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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

OR

For the transition period from              to             

Commission File number 0-18490

K-SWISS INC.

(Exact name of registrant as specified in its charter)

818-706-5100

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of common stock outstanding at July 27, 2004:

PART I - FINANCIAL INFORMATION

K-SWISS INC.

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

The accompanying notes are an integral part of these statements.

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K-SWISS INC.

CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE EARNINGS

(Amounts in thousands, except per share amounts)

(Unaudited)

The accompanying notes are an integral part of these statements.

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K-SWISS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

The accompanying notes are an integral part of these statements.

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K-SWISS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “S.E.C.”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of K-Swiss Inc. (the “Company” or “K-Swiss”) as of June 30, 2004 and the results of its operations and its cash flows for the six and three months ended June 30, 2004 and 2003 have been included for the periods presented. The results of operations and cash flows for the six and three months ended June 30, 2004 are not necessarily indicative of the results to be expected for any other interim period or the full year. The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in combination with the audited consolidated financial statements and notes thereto for the year ended December 31, 2003. Certain reclassifications have been made in the six and three months ended June 30, 2003 presentation to conform to the six and three months ended June 30, 2004 presentation.

In the fourth quarter of 2003, the Company reached an agreement with National Geographic to terminate its licensing agreement for $2.0 million. Operations of the National Geographic brand have been accounted for and shown as a discontinued operation in the accompanying financial information. The operations for National Geographic for the six and three months ended June 30, 2003 are as follows (in thousands):

The following is a reconciliation of the number of shares (denominator) used in the basic and diluted earnings per share computations (shares in thousands):

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The following options were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares:

Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of SFAS 123,” encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company’s stock at the date of grant over the amount an employee must pay to acquire the stock.

During the six months ended June, 2004 and 2003, 8,500 and 32,000 options, respectively, were granted at exercise prices below fair market value. During the three months ended June 30, 2004 and 2003, there were no options that were granted at exercise prices below fair market value. All other options were granted at an exercise price equal to the fair market value of the Company’s common stock at the date of grant. Accordingly, no compensation cost has been recognized for such options granted.

In connection with the exercise of options, the Company realized income tax benefits in the six and three months ended June 30, 2004 and 2003 that have been credited to additional paid-in capital.

Had compensation cost for the plan been determined based on the fair value of the options at the grant dates consistent with the method of SFAS No. 148, the Company’s net earnings and earnings per share would have been:

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The fair value of options at date of grant was estimated using the Black-Scholes model with the following assumptions:

SFAS No. 142, “Goodwill and Other Intangible Assets,” eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, requiring instead that those assets be measured for impairment at least annually, and more often when events indicate that an impairment exists. Intangible assets with finite lives will continue to be amortized over their useful lives. Goodwill and intangible assets are as follows (in thousands):

The changes in the carrying amount of goodwill and intangible assets is as follows (in thousands):

In applying SFAS No. 142, the Company has performed the annual reassessment and impairment test required as of January 1, 2004 to determine whether goodwill and intangible assets were impaired. In the first quarter of 2004, as a result of the annual reassessment and impairment test and after a review of sales, backlog, cash flows and marketing strategy, the Company determined that its investment in the Royal Elastics goodwill and trademark were impaired and recognized an impairment loss of $1,730,000 during the three months ended March 31, 2004. In the first quarter of 2003, after a review of sales backlog, the Company determined based on estimated revenues, operating profits and cash flows that its investment in the National Geographic license was impaired and recognized an impairment loss of $746,000 in the first quarter of 2003. See Note 2 for additional information on National Geographic.

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The Company’s predominant business is the design, development and distribution of athletic footwear. Substantially all of the Company’s revenues are from sales of footwear products. The Company is organized into three geographic regions: the United States, Europe and other international operations. Certain segment information that follows excludes the operations of the National Geographic brand, which was discontinued in 2003. Certain reclassifications have been made in the 2003 presentations. The following tables summarize segment information (in thousands):

During the six months ended June 30, 2004 and 2003, approximately 19% and 27%, respectively, of revenues were attributable to one customer. During the three months ended June 30, 2004 and 2003, approximately 16% and 27%, respectively, of revenues were attributable to this same customer.

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Under its stock repurchase programs, the Company purchased 704,200 shares of Class A Common Stock during the six months ended June 30, 2004 for a total expenditure of approximately $14,418,000.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity.” SFAS No. 150 changes the classification in the statement of financial position of certain common financial instruments from either equity or mezzanine presentation to liabilities and requires an issuer of those financial statements to recognize changes in fair value or redemption amount, as applicable, in earnings. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and with one exception, is effective at the beginning of the first interim period beginning after June 15, 2003. The effect of adopting SFAS No. 150 will be recognized as a cumulative effect of an accounting change as of the beginning of the period of adoption. Restatement of prior periods is not permitted. SFAS No. 150 did not have any impact on the Company’s financial position or results of operations.

In December 2003, the S.E.C. issued Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” which revises or rescinds portions of the interpretative guidance included in SAB No. 101, “Revenue Recognition in Financial Statements” in order to make guidance consistent with authoritative accounting and auditing guidance and with S.E.C. rules and regulations. The principal revisions relate to the rescission of material no longer necessary because of private sector developments in United States generally accepted accounting principles. The adoption of SAB No. 104 did not have a material impact on the Company’s financial position or results of operations.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements and Analyst Reports

“Forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”), include certain written and oral statements made, or incorporated by reference, by us or our representatives in this report, other reports, filings with the Securities and Exchange Commission (the “S.E.C.”), press releases, conferences, or otherwise. Such forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will be,” “will continue,” “will likely result,” or any variations of such words with similar meaning. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Investors should carefully review the risk factors set forth in other reports or documents we file with the S.E.C., including Forms 10-Q, 10-K and 8-K. Some of the other risks and uncertainties that should be considered include, but are not limited to, the following: international, national and local general economic and market conditions; the size and growth of the overall athletic footwear and apparel markets; the size of our competitors; intense competition among designers, marketers, distributors and sellers of athletic footwear and apparel for consumers and endorsers; market acceptance of our training shoe line; market acceptance of new Limited Edition product; market acceptance of non-performance product in Europe; market acceptance of Royal Elastics footwear; demographic changes; changes in consumer preferences; popularity of particular designs, categories of products, and sports; seasonal and geographic demand for our products; the size, timing and mix of purchases of our products; fluctuations and difficulty in forecasting operating results, including, without limitation, the fact that advance “futures” orders may not be indicative of future revenues due to the changing mix of futures and at-once orders; potential cancellation of future orders; our ability to continue, manage or forecast our growth and inventories; new product development and commercialization; the ability to secure and protect trademarks, patents, and other intellectual property; difficulties in implementing, operating and maintaining our increasingly complex information systems and controls; concentration of production in China; potential earthquake disruption due to the location of our warehouse and headquarters; potential disruption in supply chain, due to various factors including but not limited to epidemic diseases or customer purchasing habits; performance and reliability of products; customer service; adverse publicity; the loss of significant customers or suppliers; dependence on distributors; dependence on major customers; concentration of credit risk; business disruptions; increased costs of freight and transportation to meet delivery deadlines; the effects of terrorist actions on business activities, customer orders and cancellations, and the United States and international governments’ responses to these terrorist actions; changes in business strategy or development plans; general risks associated with doing business outside the United States, including, without limitation, import duties, tariffs, quotas and political and economic instability; changes in government regulations; liability and other claims asserted against us; the ability to attract and retain qualified personnel; and other factors referenced or incorporated by reference in this report and other reports.

K-Swiss (the “Company,” “we,” “us,” and “our”) operates in a very competitive and rapidly changing environment. New risk factors can arise and it is not possible for management to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Investors should also be aware that while we communicate, from time to time, with securities analysts, it is against our policy to disclose to them any material non-public information or other confidential commercial information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts or others contain any projections, forecasts or opinions, such reports are not our responsibility.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

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We believe that the estimates, assumptions and judgements involved in the accounting policies described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our most recent Annual Report on Form 10-K have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, the reserve for uncollectible accounts receivable and inventory reserves. These policies require that we make estimates in the preparation of our financial statements as of a given date.

Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Results of Operations

The following table sets forth, for the periods indicated, the percentage of certain items in the consolidated statements of earnings relative to revenues.

Revenues

K-Swiss brand revenues decreased to $106,005,000 for the quarter ended June 30, 2004 from $110,307,000 for the quarter ended June 30, 2003, a decrease of $4,302,000 or 3.9%. K-Swiss brand revenues increased to $256,279,000 for the six months ended June 30, 2004 from $224,287,000 for the six months ended June 30, 2003, an increase of $31,992,000 or 14.3%. The decrease for the quarter ended June 30, 2004 was the result of a decrease in the volume of footwear sold partially offset by higher average wholesale prices per pair. The increase for the six months ended June 30, 2004 was the result of increases in the volume of footwear sold along with higher average wholesale prices per pair. The volume of footwear sold decreased to 4,067,000 and increased to 9,860,000 pair for the quarter and six months ended June 30, 2004, respectively, from 4,348,000 and 8,857,000 pair for the quarter and six months ended June 30, 2003, respectively. The decrease in the volume of footwear sold for the quarter ended June 30, 2004 was primarily the result of decreased sales of the Classic, training and children’s shoes of 5.7%, 18.9% and 8.9%, respectively, offset by increased sales of tennis shoes at 18.7%. This decrease for the quarter ended June 30, 2004 was offset by an increase in the average wholesale price per pair to $25.55 for the quarter ended June 30, 2004 from $24.93 for the quarter ended June 30, 2003, an increase of 2.5%, due to the mix of sales. This increase for the six months ended June 30, 2004 was also due to an increase in the average wholesale price per pair to $25.42 for the six months ended June 30, 2004 from $24.81 for the six months ended June 30, 2003, an increase of 2.5%, also due to the mix of sales.

During the second quarter of 2004, domestic K-Swiss brand sales were negatively impacted as a result of implementing a direct-to-customer shipping program. Under this program we ship containers of footwear directly from our contract manufacturers to our customers, bypassing our Mira Loma distribution facility. Title to the footwear passes upon reaching our customers’ rail yards which is when we recognize revenue. At June 30, 2004, approximately $9,500,000 of orders scheduled for delivery in June were in transit, but were not recognized into revenue in the second quarter of 2004 because the footwear had not arrived at our customers’ rail yards. These orders are excluded from our backlog at June 30, 2004. During July 2004, this footwear arrived at our customers’ rail yards and therefore we will recognize the associated sales of such footwear as revenues during July 2004.

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The breakdown of revenues (dollar amounts in thousands) is as follows:

Gross Margin

Overall gross profit margins, as a percentage of revenues, increased to 46.1% for the quarter ended June 30, 2004, from 46.0% for the quarter ended June 30, 2003. Overall gross profit margins, as a percentage of revenues, decreased to 46.0% for the six months ended June 30, 2004, from 46.4% for the six months ended June 30, 2003. Gross profit margin for the quarter and six months ended June 30, 2004 was affected by product mix changes and changes in our at-once business. Our gross margins may not be comparable to some of our competitors as we recognize warehousing costs within selling, general and administrative expenses.

Selling, General and Administrative Expenses

Overall selling, general and administrative expenses decreased to $28,307,000 (26.2% of revenues) for the quarter ended June 30, 2004, from $28,649,000 (25.7% of revenues) for the quarter ended June 30, 2003, a decrease of $342,000 or 1.2%. Overall selling, general and administrative expenses increased to $62,514,000 (24.1% of revenues) for the six months ended June 30, 2004, from $55,180,000 (24.3% of revenues) for the six months ended June 30, 2003, an increase of $7,334,000 or 13.3%. The decrease in selling, general and administrative expenses during the quarter ended June 30, 2004 was due to decreases in compensation and compensation related expenses and legal expenses offset by increases in advertising and warehousing expenses. The increase in selling, general and administrative expenses during the six months ended June 30, 2004 was due to an impairment recognition and increases in advertising, warehousing and compensation and compensation related expenses, offset by a decrease in legal expenses. In the first quarter of 2004, impairment of $1,730,000 was recognized on the trademark and goodwill of the Royal Elastics brand based on many factors including the brand not growing as rapidly as we had expected. Advertising expenses increased 16.8% and 20.5%, for the quarter and six months ended June 30, 2004, respectively, as part of a strategic effort to drive higher revenues. Warehousing expenses, excluding compensation and compensation related expenses, increased 43.5% and 26.9%, for the quarter and six months ended June 30, 2004, respectively, as a result of additional expenses incurred as a result of moving our warehouse location in Europe during the second quarter of 2004. Compensation and compensation related expenses, including commissions and bonus/incentive related expenses, decreased 23.5% for the quarter ended June 30, 2004 due to a decrease in bonus/incentive related expenses because EVA in the second quarter decreased offset by an increase in headcount. Compensation and compensation related expenses increased 3.2% for the six months ended June 30, 2004 as a result of an increase in headcount and commissions (as a result of the increase in volume), offset by a decrease in bonus/incentive related expenses because the increase in EVA during the six months ended June 30, 2004 was less than 2003. Legal expenses decreased 80.4% and 73.9%, for the quarter and six months ended June 30, 2004, respectively, in connection with the defense of two lawsuits in the quarter and six months ended June 30, 2003, which were settled in the second quarter of 2003. Corporate expenses of $1,634,000 and $4,844,000, for the quarter ended June 30, 2004 and 2003, respectively, and $6,961,000 and $9,962,000, for the six months ended June 30, 2004 and 2003, respectively, are included in selling, general and administrative expenses. The decrease in corporate expenses during the quarter and six months ended June 30, 2004 is due to decreases in bonus/incentive related expenses and legal expenses which have been explained above.

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Interest, Other and Taxes

Overall net interest income was $173,000 (0.1% of revenues) and $300,000 (0.1% of revenues ) for the quarter and six months ended June 30, 2004, respectively, compared to $177,000 (0.2% of revenues) and $364,000 (0.2% of revenues) for the quarter and six months ended June 30, 2003, representing a decrease of $4,000 for the quarter ended June 30, 2004 compared to the same prior year period and a decrease of $64,000 for the six months ended June 30, 2004 compared to the same prior year period. Included in interest income for the quarter and six months ended June 30, 2003 is intercompany interest income from our National Geographic subsidiary, in which the related intercompany interest expense is included in the net loss from discontinued operations. Excluding this intercompany interest income from 2003 results, net interest income would have increased by approximately $50,000 and $61,000 for the quarter and six months ended June 30, 2004, respectively, as a result of higher average balances offset by lower average interest rates.

Our effective tax rate was 39.0% for the quarter and six months ended June 30, 2004 compared to 39.4% for the quarter and six months ended June 30, 2003, respectively.

The net loss from discontinued operations was $1,207,000 and $4,463,000 for the quarter and six months ended June 30, 2003, respectively. Included in the six months ended 2003 was a $4.1 million expense related to a guaranteed royalty payment commitment to National Geographic and a $746,000 impairment loss on the National Geographic license.

Net earnings increased 4.5% to $13,188,000, or $0.35 per share (diluted earnings per share), for the quarter ended June 30, 2004 from $12,619,000, or $0.33 per share (diluted earnings per share) for the quarter ended June 30, 2003. Net earnings increased 33.1% to $34,956,000, or $0.93 per share (diluted earnings per share), for the six months ended June 30, 2004 from $26,263,000, or $0.69 per share (diluted earnings per share) for the six months ended June 30, 2003.

Backlog

At June 30, 2004 and 2003 total futures orders with start ship dates from July 2004 and 2003 through December 2004 and 2003 were approximately $164,956,000 and $158,731,000, respectively, an increase of 3.9%. The 3.9% increase in total futures orders is comprised of a 7.4% increase in the third quarter 2004 future orders and a 1.1% decrease in the fourth quarter 2004 future orders. At June 30, 2004 and 2003, domestic futures orders with start ship dates from July 2004 and 2003 through December 2004 and 2003 were approximately $134,858,000 and $140,581,000, respectively, a decrease of 4.1%. The June 30, 2004 domestic backlog does not include the previously mentioned $9,500,000 of orders under the direct-to-customer shipping program scheduled for delivery in June that were not recognized as revenue for the quarter ended June 30, 2004. At June 30, 2004 and 2003, international futures orders with start ship dates from July 2004 and 2003 through December 2004 and 2003 were approximately $30,098,000 and $18,150,000, respectively, an increase of 65.8%. “Backlog,” as of any date, represents orders scheduled to be shipped within the next six months. Backlog does not include orders scheduled to be shipped on or prior to the date of determination of backlog. The mix of “futures” and “at once” orders can vary significantly from quarter to quarter and year to year and therefore “futures” are not necessarily indicative of revenues for subsequent periods. Orders generally may be canceled by customers without financial penalty. We believe our rate of net customer cancellations of domestic orders approximates industry averages for similar companies. Customers may also reject nonconforming goods. To date, we believe we have not experienced returns of our products or bad debts of customers materially in excess of industry averages for similar companies.

Liquidity and Capital Resources

We experienced net cash inflows of approximately $24,609,000 from our operating activities during the six months ended June 30, 2004 compared to net cash outflows of approximately $3,321,000 from our operating activities during the six months ended June 30, 2003. The increase in operating cash inflows from the prior year is due primarily to an increase in net earnings and a greater increase in accounts receivable in 2003 relative to 2004.

We had a net outflow of cash from our investing activities for the six months ended June 30, 2004 and 2003 due to the purchase of property, plant and equipment.

We had a net outflow of cash from our financing activities for the six months ended June, 2004 and 2003 primarily due to the purchase of treasury stock.

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During the first quarter of 2004, we completed our October 2002 $25 million stock repurchase program. However, prior to this, on October 22, 2003, the Board of Directors authorized a new stock repurchase program to repurchase through December 2008 up to an additional $25 million of our Class A Common Stock. We adopted this program because we believe repurchasing our shares can be a good use of excess cash depending on our array of alternatives. Currently, we have made purchases under all stock repurchase programs from August 1996 through July 27, 2004 (the day prior to the filing of the Form 10-Q) of 23.7 million shares at an aggregate cost totaling approximately $122,987,000. See Part II – Other Information, Item 2. Changes in Securities and Use of Proceeds and Issuer Purchases of Equity Securities.

No other material capital commitments exist at June 30, 2004. Depending on our future growth rate, funds may be required by operating activities. With continued use of our revolving credit facility and internally generated funds, we believe our present and currently anticipated sources of capital are sufficient to sustain our anticipated capital needs for the remainder of 2004. At June 30, 2004, we do not have any funded debt on our lines of credit and are in compliance with all relevant covenants under our credit facilities. We did not enter into off-balance sheet arrangements during the quarter or six months ended June 30, 2004 or 2003, nor did we have any off-balance sheet arrangements outstanding at June 30, 2004 or 2003.

Our working capital increased $20,465,000 to $197,851,000 at June 30, 2004 from $177,386,000 at December 31, 2003. Working capital increased during the six months ended June 30, 2004 mainly due to an increase in accounts receivable due to higher sales in the second quarter of 2004 compared to sales in the fourth quarter of 2003.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes from the information previously reported under Item 7A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, which Item 7A is hereby incorporated by reference.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management carried out an evaluation under the supervision and with the participation of the Company’s President and Chief Executive Officer and Vice President of Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Disclosure controls and procedures include controls and other procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act, such as this Form 10-Q, is properly recorded, processed, summarized and reported within the time periods required by the Commission’s rules and forms. Management necessarily applied its judgement in assessing the costs and benefits of such controls and procedures that, by their nature, can provide only reasonable assurance regarding management’s control objectives. Management does not expect that its disclosure controls and procedures will prevent all errors and fraud. A control system, irrespective of how well it is designed and operated, can only provide reasonable assurance, and cannot guarantee, that it will succeed in its stated objectives.

Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.

Since the Evaluation Date, there have not been any significant changes in the Company’s internal controls or in other factors that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is, from time to time, a party to litigation which arises in the normal course of its business operations. The Company does not believe that it is presently a party to litigation which will have a material adverse effect on its business or operations.

ITEM 2. Changes in Securities and Use of Proceeds and Issuer Purchases of Equity Securities

The following table provides information with respect to purchases made by K-Swiss of K-Swiss Class A Common Stock during the second quarter of 2004:

ISSUER PURCHASES OF EQUITY SECURITIES