Key questions from the first quarter earnings call conducted by K-Swiss Inc. on April 29, 2008.

Scott Krasik (CL King): The business has deteriorated, at least the forward order outlook from the fourth quarter. What has caused you to buy stock back considering the business keeps getting worse?

Steven Nichols: We felt the stock moved to an attractive price and the quantities we bought back were not huge and significant.

George Powlick: If you look at the price, the average price we paid was done early in the quarter, and it was $14.19 a share

Scott Krasik (CL King): Do you expect to continue to use cash at those levels to buy stock back?

Steven Nichols: If we bought stock back as we did, it indicates that we believe at some point in the future the stock will be selling at a higher price. We will get more aggressive in some areas, and still stand on the sideline. It depends on how our product is received and how our marketing is perceived. We think we are making good progress there, but that is only inside the building. We are not making good progress in the marketplace as yet. We have shoes that we will be showing to our sales management this afternoon. Then our sales force at the end of the month of May and that will be shoes that will be deliverable for the first quarter of 2009. We think they are better at this point. It will be more important what the retailers and eventually the consumers think.

Scott Krasik (CL King): Your third quarter international backlog seems down. What category of product is driving that decrease year-over-year internationally?

Steven Nichols: We in the United States experienced a lack of an exciting product over two years ago and we started to correct it. We have changed management and product design and development and Europe had tremendous momentum and kept going longer than the United States. Eventually, however, the uninspiring product caught up with them as soon as we could get better product back into the marketplace, by better product I mean more relevant and product that our core consumer believes is desirable and really wants. Then we think their business will turn around even faster than the United States.

Scott Krasik (CL King): Is it Classic in Europe now that is starting to flow?

Steven Nichols: Classic was never as important as in Europe, as it was in the United States. They have a similar shoe, but without our three-piece toe court Lozan, and that particular shoe was a significantly better shoe in Europe. We think that shoe has to be freshened up and made thinner and lighter. Other things are necessary to happen in shoes that are similar to that and we are in the process of doing it.

John Shanley (SFG): Can you give the domestic backlog orders between second quarter delivery and third quarter?

George Powlick: Second quarter for domestic is down 43% and down 51% in the third quarter.

John Shanley (SFG): Which markets in Europe underperformed because the fall off in revenue?

Steven Nichols: Our business was still positive in Germany and it was down in the UK. The UK is where we made huge progress. We have to get more interesting at innovative product in there and we are in the process of doing it. We have not made significant progress as yet in Italy, France and Spain that is the southern part of Europe, and we are still virgins in that territory.

John Shanley (SFG): Is there a sales effort underway to try to correct that situation?

Steven Nichols: Yes, there is. We have about 1.5 or 2 in France and still in the year one in Italy and Spain just approaching through select retailers. We are still young in those markets and not had any success worthwhile reporting.

John Shanley (SFG): Is the FREE RUNNING working in Europe?

Steven Nichols: I would say, if I had to give it A, B, C, D. I give it a C minus. It has not been successful, that has not failed. It has got a passing mark, but just belly and what we are doing with FREE RUNNING is we are kind of investing. We are creating something new and it is not easy and the question is whether ever be done. If we pull this off it could be important to us, but it will not be easy and it is not guaranteed.

John Shanley (SFG): The FootLocker number is 8% of backlog currently versus 15% a year ago. Was that FootLocker global or is that just the domestic FootLocker?