UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K10-K/A

AMENDMENT NO. 1

(Mark One)

For the fiscal year ended January 29, 2005

OR

Commission file number 0-18632

THE WET SEAL, INC.

(Exact name of registrant as specified in its charter)

(949) 583-9029

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark whether the registrantRegistrant (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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant’sRegistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K.  Yes  x    No  ¨

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

The aggregate market value of voting stock held by non-affiliates as of July 31, 2004 was approximately $176,769,000 based on the closing sale price of $5.10 per share as reported on the NASDAQ National Market on July 30, 2004, the last business day of the registrant’sRegistrant’s most recently completed second fiscal quarter.

The number of shares outstanding of the Registrant’s Class A Common Stock, par value $.10 per share, at April 27,May 16, 2005 was 41,250,582.44,610,579. There were no shares outstanding of Class B Common Stock, par value $.10 per share, or Preferred Stock, par value $.01 per share, outstanding at April 27,May 16, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

PART III of this Annual Report incorporates information by reference from the Registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be filed with the SEC within 120 days of January 29, 2005.None.

PART IEXPLANATORY NOTE

Item 1.    Business

General

We are a national specialty retailer operating stores selling fashionable and contemporary apparel and accessory items designed for female customers. We are a Delaware corporation that operates two nationwide, primarily mall-based, chains of retail stores underThis Amendment No. 1 to the names “Wet Seal” and “Arden B.” At January 29, 2005, we had 502 retail stores in 46 states, Puerto Rico and Washington D.C. Of the 502 stores, there were 408 locations within the Wet Seal chain and 94 were Arden B. locations. As a part of our financial turn-around strategy to improve our company’s operating results, we announced on December 28, 2004 our plans to close approximately 150 Wet Seal stores. We completed the closure of 153 Wet Seal stores, related to our announced store closure plans by March 5, 2005. We ceased use of the property at 103 stores on or about January 29, 2005 with the remaining 50 stores closing in February and March 2005. (See Item 7 “Store Closures”).

All references to “we”, “our”, “us”, and “our company” in this Annual Report mean The Wet Seal, Inc. and its wholly owned subsidiaries. The use of references to trademarks or service marks in this Annual Report that are owned by any other person should not be understood to indicate any claim over or ownership of such marks by our company. Our Annual Report on Form 10-K quarterly reportsof The Wet Seal, Inc. amends the Company’s Annual Report on Form 10-Q, current reports10-K for the year ended January 29, 2005 filed with the Securities and Exchange Commission on April 29, 2005. This Amendment No. 1 is being filed to include disclosures required by Part III of Form 10-K. Since our proxy statement was not filed by the 120th day after the end of our last fiscal year, parts of the definitive proxy statement will not be incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of the Annual Report on Form 8-K10-K as originally intended. In addition, Item 15 of Part IV of the Form 10-K has been amended to contain, pursuant to the Rules of the Securities and allExchange Commission, currently-dated certifications from our Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

This Amendment No. 1 does not reflect events occurring after the filing of the Form 10-K or modify or update those disclosures affected by subsequent events. Accordingly, this Amendment No. 1 should be read in conjunction with our other filings made with the Securities and Exchange Commission subsequent to the filing of the Form 10-K, including any amendments to those reportsfilings. Except as described above, the information contained in our Annual Report on Form 10-K as originally filed with the Securities and Exchange Commission has not been updated or amended.

Item 10.    Directors and Executive Officers of the proxy statement for ourRegistrant

Directors

The Company’s Bylaws give the Board of Directors the power to set the number of directors at no less than three nor more than fifteen. The Company’s Board of Directors currently has six members who are elected annually. The directors so elected will serve until the next annual meeting of stockholders are made available, free of charge, on our web site,www.wetsealinc.com, as soon as reasonably practicable after such reports have been filed with or furnished to the Commission. The content of our websites (the Wet Seal, Inc., Wet Seal and Arden B.) is not intended to be incorporated by reference in this Annual Report.until his earlier resignation, retirement or removal.

Store Formats

Wet Seal.    Founded in 1962, Wet Seal targets the fashion-conscious junior customer by providing a balance of moderately priced fashionable brand name and company-developed apparel and accessories. While Wet Seal targets fashion-forward teens, we believe that Wet Seal’s core customer is between the ages of 17 and 19 years old. Wet Seal stores average approximately 4,000 square feet in size. As of April 27, 2005, we operated 307 Wet Seal stores.

Arden B.    In the fourth quarter of fiscal 1998, we opened our first Arden B. store. Arden B. stores cater to the fashionable, sophisticated contemporary woman. With a unique mix of high quality European and custom in-house designs, Arden B. delivers a hip, sophisticated wardrobe of fashion separates and accessories for all facetsThe members of the customer’s lifestyle: everyday, wear-to-work, special occasion and casual, predominantly under the “Arden B.” brand name. Arden B. stores average approximately 3,200 square feet in size. AsBoard of April 27, 2005, we operated 93 Arden B. locations.

Internet Operations.    In 1999, we established Wet Seal online, a web-based store located atwww.wetseal.com offering Wet Seal merchandise to customers over the Internet. The online store was designed as an extensionDirectors of the in-store experience,Company (each of whom has been nominated for re-election at the 2005 annual meeting of stockholders), their ages and offers a wide selection of our merchandise. We expanded our online business in August of 2002 withprincipal occupations or employment during the launch ofwww.ardenb.com, offering Arden B. apparel and accessories comparable to those carried in the store collections.

Our Stores

During fiscal 2004, we scaled back our earlier plans to open new stores in an effort to limit capital expenditures and concentrate our efforts on our core business. Through November 30, 2004, we had closed 18 Wet Seal and 7 Arden B. stores as a result of natural lease expirations. As a result of our analyses of the financial performance of our Wet Seal stores and other qualitative measures, we announced on December 28, 2004, that

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we would close approximately 150 underperforming Wet Seal stores. Since that announcement, we closed 153 underperforming Wet Seal stores. Any future closures will be the result of natural lease expirations where we decide not to extend, orpast five years are unable to extend, a store lease.

In connection with the store closures, we entered into an Agency Agreement with Hilco Merchant Resources, LLC (“Hilco”) pursuant to which Hilco would liquidate closing store inventories through promotional, store closing or similar sales. Under the terms of our arrangement with Hilco, we are to receive cash proceeds from the liquidating stores of not less than 22.9% of the initial retail value of the merchandise inventory in the closing stores. We also entered into a consulting and advisory services agreement with Hilco Real Estate, LLC (“Hilco Advisors”) for the purpose of selling, terminating or otherwise mitigating our lease obligations related to the closing stores. Under our arrangement with Hilco, as of April 27, 2005, we have terminated the leases or have agreed in principle to terminate the leases on 134 of the 153 stores closed. Hilco Advisors is continuing its negotiations with the landlords associated with the remaining 19 stores for which a lease termination agreement has not been reached.summarized below:

The following table sets forth our 400 stores by state or territory as of April 27, 2005:information regarding the nominees for director:

During fiscal 2004, we renovated 8 stores. Of these, 4 were Wet Seal stores in which completely new store frontage, flooring, wall and light fixtures and video displays were installed. The remaining renovations were for Arden B. stores, which upgraded the interiors to mirror new stores in appearance. In addition, due to commitments made early in the year, we opened 8 new stores, 2 of which were Arden B. stores and the remainder Wet Seal stores.

Our ability to expand in the future will depend, in part, on satisfactory cash flows from existing operations, the demand for our merchandise, our ability to find suitable mall or other locations with acceptable sites and satisfactory terms, and general business conditions. Our management does not believe there are significant geographic constraints on the locations of future stores. For fiscal 2005, we intend to open 4, relocate 5 and remodel 2 Arden B. stores. In addition to our store closures with Hilco, we expect to close 4 Arden B. stores and 2 Wet Seal stores as a result of natural lease expirations during fiscal 2005. We may, in limited instances and to the extent we deem advisable, seek to acquire additional businesses that complement or enhance our operations. We currently have no commitments or understandings with respect to any business opportunities of this type.

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Merchandising Initiatives

Michael Gold, a well-regarded retailer, has assisted our company with our merchandising initiatives. Under the direction of Michael Gold, our Wet Seal division has introduced a new merchandising strategy to attract teen-aged girls to our stores.

We are offering current trend merchandise at low prices and we have accelerated the delivery of fresh merchandise to our stores to ensure new merchandise in the stores every week. In addition, our buyers are instructed to be aware of our competitor’s “best sellers” and to obtain similar merchandise for our stores as soon as practicable. We are also more closely involved with domestic contractors in Los Angeles and New York to obtain from them their most current “hot” items.

While we have had credit constraints on our ability to obtain merchandise, we have been able to obtain sufficient inventory to demonstrate that this strategy has the potential for success. Our vendor credit situation is still tight, but it has improved sufficiently to enable us to build inventory in our Wet Seal stores for delivery in the current cycle.

One of the most significant measures of the success of a retailer is sales per square foot. For us, this is determined by dividing the total sales of our company by the number of square feet. The sales per square foot of our Wet Seal division were impacted negatively and significantly by the decline in revenue we experienced in the past two years in that division. Our merchandising strategy is to increase our sales per square foot at reasonable gross margins. At the same time, we are working to reduce our non-store expenses, including our general and administrative overhead, to be more in line with our reduced store count and projected revenues.

The growth of our Arden B. division has been constrained by our financial condition and by credit constraints. Our board of directors has been exploring and will continue to explore ideas to accelerate the growth of the Arden B. division.

Mr. Gold and our company have been negotiating an agreement with regard to Mr. Gold’s incentive compensation, the amount of which would be significant, for his efforts to date and in the future. However, as of April 27, 2005, we have not reached an agreement with Mr. Gold and there is no assurance that a mutually satisfactory agreement can be reached, (See “Risk Factors—We need to employ personnel with requisite merchandising skills to continue our merchandising strategy implemented by Mr. Gold” and “The shares to be issued under our 2005 Stock Incentive Plan will result in a substantial dilution of our earnings per share”).

Design, Buying and Product Development

Our design and buying teams are responsible for identifying evolving fashion trends, and then developing themes to guide our merchandising strategy. Each retail concept has a separate buying team. The merchandising team for each retail concept develops fashion themes and strategies through the references of fashion services and publications, shopping the European market, shopping the appropriate domestic vendor base and through customer responses to current trends in each division. After selecting fashion themes to promote, the design and buying teams work closely with vendors to modify colors, materials and designs and create images consistent with the themes for our product offerings.

We expect to decrease our dependency on internally designed merchandise as it relates to our Wet Seal division. This shift will allow us more flexibility to respond to the changing fashion trends of the junior customer, to buy in smaller lots and to reduce product development lead times. See also “—Allocation and Distribution” below.

Marketing, Advertising and Promotion

We believe that our brands, Wet Seal and Arden B., are among our most important assets. Our ability to successfully increase brand awareness is dependent upon our ability to address the changing needs and priorities of each brand’s target customers. We continue to invest in the development of our brands through customer research, print advertising, in-store marketing and the maintenance of an Internet presence.

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During fiscal 2004, 2003 and 2002, we spent 1.9%, 1.0% and 1.5%, respectively, of net sales on marketing. In fiscal 2004, our primary marketing focus was on in-store promotion programs for the Wet Seal division and print media for Arden B., which included publications in Vogue^® throughout the year. In addition, the Wet Seal division advertised key brands for back-to-school on MTV^®.

We offer a frequent buyer card in our Wet Seal stores in order to build loyalty to the brand, increase the frequency of visits, promote multiple item purchases and gain direct access to the customer. As part of this program, sales representatives telephone selected cardholders personally to notify them of special in-store promotions, such as preferred customer sales during which cardholders receive additional incentives. Late in the third quarter of fiscal 2004, our Arden B. division introduced a loyalty program, “B Rewarded”, designed for the same purposes as that of our Wet Seal division.

In the Spring of 2002, we launched Seal TV, our in-house fashion and entertainment network designed to broadcast original programming, exclusive video footage, music videos and red carpet interviews from today’s hottest music, film and television stars in Wet Seal stores nationwide. As part of our efforts to reduce costs and return our company to profitability, we decided to discontinue the use of Seal TV in fiscal 2005 in favor of lower cost in-store branding and communication.

In fiscal 2002, we also introduced a Wet Seal catalog for the back-to-school season and again in November for the holiday season as a tool to further enhance brand awareness. Due to relatively high costs and disappointing sales results, we did not produce or distribute a catalog during fiscal 2003 or fiscal 2004, and we do not plan on pursuing this type of marketing in the near future.

Sourcing and Vendor Relationships

We purchase our merchandise from both domestic and foreign vendors. Approximately 27% of our retail receipts are directly imported from foreign vendors. Although in fiscal 2004 no single vendor provided more than 10% of our merchandise, management believes we are the largest customer of many of our smaller vendors. Quality control is monitored at the distribution points of our largest vendors and manufacturers, and all merchandise is inspected upon arrival at our Foothill Ranch, California distribution center.

We do not maintain any long-term or exclusive commitments or arrangements to purchase merchandise from any single supplier, and there are many vendors who could supply our merchandise.

Allocation and Distribution

Our merchandising effort primarily focuses on maintaining a regular flow of fresh, fashionable merchandise into our stores. Successful execution depends in large part on our integrated planning, allocation and distribution functions. By working closely with District and Regional Directors and Merchandise Buyers, our team of planners and allocators manage inventory levels and coordinate the allocation of merchandise to each of our stores based on sales volume, climate and other factors that may influence an individual store’s product mix.

All merchandise for retail stores is received from vendors at our Foothill Ranch, California distribution facility, where items are inspected for quality and fit and prepared for shipping to our stores. We ship all of our merchandise to our stores by common carrier. Consistent with our goal of maintaining the freshness of our product offerings, we ship new merchandise to stores daily, and markdowns are taken regularly to effect the rapid sale of slow moving inventory. Marked-down merchandise that remains unsold is either sold to an outside clearance company or given to charity in order to move the merchandise. The fulfillment process and distribution of merchandise for the e-commerce web-site is performed at our Foothill Ranch distribution center.

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Information and Control Systems

Our merchandise, financial and store computer systems are fully integrated and operate using primarily Oracle^® technology. We have invested in a large data warehouse that provides management, buyers and planners comprehensive data that helps them identify emerging trends and manage inventories. The core merchandise system is provided by the nation’s leading retail enterprise resource planning “ERP” software company, and is frequently upgraded and enhanced to support strategic business initiatives.

All of our stores have a point-of-sale system operating on software provided by a leading provider of specialty retailing point-of-sale systems. The system features bar-coded ticket scanning, automatic price look-up and centralized credit authorizations. All stores are networked to the corporate office via a centrally managed virtual private network. In the fall of fiscal 2003, we developed a store portal that is integrated with the corporate merchandise ERP system to provide the stores with real-time information regarding sales, promotions, inventory and shipments, and enable more efficient communications with the corporate office. In fiscal 2004, we did not invest in new systems. The majority of our efforts centered around maintaining and enhancing existing systems. We do not anticipate significant capital expenditures for new systems development in fiscal 2005.

Seasonality

Our business is seasonal by nature, with the Christmas season, beginning the week of Thanksgiving and ending the first Saturday after Christmas, and the back-to-school season, beginning the last week of July and ending the first week of September, historically accounting for a large percentage of sales volume. For the past three fiscal years, the Christmas and back-to-school seasons together accounted for an average of slightly less than 30% of our annual sales, after adjusting for sales increases related to new stores. Our profitability depends, to a significant degree, on the sales generated during these peak periods. Any decrease in sales or margins during these periods, whether as a result of economic conditions, poor weather or other factors, could have a material adverse effect on our company.

Trademarks

Our primary trademarks and servicemarks are WET SEAL^® and ARDEN B^®, which are registered in the U.S. Patent and Trademark Office. We also use and have registered, or have applications pending for, a number of other U.S. trademarks, including, but not limited to, A. AUBREY^®, ACCOMPLICE^®, BLUE ASPHALT^®, CONTEMPO CASUALS^®, EVOLUTION, NOT REVOLUTION^®, FASHIONABLY IT^®, FORMULA X^®, GET IT.WEAR IT.FLAUNT IT.^®, MEOW GENES^®, SEAL^™, SEAL GLAMOUR^™, SEAL PUPS^™, SEAL MAGAZINE^™, SEAL TV^™, UNCIVILIZED^®, URBAN VIBE^®, ARDEN B SPORT^™, ENR EVOLUTION NOT REVOLUTION^®, LIMBO LOUNGE^®, PANTIES FOR LIFE^®, SOCKS FOR LIFE^®, STYLIZER^®, TIGHTS FOR LIFE^®, NEXT^® (State of California only) and ZUTOPIA^®. In general, the registrations for these trademarks and servicemarks are renewable indefinitely, as long as we continue to use the marks as required by applicable trademark laws. We are not aware of any adverse claims or infringement actions relating to our trademarks or service marks.

CompetitionExecutive Officers

The women’s retail apparel industry is highly competitive, with fashion, quality, price, location, in-store environmentexecutive officers of the Company, who are not also directors, their ages and service beingprincipal occupations or employment during the principal competitive factors. We compete with specialty apparel retailers, department stores and certain other apparel retailers, including Charlotte Russe, Gap, Banana Republic, H&M, Old Navy, Pacific Sunwear, American Eagle, Urban Outfitters, Forever 21, Express, bebe, and BCBG. Many of our competitorspast five years are large national chains that have substantially greater financial, marketing and other resources than we do. While we believe we compete effectively for favorable site locations and lease terms, competition for prime locations within malls, in particular, and other locations is intense, and we cannot ensure that we will be able to obtain new locations on terms favorable to us, if at all.summarized below:

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Employees

Name and Age		Principal Occupation and Background
Douglas C. Felderman Age: 52		Mr. Douglas C. Felderman has served as Executive Vice President and Chief Financial Officer of the Company since April 21, 2004. From May 1999 to January 2004, Mr. Felderman served as Chief Financial Officer of Factory 2-U Stores Inc., an operator of off-price retail apparel and housewares stores and prior to May, 1999, Mr. Felderman served as Chief Financial Officer of Strouds, Inc., a specialty retailer of home textile products. In these roles, he managed a variety of financial responsibilities including treasury, financial planning and analysis, risk management, loss prevention, and Securities and Exchange Commission and public reporting.
Jennifer Pritchard Age: 46		Ms. Jennifer Pritchard has served as Divisional President for Arden B. since January 2004. Prior to her current role, Ms. Pritchard served as the Divisional President of Zutopia since joining the Company in October 2002. From January 2002 to October 2002, Ms. Pritchard served as the Executive Vice President of TEX 38 LLC, a private label product development company. From April 2001 to January 2002, Ms. Pritchard served as Executive Vice President of B.B. Dakota, an outerwear company. Ms. Pritchard served as the General Merchandise Manager for Urban Outfitters Inc. from 1999 to 2001, where she oversaw all categories of the business for retail.

As of January 29, 2005, our continuing operations had 5,433 employees, consisting of 1,791 full-time employees and 3,642 part-time employees. Full-time personnel consisted of 588 salaried employees and 1,203 full-time hourly employees. All part-time personnel are hourly employees. Of all employees, 5,140 were sales personnel and 293 were administrative and distribution center personnel. Personnel at all levels of store operations are provided with cash incentives based upon various individual store sales targets. All of our employees are non-union, and, in management’s opinion, are paid competitively with current standards inThe foregoing persons have been deemed by the industry. We believe that our relationship with our employees is good.

On December 28, 2004, we announced the closure of approximately 150 Wet Seal stores,Company to be “executive officers” as a part of a store-closing program designed to improve our company’s return to profitability. By March 5, 2005 we had closed 153 Wet Seal stores and approximately 2,000 positions were eliminated as resultdefined under Rule 3b-7 of the store closures.Exchange Act.

Recent Developments

April 2005 Private Placement

On April 29, 2005, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with several investors that participatedChanges in our January 2005 private placement (as described below—“January 2005 Private Placement”). Under terms of the Securities Purchase Agreement, we have agreed to issue 24,600 shares of our Series C Convertible Preferred Stock (the “Preferred Stock”) for an aggregate purchase price of $24.6 millionBoard Composition and new warrants (the “New Warrants”) to purchase up to 7.5 million shares of our Class A common stock.Management

The Preferred Stock will be convertible into 8.2 million sharescomposition of our Class A common stock, reflecting an initial $3.00 per share conversion price. The New Warrants will be exercisable beginning six months followingBoard of Directors and executive management has changed since the closingCompany’s last annual meeting. On August 3, 2004, Peter D. Whitford was appointed as a Director and will expire on the fifth anniversaryChairman of the Board of Directors. On this same date, upon which they became initially exercisable. The New Warrants will have an initial exercise price equal to $3.68, reflecting the closing bid priceIriving Teitelbaum was replaced by Mr. Whitford as Chairman of the our Class A common stock on the business day immediately before the signingBoard of Directors but remained as a Director of the Securities Purchase Agreement. The Preferred Stock has customary weighted average anti-dilution protection, while the New Warrants will be adjusted from time to time for stock splits, stock dividends, distributionsCompany. On August 18, 2004, Howard Gross was appointed as lead director and similar transactions.

Under the terms of the Securities Purchase Agreement, the investors who received warrants in the January 2005 Private Placement agreed to exercise all of their outstanding Series A WarrantsMr. Winterstern and a pro rata portion of the outstanding Series B Warrants. Approximately 3.4 million shares of our Class A common stock will be issued in the warrant exercise at an aggregate exercise price of approximately $6.4 million.

We will receive approximately $18.0 million in net proceeds (after transaction expenses and retirement of the Bridge Loan Facility described below) in connection with the financing (the “April Private Placement”). As of April 29, 2005, the outstanding principal and capitialized interest of the Bridge Loan Facility was approximately $12.0 million which was provided by certain participants of our January 2005 Private Placement. The remainder of the proceeds will be used for general working capital purposes. We intend to close the financing on or before May 3, 2005.

Registration Statement—Extension of Filing Obligations

Under the terms of the Securities Purchase Agreement, the investors in this April 2005 Private Placement have agreed to extend the deadline for the filing of a registration statement with the Securities and Exchange Commission (the “SEC”) as required by the registration rights agreement entered into in connection with our January 2005 private placement (as described below—“January 2005 Private Placement”). Our company will now be required to file a registration statement with the SEC that includes the securities issued in the January 2005 private placement and the shares of our Class A common stock issuable upon conversion or exercise of the Preferred Stock and the New Warrants, as the case may be. The new registration statement must be filed no later

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than ten business days after the earlier of (i) the closing of the April 2005 Private Placement or (ii) May 3, 2005 (the “Filing Deadline”). In the event our company does not file the registration statement on or before the Filing Deadline or the registration statement is not declared effective by no later than 60 days (or in the event the SEC reviews the registration statement and requires modifications thereto, 90 days) after the Filing Deadline, our company will be required to make registration delay payments at the rate of $61,000 per day with regardAnne K. Zehren were appointed to the securities issued inBoard of Directors. On the January Private Placement from April 21, 2005 through the date of compliance. Alternatively, registration delay payments for the securities issued in the April Private Placement will accrue at the rate of $34,000 persame day, George H. Benter and Barry J. Entous retired from the dateBoard of non-compliance through the date of compliance with our registration obligations.

January 2005 Private Placement

On January 14, 2005, we issued $56.0 million in aggregate principal amount of Secured Convertible Notes due January 14, 2012 (the “Notes”) to certain investors (“January 2005 Private Placement”). The Notes have an initial conversion price of $1.50 per share of our Class A common stock. The Notes are immediately exercisable and bear interest at an annual rate of 3.76%, which may be paid in cash or capitalized. On January 14, 2005, we also issued the Series B Warrants, Series C Warrants and Series D Warrants (collectively with the Series A Warrants described below, the “Warrants”) to acquire initially up to 3.4 million, 4.5 million and 4.7 million shares of our Class A common stock, respectively. The Series A Warrants, Series B Warrants, Series C Warrants and Series D Warrants have initial exercise prices of $1.75, $2.25, $2.50 and $2.75 per share, respectively. On November 9, 2004, the date we initially signed our investment agreements for the January 2005 Private Placement, we issued the Series A Warrants to acquire initially up to 2.3 million shares of our Class A common stock. Series A Warrants were subsequently reissued on December 13, 2004 in connection with amendments to our investment agreements. The conversion prices and the exercise prices of the Notes and Warrants have full ratchet anti-dilution protection. This type of anti-dilution protection requires that the conversion price or exercise price, as the case may be, be adjusted from time to time in the event of the issuance of Class A common stock or securities convertible into Class A common stock at prices below the respective conversion price or exercise price.

The Warrants are exercisable on any date following their issuance. The exercise period of the Series A Warrants, Series B Warrants, Series C Warrants and Series D Warrants will terminate on December 13, 2008, January 14, 2009, January 14, 2010 and January 14, 2010, respectively.

The terms of our existing senior credit facility with Fleet Retail Group, Inc. were modified to permit the issuance of the Notes and the Warrants and to allow for the bridge loan facility (as described below in “—Extension of Bridge Loan Facility”).

We have used the proceeds from the January 2005 Private Placement and the bridge loan facility (as described below in “—Extension of Bridge Loan Facility”) to implement our strategy to return our company to profitability.

Extension of Bridge Loan FacilityDirectors.

On November 9,4, 2004, we received a $10.0 million bridge loan to be used for working capital purposes prior to the closing of the January 2005 Private Placement. Interest accrues on the bridge loan facility at the rate of 25.0%. Originally, the proceeds of the bridge loan (the “Bridge Loan Facility”) were to be applied at the closing of the January 2005 Private Placement as partial payment of the aggregate purchase price for the Notes and the Warrants. However, on January 14, 2005, we entered into agreements with the investors in the January 2005 Private Placement and the lenders under our existing senior credit facility to extend the maturity of the Bridge Loan Facility.

Pursuant to the terms of the amendments, the initial maturity of the Bridge Loan Facility was extended to March 31, 2005, which since then has been extended and shall be further extended on a month to month basis, subject to the right of the administrative agent under the loan documents to terminate it on 10 days’ notice, with

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the final maturity date of the Bridge Loan Facility being March 31, 2009. Interest will continue to accrue on the Bridge Loan Facility at the rate of 25.0% through July 31, 2005, but will increase to 30.0% effective August 1, 2005 if the bridge loan remains outstanding. Interest may be paid in cash or capitalized at our discretion.

Beginning February 1, 2005, we were obligated to pay the bridge lenders supplemental interest payments on the outstanding principal amount of the Bridge Loan Facility (including capitalized interest). These payments have been made at the beginning of each month during which the Bridge Loan Facility has been extended. The supplemental interest payment rate was 1.45% and 0.70% for the months of February and March,, respectively, and 1.50% thereafter. Supplemental interest payments may also be paid in cash or capitalized at our discretion.

We intend to retire the outstanding Bridge Loan Facility in connection with our April 2005 Private Placement.

Changes in Board Composition and Management

Since October 2004, we have experienced significant management changes. In November 2004, PeterMr. Whitford resigned from his position as Chief Executive Officer and Chairman of our boardthe Board of directorsDirectors. In connection with Mr. Whitford’s resignation, the Board of Directors appointed Joseph Deckop as interim Chief Executive Officer effective November 8, 2004. Also on November 8, 2004, the Board of Directors accepted the resignation of Ms. Zehren and appointed Mr. Winterstern as Chairman of the Board of Directors. On November 23, 2004, the Company announced the resignation of Allan Haims resigned as President of ourthe Wet Seal division. In

On December 28, 2004, weMr. Irving Teitelbaum and Stephen Gross retired from the Board of Directors of the Company. Effective as of December 30, 2004, the Company’s Board of Directors appointed Joel N. Waller as a Director.

Effective as of January 27, 2005, Walter Loeb and Wilfred Posluns retired from the former Chief Executive OfficerBoard of Wilsons Leather,Directors and Howard Gross resigned as a director of the Company. On the same day, Sidney M. Horn, Harold D. Kahn and Kenneth M. Reiss were appointed to serve on the positionsBoard of Directors. Effective as of February 1, 2005, Mr. Waller was appointed President and Chief Executive Officer, effective February 1, 2005. Mr. Waller was appointed to the Board of Directors effective December 27, 2004. In addition, inOfficer. On March 15, 2005, Joseph Deckop resigned from his position as Executive Vice President of Central Planning and Allocation.President.

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Corporate Governance Matters

The primary responsibility of the Board of Directors is to foster the long-term success of the Company, consistent with representing the interests of the Company’s stockholders. In accordance with this philosophy, the Board of Directors has taken the following steps, among others, to reinforce the Company’s values by promoting responsible business practices and good corporate citizenship.

Independence Determinations

The Board of Directors continually reviews the relationships that each director has with the Company. The Board of Directors currently has six members, five of whom the Board of Directors has affirmatively determined are not individuals having a partrelationship that, in the Board’s opinion, would interfere with the exercise of our turn-around strategy,independent judgment in carrying out the responsibilities of a director and are therefore “independent” in accordance with Nasdaq National Market listing standards. The sole director that the Board of Directors has determined not to be “independent” in accordance with the foregoing standards is Joel N. Waller, the Company’s President and Chief Executive Officer.

The Board of Directors has affirmatively determined that each member of the Audit Committee, the Compensation/Option Committee and the Nominating and Governance Committee of the Board of Directors is “independent” in accordance with Nasdaq National Market listing standards and that each member of the Audit Committee is “independent” as required by the applicable rules and regulations promulgated under the Exchange Act.

Executive Sessions; Meetings with Management

The non-management members of the Board of Directors meet in executive session on a regular basis. The Audit Committee meets in executive session with the independent auditors regularly. All other committees are given the opportunity to meet without management present as they deem necessary.

Senior members of management are invited to make presentations to the Board of Directors or committees to provide management insight into items being discussed by the Board of Directors or committees and to bring managers with high potential into contact with the Board of Directors. In addition, Board members have free access to all other members of management and employees of the Company.

Board and Committee Meeting Agendas

The Chairman of the Board of Directors establishes the agenda for each Board of Directors meeting. Any other member of the Board of Directors is free to suggest the addition of any other item(s). The chairpersons of the committees coordinate committee meeting agendas with appropriate members of management. Henry D. Winterstern, sets the agenda for the meetings of the Compensation/Option Committee, which currently does not have a chairman. Other committee members are free to suggest additional agenda items.

Code of Business Conduct

The Company has adopted The Wet Seal, Inc. Code of Conduct that is applicable to all directors, officers and employees. The purpose of the Code of Conduct is to foster compliance with applicable laws affecting the Company and to set a standard for the Company’s expectations for business conduct. The Company’s Code of Conduct is filed as an exhibit to the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004 and is available on the Company’s website at http://www.wetsealinc.com.

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Meetings and Committees of the Board of Directors

Board of Directors Actions; Attendance

The Board of Directors met or took action by written consent 16 times during the fiscal year ended January 29, 2005. Each of the members of our boardthe Board of Directors then in such position attended at least 75% of the Board of Directors meetings and the respective committee meetings on which they served.

The Company’s informal policy is that all of its directors attend the annual meeting of stockholders unless a director gives prior notice to the Chairman of the Board of Directors of his inability to attend due to health or business reasons. All members of the Board of Directors then in office, other than Stephen Gross, attended the 2004 annual meeting of stockholders.

Audit Committee

From February 1, 2004 through August 18, 2004, the Company’s Audit Committee was comprised of George Benter, Barry Entous, Walter Loeb and Wilfred Posluns. On August 18, 2004, Messrs. Entous and Benter retired from the Board of Directors while Henry D. Winterstern our Chairman,was appointed to the Audit Committee on this date. Messrs. Loeb and AlanPosluns retired from the Board of Directors and the Audit Committee effective January 27, 2005. On this date, Kenneth M. Reiss and Sidney M. Horn were appointed to the Board of Directors and Audit Committee, with Mr. Reiss serving as chairman.

The Board of Directors has affirmatively determined that each member of the Audit Committee is “independent” in accordance with the Nasdaq National Market listing standards and the applicable rules and regulations promulgated under the Exchange Act. Mr. Reiss, a certified public accountant with 38 years of experience in auditing public companies during his tenure at Enrst & Young LLP has been determined by the Board of Directors to be the Audit Committee’s “financial expert” under the regulations of the Securities and Exchange Commission and to be “financially sophisticated” under Nasdaq listing standards. During the fiscal year ended January 29, 2005, the Audit Committee met or took action by written consent 6 times.

The Audit Committee is responsible for reviewing, as it shall deem appropriate, and recommending to the Board of Directors internal accounting and finance controls for the Company and accounting principles and auditing practices and procedures to be employed in the preparation and review of the Company’s financial statements. The Audit Committee is also responsible for recommending to the Board of Directors independent public accountants to audit the annual financial statements of the Company and the scope of the audit to be undertaken by the accountants. The Charter of the Audit Committee, which was amended on May 28, 2003, is set forth on Exhibit A attached to the Company’s proxy statement for its 2004 annual stockholder meeting and is available on the Company’s website at http://www.wetsealinc.com.

Compensation/Option Committee Interlocks and Insider Participation

During the 2004 fiscal year, each of the following individuals served on the Company’s Compensation/Option Committee: Messrs. Benter, Howard Gross, Posluns and Winterstern. Other than Mr. Winterstern, each of these members resigned their appointment on or prior to January 27, 2004. On this date, each of Messrs. Horn, Kahn, Reiss and Siegel have either retiredwere appointed to the Company’s Compensation/Option Committee. On May 12, 2005, Mr. Siegel resigned from the Compensation/Option Committee.

There were no Compensation/Option Committee interlocks or resigned. Recently we have appointed Messers. Waller,insider participation during the fiscal year ended January 29, 2005.

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Compensation/Option Committee

The Company has a Compensation/Option Committee consisting of Sidney M. Horn, Harold D. Kahn, and Kenneth M. Reiss to our boardand Henry D. Winterstern, each of director’s. Mr. Hornwhom the Board of Directors has affirmatively determined is a leading corporate lawyer and a partner at the law firm Stikeman Elliot LLP, located“independent” in Montreal, Canada. Mr. Kahn is currently a director of Steven Madden, Ltd. Until March 2004, Mr. Kahn served as Chairman and Chief Executive Officer of Macy’s East. Mr. Reiss is currently a director of Guitar Center, Inc. Mr. Reiss is a former partner of Ernst & Young LLP, retired since June 2003. The board of directors appointed Mr. Reiss as Chairmanaccordance with Nasdaq National Market listing standards. As of the Audit Committee. The entire boarddate of directors, withthis Amendment, the exception of Mr. Waller, will act asCompensation/Option Committee has not appointed a chairman but plans to do so in the Compensationnear future. During the fiscal year ended January 29, 2005, the Compensation/Option Committee until such time as the board of directors is expanded.met or took action by written consent 15 times.

Statement Regarding Forward Looking DisclosureThe Compensation/Option Committee is responsible for establishing general compensation policies and Risk Factors

Certain sections of this Annual Report on Form 10-K, including “Item 1. Business”specific compensation levels for the Company’s executive officers and “Item 7. Management’s Discussionis responsible for granting restricted stock, performance shares and Analysis of Financial Conditionstock options to executive officers, other key employees and Results of Operations,” may contain various forward-looking statements within the meaning of Section 27Aconsultants. See “Report of the Securities Act of 1933, as amended, and Section 21ECompensation/Option Committee on Executive Compensation.” The Charter of the Exchange Act, which represent our expectations or beliefs concerning future events.

Forward-looking statements include statements that are predictive in nature, which depend upon or refer to future events or conditions, which include words suchCompensation/Option Committee, as “believes,” “plans,” “anticipates,” “estimates,” “expects” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects,approved and possible future actions, which may be providedratified by our management, are also forward-looking statements. Forward-looking statements are basedthe Board of Directors on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our company, economic and market factors andMay 12, 2005, is available on the industry in which we do business, among other things. These statements are not guaranties of future performance and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. Factors that could cause our actual performance, future results and actions

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to differ materially from any forward-looking statements include, but are not limited to, those discussed in “—Risk Factors” below and discussed elsewhere in this Annual Report.

Risk FactorsCompany’s website at http://www.wetsealinc.com.

Risks Related to our BusinessNominating and Governance Committee

We may be unableIn January 2005, the Company formed a Nominating and Governance Committee consisting of Alan Siegel (Chairman) and Harold D. Kahn, each of whom the Board of Directors has affirmatively determined is “independent” in accordance with the Nasdaq National Market listing standards. Due to reverse declinesits recent formation in comparable store salesJanuary 2005, during the fiscal year ended January 29, 2005, the Nominating and net losses from continuing operations, bothGovernance Committee did not meet or take action by written consent.

The Nominating and Governance Committee proposes to the Board of which could significantly impact our economic viability.Directors nominees for election to the Board of Directors. The Nominating and Governance Committee identifies nominees through the personal and business relationships of the Company’s existing and former directors and management. In addition, on an as needed basis, the Nominating and Governance Committee will engage outside consultants to assist in the identification of nominees.

The Nominating and Governance Committee is also responsible for advising the Board of Directors with respect to Board composition, compensation, procedures and committees, and for recommending to the Board of Directors a set of corporate governance principles and overseeing the compliance of the Board of Directors with such principles. The Charter of the Nominating and Governance Committee, as approved and ratified by the Board of Directors on May 12, 2005, is available on the Company’s website at http://www.wetsealinc.com.

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Section 16(a) Beneficial Ownership Reporting Compliance

The economic survivalfederal securities laws require the filing of our company is significantly dependent on our ability to reverse declines in comparable store salescertain reports by officers, directors and then sustain comparable store sales growth. Our comparable store sales results have declined significantly during the past two years and a substantial portionbeneficial owners of these declines have been attributable to our Wet Seal division. These declines in comparable store sales have resulted in a net loss from continuing operations in 2004. Our ability to improve our comparable store sales results depends in large part on a number of factors, some of which are outside of our control, including improving our forecasting of demand and fashion trends, providing an appropriate mix of appealing merchandise for our targeted customer base, managing inventory effectively, using more effective pricing strategies, selecting effective marketing techniques, optimizing store performance by closing under-performing stores, calendar shifts of holiday periods and general economic conditions. We cannot assure you that we will not experience future declines in comparable store sales and net losses from continuing operations, both of which would significantly impact our ability to continue as a going concern.

We have incurred operating losses and negative cash flows in the past two years and we may not be able to reverse these losses.

We have incurred operating losses and negative cash flows during each of fiscal 2003 and 2004. Although we have received approximately $59.4 million in net proceeds after transaction expenses from the investors in the January 2005 Private Placement and expect to receive approximately $18.0 million (after transaction expenses and retirementthan 10% of the Bridge Loan Facility) in net proceeds in the April 2005 Private Placement, we will encounter liquidity constraints if our operating losses and negative cash flows continue. In such event, we will be forced to seek alternatives to address these constraints, including seeking additional debt financing or equity financing or a potential reorganization under Chapter 11 of the United States Bankruptcy Code. In the event we need to seek additional financing, we will need to obtain the prior approval of our lenders and there is no assurance we will receive such approvals on terms acceptable to us.

As a result of our operating losses and negative cash flows, we have experienced a tightening of credit extended to us by vendors, factors and others for merchandise and services, which could cause us to experience delays or disruption in merchandise flow.

Due to our recent financial results, we have experienced a tightening of credit extended to us by vendors, factors, and others for merchandise and services. The impact of this credit tightening has required us to issue letters of credit outside of the ordinary course of business, or, in many instances, shorten vendor credit terms. If supply difficulties arise due to this credit tightening we could experience delays or disruption in merchandise flow, which, in turn, could have an adverse effect on our financial condition and results of operations.

Our decision to close certain Wet Seal stores may not significantly improve our financial condition or results of operations.

On December 28, 2004, we announced that we would close approximately 150 Wet Seal stores as part of our turn-around strategy. We appointed Hilco to manage the inventory liquidations for the stores that we have closed and Hilco Advisors to negotiateCompany’s securities with the respective landlords. We completed the store closing effort on March 5, 2005 and through that date we closed a total of 153 stores. Upon the decision to close these stores, we wrote down the carrying value of these impaired assets to realizable value, a non-cash event that negatively

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impacted our earnings and earnings per share. Further, by closing these stores before the expiration of the applicable lease term, we are required in most instances to make payments to the landlords in the form of cash and/or equity payments to terminate or “buy out” the remaining term of the applicable lease. Although Hilco is in negotiations with the landlords on our behalf, we cannot assure you that we will be able to reach an agreement with all the landlords on terms acceptable to us.

Moreover, although these stores have been underperforming as compared with our other Wet Seal stores, there is no assurance that in the long term these store closures will have a significant positive impact upon our operating results or that we will not have to close additional stores in the future. Furthermore, if we are not successful in reducing our non-store expenses, including our general and administrative overhead, in line with our reduced store count and projected revenues, it is unlikely that we would achieve significant profitability even if our net sales revenue increases.

Covenants contained in agreements governing our existing indebtedness restrict the manner in which we conduct our business and our failure to comply with these covenants could result in a default under these agreements, which would have a material adverse effect on our business, financial condition, growth prospects and ability to procure merchandise for our stores.

Our senior credit facility, Bridge Loan Facility and the indenture governing our Notes contain covenants that restrict the manner in which we conduct our business. Subject to certain exceptions, these covenants restrict, among other things, our ability, and the ability of certain of our subsidiaries, to:

A breach of any of these covenants could result in a default under the agreements governing our existing indebtedness, acceleration of any amounts then outstanding, the foreclosure upon collateral securing the debt obligations, or the unavailability of the lines of credit. As a result, our ability to continue as a going concern would be significantly impacted and may require our company to file for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code.

We may not have sufficient funds to make required payments on the Notes.

Although we anticipate receiving approximately $18.0 million in net proceeds after transaction expenses and the retirement of the Bridge Loan Facility from the April 2005 Private Placement, we may not have sufficient funds to make the interest and principal payments on the Notes when due, either at maturity or upon the occurrence of certain events. If we do not have sufficient funds to make these payments, we will have to obtain an alternative source of funds, including sales of our assets or assets of our subsidiaries or sales of our equity securities or capital. We cannot assure you that we will be able to obtain sufficient funds to meet our payment obligations on the Notes through any of these alternatives or that we will be permitted by our senior lenders to obtain funds through any of these alternatives. In the event that we are not able to make the required payments at maturity or otherwise, we will be forced to seek alternatives, including seeking additional debt financing or equity financing or a potential reorganization under Chapter 11 of the United States Bankruptcy Code.

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Our company is a defendant in a class action and the subject of an investigation by the Securities and Exchange Commission. Specific due dates have been established and the Company is required to disclose in this Amendment any failure to file by these dates.

As previously reported, our company, certainBased solely on a review of our formercopies of the filings furnished to the Company, the Company believes that during fiscal year 2004, all such filing requirements were satisfied by the Company’s officers, directors and former and current officers, have been named as defendants in several securities class actions. These actions have now been consolidated in the United States District Courtten percent (10%) stockholders, except that two Forms 4 for the Central District of California.

On or about February 1, 2005, the District Court appointed lead plaintiffs in the consolidated action,Jennifer Pritchard were not filed their Consolidated Class Action Complaint for Violation of the Federal Securities Laws, entitled “Laborer’s International Union of North America Local Union and District Counsel Fund, Laborer’s National (Industrial) Pension Fund, et. al, plaintiffs, v. Wet Seal Inc., Irving Teitelbaum, Peter D. Whitford, Douglas C. Felderman, Walter Parks, Joseph E. Deckop, Allan Haims, Stephen Gross, and La Senza Corporation, defendants.”

The consolidated complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act by, among other allegations, making false and misleading statements concerning the progress of our companyon a timely basis to stem the losses of our Wet Seal division and return that business to profitability as well as the illegal use of material non-public information by former directors andreport a company controlled by them. The plaintiff seeks class certification, compensatory damages, interest, costs and attorney’s fees and expenses.

We intend to make a motion to dismiss the consolidated complaint but there is no assurance it will be successful. If significant damages are assessed against our company it may, in the future, have a material adverse effect on the financial condition of our company and the results of operations.

In February, we announced that the Pacific Regional Office of the Securities and Exchange Commission (“SEC”) had commenced an informal, non-public inquiry regarding our Company. We indicated that the SEC’s inquiry generally related to the events and announcements regarding our Company’s 2004 second quarter earnings and the sale of our Class A common stock by La Senza Corporation and its affiliates during 2004. The SEC has advised us that on April 19, 2005 it issued a formal order of investigation in connection with its review of matters relating to the company.

Consistent with the previous announcement, the Company intends to cooperate fully with the SEC’s inquiry. It is too soon to determine whether the outcome of this inquiry will have a material adverse effect on our business, financial condition, results of operations or cash flows.

We have had significant management changes recently and these changes may impact our ability to execute our turn-around strategy in the near term.

In general, our success depends to a significant extent on the performance of our senior management, particularly personnel engaged in merchandising and store operations, and on our ability to identify, hire and retain additional key management personnel. In November 2004, the Chairman and Chief Executive Officer and the President of our Wet Seal division resigned from our company. In addition, as part of our turn-around strategy, all of the members of our board of directors, other than Henry D. Winterstern and Alan Siegel, have either resigned or retired. In December 2004 and January 2005, we appointed a new President and Chief Executive Officer and four members to our board of directors. We anticipate that we will experience a transition period before this new management team is fully integrated with our company, which could impact our ability to confront the financial challenges that impact our company. In addition, there is a risk that we may lose additional members of our senior management team. If so, due to the intense competition for qualified personnel in the retail apparel industry, we cannot assure you that we will be able to identify, hire or retain the key personnel with the merchandising and management skills necessary to implement our turn-around strategy and offer appealing products to our target market.

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We need to employ personnel with the requisite merchandising skills to continue our merchandising strategy implemented by Mr. Gold.

Michael Gold has been responsible for developing and implementing the new merchandising strategy for our Wet Seal division. Mr. Gold and our company have not yet entered into a formal agreement to compensate Mr. Gold for these efforts. If we reach an agreement, we intend to provide him with a significant incentive based compensation package which may take the form of restricted stock grants, warrants or options in order to compensate him for his efforts to date and in the near term future.

Mr. Gold’s commitment to our company has been and will continue to be part-time. We, therefore, are actively seeking personnel with sufficient merchandising skills to continue the merchandising strategy implemented by Mr. Gold. In the event we are unable to reach an agreement with Mr. Gold and he elects not to continue his relationship with our company, the results of our operations may be significantly and adversely impacted. In addition, if we are unable to identify and retain personnel with outstanding merchandising skills to replace Mr. Gold, our comparable store sales and sales revenue could decline.

The shares to be issued under our 2005 Stock Incentive Plan will result in a substantial dilution of our earnings per share.

We recently established our 2005 Stock Incentive Plan to attract and retain directors, officers, employees and consultants. We have reserved 10.0 million shares of our Class A common stock for issuance under this incentive plan. As of April 27, 2005, 4.8 million shares of restricted Class A common stock had been granted to Joel N. Waller, our Chief Executive Officer, our Executive Vice President of Wet Seal and our non-employee directors. In the near term we anticipate granting additional restricted shares in connection with the hiring or appointment of individuals, as well as company management who will assist us in returning our company to profitability, including Mr. Gold. As a result of the granting of restricted shares, we will incur non-cash compensation expense charges to our earnings over the vesting periods or when the restrictions lapse. As a result, the shares to be issued under the 2005 Stock Incentive Plan will have a significant adverse effect on our results of operation and on our earnings per share.

Our issuance of the Notes and Warrants, the incurrence of obligations under the Bridge Loan Facility, and the proposed issuance of the Preferred Stock and New Warrants will have a significant adverse effect on our earnings and earnings per share.

As a result of our issuance of the Notes and related Warrants and the proposed issuance of the Preferred Stock and New Warrants and in accordance with accounting guidelines noted in Emerging Issues Task Force (EITF) 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” and EITF 00-27 “Application of EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, to Certain Convertible Instruments” and Accounting Principles Board No. 14 “Accounting for Convertible Debt issued with stock Purchase Warrants”, we determined the fair market value of the Warrants issued as well as the value of the beneficial conversion feature. The value assigned to the Warrants and the beneficial conversion feature reduced the face value of the Notes resulting in a discount that will be amortized over the life of the Notes. The amortization of the discount will result in significant non-cash charges and will have an adverse effect on our earnings and earnings per share.

The Notes accrue interest at an annual rate of 3.76%, while the loans made under the Bridge Loan Facility accrue interest at an annual rate of 25.0% through July 31, 2005 and 30.0% thereafter. Since February 1, 2005, we have been required to pay supplemental interest on the outstanding principal amount (including capitalized interest). The monthly supplemental interest rate was 1.45% for February 2005, 0.70% for March 2005 and 1.5% thereafter. If the Bridge Loan Facility and the Notes remain outstanding for all of fiscal 2005, interest expense, whether capitalized or paid, will have a significant impact on our financial results.

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Prior to the conversion of the Notes and the Preferred Stock (if issued) and the exercise of the Warrants and the New Warrants (if issued), thegrant shares of Class A common stock underlying these securities would not be included in the calculation of basic or fully diluted per share results in the event of a net loss. Conversely, these securities would be included in the determination of fully diluted per share results in the event the Company has net income. Although the holders of these securities may not convert or exercise the respective securities if they would own (together with any affiliates) more than 9.99% of our Class A common stock, upon such conversion and/or exercise, as applicable, our earnings per share would be expected to decrease, or our net loss per share to decrease, as a result of the inclusion of the underlyingCommon Stock and restricted shares of Class A common stock in our per share calculations.

Our internal controls have material weaknesses.

We have received an adverse opinionCommon Stock, respectively, and a Form 4 for each of Anne Zehren, Howard Gross and Henry D. Winterstern were not filed on the effectiveness of our internal controls over financial reporting because of material weaknesses identified in management’s assessment of the effectiveness of such controls. These material weaknesses, if not remediated, create increased risk of misstatement of our financial results which, if material, may require restatement thereof.

If we are unable to anticipate and react to new fashion trends and/or if there is a decrease in the demand for fashionable, casual apparel, our financial condition and results of operations could be adversely affected.

Our brand image is dependent upon our ability to anticipate, identify and provide fresh inventory reflecting current fashion trends. If we fail to anticipate, identify or react appropriately or in a timely mannerbasis to these fashion trends, we could experience reduced consumer acceptance of our products, a diminished brand image and higher markdowns. These factors could result in lower selling prices and sales volumes for our products, which could adversely affect our financial condition and results of operations. This risk is particularly acute because we rely on a limited demographic customer base for a large percentage of our sales.

Our sales also depend upon the continued demand by our customers for fashionable, casual apparel. Demand for our merchandise could be negatively affected by shifts in consumer discretionary spending to other goods, such as electronic equipment, computers and music. If the demand for apparel and related merchandise were to decline, our financial condition and results of operations would be adversely affected by any resulting decline in sales.

Our failure to effectively compete with other retailers for sales and locations could have a material adverse effect on our financial condition and results of operations.

The women’s retail apparel industry is highly competitive, with fashion, quality, price, location, in-store environment and service being the principal competitive factors. We compete for sales with specialty apparel retailers, department stores and certain other apparel retailers, such as American Eagle, Banana Republic, BCBG, bebe, Charlotte Russe, Express, Forever 21, Gap, H&M, Old Navy, Pacific Sunwear and Urban Outfitters. We face a variety of competitive challenges, including:

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In addition to the competitive challenges specified above, many of our competitors are large national chains, which have substantially greater financial, marketing and other resources than we do and which may be better able to adapt to changing conditions that affect the competitive market. Also, our industry has low barriers to entry that allows the introduction of new products or new competitors at a faster pace. Any of these factors could result in reductions in sales or the prices of our products which, in turn, could have a material adverse effect on our financial condition and results of operations.

Further, although we believe that we compete effectively for favorable site locations and lease terms in shopping malls and other locations, competition for prime locations and lease terms within shopping malls, in particular, and at other locations is intense, and we cannot assure you that we will be able to obtain new locations or maintain our existing locations on terms favorable to us, if at all.

Historically we have grown through opening new stores; however, due to our financial condition we do not anticipate opening a significant number of additional stores in the immediate future which could adversely affect the growth of our business.

Our company has historically expanded by opening new stores, remodeling existing stores and acquiring other store locations or businesses that complement and enhance our operations. From time to time we have created new retail concepts such as Arden B. However, as result of our financial condition we may not be able to take advantage of certain business opportunities in the same manner as we have historically. While a conservative approach to opening new stores may assist our efforts in the return to profitability, it may have a negative impact upon our growth within certain markets or require us to expend more capital to gain entry in the future.

Because of the importance of our brand names, we may lose market share to our competitors if we fail to adequately protect our intellectual property rights.

We believe that our trademarks and other proprietary rights are important to our success and our competitive position. We have registered trademarks for Wet Seal and Arden B. (which are registered in the retail store services class and pending in others). We take actions to establish and protect our intellectual property. However, we cannot assure you that others will not imitate our products or infringe on our intellectual property rights. In addition, we cannot assure you that others will not resist or seek to block the sale of our products as violative of their intellectual property rights. If we are required to stop using any of our registered or non-registered marks, our sales could decline and, consequently, our business and results of operations could be adversely affected.

Our business is affected by local, regional and national economic conditions.

Our business is sensitive to consumer spending patterns and preferences. Various economic conditions affect the level of spending on the merchandise we offer, including general business conditions, interest rates, taxation, and the availability of consumer credit and consumer confidence in future economic conditions. Our growth, sales and profitability may be adversely affected by unfavorable occurrences in these economic conditions on a local, regional or national level. We are especially affected by economic conditions in California, where approximately 13% of our stores are located.

Further, the majority of our stores are located in regional shopping malls. We derive sales, in part, from the high volume of traffic in these malls. The inability of mall “anchor” tenants and other area attractions to generate consumer traffic around our stores, or the decline in popularity of malls as shopping destinations would reduce our sales volume and, consequently, adversely affect our financial condition and results of operations.

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Our business is seasonal in nature, and any decrease in our sales or margins during these periods could have a material adverse effect on our company.

The retail apparel industry is highly seasonal. We generate our highest levels of sales during the Christmas season, which begins the week of Thanksgiving and ends the first Saturday after Christmas, and the “back-to-school” season, which begins the last week of July and ends the first week of September. Our profitability depends, to a significant degree, on the sales generated during these peak periods. Any decrease in sales or margins during these periods, whether as a result of economic conditions, poor weather or other factors beyond our control, could have a material adverse effect on our company.

We depend upon key vendors to supply us with merchandise for our stores, and the failure of these vendors to provide this merchandise could have a material adverse effect on our business, financial condition and results of operations.

Our business depends on our ability to purchase current season apparel in sufficient quantities at competitive prices. The inability or failure of our key vendors to supply us with adequate quantities of desired merchandise, the loss of one or more key vendors or a material change in our current purchase terms could adversely affect our financial condition and results of operations by causing us to experience excess inventories and higher markdowns. We have no long-term purchase contracts or other contractual assurances of continued supply, pricing or access to new products. We cannot assure you that we will be able to acquire desired merchandise in sufficient quantities or on terms acceptable to us in the future, and any failure to do so could have a material adverse effect on our business, financial condition and results of operations.

We depend upon a single distribution facility, and any significant disruption in the operation of this facility could harm our business, financial condition and results of operations.

The distribution functions for all of our stores are handled from a single, leased facility in Foothill Ranch, California. Any significant interruption in the operation of this facility due to a natural disaster, accident, system failure or other unforeseen event could delay or impair our ability to distribute merchandise to our stores and, consequently, lead to a decrease in sales. As a result, our business, financial condition and results of operations could be harmed.

We do not authenticate the license rights of our suppliers.

We purchase merchandise from a number of vendors who hold manufacturing and distribution rights under the terms of license agreements. We generally rely upon each vendor’s representation concerning those manufacturing and distribution rights and do not independently verify whether each vendor legally holds adequate rights to the licensed properties they are manufacturing or distributing. If we acquire unlicensed merchandise, we could be obligated to remove it from our stores, incur costs associated with destruction of the merchandise if the vendor is unwilling or unable to reimburse us and be subject to civil and criminal liability. The occurrence of any of these events could adversely affect our financial condition and results of operations.

We experience business risks as a result of our Internet business.

We compete with Internet businesses that handle similar lines of merchandise. These competitors have certain advantages, including the inapplicability of sales tax and the absence of retail real estate and related costs. As a result, increased Internet sales by our competitors could result in increased price competition and decreased margins. Our Internet operations are subject to numerous risks, including:

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Our inability to effectively address these risks and any other risks that we face in connection with our Internet business could adversely affect the profitability of our Internet business.

We are subject to risks associated with our procurement of products from non-U.S. based vendors, any of which could have a material adverse effect on our business, financial condition or results of operations.

A significant portion of our products is manufactured outside the United States. As a result, we are susceptible to greater losses as a result of a number of risks inherent in doing business in international markets and from a number of factors beyond our control, any of which could have a material adverse effect on our business, financial condition or results of operations. These factors include:

Our imports are limited by textile agreements between the United States and a number of foreign jurisdictions, including Hong Kong, China, Taiwan and South Korea. These agreements impose quotas on the amounts and types of merchandise that may be imported into the United States from these countries. These agreements also allow the United States to limit the importation of categories of merchandise that are not now subject to specified limits. The United States and the countries in which our products are produced or sold may also, from time to time, impose new quotas, duties, tariffs or other restrictions, or adversely adjust prevailing quota, duty or tariff levels. In addition, none of our international suppliers or international manufacturers supplies or manufactures our products exclusively. As a result, we compete with other companies for the production capacity of independent manufacturers and import quota capacity. If we were unable to obtain our raw materials and finished apparel from the countries where we wish to purchase them, either because room or space under the necessary quotas was unavailable or for any other reason, or if the cost of doing so should increase, it could have a material adverse effect on our business, financial condition or results of operations.

Increases in Federal and state statutory minimum wages could increase our expenses, which could adversely affect our results of operations.

Connecticut, Illinois, Oregon, District of Columbia, New York, and Washington have each increased their state minimum wages to a level that significantly exceeded the Federal minimum wage as of January 1, 2005. As of April 27, 2005, we operated 57 stores in those states. These recent increases in the state statutory minimum wage and any future Federal or state minimum wage increases could raise minimum wages above the current wages of some of our employees. As a result, competitive factors could require us to make corresponding increases in our employees’ wages. Increases in our wage rates increase our expenses, which could adversely affect our results of operations.

Violation of labor laws and practices by our suppliers could harm our business and results of operations.

As part of our commitment to human rights, we require our domestic and foreign suppliers to abide by a Code of Conduct for Vendors and Suppliers, which sets forth guidelines for acceptable factory policies and procedures regarding workplace conditions, including wages and benefits, health and safety, working hours, working age, environmental conditions and ethical and legal matters. If one of our suppliers fails to comply with this Code, we may be required to discontinue our relationship with that supplier, which could result in a shortfall in our inventory levels. Further, if the supplier’s non-compliance were publicly disclosed, our customers may refuse to purchase our products. Either of these events could harm our business and results of operations.

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Our involvement in lawsuits, both now and in the future, could negatively impact our business.

We are currently a defendant in a number of lawsuits, including a class action lawsuit, and we have been involved in a variety of other legal proceedings in the past. Although we intend to vigorously defend the claims against us, if any of the claims in these lawsuits or any future lawsuit are resolved unfavorably to us, we may be required to pay substantial monetary damages or pursue alternative business strategies. This could have a material adverse effect on our business. In addition, our defense of these actions has resulted, and may continue to result, in substantial costs to us as well as require the significant dedication of management resources. If we choose to settle any of these lawsuits, the settlement costs could have a material adverse effect on our cash resources and financial condition.

Risks Related to our Class A Common Stock

Our stockholders may experience significant dilution.

On June 29, 2004, as part of its private placement of equity securities to institutional and other accredited investors, we issued warrants to acquire 2.1 million additional shares of Class A common stock. On January 14, 2005, we issued Notes which are convertible initially into 37.3 million shares of Class A common stock and Warrants which are exercisable initially for 14.9 million shares of Class A common stock. In each case, the conversion and exercise prices have full ratchet anti-dilution protection, which means the conversion or exercise price, as the case may be, will be adjusted from time to time in the event of the issuancereport individual grants of shares of Class A common stock or of securities convertible or exercisable into shares of our Class A common stock, at prices below the applicable conversion or exercise price. In addition, upon the closing of the April Private Placement, we will issue Preferred Stock which will be initially convertible into 8.2 million shares of our Class A common stock and New Warrants which will be initially exercisable into 7.5 million shares of our Class A common stock. The Preferred Stock will have customary weighted-average anti-dilution protection for future stock issuances below the applicable per share conversion price and the New Warrants will have customary anti-dilution protection for stock splits and similar corporate events.

Although certain conversion and exercise restrictions are placed upon the holders of the Notes, the Warrants, the Preferred Stock and the New Warrants, the issuance of the additional shares of Class A common stock will cause our existing stockholders to experience significant dilution in their investment in our company. In addition, if the cash liquidity issues described in these risk factors require us to obtain additional financing involving the issuance of equity securities or securities convertible into equity securities, our existing stockholders’ investment would be further diluted. Such dilution could cause the market price of our Class A common stock to decline, which could impair our ability to raise additional financing.

Our Class A common stock could be subject to short selling and other hedging techniques and, if this occurs, the market price of our Class A common stock could be adversely affected.

Our company’s Class A common stock could be subject to a number of hedging transactions including the practice of short selling. Short selling, or “shorting,” occurs when stock is sold which is not owned directly by the seller; instead, the stock is “loaned” for the sale by a broker-dealer to someone who “shorts” the stock. In most situations, this is a short-term strategy by a seller, and based upon volume, may at times drive stock values down.

Based upon a review of the current stock ownership filings with the SEC made by our stockholders, we have identified several investment firms that own equity interests in our company. These firms may actively engage in hedging transactions, including the short selling of our Class A common stock. Moreover, a significant percentage of the convertible securities issued in our recent private placement transactions are held by investment firms who may engage such transactions. Any such hedging activities could reduce the value of our current stockholders’ equity interests in our company at and after the time the hedging transactions have occurred.

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We have never paid dividends on our Class A common stock and do not plan to do so in the future.

Holders of shares of our Class A common stock are entitled to receive any dividends that may be declared by our board of directors. However, we have not paid any cash dividends on our Class A common stock and we do not expect to do so in the future. Also, our agreements with our senior lenders and the indenture governing the Notes prohibit us from paying dividends to our stockholders. We intend to retain any future earnings to provide funds for operations of our business. Investors who anticipate the need for dividends from investments should not purchase our Class A common stock.

Our charter provisions, rights plan and Delaware law may have anti-takeover effects.

Our certificate of incorporation and bylaws authorize our board of directors to designate and issue, without stockholder approval, preferred stock with voting, conversion and other rights and preferences that could differentially and adversely affect the voting power or other rights of the holders of our common stock, which could be used to discourage an unsolicited acquisition proposal. In addition, under certain circumstances our board of directors may grant rights to our stockholders under our rights plan. Furthermore, certain provisions of Delaware law applicable to our company could also delay or make more difficult a merger, tender offer or proxy contest involving our company, including Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless certain conditions are met.

The possible issuance of preferred stock, the rights granted to stockholders under our rights plan and Delaware law could each have the effect of delaying, deferring or preventing a change in control of our company, including, without limitation, discouraging a proxy contest, making more difficult the acquisition of a substantial block of our common stock and limiting the price that investors might in the future be willing to pay for shares of our common stock.Common Stock.

Item 2.    Properties11.    Executive Compensation

Our principal executive offices are located at 26972 Burbank, Foothill Ranch, California, with 301,408 square feet of leased office and distribution facility space, including 215,192 square feet of merchandise handling and storage mezzanine space in the distribution facility and 86,216 square feet of office space. This lease expires on December 4, 2007. The lease allows for one five-year option.

We lease all of our stores. Lease terms for our stores typically are 10 years in length and generally contain renewal options. The leases generally provide for a fixed minimum rental and additional rental based on a percentage of sales once a minimum sales level has been reached. Certain leases include cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives. When a lease expires, we generally renew that lease at current market terms. However, each renewal is based upon an analysis of the individual store’s profitability and sales potential. Due to poor performance and or non-renewal of a lease, we closed 72 Wet Seal stores and 7 Arden B. stores during the year ended January 29, 2005. Of these closures, 25 were due to natural lease expirations and 54 were related to our previously announced plans to close 150 Wet Seal stores. In addition, we closed another 99 Wet Seal stores by March 5, 2005 (in 49 of these 99 stores, we had ceased use of the properties at January 29, 2005 and were preparing the locations for return to the respective landlords). At the end of fiscal 2004, we had 1,920,460 square feet of leased space for continuing operations, not including our principal executive offices.

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The following table sets forth information with respect to store openings and closings since fiscal 2000: