Year-over-Year Quarterly Comparisons

Net sales for the second quarter of 2009 were $12.4 million compared to net sales of $18.2 million in the corresponding period a year ago. Gross profit was $3.6 million, or 28.9%, compared to gross profit of $4.2 million, or 23.0%, in the second quarter of 2008. Selling, general and administrative expenses were $4.0 million compared to $5.1 million in the second quarter of last year. Litigation settlements and related costs were $3.1 million for the second quarter of 2009 compared to $0.2 million for the same quarter of 2008. These costs are related to the lawsuits filed in the latter part of 2007 and early part of 2008 in connection with the Company's initial public offering. The Company has reached proposed settlements with regards to these lawsuits and has accrued approximately $3.6 million as of June 30, 2009, as discussed more fully below. The Company reported a net loss of $1.6 million, or ($0.06) per fully diluted share versus a net loss of $0.4 million, or ($0.01) per fully diluted share in the second quarter of 2008.

Sequential Quarterly Comparisons

Net sales for the second quarter of 2009 were $12.4 million compared to net sales of $9.2 million in the first quarter of 2009. Gross profit was $3.6 million, or 28.9%, compared to $2.9 million, or 30.8%, for the first quarter of this year. Selling, general and administrative expenses were $4.0 million compared to $4.5 million in the first quarter of 2009. Litigation settlements and related costs were $3.1 million for the second quarter of 2009 compared to $0.7 million during the first quarter of 2009. The Company reported a net loss of $1.6 million, or ($0.06) per fully diluted share versus a net loss of $1.3 million, or ($0.05) per fully diluted share in the first quarter of this year.

Tom Hansen, chief executive officer of the Company, commented "We continue to evaluate every aspect of our business to make sure that we're operating as efficiently as possible. While things on a macro level seem to be stabilizing, we believe that we must be more precise than ever in our inventory management and hyper aware of our retail partners' needs going forward."

Balance Sheet

As of June 30, 2009, the Company had cash and cash equivalents of $67.1 million compared with $96.8 million as of June 30, 2008 and $68.4 million as of December 31, 2008. Inventory as of June 30, 2009 decreased to $10.6 million versus $19.2 million as of June 30, 2008 and $12.1 million as of December 31, 2008.

Proposed Litigation Settlements

The Company has reached proposed settlements of lawsuits filed in the latter part of 2007 and early part of 2008 in connection with the Company's initial public offering. Pursuant to the proposed settlements, if approved by the court, the Company's insurance policies will fund the majority of the settlement amounts and related legal defense costs. As stated above, the Company has accrued approximately $3.6 million with respect to these settlements as of June 30, 2009.

Conference Call Information

The Company has decided to discontinue earnings calls at this time.

About Heelys, Inc.

Heelys, Inc. designs, markets and distributes innovative, action sports-inspired products under the HEELYS(R) brand targeted to the youth market. The Company's primary product, HEELYS-wheeled footwear, is patented dual purpose footwear that incorporates a stealth, removable wheel in the heel. HEELYS-wheeled footwear allows the user to seamlessly transition from walking or running to rolling by shifting weight to the heel. Users can transform HEELYS-wheeled footwear into street footwear by removing the wheel. HEELYS-wheeled footwear provides users with a unique combination of fun and style that differentiates it from other footwear and wheeled sports products.

Forward Looking Statements

Certain statements in this press release and oral statements made from time to time by representatives of the Company are "forward-looking statements" for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995, including in particular, statements regarding our guidance, outlook for future events, financial performance, customer demand, growth and profitability.