equal to the estimated fair value of the common stock at the time of grant, resulting in no compensation expense recorded for the issuance of stock options.

Pursuant to the transition requirements of SFAS No. 123(R) for a newly public entity, the Company is applying the modified prospective method only to unvested awards that were granted on or after its IPO. The unrecognized compensation cost relating to those awards will be recognized in the financial statements over the remaining requisite service period subsequent to adoption of SFAS No. 123(R). The Company is applying the prospective transition method to unvested awards granted prior to its IPO. The unrecognized compensation cost relating to those awards will continue to be recognized in the financial statements subsequent to adoption of SFAS No. 123(R) using the intrinsic value method under APB Opinion No. 25. Accordingly, other than the stock options granted in May 2005, no compensation expense will be recognized on unvested stock options granted prior to the Company’s IPO unless such awards are subsequently modified.

In May 2005, the Company’s Board of Directors granted options to purchase 138,000 shares of common stock at an exercise price of $8.00 per share based on an independently appraised value as of the most recent fiscal year-end. In addition to the Company’s financial results and growth prospects, the appraisal considered other factors, including the Company’s capital structure as a private company and the relative subordination of the common stock in relation to the preferred stock at the date of the appraisal. Because the exercise price of the stock options granted in May 2005 was below the then-anticipated price range of the Company’s proposed IPO, the Company is recognizing compensation expense ratably over the four-year vesting period of the options based on the difference between the mid-point of the anticipated IPO price range at the time of grant and the exercise price of the options.

As a result of adopting SFAS No. 123(R) on February 26, 2006, the Company’s income before income taxes and net income for the quarter ended May 27, 2006, were $215,000 and $155,000 lower, respectively, than if it had continued to account for share-based compensation under APB Opinion No. 25. Basic and diluted earnings per share for the quarter ended May 27, 2006, were $0.01 lower than if the Company had continued to account for share-based compensation under APB Opinion No. 25.

Prior to the adoption of SFAS No. 123(R), the Company reported all tax benefits resulting from the exercise of stock options as operating cash flows in the statement of cash flows. In accordance with SFAS No. 123(R), the statement of cash flows for the quarter ended May 27, 2006, presents the excess tax benefits from the exercise of stock options as financing cash flows. For the first quarter of fiscal 2007, $222,000 of excess tax benefits were reported as financing cash flows rather than operating cash flows.

In accordance with the transition methods described above, financial results for the first quarter of fiscal 2006 have not been restated. If the Company had elected to apply the fair value recognition provisions under SFAS No. 123, Accounting for Stock-Based Compensation, for the three months ended May 28, 2005, the Company’s net income and net income per share would have been adjusted to the following pro forma amounts (in thousands, except per share amounts):

	Three Months Ended (Unaudited)
	May 28, 2005
Net income applicable to common shareholders	$	695
Add stock-based compensation expense, net of tax	—
Deduct total stock-based compensation determined under fair-value-based method for all awards, net of tax	(34		)
Pro forma net income applicable to common shareholders	$	661

Net income per share:
Basic—as reported	$	0.37
Basic—pro forma	$	0.35
Diluted—as reported	$	0.21
Diluted—pro forma	$	0.21

Stock Options

The Company’s 1996 Stock Option and Incentive Plan and 2004 Stock Incentive Plan (together, ~~the~~ “Plans”) provide for the issuance of incentive and non-qualified stock options. Options are generally granted at the fair market value as of the grant date, are exercisable ratably over various periods and expire up to ten years after the date of grant. As of May 27, 2006, there were 2,000,000 common shares authorized for issuance under the Plans.

AsStock ofoption ~~November 26,~~activity ~~2005 and February 26, 2005, there were 2,000,000 common shares authorized for issuance~~ under the Plans. ~~Stock~~for ~~option~~the ~~activity under~~three ~~the~~months ~~Plans~~ended May 27, 2006, was as follows:

	Nine Months Ended November 26, 2005 (Unaudited)						Fiscal Year Ended February 26, 2005
	Options		Weighted Average Exercise Price per Share			Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	Shares			Weighted Average Exercise Price			Shares			Weighted Average Exercise Price
Outstanding, beginning of period	1,238,944		$	7.58
Outstanding, beginning of period	915,275			$	5.47		698,100			$	5.21
Issued	200,000		20.66
Issued	351,000			11.74			252,900			6.30
Forfeited	(2,950	)	8.55
Forfeited	(24,050		)	7.21			(32,075		)	6.28
Exercised	(56,194	)	4.31
Exercised	(15,597		)	4.40			(3,650		)	5.91
Outstanding, end of period	1,379,800		$	9.60		6.9 years		$	10,533,000
Outstanding, end of period	1,226,628			7.25			915,275			5.47
Exercisable, end of period	696,198		$	5.78		4.5 years		$	7,548,000
Exercisable, end of period	618,978			5.25			525,706			4.86
Weighted average fair value of options granted	$	4.68					$	1.14

4The fair value of each option was estimated on the date of grant using the weighted average assumptions provided below. ~~Net~~Prior ~~(Loss)~~to ~~Income~~the ~~Per~~Company’s ~~Share~~IPO, fair value was estimated using the minimum value method. Subsequent to the IPO, the Company estimates the fair value of each option on the grant date using the Black-Scholes option-pricing model. Based on these assumptions, the estimated weighted average fair value of the options granted in the first quarter of fiscal 2007 and 2006 was $11.25 and $1.43, respectively. Because of the limited history of market trading in the Company’s common stock, estimated volatility for the first quarter of fiscal 2007 was based on an average of the volatility reported by a peer group of publicly traded companies. Beginning with stock options granted in the first quarter of fiscal 2007, the expected term is presumed to be the mid-point between the vesting date and the end of the contractual term. According to SEC Staff Accounting Bulletin No. 107, this approach is permitted until December 31, 2007, for a “plain vanilla” employee stock option for which the value is estimated using a Black-Scholes-Merton formula.

Basic net (loss) income per share is computed based on the weighted average number of common shares outstanding. Diluted net (loss) income per share is computed based on the weighted average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had all potentially dilutive common shares been issued. Potentially dilutive shares of common stock include certain common stock options, warrants and convertible preferred stock, depending on the estimated fair market value of the common stock and amount of net income for the period measured.

The following table presents a reconciliation of the numerators and denominators of basic and diluted net (loss) income per share (in thousands, except share and per share amounts):

	Three Months Ended (Unaudited)					Nine Months Ended (Unaudited)
	November 26, 2005			November 27, 2004		November 26, 2005		November 27, 2004
Numerator:
Net (loss) income applicable to common shareholders	$	(1,609	)	$	2,414	$	3,810	$	5,232
Add preferred stock dividends	—			937		1,721		2,757
Numerator for diluted net (loss) income per share	$	(1,609	)	$	3,351	$	5,531	$	7,989
Denominator:
Weighted average number of common shares outstanding	10,653,135			1,862,778		5,768,834		1,862,223
Effect of dilutive securities:
Outstanding stock options and warrants	—			89,100		508,896		89,100
Convertible preferred stock	—			5,752,467		3,202,839		5,752,467
Denominator for diluted net (loss) income per share	10,653,135			7,704,345		9,480,569		7,703,790
Net (loss) income per share:
Basic	$	(0.15	)	$	1.30	$	0.66	$	2.81
Diluted	$	(0.15	)	$	0.43	$	0.58	$	1.04

5. Employee Benefit Plan

The Company has a defined contribution 401(k) profit sharing plan (the “Plan”) for eligible employees, which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986. Employees are entitled to make tax-deferred contributions of up to 75% of their eligible compensation. Effective July 1, 2005, the Company began matching 50% of the first 4% of eligible compensation contributed to the Plan by each participant. The Company’s matching contributions vest after four years of service, at age 59 1/2 regardless of service or upon the death of the employee. The Company’s matching contributions to the Plan for the third quarter and first nine months of fiscal 2006 were $24,000 and $40,000, respectively. The Company did not make any matching contributions to the Plan during either of the corresponding periods of fiscal 2005. Future matching contributions to the Plan are at the Company’s sole discretion.

6. Golf Town Canada Inc.

In 1998, the Company entered into a consulting agreement to assist in the development of Golf Town Canada Inc. (Golf Town Canada), a golf retailer based in Canada. Under the agreement, the Company received payments in certain years related to consulting services and the use of certain advertising resources. The payments were not material to the financial results of the Company. In addition, the consulting agreement provided the Company with a minority equity interest in Golf Town Canada and a position on its Board of Directors. The equity interest was accounted for on a cost basis and was not material to the Company’s financial statements.

During the Company’s third quarter of fiscal 2005, Golf Town Canada sold all of its assets to the newly formed Golf Town Canada Income Fund as part of its initial public offering as a Canadian income fund. As part of the transaction, the Company surrendered its entire equity interest in Golf Town Canada for cash, resulting in a net realized gain before income taxes of $8.4 million. The Company has no further service obligations with regards to Golf Town Canada and no longer holds a position on its Board of Directors. As part of an agreement between the companies, there are restrictions on the Company’s ability to open retail stores in Canada until 2008 and Golf Town Canada’s ability to open retail stores in the United States until 2013.

7. New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 123, which requires the calculation of the fair value of stock-based compensation, estimation of future forfeitures and income taxes, and recognition of the fair value as a non-cash expense over the vesting period of the underlying instruments. The implementation of SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), can be made on either a modified prospective or modified retrospective basis. The Company will be required to implement the provisions of SFAS No. 123(R) beginning in the first quarter of fiscal 2007. The Company is currently evaluating option valuation methodologies and assumptions. The Company expects to record substantial non-cash compensation expense in future periods as a result of the adoption of SFAS No. 123(R), which will have a significant adverse impact on our results of operations.

In June 2005, the FASB’s Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination (EITF No. 05-6). EITF No. 05-6 requires leasehold improvements in operating leases that are either acquired after the beginning of the initial lease term or acquired as the result of a business combination to be amortized over the shorter of the assets’ useful life or a term that includes the original lease term plus any renewals that are reasonably assured at the date the leasehold improvements are purchased. EITF No. 05-6 was effective for reporting periods beginning after June 29, 2005. The adoption of EITF No. 05-6 did not have a material impact on the Company’s net income, cash flows or financial position.

On October 6, 2005, the FASB issued FASB Staff Position (“FSP”) 13-1, Accounting for Rental Costs Incurred During a Construction Period. FSP 13-1 requires that rental costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental expense. FSP 13-1 is effective for the first reporting period after December 15, 2005. The Company has historically expensed rental costs incurred during a construction period; therefore, the adoption of this FSP will not have an impact on the Company’s net income, cash flows or financial position.

	Three Months Ended
	May 27, 2006		May 28, 2005
Weighted Average Assumptions:
Risk-free interest rate	4.7	%	4.0	%
Expected dividends	—		—
Estimated average life	6.25 years		5 years
Volatility	50	%	—

The aggregate intrinsic value of options (the amount by which the market price of the stock on the date of exercise exceeded the exercise price of the option) exercised during the three months ended May 27, 2006, and May 28, 2005, was $1.0 million and $0, respectively. As of May 27, 2006, there was $3.3 million of measured but unrecognized compensation expense related to stock options that is expected to be recognized over a weighted average period of 3.3 years. During the first quarter of fiscal 2007 and 2006, the Company received proceeds of $242,000 and $0, respectively, from the exercise of stock options and warrants.

5. Net Income Per Share

Basic net income per share is computed based on the weighted average number of common shares outstanding. Diluted net income per share is computed based on the weighted average number of common shares outstanding adjusted by the number of additional shares that would have been outstanding had all potentially dilutive common shares been issued. Potentially dilutive shares of common stock include certain common stock options, warrants and convertible preferred stock, depending on the estimated fair market value of the common stock and amount of net income for the period measured. Net income per diluted share for the first quarter of fiscal 2007 excludes 209,000 outstanding common stock options because they were anti-dilutive.

The following table presents a reconciliation of the numerators and denominators of basic and diluted net income per share (in thousands, except share and per share amounts):

	Three Months Ended (Unaudited)
	May 27, 2006		May 28, 2005
Numerator:
Net income applicable to common shareholders	$	2,572	$	695
Add preferred stock dividends	—		998
Numerator for diluted net income per share	$	2,572	$	1,693
Denominator:
Weighted average number of common shares outstanding	10,890,837		1,883,969
Effect of dilutive securities:
Outstanding stock options and warrants	699,392		406,383
Convertible preferred stock	—		5,752,467
Denominator for diluted net income per share	11,590,229		8,042,819
Net income per share:
Basic	$	0.24	$	0.37
Diluted	$	0.22	$	0.21

6. Property and Equipment

Major classes of depreciable assets are as follows (in thousands):

	May 27, 2006 (unaudited)			May 28, 2005 (unaudited)			February 25, 2006
Fixtures and equipment	$	31,205		$	21,280		$	24,755
Leasehold improvements	24,829			17,177			19,831
Land and buildings	2,830			—			—
Construction in process	2,232			625			9,671
	61,096			39,082			54,257
Less accumulated depreciation and amortization	(20,758		)	(15,226		)	(19,039		)
Property and equipment, net	$	40,338		$	23,856		$	35,218

7. Intangibles

Intangible assets consisted of the following (in thousands):

	May 27, 2006 (unaudited)
Indefinite-lived intangibles
Trademarks	$	1,000
Copyrights	90
	$	1,090
Amortized intangibles
Customer lists	$	800
Non-compete agreements	320
Patents	20
	$	1,140
Less accumulated amortization	(76		)
	$	1,064

Intangibles, net	$	2,154

8. Employee Benefit Plan

The Company has a defined contribution 401(k) profit sharing plan (“401(k) Plan”) for eligible employees, which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred contributions of up to 75% of their eligible compensation. Effective July 1, 2005, the Company began matching 50% of the first 4% of eligible compensation contributed to the 401(k) Plan by each participant. The Company’s matching contribution vests after four years of service, at age 591¤2 regardless of service, or upon the death of the employee. The Company’s matching contribution to the 401(k) Plan for the first quarter of fiscal 2007 was $40,000. The Company did not make a matching contribution to the 401(k) Plan during the first quarter of fiscal 2006. Future matching contributions to the 401(k) Plan are at the Company’s sole discretion.

9. New Accounting Pronouncements

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3. This statement changes the requirements for the accounting and reporting of a change in accounting principle. Rather than recognizing in net income a cumulative effect adjustment, this statement generally requires retroactive application of a change in accounting principle to prior periods’ financial statements. This statement was effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement did not have an impact on net income, cash flows or financial position.

In October 2005, the FASB issued FASB Staff Position (“FSP”) FSP 13-1, Accounting for Rental Costs Incurred During a Construction Period. FSP 13-1 requires that rental costs associated with ground or building operating leases that are incurred during a construction period be recognized as rental expense. FSP 13-1 was effective for the first reporting period after December 15, 2005. We have historically expensed rental costs incurred during a construction period; therefore, the adoption of this FSP did not have an impact on our net income, cash flows or financial position.

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

Overview

Golf Galaxy, Inc. is a leading golf specialty retailer offering a distinctive combination of competitively priced merchandise from the leading national ~~brands~~ brands in golf equipment and apparel, along with non-commissioned sales assistance and pro shop services. InWe ~~the current fiscal year, we have~~ opened 15 11 new stores, ~~including~~during ~~four~~the ~~stores~~first ~~opened~~quarter ~~late~~of ~~in the~~ fiscal ~~third quarter~~ 2007. As of ~~November~~May 2627, ~~2005~~2006, we operated 4961 superstores, generally ranging ~~from~~ from 13,000 to 18,000 selling square feet, located in 2324 ~~primarily northern and midwestern~~ states. Our “Everything for the Game.®” core strategy is to provide avid and casual golfers, as well as gift purchasers, a category dominant selection of leading national brand products, expert sales assistance and professional services, the combination of which is generally not available elsewhere. We offer our customers an exciting, interactive environment that compares favorably with the shopping experience at smaller independent golf stores, on-course pro shops and the golf departments of general sporting goods retailers.

We completed an initial public offering of our common stock on August 3, 2005, selling 3,000,000 shares at an offering price of $14.00 per share resulting in gross proceeds of $42.0 million. Our stock ~~trades~~is traded on the Nasdaq National Market under the ticker symbol “GGXY.” As part of the offering, all of the then outstanding preferred stock converted into 5,752,467 shares of our ~~common~~ common stock, of which 1,542,500 were sold in the initial public offering, resulting in a total offering of 4,542,500 shares. After deducting the underwriting discounts and commissions, and other offering expenses, we received net proceeds from our initial public offering of $37.9 million. We used $19.6 million of the net proceeds to pay our preferred shareholders all of the ~~accrued~~ accrued and unpaid dividends due upon conversion of their shares of preferred ~~stock~~ stock into shares of our common stock. WeThe ~~expect~~remainder toof ~~use~~ the ~~remaining~~ net proceeds was ~~from~~used ~~the~~primarily ~~offering~~ to ~~continue~~fund capital expenditures to open new ~~retail~~ stores and for ~~general~~the March 2006 ~~corporate~~acquisition ~~purposes~~of Ralph Maltby Enterprises, Inc. now known as Golf Galaxy GolfWorks, Inc. (“The GolfWorks”).

~~Due~~In the first quarter of tofiscal 2007, we acquired all of the ~~seasonal~~outstanding ~~nature~~shares of The GolfWorks for a combination of cash, common stock and warrants to purchase common stock. The aggregate purchase price, including direct acquisition costs of $315,000, consisted of $4.1 million in cash ($500,000 of which was deposited into an indemnification escrow); 250,862 shares of our ~~business~~common stock valued at $4.8 million and warrants to purchase 150,000 ~~interim~~shares ~~results~~of ~~are~~our ~~not~~common ~~necessarily~~stock with a fair ~~indicative~~value of ~~results~~$1.4 ~~for~~million. The value of the ~~entire~~common ~~fiscal~~stock ~~year.~~was ~~Our~~based ~~net~~on ~~sales~~the ~~and~~average closing ~~net~~price ~~income~~of our common stock on the Nasdaq National Market during a five-day trading period beginning three trading days prior to the announcement of the acquisition; the value of the warrants was determined using the Black-Scholes option pricing model. The warrants are ~~generally~~immediately ~~greater~~exercisable ~~during~~at $17.94 per share with a 10-year term expiring on March 16, 2016. We also assumed $5.4 million in existing debt from The GolfWorks. Following the acquisition, ~~first~~we ~~and~~repaid ~~second~~all ~~quarters~~outstanding debt of The GolfWorks with a combination of available cash and borrowings under our ~~fiscal~~credit ~~year~~facility. The results of The GolfWorks have been included in the Company’s consolidated financial statements as a wholly owned subsidiary beginning March 16, 2006.

WeThe ~~believe~~GolfWorks ~~the~~is primarily ~~interim~~a ~~financial~~retailer ~~statements~~of ~~filed~~golf-related inproducts including proprietary clubheads, ~~this~~components ~~Form 10~~and tools for club-Qmaking, as well as golf accessories and ~~the~~name brand ~~discussions~~shafts ~~contained~~and ~~herein~~grips. ~~should~~In beaddition ~~read~~to inits retail catalogs and eCommerce ~~conjunction~~website, ~~with~~The ~~the~~GolfWorks’ ~~annual~~products ~~financial~~and ~~statements~~fitting systems are featured in many Golf Galaxy stores and ~~notes~~are planned to be included in ~~the~~all Golf Galaxy retail stores ~~final~~by ~~prospectus~~the ~~relating~~end of fiscal 2007. We believe The GolfWorks brand provides an opportunity to expand our ~~initial~~retail ~~public~~offerings ~~offering,~~to asnew ~~filed~~and existing customers. We intend to grow The GolfWorks brand through an expanded store-in-store service area in Golf Galaxy’s stores combined with ~~SEC,~~integrated ~~which~~marketing and product ~~includes~~offerings. ~~audited~~The ~~financial~~expanded ~~statements~~service ~~for~~area ~~each~~features The GolfWorks brand to highlight our technical expertise in club repair and upgrade services. The store-in-store also features a wide assortment of ~~the~~golf ~~three~~club ~~fiscal~~components, ~~years~~tools, shafts and grips for customers interested in building or servicing their own equipment. In addition, the acquisition facilitates the continued growth of our ~~period~~direct-to-consumer ~~ended~~channel ~~February~~on a cost efficient basis. The acquired GolfWorks facilities include a customer contact center; distribution center; research, design and light assembly facilities; and a school for club builders. In April 262006, we ~~2005~~combined our contact centers to create a more efficient and lower-cost operation.

Due to the seasonal nature of our business, interim results are not necessarily indicative of results for the entire fiscal year. Our net sales and net income are generally greatest during the first and second quarters of our fiscal year.

The interim financial statements filed in this Quarterly Report on Form 10-Q (“Report”) and the related discussions contained herein should be read in conjunction with the audited financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended February 25, 2006.

Results of Operations

The following table presents selected items in the unaudited statements of operations as a percentage of our net sales.

	Three Months Ended				~~Nine Months Ended~~
	November 26, 2005		November 27, 2004		November 26, 2005		November 27, 2004
	May 27, 2006		May 28, 2005
Statements of Operations Data
Net sales	100.0	%	100.0	%	~~100.0~~	%	~~100.0~~	%
Cost of sales	7568.21	%	7468.9	%	~~69.9~~	%	~~70.3~~	%
Gross profit	2431.89	%	2531.1	%	~~30.1~~	%	~~29.7~~	%
Store operating expenses	23.9	%	23.6	%	18.3	%	17.8	%
Retail operating expenses	19.2		18.6
General and administrative expenses	75.94	%	125.43	%	~~4.9~~	%	~~6.1~~	%
Preopening expenses	2.10	%	32.02	%	~~1.2~~	%	~~1.1~~	%
(Loss) income from operations	(9.1	)%	(13.9	)%	5.7	%	4.7	%
Income from operations	5.3		5.0
Other income	0.0	%	41.5	%	0.0	%	7.9	%
Interest income, net	0.0		0.0
Interest income (expense), net	0.5	%	0.0	%	0.2	%	0.0	%
Income before income taxes	5.3		5.0
(Loss) income before income taxes	(8.6	)%	27.6	%	5.9	%	12.6	%
Income tax expense	(2.2	)	(2.1	)
Income tax benefit (expense)	3.5	%	(11.1	)%	(2.4	)%	(5.1	)%
Net income	3.1	%	2.9	%
Net (loss) income	(5.1	)%	16.5	%	3.5	%	7.5	%

Net sales consist of sales, net of returns, from comparable stores and new stores, as well as sales from our eCommerce ~~operations,~~and ~~which~~catalog ~~we launched in March 2004~~operations. A ~~new or relocated~~ store is included in comparable store results after it has been in operation for 12 full fiscal months following the month of the store’s grand opening weekend, typically a store’s 13th full month of operations. Sales from our eCommerce ~~operations~~and catalog operations are not included in comparable store results. New store sales include ~~all~~net sales ~~from~~ from stores that have not yet become comparable ~~stores~~.

Cost of sales includes the cost of merchandise sold net of certain vendor allowances, direct costs of services, freight, inventory shrinkage, other inventory valuation adjustments and store occupancy costs. Vendor allowances include promotional support, rebates and volume discounts. Store occupancy costs include rent, real estate taxes and common area maintenance charges.

~~Store~~ Retail operating expenses primarily include store associate payroll and related employee benefits, advertising and depreciation. ~~Store~~Retail operating expenses also ~~include~~ include maintenance, utilities, insurance, bank and credit card charges, other ~~store~~ store level expenses, as well as expenses associated with the operation of our catalog operations and eCommerce ~~site~~Internet sites.

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

Preopening expenses consist primarily of occupancy, payroll, recruiting and other costs incurred prior to a new store opening as well as incremental advertising in conjunction with the store opening.

Three and Nine Months Ended November 26May 27, 2005 compared2006 Compared with the Three and Nine Months Ended November 27May 28, 20042005

Net Sales. Net sales for the ~~third~~ first quarter of fiscal ~~2006~~ ~~were~~2007 ~~$31.8 million,~~increased ~~an increase of~~ $1123.59 million, or 5640.78%, ~~compared~~to ~~with~~$82.5 million, ~~net~~compared ~~sales~~with of $2058.36 million for the ~~third~~first quarter of fiscal ~~2005~~2006. The increase ~~in net sales for the fiscal third quarter~~ resulted primarily from $917.74 million in sales from new stores opened in the current or prior fiscal year, before becoming comparable stores,. The remainder of the increase was contributed by incremental sales following the acquisition of The GolfWorks and a comparable store sales gain of $1.~~3 million, or 6.7~~0%. ~~Net~~The increase in comparable store sales for the first ~~nine~~quarter ~~months~~ of fiscal ~~2006~~2007, ~~were~~which ~~$160.0 million,~~was anon ~~increase~~top of ~~$53.8 million,~~a ~~or 50.7%,~~comparable ~~compared~~store ~~with net~~ sales gain of ~~$106~~10.~~2 million~~5% for the first ~~nine~~quarter ~~months~~ of the prior fiscal year., ~~The~~was ~~increase~~driven inprimarily ~~net~~by ~~sales~~growth ~~for the nine-month period~~in ~~resulted~~services, ~~primarily~~accessories ~~from~~and ~~$43.0 million~~women’s inapparel, ~~net~~reflecting ~~sales~~our ~~from~~strategic ~~new stores opened~~initiatives in ~~the~~these ~~current or prior fiscal year~~categories, ~~before~~including ~~becoming~~the ~~comparable~~implementation ~~stores,~~of ~~and~~The aGolfWorks ~~comparable~~ store-in-store ~~sales~~concept ~~gain~~in ofapproximately ~~$8.6 million,~~half orof 8our stores.~~4%.~~ The increase in ~~comparable~~these ~~store~~categories ~~sales~~was ~~for~~substantially ~~both~~offset ~~the~~by ~~third~~a ~~quarter~~decrease ~~and~~in ~~first~~sales ~~nine~~of ~~months~~golf ofclubs. ~~fiscal~~We ~~2006~~believe ~~was~~net ~~attributable~~sales ~~primarily~~for tothe ~~increased~~first ~~sales~~quarter of ~~golf~~fiscal ~~clubs,~~2007 ~~which~~overall were ~~was~~adversely ~~driven~~impacted by ~~several~~a ~~new~~number ~~product introductions. Increased sales~~ of ~~golf balls and apparel~~factors, ~~resulting~~including ~~from~~inclement ~~merchandising focus on these product groups~~weather, ~~also~~cautious ~~contributed~~consumer behavior related to ~~the~~economic ~~comparable~~uncertainty ~~store~~and ~~sales~~a ~~gains~~less promotional environment.

Gross Profit. Gross profit increased by $2.8.1 million, or 5444.95%, to $726.93 million for the ~~third~~first quarter of fiscal ~~2006~~2007, up from $518.12 million for the ~~third~~first quarter of fiscal ~~2005~~2006. ~~The~~As a percentage of net sales, the gross profit rate ~~decreased~~increased by 0.38% ~~of net sales~~ to 2431.89% ~~of net sales~~ for the ~~third~~first quarter of fiscal ~~2006~~2007, compared with 2531.1% ~~of net sales~~ for the first ~~third~~ quarter of the prior fiscal year. ~~For~~The ~~the~~increase ~~first~~in ~~nine~~our ~~months of fiscal 2006~~ gross profit ~~increased~~rate was bydue ~~$16.7 million,~~primarily ~~or 53.0%,~~ to ~~$48.2 million,~~ upchanges ~~from~~in ~~$31.5 million for~~ the ~~same~~sales ~~period~~mix, ofincluding ~~fiscal 2005. The gross profit rate for the first nine months of fiscal 2006~~ increased by ~~0.4% of net~~ sales ~~to 30.1%~~ of ~~net sales, compared with 29.7% of net sales~~ ~~for~~higher-margin ~~the~~categories ~~first~~such ~~nine~~as ~~months~~services ofand ~~the prior fiscal year~~accessories. The ~~decrease in our~~ gross ~~profit~~ profit rate ~~for~~also ~~the~~benefited ~~fiscal~~from ~~third quarter was due to increased promotional activity, the timing of clearance inventory markdowns and~~ higher ~~freight~~retail ~~costs, partially~~margins ~~offset by increases~~ in ~~vendor~~certain ~~allowances~~categories and ~~a more profitable sales~~an ~~mix. The~~ increase in ~~our~~vendor ~~gross~~support. ~~profit~~These ~~rate~~factors ~~for~~were ~~the~~partially ~~first~~offset ~~nine~~by ~~months~~an ~~of fiscal~~increase ~~2006 was due primarily to increases~~ in ~~vendor~~store ~~allowances~~occupancy and ~~higher~~in-bound ~~retail margins,~~freight ~~and~~costs ~~was~~as ~~partially~~a ~~offset~~percentage byof ~~higher~~net ~~freight costs~~sales.

Store Operating Expenses. Store operating expenses for the third quarter of fiscal 2006 were $7.6 million, an increase of $2.8 million, or 58.3%, compared with store operating expenses of $4.8 million for the third quarter of fiscal 2005. The store operating expenses rate for the third quarter of fiscal 2006 increased to 23.9% of net sales, up from 23.6% of net sales for the third quarter of fiscal 2005. For the first nine months of fiscal 2006, store operating expenses increased by $10.4 million, or 55.0%, to $29.3 million, up from $18.9 million for the first nine months of fiscal 2005. The store operating expenses rate for the nine-month period ended November 26, 2005, increased by 0.5% of net sales to 18.3% of net sales, compared with 17.8% of net sales for the nine-month period ended November 27, 2004. The increase in store operating expenses as a percentage of net sales for the third quarter of fiscal 2006, compared with the same period of the prior fiscal year, related primarily to the timing of certain holiday season advertising expenses. The increase for the nine-month period was due primarily to new stores opened in the current or prior fiscal year. New stores generally have higher operating expenses as a percentage of net sales in comparison to mature stores due to the impact of a partial year of net sales in the year opened and because mature stores generally have higher sales volumes. Due to our anticipated store growth and the high percentage of new stores in our store base, we expect store operating expenses as a percentage of net sales to continue to grow modestly through the next year when compared with prior periods.13

11We expect our continued focus on our strategic initiatives, including services and accessories, will continue to have a positive impact on our gross profit rate over the remainder of fiscal 2007 relative to fiscal 2006.

~~General~~Retail ~~and~~Operating ~~Administrative~~ Expenses. ~~General~~ ~~and administrative expenses were $2.5 million for the third~~Retail ~~quarter~~operating ~~of fiscal 2006, essentially flat when compared with the third quarter of fiscal 2005. As a percentage of net sales, general and administrative~~ expenses ~~decreased to 7.9%~~ for the ~~third~~first quarter of fiscal ~~2006,~~2007 ~~down from 12.4% of net sales for the third quarter of fiscal 2005. For the first nine months of fiscal 2006, general and administrative expenses~~ were $715.8 million, an increase of $14.3 9 million, or 2045.0%, compared with $610.59 million for the ~~same~~first ~~period~~quarter of fiscal ~~2005~~2006. ~~General~~The ~~and administrative~~retail operating expenses asrate afor ~~percentage~~the first quarter of ~~net~~fiscal ~~sales~~2007 ~~decreased~~increased to 419.92% ~~for the first nine months~~ of ~~fiscal 2006~~net sales, ~~down~~up from 618.16% of net sales for the first ~~nine~~ ~~months of the prior fiscal year. For both the third~~ quarter ~~and first nine months~~ of fiscal 2006,. ~~compared with the corresponding periods of fiscal 2005,~~The ~~general~~increase ~~and~~in ~~administrative~~retail operating expenses as a percentage of net sales ~~benefited~~was ~~from~~due ~~leverage~~primarily ~~achieved~~to ~~through~~the ~~net~~new ~~sales~~stores ~~increasing~~opened atin ~~a faster rate than~~ the ~~growth of~~current ~~our payroll~~ and ~~payroll-related~~prior ~~costs~~fiscal year. ~~The leverage of our payroll and~~New ~~payroll-related~~stores ~~costs~~generally inhave ~~the~~higher ~~current year was partially offset by additional~~ operating ~~costs~~expenses ~~related~~as ~~to becoming~~ a ~~public~~percentage ~~company.~~of Innet ~~addition,~~sales ain ~~nonrecurring~~comparison ~~discretionary~~to ~~bonus~~mature ~~awarded~~stores ~~during~~due to the ~~third~~impact ~~quarter~~ of ~~fiscal 2005 as~~ a ~~result~~partial ofyear ~~completing the sale~~ of ~~our~~net ~~investment~~sales in ~~Golf Town Canada~~ ~~Inc.~~the ~~stock~~year ~~increased~~opened ~~general~~ and ~~administrative~~because ~~expenses~~mature asstores agenerally ~~percentage~~have ofhigher ~~net~~ sales ~~for~~volumes relative ~~the~~to ~~third~~their ~~quarter~~operating ~~of fiscal 2005~~expenses.

~~Preopening~~Due ~~Expenses.~~ to ~~Preopening~~our ~~expenses~~store ~~were~~growth ~~$662,000~~and ~~for~~ the ~~third~~high ~~quarter~~percentage of ~~fiscal~~new ~~2006, an~~stores ~~increase~~in ofour ~~$63~~store base,~~000,~~ ~~compared~~we expect ~~with~~retail ~~$599,000~~operating ~~for~~expenses ~~the~~as ~~same~~a ~~period~~percentage of ~~fiscal 2005.~~net ~~Preopening~~sales ~~expenses increased by $0.8 million~~ to ~~$2.0 million~~remain ~~for~~modestly ~~the~~higher ~~first~~through ~~nine months of fiscal 2006, up from $1.2 million for~~ the ~~first nine~~remainder ~~months~~ of ~~the~~this ~~prior~~ fiscal year. ~~The~~when ~~increase was related primarily to opening 15 new stores during the first nine months of fiscal 2006,~~ compared with ~~eight new store openings during the corresponding period of fiscal 2005~~prior periods.

~~Other~~General ~~income~~and Administrative Expenses. ~~Other~~General and ~~income~~administrative expenses were $4.5 million for the first quarter of fiscal 2007, an increase of $81.4 million, or 45.2%, compared with $3.1 million for the ~~three~~same period of the prior fiscal year. As a percentage of net sales, general and ~~nine~~administrative ~~months~~expenses ~~ended~~increased ~~November 27,~~to ~~2004~~5.4% ~~represents~~for the ~~pre-tax~~first ~~gain~~quarter of ~~realized~~fiscal on2007, up from 5.3% of net sales for the ~~sale~~first quarter of fiscal 2006. The increase in general and administrative expenses as a percentage of net sales was due primarily to several factors, including a $346,000 charge related to our ~~entire~~follow-on ~~equity~~common ~~investment~~stock offering initiated and withdrawn during the quarter. In addition, stock-based compensation expense and additional costs related to operating as a public company were incurred in ~~Golf~~the ~~Town~~current ~~Canada~~fiscal year ~~Inc~~and were not incurred in the prior year’s first quarter. These factors were partially offset by a reduction in performance-based compensation expense.

~~Net~~We adopted ~~Interest~~SFAS ~~Income~~ No. 123(~~Expense~~R)~~. Net interest~~ at ~~income~~the ~~was~~beginning ~~$172,000~~of ~~for~~fiscal ~~the~~2007. ~~third~~SFAS ~~quarter~~No. 123(R) requires compensation ofexpense ~~fiscal~~to ~~2006,~~be ~~compared with~~measured ~~$11,000~~based ~~for~~on the ~~third~~grant-date ~~quarter~~fair value of ~~fiscal~~the award ~~2005.~~and ~~For~~recognized over the ~~first~~requisite ~~nine~~service ~~months~~period offor awards that vest. ~~fiscal~~Prior to February 26, 2006, we ~~reported~~accounted ~~net~~for ~~interest~~stock-based ~~income~~compensation using ofthe ~~$287,000,~~intrinsic ~~compared~~value ~~with~~method ~~net~~prescribed in APB Opinion No. 25, and ~~interest~~related Interpretations. Compensation expense offor ~~$21~~stock options was measured as the excess,~~000~~ ~~for~~if any, of the ~~same~~fair ~~period~~value of ~~fiscal~~our ~~2005.~~common ~~The~~stock ~~change~~at ~~for~~the date of grant ~~both~~over the stock option exercise price. Prior to fiscal ~~third~~2006, ~~quarter~~all ~~and~~stock ~~nine-month~~options had ~~period~~an ~~was~~exercise ~~due~~price ~~primarily~~equal to ~~interest~~ ~~income~~the ~~earned~~estimated onfair value of the ~~net~~common ~~proceeds~~stock ~~from~~at the ~~our~~time ~~initial~~of ~~public~~grant, ~~offering~~resulting in no compensation expense recorded for the issuance of stock options.

~~Income Tax Benefit (Expense). We~~Pursuant ~~recorded~~to anthe ~~income~~transition ~~tax~~requirements ~~benefit~~ of $1SFAS No.1 ~~million~~ 123(R) for ~~the~~a ~~third~~newly ~~quarter of~~public ~~fiscal 2006~~entity, ~~compared~~we ~~with~~are anapplying ~~income~~the ~~tax~~modified ~~provision~~prospective ofmethod ~~$2.2 million~~only ~~for~~to ~~the~~unvested awards ~~third~~that ~~quarter~~were ofgranted ~~fiscal~~on ~~2005.~~or ~~The~~after ~~income~~our ~~tax~~IPO. ~~benefit~~The ~~for~~unrecognized ~~the~~compensation ~~third quarter of~~cost ~~fiscal~~relating ~~2006~~to ~~was~~those ~~based~~awards onwill anbe ~~estimated~~recognized ~~effective~~in ~~income~~the ~~tax~~financial ~~rate~~statements ~~of 41.0%, while~~over the ~~income~~remaining ~~tax~~requisite ~~provision~~service ~~for~~period ~~the~~subsequent ~~third~~to ~~quarter~~adoption of ~~fiscal~~SFAS ~~2005 was based on an~~No. 123(R). ~~estimated~~We ~~effective~~are ~~income~~applying ~~tax~~the ~~rate~~prospective oftransition ~~40.1%.~~method Weto ~~recorded~~unvested ~~income~~awards ~~tax provisions~~granted ofprior ~~$3.8~~to ~~million~~our ~~and $5~~IPO.4 ~~million,~~The ~~respectively,~~unrecognized ~~for~~compensation ~~the~~cost ~~first~~relating ~~nine~~to ~~months~~those ofawards ~~fiscal~~will ~~2006~~continue ~~and~~to ~~fiscal~~be ~~2005,~~recognized ~~respectively.~~in ~~The~~the ~~income~~financial ~~tax~~statements ~~provisions~~subsequent ~~for the~~to ~~first~~adoption ~~nine months~~ of ~~fiscal~~SFAS ~~2006~~No. 123(R) using ~~and~~the ~~fiscal~~intrinsic ~~2005~~value ~~were~~method ~~based on estimated~~under ~~effective~~APB ~~annual~~Opinion ~~income tax rates of 41~~No.~~0% and 40~~ 25.~~2%,~~ ~~respectively. The change~~Accordingly, inother than the ~~effective~~stock ~~income~~options ~~tax~~granted ~~rates~~in ~~for~~May 2005, ~~both~~no ~~the~~compensation ~~third~~expense will ~~quarter~~be ~~and~~recognized ~~first~~on ~~nine months~~unvested ofstock ~~fiscal~~options ~~2006~~granted ~~was~~prior ~~due primarily~~ to ~~fluctuations~~our inIPO ~~the~~unless such ~~impact~~awards ofare ~~state income~~subsequently ~~taxes~~modified.

~~Net~~As ~~(Loss) Income. We reported~~ a result ~~net~~of ~~loss~~adopting ofSFAS $1No.6 123(R) on ~~million~~February 26, ~~for the third quarter of fiscal~~ 2006, ~~compared with net income of $3.4 million for~~our ~~the~~general ~~third~~and ~~quarter~~administrative ofexpenses ~~fiscal 2005. Net income~~ for the ~~first~~quarter ~~nine~~ended ~~months~~May 27, of2006, ~~fiscal~~were ~~2006 was~~ $~~5.5 million~~215,000 ~~compared~~higher ~~with~~than ~~$8.0~~if ~~million~~we ~~for~~had ~~the~~continued ~~first~~to ~~nine months~~account offor ~~the~~share-based compensation ~~prior~~under ~~fiscal~~APB ~~year~~Opinion No. 25. AsFor ~~noted~~fiscal ~~above~~2007, ~~our~~we ~~results~~expect ~~for the three and~~general ~~nine~~and ~~month~~administrative ~~periods~~expenses ~~ended~~to ~~November 27,~~be ~~2004,~~approximately ~~included a nonrecurring pre-tax gain of~~ $81.42 million, ~~or $5.0 million after~~pre-tax, ~~realized~~higher as ona ~~the~~result ~~sale~~ of ~~our equity~~expensing ~~investment~~stock options in ~~Golf~~accordance ~~Town~~with ~~Canada~~SFAS ~~Inc~~No. ~~stock~~ 123(R).

~~Pro-Forma~~Preopening ~~Net (Loss) Income Per Share~~Expenses. ~~Pro-forma net (loss) income per share is~~Preopening ~~presented~~expenses asincreased ifby ~~our~~$0.3 ~~initial~~million ~~public offering had occurred immediately prior~~ to ~~the~~ ~~beginning of each period presented~~$1.6 Inmillion ~~addition, pro-forma results~~ for the ~~three~~ ~~and~~first ~~nine~~quarter ~~months~~of fiscal ~~ended November 27~~2007, ~~2004,~~compared ~~exclude~~with ~~a nonrecurring after-tax gain of~~ $51.03 million ~~realized~~for on the ~~sale~~same period of ~~our~~fiscal ~~equity~~2006. ~~investment in~~We ~~Golf~~opened ~~Town~~11 ~~Canada~~new ~~Inc.~~stores ~~stock.~~during Weboth ~~believe~~periods. ~~the~~The ~~use~~increase ofwas ~~pro-forma~~related ~~net~~primarily ~~(loss) income~~to ~~per~~the ~~share~~higher ~~provides~~cost ~~a consistent measure~~ of ~~profitability~~opening asstores ~~well as important supplemental information due to the significant increase~~ in ~~common~~certain ~~shares outstanding~~markets, ~~resulting~~including ~~from~~ the ~~completion~~New ~~of our initial public offering and~~York ~~the~~City ~~conversion~~metro ofmarket. ~~the~~The ~~convertible~~increase ~~preferred~~in ~~stock~~preopening ~~into~~expenses ~~shares~~also ofreflected ~~common~~a ~~stock~~higher aslevel of ~~August 3,~~advertising ~~2005. Pro-forma~~to ~~net (loss)~~establish ~~income~~our ~~per~~new ~~share~~markets ~~is considered a non-GAAP financial measure~~ and isvariances ~~not~~ in ~~accordance~~ ~~with, or preferable to,~~ the ~~ratio determined in accordance with~~timing ~~GAAP.~~of ~~Pro-forma~~preopening ~~net~~activities ~~(loss) income per share is intended to be a supplement, but not as a substitute~~ for ~~financial~~stores ~~information~~opened ~~prepared~~ in ~~accordance~~each ~~with~~fiscal ~~GAAP~~quarter. Further, pro-forma net (loss) income per share, as we define it, may not be comparable to a similarly titled measure used by other companies. The most directly comparable GAAP financial measure to pro-forma net (loss) income per share is net (loss) income per share.

12Income Tax Expense. We recorded an income tax provision of $1.8 million for the first quarter of fiscal 2007, compared with $1.2 million for the first quarter of fiscal 2006. The income tax provisions were based on estimated annual effective income tax rates of 41.0% and 41.6% for the first quarter of fiscal 2007 and 2006, respectively. The change in the effective income tax rate was due primarily to fluctuations in the impact of state income taxes.

~~The following table presents a reconciliation of the numerator and denominator used in the calculation of pro-forma net (loss) income per share (in thousands, except share and per share amounts):~~14

	Three Months Ended (Unaudited)						Nine Months Ended (Unaudited)
	November 26, 2005			November 27, 2004			November 26, 2005		November 27, 2004
Pro-Forma Information
Pro-forma net (loss) income applicable to common shareholders	$	(1,609	)	$	(1,683	)	$	5,531	$	2,955
Pro-forma net (loss) income per share:
Basic	$	(0.15	)	$	(0.16	)	$	0.52	$	0.28
Diluted	$	(0.15	)	$	(0.16	)	$	0.50	$	0.28
Pro-forma weighted average number of shares outstanding:
Basic	10,653,135			10,615,245			10,642,003		10,614,690
Diluted	10,653,135			10,615,245			11,150,899		10,703,790
Reconciliation of pro-forma information to GAAP
Net (loss) income applicable to common shareholders (GAAP)	$	(1,609	)	$	2,414		$	3,810	$	5,232
Gain on sale of Golf Town Canada Inc. stock, net of tax	—			(5,034		)	—		(5,034		)
Preferred stock dividends	—			937			1,721		2,757
Net (loss) income applicable to common shareholders (pro-forma)	$	(1,609	)	$	(1,683	)	$	5,531	$	2,955
Basic
Weighted average number of shares outstanding (GAAP)	10,653,135			1,862,778			5,768,834		1,862,223
Conversion of preferred stock to common	—			5,752,467			3,202,839		5,752,467
Weighted average additional shares issued in IPO	—			3,000,000			1,670,330		3,000,000
Weighted average number of shares outstanding (pro-forma)	10,653,135			10,615,245			10,642,003		10,614,690
Diluted
Weighted average number of shares outstanding (GAAP)	10,653,135			7,704,345			9,480,569		7,703,790
Weighted average additional shares issued in IPO	—			3,000,000			1,670,330		3,000,000
Weighted average shares deemed antidilutive (1)	—			(89,100		)	—		—
Weighted average number of shares outstanding (pro-forma)	10,653,135			10,615,245			11,150,899		10,703,790

Net Income. Net income was $2.6 million for the first quarter of fiscal 2007, compared with $1.7 million for the first quarter of the prior fiscal year, an increase of $0.9 million, or 52.9%.

~~(1) The~~Pro-Forma ~~computation~~Net ofIncome ~~pro~~Per Share. Pro-forma ~~diluted~~ net ~~(loss)~~ income per share ~~for~~is ~~the~~presented ~~third~~as ~~quarter~~if our initial public offering had occurred immediately prior to the beginning of fiscal ~~2005~~2006. ~~excludes~~We believe the ~~impact~~use of ~~potentially~~pro-forma ~~dilutive~~net income per ~~securities~~share ~~that~~provides ~~were~~a ~~included~~consistent measure of profitability as well as important supplemental information due to the significant increase in common shares outstanding resulting from the ~~computation~~completion of ~~diluted~~our ~~earnings~~initial public offering and the conversion of the convertible preferred stock into shares of common stock as of August 3, 2005. Pro-forma net income per share is considered a non-GAAP financial measure and is not in accordance with, ~~GAAP~~or ~~for~~ preferable to, the ratio ~~same~~determined ~~period~~in accordance with GAAP. ~~The~~Pro-forma ~~potentially~~net ~~dilutive~~income ~~securities~~per ~~were~~share ~~excluded~~is intended ~~from~~to ~~the~~be a supplement to, but not a substitute for, financial information ~~computation~~prepared ofin accordance with GAAP. Further, pro-forma ~~diluted~~ net ~~(loss)~~ income per share, ~~since~~as ~~the~~we ~~effect~~define ~~would~~it, may not be ~~antidilutive~~comparable ~~(i.e.,~~to ~~including~~a ~~potentially~~similarly ~~dilutive~~titled measure used by other ~~securities~~companies. ~~would~~The ~~reduce~~most ~~the~~directly comparable GAAP financial measure to pro-forma ~~loss~~net income per share) is net income per share.

13The following table presents a reconciliation of the numerator and denominator used in the calculation of pro-forma net income per share (in thousands, except share and per share amounts):

Quarterly Results of Operations and Seasonality

	Three Months Ended (Unaudited)
	May 28, 2005
Pro-forma Information
Pro-forma net income applicable to common shareholders	$	1,693
Pro-forma net income per share:
Basic	$	0.16
Diluted	$	0.15
Pro-forma weighted average number of shares outstanding:
Basic	10,636,436
Diluted	11,042,819

Reconciliation of pro-forma information to GAAP
Net income applicable to common shareholders (GAAP)	$	695
Preferred stock dividends	998
Net income applicable to common shareholders (pro-forma)	$	1,693
*Basic*
Weighted average number of shares outstanding (GAAP)	1,883,969
Conversion of preferred stock to common	5,752,467
Weighted average additional shares issued in IPO	3,000,000
Weighted average number of shares outstanding (pro-forma)	10,636,436
*Diluted*
Weighted average number of shares outstanding (GAAP)	8,042,819
Weighted average additional shares issued in IPO	3,000,000
Weighted average number of shares outstanding (pro-forma)	11,042,819

The following table sets forth certain unaudited financial and operating data for each quarter of fiscal 2005 and the first three quarters of fiscal 2006. The unaudited quarterly information reflects all adjustments, which include only normal and recurring adjustments, necessary to present fairly the information shown.15

	Fiscal 2005
	Quarter Ended May 29, 2004			Quarter Ended August 28, 2004			Quarter Ended Nov. 27, 2004			Quarter Ended Feb. 26, 2005
	($ in thousands, except per share data)
Statement of Operations Data
Net sales	$	38,419		$	47,540		$	20,281		$	26,840
Gross profit	11,563			14,875			5,089			7,589
Gross profit as a percentage of net sales	30.1		%	31.3		%	25.1		%	28.3		%
Store operating expenses	6,972			7,127			4,793			5,490
General and administrative expenses	2,147			1,842			2,520			1,863
Preopening expenses	518			46			599			932
Income (loss) from operations	1,926			5,860			(2,823		)	(696		)
Other Income (1)	—			—			8,410			—
Income (loss) before income taxes	1,890			5,864			5,598			(679		)
Net income (loss)	$	1,125		$	3,513		$	3,351		$	(451	)
Basic net income (loss) per share	$	0.12		$	1.39		$	1.30		$	(0.74	)
Diluted net income (loss) per share	$	0.11		$	0.46		$	0.43		$	(0.74	)
Comparable store sales increase (2)	7.4		%	5.9		%	9.9		%	4.8		%
Stores opened during the period	5			—			3			2
Number of stores at end of period	29			29			32			34
Selling square feet at end of period	450,370			450,370			486,737			516,551
	Fiscal 2006
	Quarter Ended May 28, 2005			Quarter Ended August 27, 2005			Quarter Ended Nov. 26, 2005
	($ in thousands, except per share data)
Statement of Operations Data
Net sales	$	58,570		$	69,635		$	31,800
Gross profit	18,228			22,070			7,885
Gross profit as a percentage of net sales	31.1		%	31.7		%	24.8		%
Store operating expenses	10,932			10,773			7,594
General and administrative expenses	3,102			2,155			2,527
Preopening expenses	1,310			40			662
Income (loss) from operations	2,884			9,102			(2,898		)
Other Income	—			—			—
Income (loss) before income taxes	2,899			9,202			(2,726		)
Net income (loss)	$	1,693		$	5,447		$	(1,609	)
Basic net income (loss) per share	$	0.37		$	0.98		$	(0.15	)
Diluted net income (loss) per share	$	0.21		$	0.59		$	(0.15	)
Comparable store sales increase (2)	10.5		%	7.4		%	6.7		%
Stores opened during the period	11			—			4
Number of stores at end of period	45			45			49
Selling square feet at end of period	671,953			671,953			727,112

Quarterly Results of Operations and Seasonality

~~(1) We~~The ~~sold~~following table ~~our~~sets ~~equity~~forth ~~investment~~certain inunaudited ~~Golf~~financial ~~Town~~and ~~Canada~~operating ~~Inc.~~data ~~during~~for each quarter of fiscal 2006 and the ~~third~~ first quarter of fiscal ~~2005~~2007. The accompanying unaudited financial and operating data has been prepared in accordance with U.S. generally accepted accounting principles for ainterim ~~pre-tax~~financial information. ~~gain~~In the opinion of $8management, the unaudited quarterly information reflects all adjustments, which include only normal and recurring adjustments, considered necessary to present fairly the information shown.~~4 million.~~

(2) A new or relocated store is included in the comparable store base after it has been in operation for 12 full fiscal months following the month of the store’s grand opening weekend. A store that is closed for remodel or repair is excluded from the comparable store sales calculation during the period of closure and the comparable period of the succeeding year. Sales from our eCommerce operations are not included in the comparable store sales calculation. Comparable store results for a 53-week fiscal year are presented on a 52/52-week basis.

	Fiscal 2006
	Quarter Ended May 28, 2005			Quarter Ended August 27, 2005			Quarter Ended Nov. 26, 2005			Quarter Ended Feb. 25, 2006
	($ in thousands, except per share data)
Net sales	$	58,570		$	69,635		$	31,800		$	40,125
Gross profit	18,228			22,070			7,885			10,555
Gross profit as a percentage of net sales	31.1		%	31.7		%	24.8		%	26.3		%
Retail operating expenses	10,932			10,773			7,594			8,213
General and administrative expenses	3,102			2,155			2,527			2,249
Preopening expenses	1,310			40			662			911
Income (loss) from operations	2,884			9,102			(2,898		)	(818		)
Income (loss) before income taxes	2,899			9,202			(2,726		)	(666		)
Net income (loss)	$	1,693		$	5,447		$	(1,609	)	(265		)
Basic net income (loss) per share	$	0.37		$	0.98		$	(0.15	)	(0.02		)
Diluted net income (loss) per share	$	0.21		$	0.59		$	(0.15	)	(0.02		)
Weighted average shares outstanding:
Basic	1,883,969			4,801,458			10,653,135			10,665,848
Diluted	8,042,819			9,211,662			10,653,135			10,665,848
Comparable store sales increase (1)	10.5		%	7.4		%	6.7		%	2.5		%
Stores opened during the period	11			—			4			1
Number of stores at end of period	45			45			49			50
Selling square feet at end of period	671,953			671,953			727,112			738,615

	Fiscal 2007
	Quarter Ended May 27, 2006
	($ in thousands, except per share data)
Net sales	$	82,517
Gross profit	26,298
Gross profit as a percentage of net sales	31.9		%
Retail operating expenses	15,817
General and administrative expenses	4,482
Preopening expenses	1,648
Income from operations	4,351
Income before income taxes	4,359
Net income	$	2,572
Basic net income per share	$	0.24
Diluted net income per share	$	0.22
Weighted average shares outstanding:
Basic	10,890,837
Diluted	11,590,229
Comparable store sales increase (1)	1.0		%
Stores opened during the period	11
Number of stores at end of period	61
Selling square feet at end of period	884,146

~~Our~~(1) A new or relocated ~~business~~store is ~~subject~~included toin ~~seasonal~~the ~~fluctuations,~~comparable ~~with~~store ~~the~~base ~~highest~~after ~~sales~~it ~~activity and~~has ~~all~~been ~~income~~in ~~from~~operation for ~~operations~~12 ~~occurring~~full ~~during~~fiscal ~~the~~months ~~first~~following ~~and~~the ~~second~~month ~~quarters~~ of ~~our~~the ~~fiscal~~store’s ~~year~~grand opening weekend. ~~Most~~A ofstore ~~our~~that ~~stores~~is ~~are~~closed ~~located~~for inremodel ~~northern~~or ~~and~~repair ~~midwestern states~~is ~~where~~excluded ~~late~~from ~~spring~~the comparable ~~and~~store ~~summer~~sales ~~represent~~calculation during the ~~peak~~period of ~~the~~closure ~~golf~~and ~~season. It~~the iscomparable ~~possible~~period of the ~~impact~~succeeding ofyear. ~~seasonal~~Sales ~~fluctuation~~from ~~could~~our ~~change~~catalog asand ~~we enter~~eCommerce ~~additional~~operations ~~geographic~~are ~~regions.~~not ~~The~~included ~~Father’s Day holiday~~ in ~~June drives~~the ~~a significant~~comparable ~~seasonal~~store sales ~~increase,~~calculation. Comparable ~~and~~store ~~sales~~results ~~also~~for ~~increase~~a ~~during the year~~53-~~end~~week ~~holiday~~fiscal ~~season,~~year ~~albeit~~are topresented on a 52/52-week ~~lesser extent~~basis.

Our quarterly operating results may also fluctuate significantly because of other factors. Our customers’ demand for our products and services, and consequently our sales, can also be significantly impacted by weather conditions that affect outdoor activities like golf and the demand for golf-related apparel, accessories, equipment and services. The timing of new store openings and related expenses; the profitability of new stores; the impact on store results during remodeling; changes in competitors in our markets, such as new store openings or store closings by our competitors; and general economic conditions, also affect our quarterly results. The fixed costs of our operations make our operating results sensitive to changes, favorable and unfavorable, in demand for our products and services. Due to these factors, results for any particular quarter may not be indicative of results to be expected for any other quarter or for a full fiscal year.16

Our ~~preopening~~ ~~expenses~~business ~~have~~is ~~varied from quarter~~ subject to ~~quarter~~seasonal ~~primarily~~fluctuations, ~~due~~with to the ~~timing~~ ofhighest ~~store~~sales ~~openings.~~activity Weand ~~have~~all ~~historically~~income ~~opened the majority of our new~~from ~~stores~~operations inoccurring ~~either~~during the first orand ~~third~~second quarters of ~~the~~our fiscal year. ~~Going forward,~~ weMany ~~anticipate~~of ~~that~~our ~~store~~stores ~~openings~~are ~~will~~located ~~occur~~in ~~predominantly~~midwestern inand ~~the~~northeastern ~~first,~~states ~~third~~where late spring and ~~fourth~~summer ~~quarters~~represent the peak of the ~~fiscal~~golf ~~year~~season. WeIt ~~typically~~is ~~incur~~possible ~~most preopening~~the ~~expenses~~impact ~~for~~of aseasonal ~~new~~fluctuations ~~store~~could ~~during~~change ~~the~~as ~~three~~we ~~months~~continue ~~immediately~~to ~~preceding~~expand ~~its~~into ~~opening.~~additional Ingeographic ~~addition,~~regions. ~~our~~The ~~labor~~Father’s ~~and~~Day ~~operating~~holiday ~~costs~~in ~~for~~June drives a ~~newly opened store~~ ~~are~~significant ~~greater~~seasonal ~~than~~sales ~~a mature store. Accordingly~~increase, ~~the volume~~ and ~~timing~~sales ofalso ~~new store~~increase ~~openings~~during inthe ~~any~~December holiday season, ~~quarter~~albeit ~~has had and is expected~~ to ~~continue to have~~ a ~~significant~~ ~~impact~~lesser ~~on quarterly preopening costs and store labor and operating expenses~~extent.

~~Liquidity~~Our quarterly operating results may also fluctuate significantly because of other factors. Customers demand for our products and ~~Capital~~services, ~~Resources~~and consequently our sales, can also be significantly impacted by weather. The timing of new store openings and related expenses; the profitability of new stores; the impact on store results during remodeling; changes in retail competition in our markets; and general economic conditions, also affect our quarterly results. The fixed costs of our operations make our operating results sensitive to changes, favorable and unfavorable, in demand for our products and services. Due to these factors, results for any individual quarter may not be indicative of results to be expected for any other quarter or for a full fiscal year.

Our ~~primary~~preopening ~~capital~~expenses ~~requirements~~have ~~are~~varied ~~for~~from ~~inventory,~~quarter ~~capital~~to ~~expenditures~~quarter ~~such~~primarily asdue to the ~~tenant~~timing ~~improvements~~of ~~and~~store ~~fixtures,~~openings. ~~and~~We ~~preopening~~have ~~expenses~~historically toopened ~~support~~the majority of our new ~~store~~stores ~~growth.~~in ~~Our~~the ~~working~~first ~~capital~~and ~~needs~~third ~~change~~quarters ~~significantly~~of ~~from~~the ~~quarter~~fiscal year, and expect to ~~quarter~~continue ~~due~~this topattern ~~the~~going ~~impact~~forward. ofWe ~~seasonality~~typically ~~and~~incur ~~the~~most ~~timing~~preopening expenses offor a new store ~~openings. Our~~during ~~primary~~the ~~source~~three ofmonths ~~working~~immediately ~~capital~~preceding ~~liquidity~~its opening. isIn ~~cash~~addition, ~~provided~~our bylabor ~~operations. We~~and ~~also~~operating ~~have~~costs ~~availability~~ for ~~borrowing,~~a ifnewly ~~necessary,~~opened ~~under~~store are ~~our~~typically ~~credit facility.~~higher Wethan ~~plan~~a tomature ~~finance~~store. Accordingly, the ~~capital~~volume ~~requirements~~and timing of new ~~our continued~~ store ~~expansion~~ ~~with~~openings ~~the~~in ~~net~~any ~~proceeds~~quarter ~~from~~has ~~our~~had ~~initial~~and ~~public~~is ~~offering.~~expected ~~Historically, our~~to ~~main~~continue ~~source~~to ofhave ~~capital~~a significant ~~for~~impact ~~store~~on ~~growth~~quarterly ~~has~~preopening ~~been~~costs ~~the~~and ~~proceeds~~store ~~from~~labor ~~our equity~~and ~~financings~~operating expenses.

~~The following~~Liquidity ~~table summarizes our cash flows from operating, investing~~ and ~~financing~~ ~~activities~~Capital ~~for the first nine months of fiscal 2006 and fiscal 2005 ($ in thousands):~~Resources

	Nine Months Ended
	November 26, 2005			November 27, 2004
Net cash provided by operating activities	1,750			1,195
Net cash (used in) provided by investing activities	(7,940		)	3,383
Net cash provided by (used in) financing activities	18,410			(35		)
Net increase in cash and cash equivalents	$	12,220		$	4,543

Summary

~~Net~~Our ~~cash~~primary ~~provided~~capital requirements byare ~~operating~~related ~~activities~~to ~~was~~the ~~$1.8~~growth ~~million~~of ~~for~~ the ~~first~~ ~~nine~~business. ~~months~~New ofstores ~~fiscal~~require capital ~~2006~~for inventory, ~~compared~~capital ~~with~~expenditures ~~$1.2~~such ~~million~~as ~~for~~tenant ~~the~~improvements ~~first nine~~and ~~months~~fixtures, ofand ~~fiscal~~preopening ~~2005~~expenses. ~~Excluding~~In ~~income~~addition, ~~taxes~~capital ofmay ~~$3.4~~be ~~million~~required ~~in fiscal 2005~~for ~~from~~strategic ~~the~~growth ~~gain~~opportunities, onsuch as the ~~sale~~acquisition of ~~our~~The ~~equity~~GolfWorks ~~investment~~ in ~~Golf~~the first ~~Town~~quarter ~~Canada~~of ~~Inc.~~fiscal 2007, ~~net cash~~and ~~provided~~to byremodel ~~operating~~existing ~~activities~~stores ~~for~~to ~~the~~updated formats. ~~first~~Periodically, ~~nine~~capital ~~months~~resources ofmay ~~fiscal~~be ~~2006 decreased~~needed ~~$2.8~~for ~~million~~systems ~~compared~~or ~~with~~facility improvements ~~the~~to ~~same~~support ~~period~~our ofgrowth. ~~the~~Sources ~~prior~~of ~~fiscal year. The~~capital ~~decrease~~to infund ~~cash~~our ~~provided~~growth byhave ~~operating~~included ~~activities,~~proceeds ~~excluding~~from ~~the~~our ~~tax~~equity ~~effect~~financings, ofcash ~~the~~generated ~~Golf~~from ~~Town~~operations and ~~gain,~~cash ~~was~~proceeds ~~due primarily~~from tothe ~~increased~~sale ~~inventory~~of ~~levels~~our ~~resulting~~equity ~~from~~in ~~store~~Golf ~~growth,~~Town ~~partially offset~~Canada byInc., a ~~related~~golf specialty ~~increase~~retailer inoperating ~~accounts~~stores ~~payable~~across Canada.

15Our working capital liquidity needs change significantly from quarter to quarter due to the impact of seasonality, the timing of new store openings and the timing of inventory purchases. Our primary source of working capital liquidity is cash provided by operations. We also have available borrowing capacity under our revolving credit facility, if needed.

~~Net~~In ~~cash used in investing activities was $7.9 million for~~ the first ~~nine~~ ~~months~~quarter of fiscal ~~2006~~2007, ~~compared~~we ~~with~~acquired ~~net~~The ~~cash~~GolfWorks, ~~provided~~with bya ~~investing activities~~combination of ~~$3.4~~available ~~million for the same period of fiscal 2005. Net~~ cash ~~used in~~, ~~investing~~common ~~activities~~stock ~~consists principally of investments in leasehold improvements~~ and ~~fixtures~~warrants ~~associated~~to ~~with~~purchase ~~new~~common ~~store openings~~stock. ~~Net~~In ~~cash~~addition, ~~provided by~~we ~~investing activities for the first nine months of fiscal 2005 included~~assumed ~~pre-tax~~approximately ~~proceeds of~~ $85.34 million ~~from~~of ~~our~~existing ~~sale~~debt offrom ~~Golf~~The ~~Town~~GolfWorks, ~~Canada~~which ~~Inc.~~we ~~stock. Cash~~refinanced ~~used~~with toour ~~fund~~remaining ~~the~~available ~~additions of~~cash ~~property~~ and ~~equipment~~short-term ~~increased~~borrowings ~~$3.0 million for the first nine months of~~under ~~fiscal~~our ~~2006~~revolving ~~compared~~credit ~~with~~facility. ~~the~~We ~~same~~generated ~~period~~sufficient ofoperating ~~fiscal~~cash ~~2005,~~flow ~~reflecting the~~during ~~opening of 15 new stores in~~ the ~~current~~quarter ~~year~~to ~~compared~~fully ~~with~~pay ~~eight~~off ~~new stores opened during~~ the ~~same~~revolving ~~period~~debt ofby ~~fiscal~~May 27, ~~2005~~2006.

~~Net~~Cash cash provided by financing activities was $18.4 million for the first nine months of fiscal 2006 compared with net cash used in financing activities of $35,000 for the same period of the prior fiscal year. The change was due primarily to the net proceeds received upon the completion of our initial public offering during the second quarter of fiscal 2006, reduced by $19.6 million used to pay preferred shareholders all of the accrued and unpaid dividend due upon the conversion of preferred stock into shares of our common stock.Flows

~~We maintain~~Operating aActivities. Net ~~revolving~~cash ~~credit~~provided ~~facility~~by asoperating anactivities ~~additional source of short-term~~was ~~liquidity~~$6.6 ~~and~~million ~~working~~for ~~capital,~~the iffirst ~~needed.~~quarter ~~The~~of ~~credit~~fiscal ~~facility~~2007, ~~has~~compared awith ~~term~~$11.0 ofmillion ~~four~~for ~~years~~the ~~and~~first ~~provides~~quarter ~~for~~of ~~revolving~~fiscal ~~loans~~2006. inThe andecrease ~~aggregate~~in upcash toprovided ~~$15.0 million,~~from ofoperations ~~which $5.0 million may be~~ in the ~~form~~first quarter of ~~letters~~fiscal of2007 ~~credit.~~resulted Atprimarily ~~our~~from a ~~option,~~decrease ~~the~~in ~~credit~~leverage ~~facility~~from ~~can~~accounts bepayable ~~expanded~~relative to ~~$20.0 million.~~increased ~~Borrowings~~inventory ~~under~~levels, ~~the~~due ~~credit~~to ~~facility~~the ~~are~~timing ~~secured~~of bypayments ~~our~~to ~~inventories,~~vendors. ~~accounts~~Management ~~receivable,~~expects this ~~and~~timing ~~financial~~relationship ~~and~~year-over-year ~~intangible~~to ~~assets.~~be ~~Availability~~substantially ~~under~~offset in the ~~credit facility is~~second ~~calculated~~quarter. onIncreased ~~the basis of eligible inventory and~~ accounts ~~receivable~~payable balances, net of ~~specified~~ ~~reserves~~increased inventory levels, ~~and~~provided ~~less any outstanding letters of credit~~$1.7 ~~Interest~~million onin ~~any outstanding~~cash ~~indebtedness~~from ~~under~~operations ~~our~~in ~~credit facility accrues at~~ the ~~prime~~first ~~lending~~quarter of ~~rate~~fiscal or2007 ancompared ~~adjusted~~with ~~LIBOR~~$9.5 asmillion ~~defined~~ in the ~~agreement~~prior ~~for~~years ~~the~~first ~~credit facility~~quarter. ~~There~~ ~~were~~Net noinventory requirements ~~outstanding~~increased ~~borrowings~~in oneach ~~our~~period ~~credit~~as ~~facility~~we asadded of11 ~~November 26, 2005,~~new ~~November 27,~~stores ~~2004~~in oreach ~~February 26,~~of these ~~2005~~quarters.

~~Our future~~Investing ~~capital~~Activities. Net ~~requirements~~cash ~~for~~used ~~store~~in ~~growth~~investing ~~will~~activities ~~primarily~~was ~~depend~~$9.9 million onfor the ~~number~~ offirst ~~new~~quarter ~~stores~~of wefiscal ~~open~~2007, ~~and~~compared ~~the~~with ~~timing~~$5.1 ofmillion ~~those~~for the ~~openings~~first ~~within~~quarter aof ~~given~~ fiscal ~~year~~2006. ~~These~~Capital ~~requirements~~expenditures ~~will include investments and costs directly~~ related to ~~opening~~ new stores, including ~~and~~the ~~may~~purchase ~~also~~of ~~include~~leaseholds, ~~costs~~fixtures ~~necessary~~and tooperating ~~ensure~~equipment, ~~that~~utilized ~~our~~$6.4 ~~infrastructure~~million isand ~~able~~$5.1 tomillion, ~~support~~respectively, ain ~~larger~~these ~~store base~~quarters. ~~Additional~~The March 2006 ~~capital~~acquisition ~~may~~of ~~also~~The beGolfWorks ~~needed~~reduced innet ~~the~~cash ~~future~~by to$3.6 ~~remodel~~million orin ~~relocate~~the ~~existing~~first ~~stores.~~quarter ~~Based~~of onfiscal ~~our~~2007, ~~current~~including ~~plans~~acquisition ~~for~~costs ~~store~~of ~~growth~~$315,000 weand ~~expect~~net toof ~~fund our anticipated capital requirements through~~ cash ~~provided by operations and the~~ ~~net~~acquired ~~proceeds~~of ~~from our initial public offering~~$501,000.

~~Off-Balance-Sheet~~Financing ~~Arrangements~~Activities. Net ~~and~~cash ~~Contractual~~used in financing activities was $4.9 ~~Obligations~~million in the first quarter of fiscal 2007, resulting primarily from extinguishing the $5.4 million in debt acquired from The GolfWorks, partially offset by $242,000 generated from the exercise of outstanding stock options. In the first quarter of fiscal 2006, there was no cash activity related to financing activities.

~~We lease~~Sources ~~our~~of ~~retail~~Liquidity. In ~~store~~addition ~~locations,~~to ~~office~~cash ~~space~~provided ~~and~~by ~~certain~~operations, ~~office equipment~~we ~~primarily~~maintain ~~through~~a ~~operating~~revolving ~~leases.~~credit ~~Our~~facility ~~liquidity~~as isan ~~not~~additional ~~dependent~~source ~~on the use~~ of ~~off~~short-~~balance~~term liquidity ~~sheet~~and ~~financing~~working ~~arrangements~~capital, ~~other~~if ~~than~~needed. inThe ~~connection~~credit ~~with~~facility ~~our operating leases. There~~ has ~~been~~a noterm ~~material change in our contractual~~ending ~~obligations~~October 2008 ~~other~~and ~~than~~provides ~~in the ordinary course of business since the end of fiscal 2005.~~

~~Critical Accounting Policies and Use of Estimates~~17

~~Our financial~~for ~~statements~~revolving ~~are~~loans ~~prepared~~ in the ~~accordance~~aggregate ~~with~~of Uup to $15.S.0 million, ~~generally~~of ~~accepted accounting~~which ~~principles~~up ~~(“GAAP”)~~to $5.0 million Inmay be ~~connection~~in ~~with~~ the ~~preparation~~form of ~~the financial~~letters ~~statements,~~of wecredit. ~~are~~At ~~required~~our ~~to make assumptions~~option, ~~estimates and judgments that affect~~ the ~~reported~~credit ~~amounts~~facility ofcan ~~assets, liabilities, net sales,~~be ~~cost~~expanded ofto ~~sales,~~$20.0 million. ~~expenses~~Borrowings ~~and~~under the ~~related~~credit ~~disclosures.~~facility Weare secured ~~base~~by our ~~assumptions~~inventories, ~~estimates~~ ~~and~~accounts ~~judgments on historical experience~~receivable, ~~current~~and ~~trends~~financial and ~~other~~intangible ~~factors~~assets. ~~that~~Availability weunder ~~believe~~the tocredit befacility ~~relevant~~is atcalculated ~~the~~on ~~time~~ the ~~consolidated~~basis ~~financial~~of ~~statements~~eligible ~~are~~inventory ~~prepared.~~and Onaccounts ~~a regular basis~~receivable, wenet ~~review~~of ~~our~~specified ~~accounting policies~~reserves, and less ~~assumptions,~~any ~~estimates~~outstanding ~~and~~letters ~~judgments~~of tocredit. ~~ensure~~Interest ~~that~~on ~~our~~any ~~financial~~outstanding ~~statements~~indebtedness ~~are~~under ~~presented~~our ~~fairly~~credit ~~and~~facility inaccrues ~~accordance~~at ~~with~~the ~~GAAP.~~prime ~~However,~~lending ~~because~~rate ~~future~~or an adjusted ~~events~~LIBOR ~~and~~as ~~their~~defined ~~effects~~in ~~cannot~~the beagreement ~~determined~~for ~~with~~the ~~certainty,~~credit ~~actual~~facility. ~~results~~There were no ~~could~~outstanding ~~differ~~borrowings ~~from~~on our ~~assumptions~~credit ~~and~~facility ~~estimates,~~as ~~and~~of ~~such~~May 27, ~~differences~~2006 ~~could~~or beMay 28, ~~material~~2005.

~~Our~~Capital significant accounting policies are discussed in the “Notes to Unaudited Financial Statements” included in this Quarterly Report on Form 10-Q and should be read in conjunction with Note 2 of “Notes to Financial Statements” included in the final prospectus relating to our initial public offering, as filed with the SEC.Resources

Our future capital requirements will primarily depend on the number and timing of new stores opened and capital needed for strategic growth opportunities, such as the acquisition of The GolfWorks in the first quarter of fiscal 2007. In fiscal 2007, we expect capital expenditures related to new store growth of approximately $20 million to $22 million, including stores opened in this fiscal year and planned for the first quarter of fiscal 2008. We currently plan to open an additional three to five stores in fiscal 2007 and 16 to 18 new stores in fiscal 2008. In addition, the growth of our business may also require capital investments in our infrastructure to support a larger store base. Capital may also be needed in the future to remodel or relocate existing stores. Based on our current plans, we expect to fund our capital requirements through cash provided by operations, our revolving credit facility and additional equity or debt financing, if necessary.

~~Impact~~Off-Balance-Sheet ofArrangements ~~Recent~~and Contractual ~~Accounting Pronouncements~~Obligations

~~In December 2004,~~We ~~the~~lease ~~Financial~~our ~~Accounting~~retail ~~Standards Board (“FASB”) issued a~~store ~~revision to Statement of Financial Accounting Standards (“SFAS”) No. 123~~locations, ~~Accounting~~office ~~for~~space ~~Stock-Based~~and ~~Compensation, which~~certain ~~requires~~office ~~the~~equipment ~~calculation~~primarily ~~of the fair value of stock-based compensation,~~through ~~estimation~~operating ofleases ~~future forfeitures~~ and ~~income taxes~~, ~~and recognition of the fair value as a non-cash expense over the vesting period of the underlying instruments. Companies are required~~ to recognize an expense for compensation cost related to all stock-based payment arrangements, including stock options. The implementation of SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)), can be made on either a ~~modified~~much ~~prospective~~lesser or modified retrospective basis. We will be required to implement the provisions of SFAS No. 123(R) beginning in the first quarter of fiscal 2007. SFAS No. 123(R) eliminates the ability to account for stock-based compensation transactions using the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25degree, ~~Accounting~~ ~~for~~capital ~~Stock~~leases ~~Issued to Employees, and generally requires instead that such transactions be accounted~~ for ~~using a~~certain ~~fair-value-based~~technology ~~method~~equipment. WeOur ~~currently~~liquidity ~~account~~is ~~for~~not ~~stock-based~~dependent ~~payments~~on ~~to employees using APB Opinion No. 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. Accordingly,~~ the ~~adoption~~use of ~~SFAS No. 123(R)’s fair~~off-~~value-based method~~balance ~~will~~sheet ~~have~~financing aarrangements ~~significant~~other ~~adverse~~than ~~impact~~in onconnection ~~our~~with ~~results of operations, although it will have no impact on~~ our ~~overall~~operating ~~cash flows~~leases. ~~While we expect that we will~~ ~~record~~There ~~substantial~~has ~~non-cash~~been ~~compensation~~no ~~expense~~material aschange ain ~~result of the adoption of SFAS No. 123(R) and that~~ our ~~results~~contractual ofobligations ~~operations~~other ~~will~~than ~~be significantly~~in ~~adversely affected,~~ the ~~impact~~ordinary ofcourse ~~adoption~~ of ~~SFAS~~business ~~No. 123(R)~~since ~~cannot be predicted with more specificity at this time because it will depend on~~ the ~~option~~ ~~methodology~~end ~~adopted, the assumptions utilized and the levels~~ of ~~stock based~~fiscal ~~payments granted in the future~~2006.

~~In June 2005, the FASB’s~~Critical ~~Emerging~~Accounting ~~Issues~~Policies ~~Task~~and ~~Force~~Use (“EITF”) reached a consensus on Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements Purchased after Lease Inception or Acquired in a Business Combination (EITF No. 05-6). EITF No. 05-6 requires leasehold improvements in operating leases that are either acquired after the beginning of the initial lease term or acquired as the result of a business combination to be amortized over the shorter of the assets’ useful life or a term that includes the original lease term plus any renewals that are reasonably assured at the date the leasehold improvements are purchased. EITF No. 05-6 was effective for reporting periods beginning after June 29, 2005. The adoption of EITF No. 05-6 did not have a material impact on our net income, cash flows or financial position.Estimates

OnOur ~~October 6,~~consolidated ~~2005,~~financial statements are prepared in accordance with GAAP. In connection with the ~~FASB~~preparation ~~issued~~of ~~FASB~~the ~~Staff~~financial ~~Position~~statements, ~~(“FSP”)~~we ~~13-1~~are required to make assumptions, ~~Accounting~~estimates ~~for~~and ~~Rental~~judgments ~~Costs~~that ~~Incurred~~affect ~~During~~the areported amounts of ~~Construction~~assets, ~~Period~~liabilities, net sales, cost of sales, expenses and the related disclosures. ~~FSP~~We ~~13-1~~base ~~requires~~our ~~that~~assumptions, ~~rental~~estimates ~~costs~~and ~~associated~~judgments on historical ~~with~~experience, ~~ground~~current ortrends ~~building~~and ~~operating~~other ~~leases~~factors that ~~are~~we ~~incurred~~believe ~~during~~to abe ~~construction~~relevant at ~~period~~the betime ~~recognized~~the asconsolidated ~~rental~~financial ~~expense~~statements are prepared. ~~FSP~~On ~~13-1~~a isregular basis, ~~effective~~we ~~for~~review ~~the~~our ~~first~~accounting policies, assumptions, estimates and judgments ~~reporting~~to ~~period~~ensure ~~after~~that ~~December 15,~~our ~~2005.~~financial Westatements ~~have~~are ~~historically~~presented ~~expensed~~fairly and in accordance ~~rental~~with ~~costs~~GAAP. ~~incurred~~However, ~~during~~because afuture ~~construction~~events ~~period;~~and ~~therefore,~~their ~~the~~effects ~~adoption~~cannot ofbe ~~this~~determined ~~FSP~~with ~~will~~certainty, ~~not~~actual ~~have~~results ancould ~~impact~~differ onfrom our ~~net~~assumptions ~~income~~and estimates, ~~cash~~and ~~flows~~such ordifferences ~~financial position~~could be material.

~~Outlook~~Our significant accounting policies are discussed in the “Notes to Unaudited Consolidated Financial Statements” included in this Report and should be read in conjunction with Note 2 of the “Notes to Financial Statements” included in our Annual Report on Form 10-K for the fiscal year ended February 25, 2006.

~~In conjunction~~Impact with our earnings announcement for the fiscal third quarter on December 20, 2005, we provided an updated outlook for both the fourth quarter and the fiscal year ending February 25, 2006. For our fiscal fourth quarter, we are expecting net sales of ~~$40~~Recent ~~million~~Accounting to $42 million, an increase of 49% to 57% over the fourth quarter of fiscal 2005. We are anticipating a comparable store sales gain in the mid-single digits for the fiscal fourth quarter. Finally, we are projecting a net loss for the fiscal fourth quarter of $900,000 to $600,000. For the fiscal year, we anticipate net sales of $200 million to $202 million, which would represent an increase of 50% to 52% over fiscal 2005. Comparable store sales are expected to increase 6% to 8% for the full fiscal year, consistent with our previous guidance. Net income for the fiscal year is projected to be $4.6 million to $4.9 million. We expect to open one more store during the fiscal fourth quarter, which would bring our total new store openings to 16 for fiscal 2006. We also reiterated our plan to open 14 to 16 new stores during fiscal 2007.Pronouncements

AIn ~~Special~~May 2005, the ~~Note~~FASB ~~Regarding~~issued SFAS No. 154, Accounting ~~Forward-Looking~~Changes ~~Statements~~and Error Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3. This statement changes the requirements for the accounting and reporting of a change in accounting principle. Rather than recognizing in net income a cumulative effect adjustment, this statement generally requires retroactive application of a change in accounting principle to prior periods’ financial statements. This statement was effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement did not have an impact on net income, cash flows or financial position.

~~This~~In ~~Quarterly~~October 2005, the ~~Report~~FASB onissued ~~Form 10-Q~~FASB ~~(the~~Staff Position (“~~Report~~FSP”) ~~contains~~ ~~forward~~13-~~looking statements that are based on our beliefs~~1, ~~assumptions and~~Accounting ~~expectations~~for ofRental ~~future~~Costs ~~events~~Incurred ~~taking~~During ~~into account the information currently~~a ~~available~~Construction ~~to us~~Period. ~~All~~FSP ~~statements~~13-1 ~~other~~requires ~~than~~that ~~statements~~rental ~~of historical fact~~costs ~~contained~~associated inwith ~~this~~ground ~~Report~~or ~~are~~building ~~forward-looking~~operating ~~statements.~~leases ~~These~~that ~~statements involve~~are ~~known~~incurred ~~and~~during ~~unknown risks, uncertainties and other factors that may cause~~a ~~our~~construction ~~actual~~period ~~results,~~be ~~performances,~~recognized ~~financial~~as ~~condition~~rental orexpense. ~~achievements~~FSP to13-1 ~~differ~~was ~~materially~~effective ~~from~~for the ~~expected~~first ~~future~~reporting ~~results,~~period ~~performances~~after December 15, ~~financial condition or achievements as expressed or implied in any forward-looking statements~~2005. InWe have ~~some~~historically ~~cases~~expensed ~~forward-looking~~rental ~~statements~~costs ~~can~~incurred beduring ~~identified~~a byconstruction ~~terms such as “anticipates,”~~period; ~~“believes~~therefore,” ~~“estimates,”~~the ~~“expects,”~~adoption ~~“intends,”~~of ~~“plans,”~~this ~~“seeks,”~~FSP ~~“predicts,”~~did ~~“projects,” “strives,”~~not ~~“potential,”~~have ~~“objective,”~~an ~~“may,”~~impact ~~“could,”~~on ~~“should,”~~our ~~“would,”~~net ~~“will”~~income, ~~and~~cash ~~similar~~flows ~~expressions~~or ~~intended~~financial ~~to identify forward-looking statements~~position.

1718

~~The following factors, among others, could cause our~~A ~~actual~~Special ~~financial~~Note ~~performance~~Regarding ~~to differ materially from that expressed in any forward~~Forward-~~looking~~Looking statement: a decline in the popularity of golf or golf-related products and services; limitations imposed by suppliers on the amount or variety of products; failure by suppliers to develop and introduce new products or if new products result in excessive close-outs of existing inventories; seasonal fluctuation in demand for products; weather conditions; the ability to implement successfully our growth plan; competition in the golf and sporting goods industry; a decline in discretionary spending; availability of adequate capital to fund growth; and loss of key management. The foregoing list should not be construed as exhaustive. Additional information concerning these and other factors that could cause actual results to differ materially from those in the forward-looking statements contained herein is included in the prospectus in our Form S-1 Registration Statement filed with the Securities and Exchange Commission.Statements

~~Forward~~This Report contains forward-looking statements ~~reflect~~that are based on our ~~current~~beliefs, ~~views with~~assumptions ~~respect~~and toexpectations of future events, ~~are~~taking into ~~based~~account onthe ~~our~~information ~~assumptions~~currently ~~and~~available ~~are subject~~ to ~~risks~~ ~~and uncertainties~~us. ~~Given~~All ~~these~~statements ~~uncertainties,~~other than ~~readers~~statements ~~should~~of ~~not~~historical ~~place undue~~fact ~~reliance~~contained onin ~~these~~this Report are forward-looking statements. ~~Our~~These ~~forward-looking~~ statements ~~speak~~involve ~~only~~known asand ofunknown ~~the~~risks, ~~date~~uncertainties ofand other ~~this~~factors ~~Report.~~that Wemay ~~assume~~cause noour ~~obligation~~actual results, performances, financial condition or achievements to differ materially from the expected future ~~update~~results, performances, financial condition or ~~revise~~achievements as expressed or implied in any forward-looking statements. ~~publicly,~~In orsome tocases ~~update the~~forward-looking ~~reasons~~statements ~~actual~~can ~~results~~be ~~could~~identified ~~differ~~by ~~materially~~terms ~~from~~such ~~those~~as ~~anticipated~~“anticipates,” in“believes,” ~~any~~“estimates,” ~~forward-looking~~“expects,” ~~statements~~“intends,” ~~even~~“plans,” if“seeks,” ~~new~~“predicts,” ~~information~~“projects,” ~~becomes~~“strives,” ~~available~~“potential,” “objective,” in“may,” ~~the~~“could,” “should,” “would,” “will” and similar expressions ~~future~~intended to identify forward-looking statements.

The following factors, among others, could cause our actual financial performance to differ materially from that expressed in any forward-looking statement: a decline in the popularity of golf or golf-related products and services; limitations imposed by suppliers on the amount or variety of products; failure by suppliers to develop and introduce new products or if new products result in excessive close-outs of existing inventories; seasonal fluctuation in demand for products; weather conditions; the ability to implement successfully our growth plan; competition in the golf and sporting goods industry; a decline in discretionary spending; availability of adequate capital to fund growth; loss of key management; and the ability to successfully integrate acquired companies, including The GolfWorks. The foregoing list should not be construed as exhaustive. Additional information concerning these and other factors that could cause actual results to differ materially from those in the forward-looking statements is included in our Annual Report on Form 10-K for the fiscal year ended February 25, 2006.

Forward-looking statements reflect our current views with respect to future events, are based on our assumptions and are subject to risks and uncertainties. Given these uncertainties, readers should not place undue reliance on these forward-looking statements. Our forward-looking statements speak only as of the date of this Report. We assume no obligation to update or revise any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Historically, we have borrowed under our revolving credit facility for seasonal liquidity needs. WeBorrowings ~~have had no borrowings~~ under ~~the~~ ~~credit facility during fiscal 2006. To~~ the ~~extent we borrow under our~~ revolving credit facility, ~~which~~incur ~~bears~~ interest at floating rates based either on the prime rate or an adjusted LIBOR, weand to the extent there are outstanding borrowings, we are exposed to market risk related to changes in interest rates. AtDuring ~~November 26~~the first quarter of fiscal 2007, ~~2005~~we assumed $5.4 million of existing debt from The GolfWorks, which we refinanced with available cash and ~~November~~short-term borrowings under our revolving credit facility. At May 27, ~~2004~~2006, and May 28, 2005, we did not have any borrowings outstanding under our credit facility, although any borrowings would have had an interest rate of 78.0% and 56.0% per annum, respectively. AsGiven wethe ~~did~~amount ~~not~~of ~~have~~borrowings ~~any~~in ~~outstanding~~the ~~borrowings~~quarterly atperiods ended ~~November~~May 2627, ~~2005~~ 2006, and ~~November~~May 2728, ~~2004~~2005, there would have been no material effect on our ~~(loss)~~ income before income taxes if interest rates ~~were~~would tohave increased ~~increase~~ by 100 basis points. We ~~do not anticipate borrowing under the revolving credit facility in the near-term. We~~ are not a party to any derivative financial instruments.

Item 4. Controls and Procedures.

As of the end of the period covered by this Report, we we conducted an evaluation, under the supervision and with the participation of our principal executive officer and our principal financial and accounting officer, of our disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based on this evaluation, our principal executive officer and ~~principal~~our principal financial and accounting officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in ~~SEC~~the rules and forms of the Securities and Exchange Commission.

There have been no changes in internal control over financial reporting during the quarter ended ~~November~~May 2627, ~~2005~~2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 25. UnregisteredOther Sales of Equity Securities and Use of ProceedsInformation.

On ~~August~~ June 315, ~~2005~~ 2006, wethe ~~completed~~Compensation anCommittee ~~initial~~(the ~~public~~“Committee”) ~~offering~~ of our ~~common stock~~Board ~~pursuant~~of toDirectors approved a ~~registration~~performance-based ~~statement~~short-term onincentive ~~Form S-1~~award ~~(File~~for ~~No. 333-125007)~~our executive ~~that~~officers ~~was~~and ~~declared~~other ~~effective~~eligible byemployees, conditioned on the ~~Securities~~achievement ~~and~~of ~~Exchange~~a specified ~~Commission~~performance ongoal ~~July~~for the fiscal year ending March 283, 2007. ~~2005~~Executive ~~and~~officers ~~resulted~~will receive an amount, payable in ~~net~~cash, ~~proceeds~~ranging from 0% to 100% of the ~~Company~~executive officer’s short-term incentive target, based on our achievement of ~~$37.9~~specified ~~million~~earnings before interest, taxes, depreciation and amortization as compared to a goal established by the Committee.

~~Since~~Attached as ~~the~~Exhibit 10.1 ~~completion~~is ofa ~~the~~summary ~~offering, we have used approximately $19.6 million~~ of ~~the~~compensation ~~net~~paid ~~proceeds~~ to ~~pay our preferred shareholders all of~~ the ~~accrued~~non-employee members ~~and unpaid dividends due upon the conversion~~ of ~~their~~our ~~shares~~Board of ~~preferred~~Directors ~~stock~~as ~~into~~previously ~~shares~~disclosed ofin our ~~common~~Annual ~~stock.~~Report on AnForm 10-K ~~additional~~as ~~$4.4~~filed ~~million~~with of the ~~net~~Securities ~~proceeds has been used to fund capital investments at new stores. The remaining net proceeds are expected to be used to open new retail stores~~ and ~~for~~Exchange ~~general~~Commission ~~corporate~~on May 3, ~~purposes~~2006.

18Item 6. Exhibits.

Item 6. Exhibits.

Exhibit No.		Description
3.1		Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-125007) as declared effective by the Commission on July 28, 2005 (the “S-1”)).

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the S-1).

4.1		Specimen of common stock certificate (incorporated by reference to Exhibit 4.1 to the S-1).

4.2		Amended and Restated Registration Rights Agreement dated as of October 3, 2000 among the holders of preferred stock, Randall K. Zanatta, Gregory B. Maanum and the Registrant (incorporated by reference to Exhibit 4.3 to the S-1).

4.3		Conversion Agreement dated May 16, 2005 among the holders of preferred stock and the Registrant (incorporated by reference to Exhibit 4.4 to the S-1).

10.1		Summary of Director Compensation approved by the Board of Directors and disclosed in the Registrant’s Annual Report on Form 10-K as filed on May 3, 2006.

10.2		Performance goal for fiscal 2007 incentive awards to executive officers.

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).

Exhibit No.		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).

19SIGNATURES

~~SIGNATURES~~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.

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.

	GOLF GALAXY, INC.
	(Registrant)

Date July 11, 2006	/s/ RANDALL K. ZANATTA
	Randall K. Zanatta
	President, Chief Executive Officer and Chairman
	(Principal Executive Officer)

	/s/ RICHARD C. NORDVOLD
	Richard C. Nordvold
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

	GOLF GALAXY, INC.
	(Registrant)
Date January 9, 2006	/s/ RANDALL K. ZANATTA
	Randall K. Zanatta
	President, Chief Executive Officer and Chairman
	(Principal Executive Officer)
	/s/ RICHARD C. NORDVOLD
	Richard C. Nordvold
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

EXHIBIT INDEX TO FORM 10-Q

3.1		Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-125007) as declared effective by the Commission on July 28, 2005 (the “S-1”)).
3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the S-1).
4.1		Specimen of common stock certificate (incorporated by reference to Exhibit 4.1 to the S-1).
4.2		Amended and Restated Registration Rights Agreement dated as of October 3, 2000 among the holders of preferred stock, Randall K. Zanatta, Gregory B. Maanum and the Registrant (incorporated by reference to Exhibit 4.3 to the S-1).
4.3		Conversion Agreement dated May 16, 2005 among the holders of preferred stock and the Registrant (incorporated by reference to Exhibit 4.4 to the S-1).
10.1		Summary of Director Compensation approved by the Board of Directors and disclosed in the Registrant’s Annual Report on Form 10-K as filed on May 3, 2006.
10.2		Performance goal for fiscal 2007 incentive awards to executive officers.
31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.2		Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).

2122

Filing Compare · Golf Galaxy, Inc.