Wet Seal (WTSLA)

Liquidity and Capital Resources

Net cash provided by operating activities was $1.8 million for the 13 weeks ended May 2, 2009, compared to $13.0 million for the same period last year. For the 13 weeks ended May 2, 2009, operating cash flows were due to our net income of $5.0 million and net noncash charges (primarily depreciation and amortization, stock-based compensation and noncash interest expense) of $3.7 million, partially offset by an increase in merchandise inventories, net of merchandise accounts payable, of $4.1 million, and a net use of cash from changes in other operating assets and liabilities of $2.8 million. For the 13 weeks ended May 2, 2009, net cash used in investing activities of $4.9 million was comprised entirely of capital expenditures. Capital expenditures for the period were primarily for remodeling of existing Wet Seal stores upon lease renewals and/or store relocations, the construction of new Wet Seal stores, and investment in development for new retail merchandising and point-of-sale operating systems. Capital expenditures that remain unpaid as of May 2, 2009, have increased $2.1 million since the end of fiscal 2008. We expect to pay nearly all of the total balance of such amounts payable, in the amount of $5.0 million, during the second quarter of fiscal 2009.

We estimate that, in fiscal 2009, capital expenditures will be between $24 million and $25 million, net of approximately $2 million in landlord tenant improvement allowances. Of the total net capital expenditures, approximately $20 million is expected to be for the remodeling of existing Wet Seal stores upon lease renewals and/or store relocations or the construction of new Wet Seal stores.

For the 13 weeks ended May 2, 2009, net cash provided by financing activities was $0.3 million, comprised of proceeds from investor exercises of common stock warrants, which resulted in the issuance of 100,000 shares of our Class A common stock, and nominal proceeds from the exercise of stock options.

Total cash and cash equivalents at May 2, 2009, was $139.2 million, compared to $142.1 million at January 31, 2009.

We maintain a $35.0 million revolving credit facility, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the agreement. The revolving credit facility expires in May 2011. Under our revolving credit facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on our line of credit under the revolving credit facility is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average excess availability, as defined under our revolving credit facility, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of May 2, 2009. We also incur fees on outstanding letters of credit under the revolving credit facility in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The revolving credit facility ranks senior in right of payment to our secured convertible notes. Borrowings under the revolving credit facility are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, SMLLC.

At May 2, 2009, the amount outstanding under the revolving credit facility consisted of $10.4 million in open commercial letters of credit related to merchandise purchases and $1.7 million in standby letters of credit. At May 2, 2009, we had $22.9 million available for cash advances and/or for the issuance of additional letters of credit. At May 2, 2009, we were in compliance with all covenant requirements in the revolving credit facility and the indenture governing our secured convertible notes.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, in fiscal 2008 and into fiscal 2009, consumer confidence and consumer spending deteriorated significantly, and could remain depressed for an extended period. As a result of this current economic crisis, we may experience continued declines in consolidated comparable store sales or experience other events that negatively affect our operating results. If our consolidated comparable store sales drop significantly for an extended period, or we falter in execution of our business strategy, including, among other things, the ability of one or more of our vendors to deliver their merchandise in a timely manner or otherwise meet their obligations, we may not achieve our financial performance goals, which could adversely impact our results of operations and operating cash flow. This could also cause a decrease in or elimination of excess availability under our revolving credit facility, which could force us to seek alternatives to address potential cash constraints, including seeking additional debt and/or equity financing.

The financial performance of our business is susceptible to the recent declines in discretionary consumer spending, availability of consumer credit and consumer confidence in the United States. Volatile fuel prices and increasing commodity costs may also cause a shift in consumer demand away from the retail clothing products that we offer. There are no guarantees that government initiatives will limit the duration or severity of the current economic recession or stabilize factors that affect our sales and profitability. Recent adverse economic trends could affect us more significantly than companies in other industries.

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Liquidity and Capital Resources

Net cash provided by operating activities was $58.3 million for fiscal 2008, compared to $51.5 million for the same period last year. For fiscal 2008, operating cash flows were due to our net income of $30.2 million, net noncash charges (primarily depreciation and amortization, asset impairment charges, stock-based compensation and noncash interest expense) of $26.6 million, a decrease in other receivables of $3.9 million, primarily relating to the collection of tenant improvement allowances, and a decrease in merchandise inventories, net of merchandise accounts payable, of $5.0 million, partially offset by a net use of cash from changes in other operating assets and liabilities of $7.4 million. For fiscal 2008, net cash used in investing activities of $23.0 million was comprised entirely of capital expenditures. Capital expenditures for the period were primarily for remodeling of existing Wet Seal stores upon lease renewals and/or store relocations, the construction of new Wet Seal stores, and investment in new retail merchandising and point-of-sale operating systems. Capital expenditures that remain unpaid as of the end of fiscal 2008 have decreased $0.3 million since the end of fiscal 2007. We expect to pay nearly all of the total balance of such amounts payable, in the amount of $2.9 million, during the first quarter of fiscal 2009.

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We estimate that, in fiscal 2009, capital expenditures will be between $24 million and $25 million, net of approximately $2 million in landlord tenant improvement allowances. Of the total net capital expenditures, approximately $18 million is expected to be for the remodeling of existing Wet Seal stores upon lease renewals and/or store relocations or the construction of new Wet Seal stores.

For fiscal 2008, net cash provided by financing activities was $6.1 million, comprised of proceeds from investor exercises of common stock warrants, which resulted in the issuance of 1,793,139 shares of our Class A common stock, and less than $0.1 million in proceeds from the exercise of stock options.

During fiscal 2008, investors in the Company’s Secured Convertible Notes (the “Notes”) converted $3.4 million of Notes into 2,274,804 shares of Class A common stock and investors in the Company’s Convertible Preferred Stock (the “Preferred Stock”) converted $0.6 million of Preferred Stock into 185,333 shares of Class A common stock.

Total cash and cash equivalents at January 31, 2009, was $142.1 million, compared to $100.6 million at February 2, 2008.

We maintain a $35.0 million revolving credit facility, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the agreement. The revolving credit facility expires in May 2011. Under our revolving credit facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on our line of credit under the revolving credit facility is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average excess availability, as defined under our revolving credit facility, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of January 31, 2009. We also incur fees on outstanding letters of credit under the revolving credit facility in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The revolving credit facility ranks senior in right of payment to our secured convertible notes. Borrowings under the revolving credit facility are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, SMLLC.

At January 31, 2009, the amount outstanding under the revolving credit facility consisted of $7.4 million in open commercial letters of credit related to merchandise purchases and $1.8 million in standby letters of credit. At January 31, 2009, we had $25.8 million available for cash advances and/or for the issuance of additional letters of credit. At January 31, 2009, we were in compliance with all covenant requirements in the revolving credit facility and the indenture governing our secured convertible notes.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, recently, consumer confidence and consumer spending have deteriorated significantly, and could remain depressed for an extended period. As a result of this current economic crisis, we may experience continued declines in consolidated comparable store sales or experience other events that negatively affect our operating results. If our consolidated comparable store sales drop significantly for an extended period, or we falter in execution of our business strategy, including, among other things, the ability of one or more of our vendors to deliver their merchandise in a timely manner or otherwise meet their obligations, we may not achieve our financial performance goals, which could adversely impact our results of operations and operating cash flow. This could also cause a decrease in or elimination of excess availability under our revolving credit facility, which could force us to seek alternatives to address cash constraints, including seeking additional debt and/or equity financing.

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The financial performance of our business is susceptible to the recent declines in discretionary consumer spending, availability of consumer credit and consumer confidence in the United States. Volatile fuel prices and increasing commodity costs may also cause a shift in consumer demand away from the retail clothing products that we offer. There are no guarantees that government initiatives will limit the duration or severity of the current economic recession or stabilize factors that affect our sales and profitability. Recent adverse economic trends could affect us more significantly than companies in other industries.

Liquidity and Capital Resources

Net cash provided by operating activities was $36.2 million for the 39 weeks ended November 1, 2008, compared to $22.9 million for the same period last year. For the 39 weeks ended November 1, 2008, operating cash flows were due to our net income of $25.9 million, net non-cash charges (primarily depreciation and amortization, non-cash interest expense and stock-based compensation) of $17.0 million, and a decrease in other receivables primarily relating to the collection of tenant improvement allowances of $3.5 million, partially offset by an increase in merchandise inventories, net of merchandise accounts payable, of $3.5 million, and a net use of cash from changes in other operating assets and liabilities of $6.7 million, including gift card, gift certificate and store credit breakage of $0.6 million. For the 39 weeks ended November 1, 2008, net cash used in investing activities of $14.9 million was comprised entirely of capital expenditures. Capital expenditures for the period were primarily for new stores, store relocations and store remodeling for our Wet Seal division, and investment in new retail merchandising and point-of-sale operating systems. Capital expenditures that remain unpaid as of November 1, 2008, have increased $2.8 million since the end of fiscal 2007. We expect to pay nearly all of the total balance of such amounts payable, in the amount of $6.1 million, during the fourth quarter of fiscal 2008.

We estimate that, in fiscal 2008, capital expenditures will be between $20 million and $21 million, net of approximately $3 million in landlord tenant improvement allowances, primarily for the construction of approximately 13 Wet Seal stores. Of the total capital expenditures, approximately $16 million is expected for the construction of new stores or the remodeling of existing stores upon lease renewals and/or store relocations.

For the 39 weeks ended November 1, 2008, net cash provided by financing activities was $5.6 million, comprised of proceeds from investor exercises of common stock warrants, which resulted in the issuance of 1,545,720 shares of our Class A common stock, and less than $0.1 million in proceeds from exercise of stock options.

During the 39 weeks ended November 1, 2008, investors in the Company’s Convertible Preferred Stock (the “Preferred Stock”) converted $0.6 million of Preferred Stock into 185,333 shares of Class A common stock.

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Total cash and cash equivalents at November 1, 2008, was $127.6 million, compared to $100.6 million at February 2, 2008.

We maintain a $35.0 million revolving credit facility, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the agreement. Under our revolving credit facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on our line of credit under the revolving credit facility is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average Excess Availability, as defined under our revolving credit facility, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of November 1, 2008. We also incur fees on outstanding letters of credit under the revolving credit facility in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The revolving credit facility ranks senior in right of payment to our secured convertible notes. Borrowings under the revolving credit facility are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, LLC.

At November 1, 2008, the amount outstanding under the revolving credit facility consisted of $7.4 million in open commercial letters of credit related to merchandise purchases and $1.8 million in standby letters of credit. At November 1, 2008, we had $25.8 million available for cash advances and/or for the issuance of additional letters of credit. At November 1, 2008, we were in compliance with all covenant requirements in the revolving credit facility and or secured convertible notes.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, we may experience continued declines in consolidated comparable store sales or experience other events that negatively affect our operating results. If our consolidated comparable store sales drop significantly for an extended period, or we falter in execution of our business strategy, we may not achieve our financial performance goals, which could impact our results of operations and operating cash flow. This could also cause a decrease in or elimination of excess availability under our revolving credit facility, which could force us to seek alternatives to address cash constraints, including seeking additional debt and/or equity financing.

The financial performance of our business is susceptible to the recent declines in discretionary spending, availability of consumer credit and consumer confidence in the United States. Volatile fuel prices and increasing commodity costs may also cause a shift in consumer demand away from the retail clothing products that we offer. There are no guarantees that government initiatives will prevent an economic recession or stabilize factors that affect our sales and profitability. In addition, since we generate a significant portion of our revenues during our fourth fiscal quarter, recent adverse economic trends could affect us more significantly than companies in other industries.

Liquidity and Capital Resources

Net cash provided by operating activities was $26.1 million for the 26 weeks ended August 2, 2008, compared to $22.0 million for the same period last year. For the 26 weeks ended August 2, 2008, operating cash flows were due to our net income of $19.1 million, net non-cash charges (primarily depreciation and amortization, and stock-based compensation) of $11.6 million, and a decrease in other receivables relating to the collection of tenant improvement allowances of $3.9 million, partially offset by an increase in merchandise inventories, net of merchandise accounts payable, of $5.5 million, and a net use of cash from changes in other operating assets and liabilities of $3.0 million, including gift card, gift certificate and store credit breakage of $0.4 million. For the 26 weeks ended August 2, 2008, net cash used in investing activities of $8.7 million was used entirely for capital expenditures. Capital expenditures for the period were primarily for new stores, store relocations and remodeling for our Wet Seal division, and investment in new retail merchandising and point-of-sale operating systems. Capital expenditures that remain unpaid as of August 2, 2008 have increased $0.3 million since the end of fiscal 2007. We expect to pay nearly all of the total balance of such amounts payable, in the amount of $3.6 million, during the third quarter of fiscal 2008.

We estimate that, in fiscal 2008, capital expenditures will be between $21 million and $22 million, net of approximately $3.0 million in landlord tenant improvement allowances, primarily for the construction of approximately 16 planned Wet Seal stores offset by five closings at Wet Seal and 10 closings at Arden B as leases expire. The number of net new store openings can fluctuate depending on the outcome of several store lease negotiations still in process. Net capital expenditures of approximately $17 million is expected for the construction of new stores or the remodeling of existing stores upon lease renewals and/or store relocations.

For the 26 weeks ended August 2, 2008, net cash provided by financing activities was $5.6 million, comprised primarily of proceeds from investor exercises of common stock warrants, which resulted in the issuance of 1,545,720 shares of our Class A common stock, and less than $0.1 million in proceeds from exercise of stock options.

Total cash and cash equivalents at August 2, 2008, was $123.6 million, compared to $100.6 million at February 2, 2008.

We maintain a $35.0 million revolving credit facility, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the agreement. Under our revolving credit facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on our line of credit under the revolving credit facility is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average Excess Availability, as defined under our revolving credit facility, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of August 2, 2008. We also incur fees on outstanding letters of credit under the revolving credit facility in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The revolving credit facility ranks senior in right of payment to our secured convertible notes. Borrowings under the revolving credit facility are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, LLC.

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At August 2, 2008, the amount outstanding under the revolving credit facility consisted of $7.4 million in open commercial letters of credit related to merchandise purchases and $1.8 million in standby letters of credit. At August 2, 2008, we had $25.8 million available for cash advances and/or for the issuance of additional letters of credit. At August 2, 2008, we were in compliance with all covenant requirements in the revolving credit facility.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, we may experience continued declines in consolidated comparable store sales or experience other events that negatively affect our operating results. If our consolidated comparable store sales drop significantly for an extended period, or we falter in execution of our business strategy, we may not achieve our financial performance goals, which could impact our results of operations and operating cash flow. This could also cause a decrease in or elimination of excess availability under our revolving credit facility, which could force us to seek alternatives to address cash constraints, including seeking additional debt and/or equity financing.

Liquidity and Capital Resources

Net cash provided by operating activities was $13.0 million for the 13 weeks ended May 3, 2008, compared to $12.6 million for the same period last year. For the 13 weeks ended May 3, 2008, operating cash flows were directly impacted by our net income of $8.9 million, net non-cash charges (primarily depreciation and amortization, and stock-based compensation) of $4.3 million, a

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decrease in other receivables relating to the collection of tenant improvement allowances of $3.1 million and a decrease in merchandise inventories, net of merchandise accounts payable, of $0.8 million, partially offset by changes in other operating assets and liabilities of $4.1 million, including gift card, gift certificate and store credit breakage of $0.2 million. For the 13 weeks ended May 3, 2008, net cash used in investing activities of $3.9 million was used entirely for capital expenditures. Capital expenditures for the period were primarily for new stores, store relocations and remodeling for our Wet Seal division, and for various information technology projects. Capital expenditures include a $1.1 million decrease since the end of fiscal 2007 in capital assets as a result of payments made during the 13 weeks ended May 3, 2008. We expect to pay nearly all of the total balance of such amounts payable, in the amount of $2.2 million, during the second quarter of fiscal 2008.

We estimate that, in fiscal 2008, capital expenditures will be between $22 million and $23 million, net of approximately $4.0 million in landlord tenant improvement allowances, primarily for the construction of approximately 20 planned Wet Seal stores offset by four closings at Wet Seal and nine closings at Arden B as leases expire. The number of net new store openings can fluctuate depending on the outcome of several store lease negotiations still in process. Net capital expenditures of approximately $15 million to $16 million is expected for the construction of new stores or the remodeling of existing stores upon lease renewals and/or store relocations.

For the 13 weeks ended May 3, 2008, net cash provided by financing activities was less than $0.1 million, comprised of proceeds from exercise of stock options.

Total cash and cash equivalents at May 3, 2008, was $109.7 million, compared to $100.6 million at February 2, 2008.

We maintain a $35.0 million senior revolving credit facility, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the agreement. Under our senior revolving credit facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on our line of credit under the senior revolving credit facility is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average Excess Availability, as defined under our senior revolving credit facility, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of May 3, 2008. We also incur fees on outstanding letters of credit under the senior revolving credit facility in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The senior revolving credit facility ranks senior in right of payment to our secured convertible notes. Borrowings under the senior revolving credit facility are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, LLC.

At May 3, 2008, the amount outstanding under the senior revolving credit facility consisted of $6.7 million in open documentary letters of credit related to merchandise purchases and $1.8 million in standby letters of credit. At May 3, 2008, we had $26.5 million available for cash advances and/or for the issuance of additional letters of credit. At February 2, 2008, we were in compliance with all covenant requirements in the senior revolving credit facility.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, we may experience continued declines in consolidated comparable store sales or experience other events that negatively affect our operating results. If our consolidated comparable store sales drop significantly for an extended period, or we falter in execution of our business strategy, we may not achieve our financial performance goals, which could impact our results of operations and operating cash flow. This could also cause a decrease in or elimination of excess availability under our senior revolving credit facility, which could force us to seek alternatives to address cash constraints, including seeking additional debt and/or equity financing.

Liquidity and Capital Resources

Net cash provided by operating activities was $51.5 million for fiscal 2007, compared to $28.8 million for the same period last year. For fiscal 2007, operating cash flows were directly impacted by our net income of $23.2 million, net non-cash charges (primarily depreciation and amortization, asset impairment charges, and stock-based compensation) of $26.3 million, a decrease in merchandise inventories, net of merchandise accounts payable, of $1.0 million, a net source of cash from changes in other operating assets and liabilities of $4.7 million, partially offset by gift card, gift certificate and store credit breakage of $3.7 million. For fiscal 2007, net cash used in investing activities of $38.5 million was used entirely for capital expenditures. Capital expenditures

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for the period were primarily for new stores, store relocations and remodeling for our Wet Seal division, and for various information technology projects. Capital expenditures do not include a $0.1 million increase since the end of fiscal 2006 in capital assets purchased on account for which we have not yet made payment. We expect to pay nearly all of the total balance of such amounts payable, $3.3 million, during the first quarter of fiscal 2008.

We estimate that, in fiscal 2008, capital expenditures will be between $28 million and $30 million, primarily for the construction of approximately 20 to 25 new stores, remodeling or relocation of existing stores and various other store-related and information technology capital projects. We anticipate receiving between $4 million and $5 million in landlord tenant improvement allowances in connection with certain of our new store lease agreements. We anticipate closing approximately 15 to 25 stores upon lease expirations during the course of the year, which would result in relatively flat, or nominally increased, net store count growth for fiscal 2008.

For fiscal 2007, net cash used in financing activities was $17.6 million, comprised primarily of $20.1 million used to repurchase 3.6 million shares of our Class A common stock pursuant to a 4.0 million share repurchase authorization granted by our Board of Directors on March 28, 2007, partially offset by $2.3 million in proceeds from investor exercises of common stock warrants. Our Board of Directors has suspended our authority to make further share repurchases under the March 28, 2007, authorization.

Total cash and cash equivalents at February 2, 2008, was $100.6 million, compared to $105.3 million at February 3, 2007.

We maintain a $35.0 million senior revolving credit facility, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the agreement. Under our senior revolving credit facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on our line of credit under the senior revolving credit facility is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average Excess Availability, as defined under our senior revolving credit facility, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of February 2, 2008. We also incur fees on outstanding letters of credit under the senior revolving credit facility in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The senior revolving credit facility ranks senior in right of payment to our secured convertible notes. Borrowings under the senior revolving credit facility are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, LLC.

At February 2, 2008, the amount outstanding under the senior revolving credit facility consisted of $3.0 million in open documentary letters of credit related to merchandise purchases and $1.7 million in standby letters of credit. At February 2, 2008, we had $30.3 million available for cash advances and/or for the issuance of additional letters of credit. At February 2, 2008, we were in compliance with all covenant requirements in the senior revolving credit facility.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, we may experience continued declines in consolidated comparable store sales or experience other events that negatively affect our operating results. If our consolidated comparable store sales drop significantly for an extended period of time, or we falter in execution of our business strategy, we may not achieve our financial performance goals, which could impact our results of operations and

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operating cash flow. This could also cause a decrease in or elimination of excess availability under the Facility, which could force us to seek alternatives to address cash constraints, including seeking additional debt and/or equity financing.

Liquidity and Capital Resources

Net cash provided by operating activities was $22.9 million for the 39 weeks ended November 3, 2007, compared to $7.7 million for the same period last year. For the 39 weeks ended November 3, 2007, operating cash flows were directly impacted by our net income of $11.0 million, net non-cash charges (primarily depreciation and amortization and stock-based compensation) of $16.8 million, and a net source of cash from changes in other operating assets and liabilities of $4.3 million, partially offset by an increase in merchandise inventories, net of merchandise accounts payable, of $9.2 million. For the 39 weeks ended November 3, 2007, net cash used in investing activities of $90.8 million was comprised of net investments in marketable securities of $60.2 million and capital expenditures of $30.5 million. Capital expenditures for the period were primarily for new stores and store relocations and remodeling for our Wet Seal concept and for various information technology projects. Capital expenditures do not include a $2.9 million increase since the end of fiscal 2006 in capital assets purchased on account for which we have not yet made payment. We expect to pay nearly all of the total balance of such amounts payable, $6.1 million, during the fourth quarter of fiscal 2007.

We estimate that, in fiscal 2007, capital expenditures will be approximately $40.9 million, primarily for the construction of approximately 78 new stores, remodeling or relocation of existing stores and various other store-related and information technology capital projects. We anticipate receiving approximately $11.6 million in landlord tenant improvement allowances in connection with certain of our new store lease agreements. We anticipate closing approximately 11 stores upon lease expirations during the course of the year, of which we have already closed six stores during the 39 weeks ended November 3, 2007, which would result in a net store count increase of approximately 67 stores in fiscal 2007.

For the 39 weeks ended November 3, 2007, net cash used in financing activities was $17.6 million, comprised primarily of $20.1 million used to repurchase 3.6 million shares of our Class A common stock pursuant to a 4.0 million share repurchase authorization granted by our board of directors on March 28, 2007, partially offset by $2.3 million in proceeds from investor exercises of common stock warrants. For the time being, our board of directors has suspended our authority to make further share repurchases under the March 28, 2007, authorization.

Total cash and cash equivalents at November 3, 2007, was $19.8 million, compared to $105.3 million at February 3, 2007. Combined cash and cash equivalents and marketable securities, which are comprised of highly liquid auction rate securities, totaled $80.1 million as of November 3, 2007.

We maintain a $35.0 million Facility, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the Facility. Under the Facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on the revolving line of credit under the Facility is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average Excess Availability, as defined under the Facility, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of November 3, 2007. We also incur fees on outstanding letters of credit under the Facility in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The Facility ranks senior in right of payment to our secured convertible notes. Borrowings under the Facility are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, Inc.

At November 3, 2007, the amount outstanding under the Facility consisted of $8.6 million in open documentary letters of credit related to merchandise purchases and $1.7 million in standby letters of credit. At November 3, 2007, we had $24.7 million available for cash advances and/or for the issuance of additional letters of credit. At November 3, 2007, we were in compliance with all covenant requirements in the Facility.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, we may experience continued declines in comparable store sales or experience other events that negatively affect our operating results. If our comparable store sales drop significantly for an extended period of time, or we falter in execution of our business strategy, we may not achieve our financial performance goals, which could impact our results of operations and operating cash flow. This could also cause a decrease in or elimination of excess availability under the Facility, which could force us to seek alternatives to address cash constraints, including seeking additional debt and/or equity financing.

Liquidity and Capital Resources

Net cash provided by operating activities was $22.0 million for the 26 weeks ended August 4, 2007, compared to net cash used in operating activities of $3.8 million for the same period last year. For the 26 weeks ended August 4, 2007, operating cash flows were directly impacted by our net income of $14.3 million, net non-cash charges (primarily depreciation and amortization and stock-based compensation) of $9.9 million, and a net source of cash from changes in other operating assets and liabilities of $3.6 million, partially offset by an increase in merchandise inventories, net of merchandise accounts payable, of $5.8 million. For the 26 weeks ended August 4, 2007, net cash used in investing activities of $69.5 million was comprised of net investments in marketable securities of $50.4 million and capital expenditures of $19.1 million. Capital expenditures for the period were primarily for new stores and store relocations and remodeling for our Wet Seal concept and for various information technology projects. Capital expenditures do not include a $2.0 million increase since the end of fiscal 2006 in capital assets purchased on account for which we have not yet made payment due to an increase in capital expenditure activity. We expect such payments will be made primarily during the third quarter of fiscal 2007.

We estimate that, in fiscal 2007, capital expenditures will be approximately $48.0 million, primarily for the construction of approximately 78 new stores, remodeling or relocation of existing stores and various other store-related and information technology capital projects. We anticipate receiving approximately $9 million in landlord tenant improvement allowances in connection with certain of our new store lease agreements. We anticipate closing approximately 15 stores upon lease expirations during the course of the year, which would result in a net store count increase of approximately 63 stores in fiscal 2007.

For the 26 weeks ended August 4, 2007, net cash used in financing activities was $14.7 million, comprised primarily of $17.2 million used to repurchase 3.0 million shares of our Class A common stock pursuant to a 4.0 million share repurchase authorization granted by our Board of Directors on March 28, 2007, partially offset by $2.3 million in proceeds from investor exercises of common stock warrants. Subsequent to August 4, 2007, we paid $2.9 million on the settlement dates for repurchases of 0.6 million shares of our Class A common stock for which trades had been executed during our second fiscal quarter. Future repurchases by us of our Class A common stock are at our option and can be discontinued at any time.

Total cash and cash equivalents at August 4, 2007, was $43.0 million, compared to $105.3 million at February 3, 2007. Combined cash and cash equivalents and marketable securities, which are comprised of highly liquid auction rate securities, totaled $93.4 million as of August 4, 2007.

We maintain a $35.0 million senior revolving credit facility (the Facility), which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the Facility. Under the Facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on the revolving line of credit under the Facility is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average Excess Availability, as defined under the Facility, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of August 4, 2007. We also incur fees on outstanding letters of credit under the Facility in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The Facility ranks senior in right of payment to our secured convertible notes. Borrowings under the Facility are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, Inc.

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At August 4, 2007, the amount outstanding under the Facility consisted of $6.9 million in open documentary letters of credit related to merchandise purchases and $1.8 million in standby letters of credit. At August 4, 2007, we had $26.3 million available for cash advances and/or for the issuance of additional letters of credit. At August 4, 2007, we were in compliance with all covenant requirements in the Facility.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, we may experience future declines in comparable store sales or experience other events that negatively affect our operating results. Such decline could result in a reduction in our operating cash flows and a decrease in or elimination of excess availability under our Facility, which could force us to seek alternatives to address our cash constraints, including seeking additional debt and/or equity financing.

Liquidity and Capital Resources

Net cash provided by operating activities was $12.6 million for the 13 weeks ended May 5, 2007, compared to $0.5 million for the same period last year. For the 13 weeks ended May 5, 2007, operating cash flows were directly impacted by our net income of $7.6 million, net non-cash charges (primarily depreciation and amortization and stock-based compensation) of $4.8 million, and a decrease in merchandise inventories, net of merchandise accounts payable, of $0.8 million, partially offset by a net use of cash from changes in other operating assets and liabilities of $0.6 million. For the 13 weeks ended May 5, 2007, net cash used in investing activities of $32.6 million was comprised primarily of net investments in marketable securities of $22.4 million and capital expenditures of $10.2 million. Capital expenditures for the period were primarily for new stores and store relocations and remodeling for our Wet Seal concept and for various information technology projects. Capital expenditures do not include a $2.5 million increase since the end of fiscal 2006 in capital assets purchased on account for which we have not yet made payment due to an increase in capital expenditure activity. We expect such payments will be made primarily during the second quarter of fiscal 2007.

We estimate that, in fiscal 2007, capital expenditures will be approximately $47.0 million, primarily for the construction of 69 to 73 new stores, remodeling or relocation of existing stores and various other store-related capital projects. We anticipate receiving approximately $10 million in landlord tenant improvement allowances in connection with certain of our new store lease agreements. We anticipate closing approximately 14 stores upon lease expirations during the course of the year, which would result in a net store count increase of approximately 55 to 59 stores in fiscal 2007.

For the 13 weeks ended May 5, 2007, net cash used in financing activities was $3.9 million, comprised primarily of $6.4 million used to repurchase 1.0 million shares of our Class A common stock pursuant to a 4.0 million share repurchase authorization granted by our Board of Directors on March 28, 2006, partially offset by $2.3 million in proceeds from investor exercises of common stock warrants. Future repurchases by us of our Class A common stock are at our option and can be discontinued at any time.

Total cash and cash equivalents at May 5, 2007, was $81.3 million, compared to $105.3 million at February 3, 2007.

We maintain a $35.0 million senior revolving credit facility (the Facility), which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the Facility. Under the Facility, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on the revolving line of credit under the Facility is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR

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margin is based on the level of average Excess Availability, as defined under the Facility, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of May 5, 2007. We also incur fees on outstanding letters of credit under the Facility in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The Facility ranks senior in right of payment to our secured convertible notes. Borrowings under the Facility are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, Inc.

At May 5, 2007, the amount outstanding under the Facility consisted of $9.0 million in open documentary letters of credit related to merchandise purchases and $1.8 million in standby letters of credit. At May 5, 2007, we had $24.2 million available for cash advances and/or for the issuance of additional letters of credit. At May 5, 2007, we were in compliance with all covenant requirements in the Facility.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, we may experience future declines in comparable store sales or experience other events that negatively affect our operating results. Such decline could result in a reduction in our operating cash flows and a decrease in or elimination of excess availability under our Facility, which could force us to seek alternatives to address our cash constraints, including seeking additional debt and/or equity financing.

Liquidity and Capital Resources

Net cash provided by operating activities was $28.8 million for fiscal 2006, compared to $11.0 million for the same period last year. For fiscal 2006, operating cash flows were directly impacted by net non-cash charges (primarily stock compensation expense, depreciation and amortization, and amortization of debt discount and deferred financing costs) of $59.8 million, partially offset by our net loss of $12.8 million; an increase in merchandise inventories, net of merchandise accounts payable of $11.6 million due to our increased store count, an increase in average inventory per store, and a decrease in merchandise accounts payable versus a year ago due to variances in the timing of inventory receipts near year-end; and a use of cash from changes in other operating assets and liabilities of $6.6 million due primarily to our payment of February 2007 store rents prior to the end of fiscal 2006. For fiscal 2006, net cash used in investing activities of $16.7 million was comprised primarily of capital expenditures. Capital expenditures for the period were primarily for new stores and store relocations and remodeling for our Wet Seal concept and for various information technology projects. Capital expenditures do not include $3.2 million in capital assets purchased on account for which we have not yet made payment, which is $2.9 million higher than the similar balance as of the end of fiscal 2005 due to increase capital expenditure activity in late fiscal 2006. We expect such payments will be made primarily during the first quarter of fiscal 2007.

We estimate that, in fiscal 2007, capital expenditures will be approximately $47.0 million, primarily for the construction of 68 to 72 new stores, remodeling or relocation of existing stores and various other store-related capital projects. We anticipate receiving approximately $10 million in landlord tenant improvement allowances in connection with certain of our new store lease agreements.

For fiscal 2006, net cash used in financing activities was $3.7 million, comprised primarily of the repayment of our $8.0 million term loan and common stock repurchases for a cost of $15.1 million, partially offset by $19.3 million in proceeds from investor exercises of common stock warrants. On March 28, 2006, our Board of Directors authorized the repurchase of up to 4.0 million of the outstanding shares of our Class A Common Stock. Repurchases are at our option and can be discontinued at any time.

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Total cash and cash equivalents at February 3, 2007, was $105.3 million, compared to $96.8 million at January 28, 2006. Our working capital at February 3, 2007, increased to $90.0 million from $65.2 million at January 28, 2006, due primarily to our increase in cash, merchandise inventories and prepaid expenses, especially prepaid rents, and our decrease in accounts payable, partially offset by our increase in accrued liabilities during fiscal 2006.

We previously maintained a $50.0 million senior revolving credit facility (the Facility), which was scheduled to mature in May 2007. On August 14, 2006, we replaced the Facility with an Amended and Restated Credit Agreement (the Restated Credit Agreement) to provide for a senior revolving credit facility of $35.0 million, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the Restated Credit Agreement. In addition to extending the current agreement term from May 2007 to May 2011, the Restated Credit Agreement provides us, subject to the satisfaction of certain conditions precedent, with the ability to make certain levels of investments, acquisitions and common stock repurchases without lender consent, and reduces our letter of credit and other facility fees. Under the Restated Credit Agreement, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on the revolving line of credit under the Restated Credit Agreement is the prime rate or, if we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average Excess Availability, as defined under the Restated Credit Agreement, at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of February 3, 2007. We also incur fees on outstanding letters of credit under the Restated Credit Agreement in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The Restated Credit Agreement ranks senior in right of payment to our secured convertible notes. Borrowings under the Restated Credit Agreement are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by one of our wholly owned subsidiaries, Wet Seal GC, Inc.

At February 3, 2007, the amount outstanding under the Restated Credit Agreement consisted of $5.3 million in open documentary letters of credit related to merchandise purchases and $1.3 million in standby letters of credit. At February 3, 2007, we had $28.4 million available for cash advances and/or for the issuance of additional letters of credit. At February 3, 2007, we were in compliance with all covenant requirements in the Restated Credit Agreement.

We believe we will have sufficient cash and credit availability to meet our operating and capital requirements for at least the next 12 months. However, we may experience future declines in comparable store sales or experience other events that negatively affect our operating results. Such decline could result in a reduction in our operating cash flows and a decrease in or elimination of excess availability under our Restated Credit Agreement, which could force us to seek alternatives to address our cash constraints, including seeking additional debt and/or equity financing.

Liquidity and Capital Resources

Net cash provided by operating activities was $11.0 million for fiscal 2005, compared to net cash used in operating activities of $77.4 million for the same period last year. For fiscal 2005, operating cash flows were directly impacted by net non-cash charges (primarily stock compensation, depreciation and amortization, amortization of debt discount and deferred financing costs and payment-in-kind interest expense) of $52.3 million, partially offset by cash used in changes in other operating assets and liabilities of $11.9 million, including an increase in merchandise inventories, net of merchandise accounts payable, of $3.6 million, and payment of $15.5 million in store closure costs associated with our closure of 153 Wet Seal stores in late fiscal 2004 and early fiscal 2005, partially offset by our net loss of $29.4 million,. At January 28, 2006, the net owned inventory ratio was 1.83 compared to the ratio of 1.76 on January 29, 2005. The slight increase in the inventory ratio was due to shorter vendor credit terms. While we believe we could now obtain longer credit terms with several vendors as a result of our improved financial performance, we continue to maintain shorter credit terms in order to take advantage of favorable purchase discounts.

For fiscal 2005, net cash used in investing activities of $5.3 million was comprised of capital expenditures of $5.4 million, partially offset by proceeds from sales of furniture, fixtures and equipment of $0.1 million. Capital expenditures for the period were primarily for new store development and store relocations for our Arden B. concept.

We estimate that, in fiscal 2006, capital expenditures will be approximately $15.0 million to $17.0 million, primarily for the construction of 20 to 25 new stores and remodeling of existing stores.

For fiscal 2005, net cash provided by financing activities was $19.4 million, comprised primarily of $24.6 million in proceeds from our issuance of Preferred Stock on May 3, 2005, and $7.4 million in proceeds from investor exercises of common stock warrants, of which $6.4 million occurred concurrently with the Preferred Stock issuance and $1.0 million of proceeds from exercise of stock options, partially offset by payment of $1.6 million for the Preferred Stock and other equity financing transaction costs, payment of $11.9 million of principal and interest to retire our $10.0 million bridge loan and payment of $0.1 million of deferred financing costs.

Total cash and cash equivalents at January 28, 2006, was $96.8 million, compared to $71.7 million at January 29, 2005. Our working capital at January 28, 2006, increased to $69.2 million from $26.9 million at January 29, 2005, due primarily to our increase in cash and cash equivalents and repayment of our bridge loan during fiscal 2005.

As of January 28, 2006, we had a $58.0 million secured revolving credit facility. The Facility consists of a $50.0 million senior secured revolving line-of-credit with a $50.0 million sublimit for letters of credit, and an $8.0 million junior secured term loan. Additional information regarding the Facility is contained in Note 6, “Bridge Loan Payable, Long-Term Debt and Secured Convertible Notes,” of the Notes to Consolidated Financial Statements.

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At January 28, 2006, the amount outstanding under the Facility consisted of an $8.0 million junior secured term loan, $7.3 million in open documentary letters of credit related to merchandise purchases and $11.9 million in standby letters of credit, which included $10.0 million for inventory purchases. At January 28, 2006, we had $30.8 million available for cash advances and/or for the issuance of additional letters of credit under the Facility. Our ability to borrow and request the issuance of letters of credit is also subject to the requirement that we maintain an excess of our borrowing base over the outstanding credit extensions of not less than the lesser of 15% of such borrowing base or $5.0 million. At January 28, 2006, we were in compliance with all covenant requirements related to the Facility. Subsequent to January 28, 2006, we repaid and retired the $8.0 million junior secured term loan and reduced the standby letter of credit for inventory purchases to $5.0 million.

As a result of our operating losses over the past three years, primarily those in fiscal 2004 and fiscal 2003, we experienced a tightening of credit extended to us by vendors, factors, and others for merchandise and services. The impact of this credit tightening required us to issue letters of credit outside of the ordinary course of business, or, in many instances, shorten vendor credit terms. All of these factors led us to seek additional financing for the purpose of executing our turn-around strategy, funding future negative cash flows from operations, satisfying working capital needs, funding capital expenditures in fiscal 2005 and improving our creditworthiness. During fiscal 2004, we raised approximately $92.7 million in net proceeds through a series of financings to meet our cash needs. In addition, on May 3, 2005, we completed a private placement of convertible preferred stock and common stock warrants and received the net proceeds outlined in the above discussion about net cash provided by financing activities. See Note 7, “Convertible Preferred Stock and Common Stock Warrants,” in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K/A for additional information regarding this transaction.

For fiscal 2005, we experienced a comparable store sales increase of 44.7%. This comparable store sales increase was the first in over two years, and resulted primarily from our new merchandise approach in our Wet Seal stores, a key component of our turn-around strategy that we initiated in January 2005. In light of our improvement in comparable store sales and our cash position of $96.8 million at January 28, 2006, we believe, if current sales trends continue, we will have sufficient cash to meet our operating and capital requirements for the next 12 months. However, we cannot assure you that we will not experience future declines in comparable store sales.

In addition, in the future we may consider opportunities to acquire retail businesses that we believe complement our existing business concepts and/or repurchase portions of our common stock, secured convertible notes or Preferred Stock if we believe such opportunities represent an appropriate use of our cash.

Liquidity and Capital Resources

Net cash provided by operating activities was $7.7 million for the 39 weeks ended October 28, 2006, compared to net cash used in operating activities of $15.5 million for the same period last year. For the 39 weeks ended October 28, 2006, operating cash flows were directly impacted by net non-cash items (primarily stock compensation expense, depreciation and amortization, and amortization of debt discount and deferred financing costs) of $40.7 million, partially offset by our net loss of $7.2 million, an increase in merchandise inventories, net of merchandise accounts payable, of $20.8 million due to seasonal inventory build, opportunistic purchases in advance of the fall season and an increase in store count, and a use of cash from changes in other operating assets and liabilities of $5.0 million due to seasonal fluctuations partially offset by an increase in our deferred rent liability due to new store openings.

For the 39 weeks ended October 28, 2006, net cash used in investing activities of $8.8 million was comprised primarily of capital expenditures. Capital expenditures for the period were primarily for store relocations and remodeling for our Wet Seal concept and for various information technology projects. Capital expenditures do not include $6.5 million of capital assets purchased on account for which we have not yet made payment. We expect such payments will be made primarily during the fourth quarter of this year. We estimate that, in fiscal 2006, capital expenditures will be approximately $20 million, primarily for the construction of 36 new stores and remodeling of existing stores.

We do not expect store closures in 2006 other than those associated with natural lease expirations for which an acceptable renewal cannot be negotiated. Accordingly, we have not incurred lease buyout or termination fees during the 39 weeks ended October 28, 2006, and do not anticipate incurring any such fees through the remainder of fiscal 2006.

For the 39 weeks ended October 28, 2006, net cash used in financing activities was $18.6 million, comprised primarily of the repayment of our $8.0 million term loan and common stock repurchases and retirement of $12.7 million, partially offset by $2.1 million in proceeds from investor exercises of common stock warrants. Under our existing share repurchase program, we had authorization to purchase up to 2,309,865 additional shares as of October 28, 2006. Repurchases are at our option and can be discontinued at any time.

Total cash and cash equivalents at October 28, 2006, was $77.1 million, compared to $96.8 million at January 28, 2006. Our working capital at October 28, 2006, increased to $70.0 million from $69.2 million at January 28, 2006, due primarily to our increase in merchandise inventories and our decrease in accrued liabilities, partially offset by our decrease in cash and increase in accounts payable during the 39 weeks ended October 28, 2006.

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We previously maintained a $50.0 million senior revolving credit facility (the Facility), which was scheduled to mature in May 2007. On August 14, 2006, we replaced the Facility with the Amended and Restated Credit Agreement to provide for a senior revolving credit facility of $35.0 million, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the Restated Credit Agreement. In addition to extending the current agreement term from May 2007 to May 2011, the Restated Credit Agreement provides us, subject to the satisfaction of certain conditions precedent, with the ability to make certain levels of investments, acquisitions and common stock repurchases without lender consent, and reduces our letter of credit and other facility fees. Under the Restated Credit Agreement, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on the revolving line of credit under the Restated Credit Agreement is the prime rate or, we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average Excess Availability under the Restated Credit Agreement at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of October 28, 2006. We also incur fees on outstanding letters of credit under the Restated Credit Agreement in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The Restated Credit Agreement ranks senior in right of payment to our secured convertible notes. Borrowings under the Restated Credit Agreement are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by our wholly owned subsidiary, Wet Seal GC, Inc.

At October 28, 2006, the amount outstanding under the Restated Credit Agreement consisted of $6.3 million in open documentary letters of credit related to merchandise purchases and $1.3 million in standby letters of credit. At October 28, 2006, we had $27.4 million available for cash advances and/or for the issuance of additional letters of credit. At October 28, 2006, we were in compliance with all covenant requirements in the Facility.

We believe we will have sufficient cash to meet our operating and capital requirements for the next 12 months. However, we may experience future declines in comparable store sales or experience other events that negatively affect our operating results. Such decline could result in a reduction in our operating cash flows and a decrease in or elimination of excess availability under our Restated Credit Agreement, which could force us to seek alternatives to address our cash constraints, including seeking additional debt and/or equity financing.

Liquidity and Capital Resources

Net cash used in operating activities was $3.8 million for the 26 weeks ended July 29, 2006, compared to net cash used in operating activities of $20.9 million for the same period last year. For the 26 weeks ended July 29, 2006, operating cash flows were directly impacted by net non-cash items (primarily stock compensation expense, depreciation and amortization, and amortization of debt discount and deferred financing costs) of $31.3 million, partially offset by our net loss of $9.6 million, an increase in merchandise inventories, net of merchandise accounts payable, of $19.0 million due to seasonal inventory build and opportunistic purchases in advance of the fall season, and a use of cash from changes in other operating assets and liabilities of $6.5 million due to seasonal fluctuations and a continued run-off of our deferred rent liability. Our increase in merchandise inventories resulted primarily from seasonal build for the back-to-school selling season and opportunistic advance purchases of certain fall season items that we began to distribute to our stores in August.

For the 26 weeks ended July 29, 2006, net cash used in investing activities of $2.3 million was comprised primarily of capital expenditures. Capital expenditures for the period were primarily for store relocations and remodeling for our Wet Seal concept and for various information technology projects. We estimate that, in fiscal 2006, capital expenditures will be approximately $20 million, primarily for the construction of approximately 35 new stores and remodeling of existing stores.

We do not expect store closures in 2006 other than those associated with natural lease expirations for which an acceptable renewal cannot be negotiated. Accordingly, we have not incurred lease buyout or termination fees during the 26 weeks ended July 29, 2006, and do not anticipate incurring any such fees through the remainder of fiscal 2006.

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For the 26 weeks ended July 29, 2006, net cash used in financing activities was $13.0 million, comprised primarily of the repayment of our $8.0 million term loan and common stock repurchases of $7.1 million, partially offset by $2.1 million in proceeds from investor exercises of common stock warrants. Under our existing share repurchase program, we had authorization to purchase up to 3,353,100 additional shares as of July 29, 2006. Repurchases are at our option and can be discontinued at any time.

Total cash and cash equivalents at July 29, 2006, was $77.6 million, compared to $96.8 million at January 28, 2006. Our working capital at July 29, 2006, increased to $70.5 million from $69.2 million at January 28, 2006, due primarily to our increase in merchandise inventories and our decrease in accrued liabilities, partially offset by our decrease in cash and increase in merchandise accounts payable during the 26 weeks ended July 29, 2006.

As of July 29, 2006, we had a $50.0 million senior secured revolving credit facility consisting of a $50.0 million revolving line of credit with a $50.0 million sub-limit for letters of credit. Additional information regarding the Facility is contained in Note 4, “Senior Credit Facility, Secured Convertible Notes, Convertible Preferred Stock and Common Stock Warrants,” of the Notes to Condensed Consolidated Financial Statements.

At July 29, 2006, the amount outstanding under the Facility consisted of $4.5 million in open documentary letters of credit related to merchandise purchases and $1.3 million in standby letters of credit. At July 29, 2006, we had $44.2 million available for cash advances and/or for the issuance of additional letters of credit. Our ability to borrow and request the issuance of letters of credit is also subject to the requirement that we maintain an excess of our borrowing base over the outstanding credit extensions of not less than the lesser of 15% of such borrowing base or $5.0 million. At July 29, 2006, we were in compliance with all covenant requirements related to the Facility.

On August 14, 2006, we replaced the Facility with the Amended and Restated Credit Agreement to provide for a senior revolving credit facility of $35.0 million, which can be increased up to $50.0 million in the absence of any default and upon the satisfaction of certain conditions precedent specified in the Restated Credit Agreement. In addition to extending the current agreement term from May 2007 to May 2011, the Restated Credit Agreement provides us, subject to the satisfaction of certain conditions precedent, with the ability to make certain levels of investments, acquisitions and common stock repurchases without lender consent, and reduces our letter of credit and other facility fees. Under the Restated Credit Agreement, we are subject to borrowing base limitations on the amount that can be borrowed and certain customary covenants, including covenants limiting our ability to incur additional indebtedness, make investments and acquisitions, grant liens, pay dividends, close stores and dispose of assets, subject to certain exceptions. Our ability to borrow and request the issuance of letters of credit is subject to the requirement that we maintain an excess of the borrowing base over the outstanding credit extensions of not less than $5.0 million. The interest rate on the revolving line of credit under the Restated Credit Agreement is the prime rate or, we elect, the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 1.0% to 1.5%. The applicable LIBOR margin is based on the level of average Excess Availability under the Restated Credit Agreement at the time of election, as adjusted quarterly. The applicable LIBOR margin was 1.0% as of August 14, 2006. We also incur fees on outstanding letters of credit under the Restated Credit Agreement in effect at a rate equal to the applicable LIBOR margin for standby letters of credit and 33.3% of the applicable LIBOR margin for commercial letters of credit.

The Restated Credit Agreement ranks senior in right of payment to our secured convertible notes. Borrowings under the Restated Credit Agreement are secured by all of our presently owned and hereafter acquired assets. Our obligations thereunder are guaranteed by our wholly owned subsidiary, Wet Seal GC, Inc.

We believe we will have sufficient cash to meet our operating and capital requirements for the next twelve months. However, we cannot assure that we will not experience future declines in comparable store sales or experience other events that negatively affect our operating results. Such decline could result in a reduction in our operating cash flows and a decrease in or elimination of excess availability under our Restated Credit Agreement, which could force us to seek alternatives to address our cash constraints, including seeking additional debt and/or equity financing.

Liquidity and Capital Resources

Net cash provided by operating activities was $0.5 million for the 13 weeks ended April 29, 2006, compared to net cash used in operating activities of $22.9 million for the same period last year. For the 13 weeks ended April 29, 2006, operating cash flows were directly impacted by net non-cash items (primarily stock compensation expense, depreciation and amortization, and amortization of debt discount and deferred financing costs) of $27.0 million, partially offset by our net loss of $14.0 million, an increase in merchandise inventories, net of merchandise accounts payable, of $9.5 million, and a use of cash from changes in other operating assets and liabilities of $3.0 million. During the 13 weeks ended April 29, 2006, merchandise accounts payable decreased despite an increase in merchandise inventories due to fluctuations in payment timing and our maintenance of substantially consistent payment terms with vendors during the period. As discussed earlier herein at “Current Trends and Outlook – Credit Extensions,” we obtained longer credit terms, while retaining our existing purchase discount arrangements, with several vendors for merchandise orders placed in April 2006 and thereafter. We expect to begin experiencing benefits of such longer vendor credit terms during the second quarter of fiscal 2006.

For the 13 weeks ended April 29, 2006, net cash used in investing activities of $1.3 million was comprised of capital expenditures. Capital expenditures for the period were primarily for store relocations and remodeling for our Wet Seal concept and for various information technology projects. We estimate that, in fiscal 2006, capital expenditures will be approximately $15.0 million to $17.0 million, primarily for the construction of 20 to 25 new stores and remodeling of existing stores.

For the 13 weeks ended April 29, 2006, net cash used in financing activities was $8.6 million, comprised primarily of the repayment of our $8.0 million term loan and common stock repurchases of $2.7 million, partially offset by $2.1 million in proceeds from investor exercises of common stock warrants.

Total cash and cash equivalents at April 29, 2006, was $87.5 million, compared to $96.8 million at January 28, 2006. Our working capital at April 29, 2006, increased to $70.8 million from $69.2 million at January 28, 2006, due primarily to our increase in merchandise inventories and our decrease in merchandise accounts payable and accrued liabilities, partially offset by our decrease in cash during the 13 weeks ended April 29, 2006.

As of April 29, 2006, we had a $50.0 million senior secured revolving credit facility (the “Facility”) consisting of a $50.0 million revolving line of credit with a $50.0 million sub-limit for letters of credit. Additional information regarding the Facility is contained in Note 4, “Bridge Loan Payable, Long-Term Debt and Secured Convertible Notes,” of the Notes to Condensed Consolidated Financial Statements.

At April 29, 2006, the amount outstanding under the Facility consisted of $8.8 million in open documentary letters of credit related to merchandise purchases and $6.9 million in standby letters of credit. At April 29, 2006, we had $34.3 million available for cash advances and/or for the issuance of additional letters of credit. Our ability to borrow and request the issuance of letters of credit is also subject to the requirement that we maintain an excess of our borrowing base over the outstanding credit extensions of not less than the lesser of 15% of such borrowing base or $5.0 million. At April 29, 2006, we were in compliance with all covenant requirements related to the Facility.

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In light of our improvement in operating results during fiscal 2005, continuation thereof during the 13 weeks ended April 29, 2006, and our cash position of $87.5 million at April 29, 2006, we believe we will have sufficient cash to meet our operating and capital requirements for the next 12 months. However, we cannot assure that we will not experience future declines in operating results.