Merchandising Model at Wet Seal Focused on Fast Fashion at Affordable Prices. At Wet Seal, we have developed considerable expertise in identifying, stocking and selling a broad assortment of fresh, fashionable apparel and accessories at competitive prices. Our buyers work closely with senior management to determine the optimal product selection, promotion and pricing strategy. A significant portion of our merchandise is sourced domestically. This sourcing strategy enables us to ship new merchandise to the stores with high frequency. We also take regular markdowns to effect the rapid sale of slow-moving inventory.

Improved Financial Condition. Since the completion of a recapitalization of our company in May 2005, our financial condition has improved materially. During fiscal 2005 and fiscal 2006, we realized seven out of eight consecutive quarters of positive comparable store sales growth and had positive cash flow from operations in each of those fiscal years.

Due to the strength of our financial performance since the end of fiscal 2004, we have been able to reduce our outstanding indebtedness. Through fiscal 2006, $47.9 million in principal amount of our convertible notes had been converted into shares of our Class A Common Stock. We used the proceeds from a May 2005 financing transaction to repay a bridge loan that we received from investors in a January 2005 recapitalization of our company. In addition, in March 2006, we repaid the $8.0 million outstanding balance of a junior secured term loan under our then existing credit facility.

As of February 3, 2007, our total debt, net of discount, is $2.7 million, stockholders? equity is $116.8 million and cash and cash equivalents is $105.3 million.

This improvement in our financial condition allows us to invest in opening new Wet Seal and Arden B stores.