Item 4. Controls and Procedures

Disclosure Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer, of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). These disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures are also designed to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, in order to allow timely decisions regarding required disclosures. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of ~~May 3,~~August 2, 2014.

Our management, including our chief executive officer and chief financial officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended ~~May 3,~~August 2, 2014, no changes occurred with respect to our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II. Other Information

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Item 1. Legal Proceedings

On May 9, 2011, a complaint was filed in the Superior Court of the State of California for the County of Alameda on behalf of certain of our current and former employees who were employed and paid by us from May 9, 2007 through the present. We were named as a defendant. The complaint alleges various violations under the State of California Labor Code and the State of California Business and Professions Code. Plaintiffs are seeking statutory penalties, civil penalties, injunctive relief, and attorneys' fees and costs. On February 3, 2012, the court granted our motion to transfer venue to the County of Orange. On July 13, 2012, the Court granted our motion to compel arbitration. Plaintiffs appealed and oral argument was heard on September 23, 2013. On November 15, 2013, the Court of Appeals issued an order in which it affirmed in part and reversed in part the trial court’s order granting ~~the company’s~~our motion to compel arbitration. Specifically, the Court of Appeal affirmed the trial court’s order compelling arbitration of individual claims but held that the Private Attorney General Action (PAGA) claim can only be brought as a representative action. We filed a petition for review to the California Supreme Court that was denied on February 11, 2014. The matter was remitted to the Superior Court for additional proceedings and on April 29, 2014, the Superior Court granted our motion and issued an order to stay the case. On May 20, 2014, Plaintiffs filed a Request for Clarification of the Superior Court’s order staying the case, On June 12, 2014, the Superior Court denied Plaintiffs’ request and reaffirmed that a stay is in effect. On June 26, 2014, Plaintiffs filed a Petition for Writ of Mandate with the Court of Appeals requesting that the stay of non-arbitral claims be lifted. On August 5, 2014, the Court of Appeals issued an order denying Plaintiffs’ Writ. A hearing to review the status of the stay ~~is scheduled for~~took place in Superior Court on August 26, ~~2014.~~2014 during which the Court continued the stay for an additional 90 days in order for the parties to proceed with arbitration of the individual claims. The parties are in the process of initiating arbitration proceedings. In addition, on July 18, 2012, we received notice that Plaintiffs filed charges with the National Labor Relations Board (NLRB) under Section 7 of the National Labor Relations Board Act based on the arbitration agreements Plaintiffs signed upon their hiring with us. Plaintiffs alleged that our arbitration agreements unlawfully compel employees to waive their rights to participate in class or representative actions against us. On September 20, 2012, the NLRB dismissed Plaintiffs claims.

On October 27, 2011, a complaint was filed in the Superior Court of the State of California for the County of Los Angeles on behalf of certain of our current and former employees who were employed in California during the time period from October 27, 2007 through the present. We were named as a defendant. Plaintiffs are seeking unpaid wages, civil and statutory penalties,

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restitution, injunctive relief, interest, and attorneys' fees and costs. The complaint alleges various violations under the State of California Labor Code and the State of California Business and Professions Code. On March 28, 2012, the court entered an Order denying usour motion to compel arbitration. On September 21, 2012, we filed a notice of appeal that is still pending.

As of ~~May 3,~~August 2, 2014, we have accrued less than $0.1 million for loss contingencies in connection with the ~~litigation~~ matters enumerated above and other pending legal matters. We are vigorously defending the pending matters and will continue to evaluate ~~our~~its potential exposure and estimated costs as these matters progress. Future developments may require us to record accrual for these matters, or other legal matters, which could have a material negative effect on ~~our~~its results of operations or financial condition.

From time to time, we are involved in other litigation matters relating to claims arising out of our operations in the normal course of business. We believe that, in the event of a settlement or an adverse judgment on certain of these claims, insurance may cover a portion of such losses. However, certain matters could arise for which we do not have insurance coverage or for which insurance provides only partial coverage. These matters could have a material negative effect on our results of operations or financial condition.

Item 1A. Risk Factors

Our business, financial condition and results of operations are subject to a number of factors, risks and uncertainties. There have been no material changes to the risk factors as disclosed under Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended February 1, 2014 and Quarterly Report on Form 10-Q for the fiscal quarter ended May 3, 2014 filed with the SEC except as set forth below. The disclosures in our Annual Report on Form 10-K, Quarterly Report on Form 10-Q and below, and in other reports and filings are not necessarily a definitive list of all factors that may affect our business, financial condition and future results of operations. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. ~~Before making an investment decision, you~~Investors should carefully consider these risks as well as other information we include or incorporate by reference in this Quarterly Report on Form 10-Q.

We have a recent history of losses, expect to incur further losses and may not return to or sustain profitability in the future.

In fiscal 2013 and the 26 weeks ended August 2, 2014, we incurred net losses of $38.4 million and $43.8 million and negative cash flows from operations of $17.6 million and $23.9 million, respectively. As we have previously disclosed, we have experienced

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poor comparable store sales, and a number of factors are negatively impacting us and our industry. In addition, we expect to continue to report losses for the third fiscal quarter of the current fiscal year. Additionally, we may not return to profitability in future periods, our revenues could further decline or grow more slowly than we expect, and we may incur significant losses in the future for a number of reasons.

Our liquidity has been adversely impacted by our losses and we cannot assure you that we will have sufficient liquidity going forward if our assumptions prove incorrect.

We have historically financed our operations primarily from internally generated cash flows and our liquidity has decreased over the last several quarters primarily as a result of the net losses we have incurred. In March 2014, we improved our liquidity through the issuance of convertible notes which we privately placed (and which we recently exchanged with the Exchange Note). We believe that our cash flow from operations, working capital, cash reserves, availability under our senior revolving credit facility and the anticipated proceeds from the private placement and the intended rights offering which we previously have disclosed will be sufficient to meet our operating and capital expenditures needs for the next 12 months in the normal course of business and do not include any adjustments that might result from uncertainties. If we are unable to complete the private placement and the intended rights offering, return to positive same-store sales growth and improve its gross margins in the future, and we continue to experience negative cash flow from operations, we may deplete all of our cash reserves and be required to access most, if not all, of the senior revolving credit facility, and would potentially require other sources of financing to fund its operations, which sources might not be available, or if available, may not be on terms acceptable to us. In addition, we may need to take various actions, such as down-sizing, which could include exit costs, or reducing or delaying capital expenditures, strategic investments or other actions, and our business could be materially and adversely affected and could raise substantial doubt about our ability to continue as a going concern. In this event, it could have an adverse impact on our relationships with our merchandise vendors, lenders and other creditors.

Our contemplated private placement is subject to terms and conditions, many of which are outside our control. In addition, the intended rights offering may be delayed. We may experience delays and difficulties with both of these transactions and no assurance can be given that the transactions will close. The failure to close the contemplated private placement and the intended rights offering would adversely impact our liquidity and our financial condition.

The closing of our contemplated private placement of our common stock is subject to customary closing conditions, including, but not limited to, the concurrent closing of the intended rights offering, the effectiveness of a registration statement providing for the resale of the shares of common stock which we issue in the private placement, our receiving approval from our stockholders pursuant to the NASDAQ listing requirements with respect to the issuance of all the common stock to be issued in the private placement, our representations and warranties being materially correct at closing, and the private placement closing within seven months of the date of the agreement. While we intend to actively pursue the steps necessary to fulfill our closing conditions, some of the conditions are outside of our control and it is possible that all of the closing conditions to the private placement will not be satisfied. The distribution of the rights and the commencement of the rights offering may occur only after a registration statement to be filed by us with the SEC becomes effective. We may experience delays and difficulties trying to complete the rights offering. In addition, the parties to the private placement have the right to terminate their obligation to consummate the placement in the event it does not close by April 3, 2015. The failure to close the contemplated private placement and the rights offering would adversely and materially impact our liquidity and financial conditions.

We could be required to make substantial cash payments upon an event of default or change of control under our ~~convertible notes.~~Exchange Note.

~~Our~~The Exchange Note, which we also refer to as our convertible notes, ~~provide~~provides for events of default including, among others, payment defaults, cross defaults, material breaches of any representations or warranties, breaches of covenants that are not cured within the applicable time period, failure to perform certain required activities in a timely manner, failure to comply with the requirements under the registration rights agreement described below, suspension from trading or failure of our common stock to be listed on an eligible market for certain periods and certain bankruptcy-type events involving us or a subsidiary.

Upon an event of default, a holder of the convertible notes may elect to require us to redeem all or any portion of the convertible notes (including all accrued and unpaid interest and all interest that would have accrued through March 27, 2017, the maturity date), in cash, at a price equal to the greater of: (i) 115% of the amount being redeemed, and (ii) the product of (A) 100% of the amount being redeemed, and (B) the quotient determined by dividing (x) the highest closing sale price of the common stock on any trading day during the period beginning on the date immediately before the event of default and ending on the date of redemption, by (z) the lowest conversion price in effect during such period.

In addition, under the terms of the convertible notes, in the event of transactions involving a change of control, the holder of a note will have the right to require us to redeem all or any portion of the convertible notes it holds (including all accrued and

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unpaid interest thereon), in cash, at a price equal to 115% of the amount of the convertible notes being redeemed, subject to formula details specified in the convertible notes.

If either an event of default or change of control occurs, our available cash could be seriously depleted and our ability to fund operations could be materially harmed.

The ~~convertible notes contain~~Exchange Note contains various covenants and restrictions which may limit our ability to operate our business and raise capital.

The ~~convertible notes impose~~Exchange Note imposes certain restrictive covenants on us which may impede our ability to operate our business or raise further funds in the capital markets. For example, so long as the convertible notes are outstanding, we cannot, and cannot permit any of our subsidiaries to:

incur, guarantee, assume or suffer to exist any indebtedness (other than permitted indebtedness under the convertible notes);

declare or pay cash dividends;

redeem or repurchase equity interests;

permit liens on our properties or assets (other than permitted liens under the convertible notes); and

repay certain indebtedness in cash if an event of default has occurred.

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A breach of any of these covenants could result in a default under the convertible notes. If there is an event of default, a holder of the convertible notes may require us to redeem all or any portion of the convertible notes (including all accrued and unpaid interest and all interest that would have accrued through the maturity date) in cash, which could have a material adverse effect on our financial condition and cash flow.

We recently increased the amount of our required principal payments under our Exchange Note for the next six months. If we do not generate sufficient cash to service all of our debts, we may be forced to take other actions to satisfy our obligations.

In connection with the Exchange Note, we increased the installment amounts due under the Exchange Note each month during the six month period beginning on September 26, 2014. The new installment amount is $700,000, which is $350,000 higher than the installment amount due under the initial convertible notes, and if we distribute rights to our shareholders pursuant to a rights offering before March 31, 2015, with proceeds to us of not less than $11,500,000, then such amortization payments shall equal $1,050,000 for such installment date during such six month period. Our ability to service our debt will be adversely impacted if we do not close on the contemplated private placement and and raise funds through the rights offering and if we are unable to generate positive cash flows from operations in the future. We could also be forced to reduce or delay investments, sell assets, seek additional capital (which could include obtaining additional equity capital on terms that may be onerous or highly dilutive), and seek to restructure or refinance our debt. These alternatives may not be successful and may not permit us to meet our scheduled debt service obligations. Our failure to repay the principal amounts of our indebtedness when we are required to do so or to make other required payments under such facilities and debt instruments would constitute a default under the governing instruments for such indebtedness and could also lead to a default under the agreements governing our other indebtedness. If the repayment of our indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness.

We are not currently in compliance with the Nasdaq Global Select Market $1.00 minimum bid price requirement. If our common stock is delisted from this market or others, the market price and liquidity of our common stock and our ability to raise additional capital could adversely impacted. Furthermore, if our common stock is not listed on the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or other eligible market, it would be an event of default under our convertible notes.

Our common stock is currently listed on the Nasdaq Global Select Market (“Nasdaq”). Continued listing of a security on Nasdaq is conditioned upon compliance with various continued listing standards. There can be no assurance that we will continue to satisfy the requirements for maintaining listing on Nasdaq.

As previously reported, on August 18, 2014, we received a letter from Nasdaq (the “Notice”) notifying us that the closing bid price of our common stock was below the $1.00 minimum bid price requirement for 30 consecutive business days and, as a result, we no longer comply with the minimum bid price requirement for continued listing on Nasdaq. The Notice also stated that we have been provided an initial cure period of 180 calendar days, or until February 17, 2015, to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of 10 consecutive business days prior to February 17, 2015. If we do not regain compliance by February 17, 2015, we may be eligible for additional time. To qualify, we must submit, no later than February 17, 2015, an on-line transfer application. We will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing

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standards, with the exception of the bid price requirement, and will need to provide written notice of our intention to cure the deficiency during the second cure period by effecting a reverse stock split, if necessary. As part of its review process, Nasdaq will make a determination of whether they believe that we will be able to cure this deficiency. Should Nasdaq conclude that we will not be able to cure the deficiency, or should we determine not to submit a transfer application or make the required representation, Nasdaq will provide notice that our securities will be subject to delisting.

If we are delisted and cannot obtain listing on another established market or exchange, our stock’s liquidity could suffer, and we would likely experience reduced investor interest. Such factors may result in a decrease in our stock’s trading price. Delisting may also make it more difficult for us to issue additional securities or to secure financing. Furthermore, if our common stock is not listed on the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or other eligible market, it would be an event of default under our Exchange Note which would enable the holder the Exchange Note to demand that we redeem all or any portion of the convertible notes (including all accrued and unpaid interest and all interest that would have accrued through March 27, 2017, the maturity date), in cash pursuant to the terms of the notes. If an event of default under the Exchange Note occurs, our available cash could be seriously depleted and our financial condition would be materially and adversely affected.

Our stockholders may experience significant dilution.

As of ~~May 3,~~August 2, 2014, we had approximately 19,809,783 and 8,804,348 shares of our common stock reserved or designated for future issuance pursuant to the convertible notes and for the exercise of warrants, respectively, subject to potential future anti-dilution adjustments. Although we have the option to settle the interest and principal payments on the convertible notes in cash and certain conversion and exercise restrictions are placed upon the holders of the convertible notes and warrants, the issuance of material amounts of common stock by us would cause our existing stockholders to experience significant dilution in their investment in our company. On September 3, 2014, we announced that we have entered into a Securities Purchase Agreement to sell additional shares of common stock, which sale, when completed, will result in the issuance of a significant number of additional shares of Common Stock and further dilution to the shareholders who are not purchasing shares thereunder. We also announced on September 3, 2014 that we intend to undertake a rights offering which could result in further dilution to those shareholders who do not purchase their respective pro rata share of the securities sold in the rights offering. In addition, if we 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 common stock to decline, which could impair our ability to raise additional financing.

Substantial leverage and debt service obligations may adversely affect our cash flows.

In connection with the sale of the initial convertible notes, ~~to the selling stockholder identified herein,~~ we incurred indebtedness in the aggregate principal amount of $27 million. The degree to which we are leveraged could, among other things:

require us to dedicate a substantial portion of our future cash flows from operations and other capital resources to debt service;

make it difficult for us to obtain necessary financing in the future for working capital, acquisitions or other purposes on favorable terms, if at all;

make it more difficult for us to be acquired;

make us more vulnerable to industry downturns and competitive pressures; and

limit our flexibility in planning for, or reacting to, changes in our business.

Our ability to meet our debt service obligations (including interest or amortization payments on the convertible notes) will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control. For example, while we currently intend to make interest or amortization payments on the convertible notes in cash, this intention may change depending on our financial condition and our stock price at the time of the applicable installment date. To the extent that we desire to make interest or amortization payments on the convertible notes through the issuance of shares of our common stock, we must be in compliance with certain equity conditions (including trading volume and stock price conditions), unless these conditions are waived by the holder, and such payments in shares will be limited to the extent that such payments would cause the holder to beneficially own in excess of ~~4.99%~~9.99% of the outstanding shares of our common stock at the time of such payment. If we are not permitted to deliver shares of common stock to repay the convertible notes due to a failure to satisfy any of the these conditions or the limitations on payment in our shares, we will be required to make such payments in cash, which could adversely affect our ability to fund operations due to the diversion of necessary cash flow to fund operations to utilization for note payments.

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Sales of a significant number of shares of our common stock ~~in the public markets~~ or significant short sales of our stock, or the perception that such sales could occur, could depress the market price of our common stock and impair our ability to raise capital.

Sales of a substantial number of shares of our common stock or other equity-related securities, ~~in the public markets,~~ including any shares issued upon conversion of the ~~convertible notes,~~Exchange Note, in payment of principal of and interest on the ~~convertible notes,~~Exchange Note, or upon exercise of the ~~warrants,~~Exchange Warrants, could depress the market price of our common stock. In addition, we anticipate issuing a significant number of shares pursuant to our recently announced private placement and intended rights offering, which could adversely impact the trading price of our common stock. If there are significant short sales of our stock, the price decline that could result from this activity may cause the share price to decline more so, which, in turn, may cause long holders of the stock to sell their shares, thereby contributing to sales of stock in the market. Such sales also may impair our ability to raise capital through the sale of additional equity securities in the future at a time and price that our management deems acceptable, if at all.

~~We may not be able to maintain effectiveness of the registration statement of which the prospectus for the convertible notes forms a part, which could impact the liquidity of our common stock.~~

Under the terms of the registration rights agreement with the selling stockholder identified in the prospectus relating to the convertible notes, we are obligated to include shares of common stock issued or issuable upon conversion of the convertible notes, including in connection with principal payments, or as payment of interest under the convertible notes, and upon the exercise of the warrants, in an effective registration statement. The registration statement of which such prospectus forms a part is intended to satisfy these obligations. We intend to use our reasonable best efforts to maintain the registration statement to be effective, but

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may not be able to do so. We cannot assure you that no stop order will be issued, or if such a stop order is issued, we will be able to amend the registration statement to defeat the stop order. If the registration statement is not effective, investors’ ability to sell the shares of common stock underlying the convertible notes and warrants may be limited, which would have a material adverse effect on the liquidity of our common stock.

The accounting treatment for our convertible notes and warrants is complex and subject to judgments concerning the valuation of the warrants and the embedded derivative rights within the convertible notes. Fluctuations in the valuation of the warrants or these rights could cause us to take charges to our earnings and make our financial results unpredictable.

Our convertible notes issued on March 26, 2014 contained embedded derivative rights in accordance with accounting principles generally accepted in the United States, or GAAP. These derivative rights, or similar rights in convertible securities we may issue in the future, and the warrants need to be, or may need to be, separately valued as of the end of each accounting period in accordance with GAAP. Changes in the valuations of the warrants or these rights, the valuation methodology or the assumptions on which the valuations are based could cause us to take charges to our earnings, which would adversely impact our results of operations. Moreover, the methodologies, assumptions and related interpretations of accounting or regulatory authorities associated with these embedded derivatives are complex and in some cases uncertain, which could cause our accounting for these derivatives, and as a result, our financial results, to fluctuate. There is a risk that questions could arise from investors or regulatory authorities concerning the appropriate accounting treatment of these instruments, which could cause volatility in our financials until the warrants and embedded derivative rights expire, which in turn could adversely impact our results of operations, our reputation and our public stock price.

Our ability to use net operating loss carryforwards to offset future taxable income for U.S. federal or state income tax purposes is subject to limitations.

As previously disclosed by us, we have generated net operating losses (“NOLs”) in the past. However, Section 382 of the Internal Revenue Code (“Section 382”) contains provisions that may limit the availability of federal net operating loss carryforwards to be used to offset taxable income in any given year upon the occurrence of certain events, including significant changes in our stockholders' ownership interests in our company. Under Section 382, potential limitations on NOLs are triggered when there has been an “ownership change” (generally defined as a greater than 50% change (by value) in our stock ownership over a three-year period).

We incurred ownership changes in April 2005 and December 2006, which resulted in Section 382 limitations applying to NOLs generated prior to those dates, which were approximately $150.6 million. Despite these ownership changes, we may utilize all of our $165.0 million of NOLs as of February 1, 2014, to offset future taxable income. It is possible that the contemplated private placement and intended rights offering, if completed, may result in additional ownership changes for purposes of Section 382. Furthermore, other future transactions involving the sale or other transfer of our stock may result in additional ownership changes for purposes of Section 382. The occurrence of such additional ownership changes could limit our ability to utilize our remaining NOLs and possibly other tax attributes. Limitations imposed on our ability to use NOLs and other tax attributes to offset future taxable income could cause us to pay U.S. federal income taxes earlier than we otherwise would if such limitations were not in effect. Any further ownership change also could cause such NOLs and other tax attributes to expire unused, thereby reducing or eliminating the benefit of such NOLs and other tax attributes to us and adversely affecting our future cash flows.

In addition, we may determine that varying state laws with respect to NOL utilization may result in lower limits, or an inability to utilize NOLs in some states altogether, which could result in us incurring additional state income taxes. Through a series of legislative actions, the State of California suspended our ability to utilize NOLs to offset taxable income in fiscal 2008 through 2011. As a result, we incurred additional cash state income taxes in California. In the event that state law results in lower limits, or an inability to utilize loss carryforwards, or we become subject to federal alternative minimum tax, this could adversely affect our future cash flows.

There are risks associated with the implementation of our plans to wind-down our Arden B brand retail operations, including our ability to manage the associated closure and transition costs, our significant increase in the number of stores dedicated to Wet Seal Plus merchandise, the impact of the wind-down plan on our relationships with our employees, our major customers, vendors and landlords and unanticipated expenses and charges that may be incurred as a result of the wind-down.

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On April 24, 2014, we committed to a plan to wind down the operations of ~~our~~its Arden B brand (the "Plan") due to the long-term financial under-performance of the business. As of August 2, 2014, we operated 51 Arden B ~~currently operates 54 mall-based stores and an e-commerce web site. In the fiscal year ended February 1,~~stores. As of August 3, 2014, ~~Arden B generated net sales~~30 of ~~$60.4 million and represented 11% of consolidated net sales. Pursuant to~~ the Arden B ~~exit plan, it is expected that 31~~stores became Wet Seal Plus stores, 18 of the Arden B ~~locations~~stores became Wet Seal stores, one of the Arden B stores continues to operate under the Arden B name but will ~~transition~~sell Wet Seal product, and the 2 remaining stores continued to operate as Arden B stores until their closure in August 2014. We anticipate closing down the Arden B website in the third fiscal quarter of 2014.

The Arden B stores that were transitioned to Wet Seal ~~Plus merchandise and the remaining 23 locations will transition to~~stores operate in class A malls with higher occupancy costs. While we currently have Wet Seal ~~merchandise, and these Arden B locations will be refreshed with either~~stores in class A malls, the majority of our Wet Seal ~~or Wet Seal Plus signage, where permissible. We expect to complete this transition by the start of the back-to-school selling season~~stores operate in ~~late July 2014. We further expect that, through lease expirations~~class B and ~~the exercise of early termination provisions, we will close 17 of the current Arden B locations through the remainder of fiscal 2014 and 9 Arden B locations in fiscal 2015.~~class C malls. There can be no assurance that we will be able to ~~transition~~operate the Arden B stores that were transitioned to Wet Seal stores at the same or greater levels of profitability than when they were operated as Arden B stores.

Prior to the conversion of 30 Arden B stores to Wet Seal ~~or Wet Seal~~ Plus ~~merchandise as~~stores, we ~~expect or in a satisfactory manner. We currently have~~had only two stores that ~~carry~~carried exclusively Wet Seal Plus merchandise and they operate in off-mall locations with square footages that are smaller than the Arden B stores that ~~will be~~have been converted to Wet Seal Plus merchandise. The ~~planned~~ transition to Wet Seal Plus merchandise in several Arden B stores ~~will represent~~represents a significant increase in the number of stores dedicated to Wet Seal Plus merchandise. We do not have long history of operating the Wet Seal Plus store concept and there can be no assurance that the Wet Seal Plus concept will be successful in the locations and sizes of the Arden B stores ~~being~~ converted to Wet Seal Plus merchandise.

We estimate that the ~~total~~remaining amount of charges expected to be incurred to our condensed consolidated statement of operations in the ~~first through~~ third ~~quarters~~quarter of fiscal 2014 in connection with the winding down of the Arden B brand, including charges for employee severance and retention plans, transitioning the stores from Arden B to Wet Seal and Wet Seal Plus merchandise and non-cash asset impairments, is approximately ~~$4.5~~$0.4 million. We estimate the amount of charges to our condensed consolidated statement of operations that will result in future cash expenditures during the remainder of 2014 fiscal year, comprised of a store employee ~~severance and~~ retention plan and ~~transitioning the stores from Arden B to Wet Seal merchandise costs,~~lease amendment and early termination fees, will be approximately ~~$1.3~~$0.4 million. WeAs of August 2, 2014, we also estimate that we will incur future cash expenditures during ~~the~~ fiscal 2014 and 2015 ~~years~~ of approximately ~~$0.5~~$0.3 million that will not affect our condensed consolidated statement of operations, which are comprised of reimbursements to landlords of unamortized tenant ~~allowances.~~

~~In developing such estimates, we have assumed that~~allowances upon our early termination of certain ~~of the current~~leases for former Arden B retail locations will be converted to a Wet Seal or Wet Seal Plus format. Such estimates do not reflect any other transactions with our contractual counterparties to mitigate the charges. Actual transition charges may materially exceed our estimates due to various factors, many of which are outside of our control, including, without limitation, the actual outcomes of discussions and negotiations with the counterparties to the contracts we intend to terminate or modify. Because of uncertainties with respect to the Arden B exit plan (including those described above), we may not be able to complete and implement the Arden B exit plan as we expect or in a satisfactory manner, and the costs incurred in connection with such transition may exceed our estimates. If the actual transition charges exceed our estimates or if the Arden B exit plan is not implemented as expected, our business, results of operations and financial condition could be materially and adversely affected.

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In addition, because of the exit of the Arden B brand and because of other factors that ordinarily influence consumer acceptance of our products (many of which are outside our control), we face the risk of liquidating our current Arden B brand inventory on an abbreviated time frame and at reduced prices. As a result, we may incur a loss on such current inventory at Arden B stores and inventory on order that is destined for such stores. If we incur losses relating to the sales of our Arden B products, our business, financial condition and results of operations may be adversely affected.store locations.

In addition, the wind-down activities involve numerous risks, including but not limited to:

~~The inability of the Arden B business to retain qualified personnel necessary for the wind-down during the wind-down period;~~

Potential disruption of the operations of our Wet Seal brand and business and diversion of management attention from such business and operations;

Exposure to unknown, contingent or other liabilities in connection with the Arden B exit plan;

Negative impact on our business relationships, including relationships with our customers, suppliers, vendors, lessors, licensees and employees; and

Unintended negative consequences from changes to our business profile.

Any of these or other factors could impair or disrupt our ability to successfully implement the Arden B exit plan, and could increase costs associated with the wind-down activities, lengthen the wind-down period and materially and negatively impact our business, financial condition and results of operations. In addition, we may not be able to realize other business opportunities as we may be required to spend additional time and incur additional expense relating to the wind-down that otherwise would be used on the development and expansion of our Wet Seal brand.

We may face risks associated with the transition of our senior management, newly appointed chief executive officer and chief merchandising officer. 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. We have had significant changes in management in the fiscal third quarter of 2014, the beginning of fiscal 2013 and during fiscal 2012, 2011, and 2010, and these changes may impact our ability to execute our business strategy.

On August 26, 2014, our previous chief executive officer resigned. Effective September 3, 2014, we appointed Ms. Christine Lee as our new chief merchandising officer and effective September 8, 2014, we appointed Mr. Edmond S. Thomas as our new chief executive officer. While Mr. Thomas immediately became involved in the day-to-day activities of our company and has previous experience as the chief executive officer of our company, we anticipate that we will experience a transition period before he is fully integrated into the organization. During this transition period, we may experience a disruption to our customer relationships, employee morale and/or business.

Table of Contents

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


(a)	None.


(b)	None.


(c)	Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Period
Total Number of
Shares Purchased

Average Price Paid per
Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
February 2, 2014 to March 1, 2014 27,987
$ 1.93
—
$ —
March 2, 2014 to April 5, 2014 2,368
$ 1.65
—
$ —
April 6, 2014 to May 3, 2014 10,653
$ 1.18
—
$ —



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
May 4, 2014 to May 31, 2014	—	$	—	—	$	—
June 1, 2014 to July 5, 2014	2,175	$	0.86	—	$	—
July 6, 2014 to August 2, 2014	—	$	—	—	$	—

During the ~~first~~second quarter of fiscal 2014, we tendered ~~41,008~~2,175 shares of our Class A common stock upon restricted stock vesting to satisfy employee withholding tax obligations, for a total cost of ~~approximately~~less than $0.1 million.

Item 3. Defaults Upon Senior Securities


(a)	None.


(b)	None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

3547

Table of Contents

Item 6. Exhibits



3.1	Restated Certificate of Incorporation of our company (incorporated by reference to Exhibit 3.1 of our company's Registration Statement on Form S-1 filed September 2, 1992).
3.1.1	Amendment to Restated Certificate of Incorporation of our company (incorporated by reference to Exhibit 3.1.1 of our company's Annual Report on Form 10-K for the fiscal year ended February 2, 2002).
3.1.2	Amendment to Restated Certificate of Incorporation, as amended, of our company (incorporated by reference to Exhibit 3.1 of our company's Current Report on Form 8-K filed on January 18, 2005).
3.1.3	Amendment to Restated Certificate of Incorporation, as amended, of our company (incorporated by reference to Exhibit 3.1.3 of our company's Annual Report on Form 10-K for the fiscal year ended January 28, 2006).
3.2	Amended and Restated Bylaws of our company (incorporated by reference to Exhibit 3.1 of our company's Current Report on Form 8-K filed on May 29, 2009).
10.1	~~Securities Purchase Agreement,~~Offer Letter, dated ~~as of March 20,~~July 25, 2014, entered into between the Company and Christine Lee on July 27, 2014 (incorporated by reference to Exhibit 10.1 of our company’s Current Report on Form 8-K filed on ~~March 21,~~July 31, 2014).
10.2	Amended and Restated Change in Severance and Change in Control Plan (incorporated by reference to Exhibit 10.1 of our company’s Current Report on Form 8-K filed on August 26, 2014).
10.3	Employment Agreement, dated August 27, 2014, between the Company and Ed Thomas (incorporated by reference to Exhibit 10.1 of ~~Senior Convertible Note~~our company’s Current Report on Form 8-K filed on September 2, 2014).
10.4	Separation Agreement and General Release, dated August 26, 2014, between the Company and John Goodman (incorporated by reference to Exhibit 10.2 of our company’s Current Report on Form 8-K filed on ~~March 21,~~September 2, 2014).
~~10.3~~10.5	Securities Purchase Agreement, dated September 3, 2014, among the Company and the Purchasers party thereto (incorporated by reference to Exhibit 10.1 of our company’s Current Report on Form 8-K filed on September 4, 2014).
10.6	Form of Common Stock Purchase Warrant (the “Purchaser Warrant”) (incorporated by reference to Exhibit 10.2 of our company’s Current Report on Form 8-K filed on September 4, 2014).
10.7	Registration Rights Agreement, dated September 3, 2014, among the Company and the Holders party thereto (incorporated by reference to Exhibit 10.3 of our company’s Current Report on Form 8-K filed on ~~March 21,~~September 4, 2014).
~~10.4~~10.8	~~Form of Registration Rights~~Amendment, Consent and Exchange Agreement, dated September 3, 2014, between the Company and the Holder party thereto (incorporated by reference to Exhibit 10.4 of our company’s Current Report on Form 8-K filed on ~~March 21,~~September 4, 2014).
~~10.5~~10.9	Form of ~~Guaranty~~Senior Convertible Note (incorporated by reference to Exhibit 10.5 of our company’s Current Report on Form 8-K filed on ~~March 21,~~September 4, 2014).
~~10.6~~10.10	Form of ~~Lock-Up Agreement~~Common Stock Purchase Warrant (the “Exchange Warrant”) (incorporated by reference to Exhibit 10.6 of our company’s Current Report on Form 8-K filed on ~~March 21,~~September 4, 2014).
~~10.7~~10.11	Letter Agreement regarding director designee, dated ~~March 9,~~September 3, 2014, between the Company and Clinton Group, Inc. ~~and the Company~~ (incorporated by reference to Exhibit ~~10.1~~10.7 of our company’s Current Report on Form 8-K filed on ~~March 10,~~September 4, 2014).
31.1	Certification filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1+	Certification furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2+	Certification furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS+*	XBRL Instance Document
101.SCH+*	XBRL Taxonomy Extension Schema Document
101.CAL+*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB+*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE+*	XBRL Taxonomy Extension Presentation Linkbase Document

+ This exhibit will not be deemed "filed" for purposes of Section 18 of the Exchange Act or otherwise subject to liability under that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent the Company specifically incorporates it by reference.

* Furnished electronically herewith pursuant to Rule 406T of Regulation S-T.

3648

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	THE WET SEAL, INC.
	(REGISTRANT)
~~May 28,~~September 11, 2014	By:	/s/ ~~John D. Goodman~~Edmond S. Thomas
		~~John D. Goodman~~Edmond S. Thomas
		Chief Executive Officer
~~May 28,~~September 11, 2014	By:	/s/ Steven H. Benrubi
		Steven H. Benrubi
		Executive Vice President and Chief Financial Officer

3749



Delaware	33-0415940
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
26972 Burbank, Foothill Ranch, CA	92610
(Address of principal executive offices)	(Zip Code)



Large accelerated filer:	¨		Accelerated filer:	ý
Non-accelerated filer:	¨	(Do not check if a smaller reporting company)	Smaller reporting company:	¨


	May 3, 2014			February 1, 2014			May 4, 2013			August 2, 2014			February 1, 2014			August 3, 2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	51,551		$	38,772		$	50,320		$	40,274		$	38,772		$	27,773
Short-term investments	2,943			7,386			61,342			—			7,386			51,948
Income tax receivables	—			141			286			—			141			141
Other receivables	2,780			3,230			4,612			2,403			3,230			975
Merchandise inventories	38,799			31,209			36,341			38,382			31,209			40,910
Prepaid expenses and other current assets	11,745			12,742			11,360			13,983			12,742			13,803
Total current assets	107,818			93,480			164,261			95,042			93,480			135,550
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Leasehold improvements	68,859			78,097			90,673			52,768			78,097			91,480
Furniture, fixtures and equipment	56,349			60,143			63,694			52,283			60,143			64,345
	125,208			138,240			154,367			105,051			138,240			155,825
Less accumulated depreciation and amortization	(76,196		)	(81,951		)	(90,798		)	(68,150		)	(81,951		)	(89,812		)
Net equipment and leasehold improvements	49,012			56,289			63,569			36,901			56,289			66,013
OTHER ASSETS:
Other assets	3,101			1,970			3,040			1,520			1,970			3,016
Total other assets	3,101			1,970			3,040			1,520			1,970			3,016
TOTAL ASSETS	$	159,931		$	151,739		$	230,870		$	133,463		$	151,739		$	204,579
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of convertible debt	$	3,450		$	—		$	—		$	6,450		$	—		$	—
Accounts payable – merchandise	19,971			18,530			20,644			23,401			18,530			24,401
Accounts payable – other	8,148			8,814			17,470			7,780			8,814			10,410
Accrued liabilities	23,031			20,704			27,970			19,507			20,704			24,826
Current portion of deferred rent	3,640			3,508			2,717			3,640			3,508			2,952
Total current liabilities	58,240			51,556			68,801			60,778			51,556			62,589
LONG-TERM LIABILITIES:
Warrants and Embedded derivatives	5,252			—			—			2,757			—			—
Senior convertible debt, net of discount of $5,481 at May 3, 2014	18,069			—			—
Senior convertible debt, net of discount of $4,830, at August 2, 2014										15,720			—			—
Deferred rent	30,498			31,066			31,674			29,481			31,066			31,171
Other long-term liabilities	1,747			1,784			1,871			—			1,784			1,834
Total long-term liabilities	55,566			32,850			33,545			47,958			32,850			33,005
Total liabilities	113,806			84,406			102,346			108,736			84,406			95,594
STOCKHOLDERS’ EQUITY:
Common stock, Class A, $0.10 par value, authorized 300,000,000 shares; 84,854,385 shares issued and 84,504,868 outstanding at May 3, 2014; 84,730,594 shares issued and 84,695,369 shares outstanding at February 1, 2014; and 91,067,436 shares issued and 88,976,080 shares outstanding at May 4, 2013	8,485			8,473			9,107
Common stock, Class A, $0.10 par value, authorized 300,000,000 shares; 84,860,314 shares issued and 84,508,622 shares outstanding at August 2, 2014; 84,730,594 shares issued and 84,695,369 shares outstanding at February 1, 2014; and 91,188,299 shares issued and 84,702,041 shares outstanding at August 3, 2013										8,486			8,473			9,119
Common stock, Class B convertible, $0.10 par value, authorized 10,000,000 shares; no shares issued and outstanding	—			—			—			—			—			—
Paid-in capital	217,576			216,944			240,108			218,036			216,944			241,012
Accumulated deficit	(179,645		)	(157,864		)	(116,371		)	(201,654		)	(157,864		)	(115,413		)
Treasury stock, 349,517 shares, 35,225 shares and 2,091,356 shares, at cost, at May 3, 2014, February 1, 2014, and May 4, 2013, respectively	(139		)	(68		)	(4,193		)
Treasury stock, 351,692 shares, 35,225 shares and 6,486,258 shares, at cost, at August 2, 2014, February 1, 2014, and August 3, 2013, respectively										(141		)	(68		)	(25,606		)
Accumulated other comprehensive loss	(152		)	(152		)	(127		)	—			(152		)	(127		)
Total stockholders’ equity	46,125			67,333			128,524			24,727			67,333			108,985
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	159,931		$	151,739		$	230,870		$	133,463		$	151,739		$	204,579


	13 Weeks Ended						13 Weeks Ended						26 Weeks Ended
	May 3, 2014			May 4, 2013			August 2, 2014			August 3, 2013			August 2, 2014			August 3, 2013
Net sales	$	116,728		$	140,445		$	121,176		$	137,249		$	237,904		$	277,694
Cost of sales	93,597			98,214			94,812			96,597			188,409			194,811
Gross margin	23,131			42,231			26,364			40,652			49,495			82,883
Selling, general, and administrative expenses	37,497			37,437			36,901			39,412			74,398			76,849
Asset impairment	7,318			1,596			12,740			262			20,058			1,858
Operating (loss) income	(21,684		)	3,198			(23,277		)	978			(44,961		)	4,176
Interest income	31			40			64			53			95			101
Interest expense	(453		)	(46		)	(1,263		)	(54		)	(1,716		)	(108		)
Interest expense, net	(422		)	(6		)	(1,199		)	(1		)	(1,621		)	(7		)
Gain on warrants and derivatives liabilities	439			—			2,496			—			2,935			—
(Loss) income before provision for income taxes	(21,667		)	3,192			(21,980		)	977			(43,647		)	4,169
Provision for income taxes	114			82			29			19			143			101
Net (loss) income	$	(21,781	)	$	3,110		$	(22,009	)	$	958		$	(43,790	)	$	4,068
Net (loss) income per share, basic	$	(0.26	)	$	0.03		$	(0.26	)	$	0.01		$	(0.52	)	$	0.05
Net (loss) income per share, diluted	$	(0.26	)	$	0.03		$	(0.26	)	$	0.01		$	(0.52	)	$	0.05
Weighted-average shares outstanding, basic	84,107,731			88,501,179			84,189,702			85,800,626			84,144,741			87,178,655
Weighted-average shares outstanding, diluted	84,107,731			88,503,407			84,189,702			85,975,029			84,144,741			87,243,412



	13 Weeks Ended					26 Weeks Ended
	August 2, 2014			August 3, 2013		August 2, 2014			August 3, 2013
Net (loss) income	$	(22,009	)	$	958	$	(43,790	)	$	4,068
Other comprehensive gain:
Gain on settlement of Supplemental Employee Retirement Plan Liability (1)	152			—		152			—
Comprehensive (loss) income	$	(21,857	)	$	958	$	(43,638	)	$	4,068



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets (Unaudited) as of ~~May 3,~~August 2, 2014, February 1, 2014 and ~~May 4,~~August 3, 2013	1
	Condensed Consolidated Statements of Operations (Unaudited) for the 13 and 26 Weeks Ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013	2
	Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the 13 and 26 Weeks Ended August 2, 2014 and August 3, 2013	3
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the 1326 Weeks Ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013	34
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the 1326 Weeks Ended ~~May 3,~~August 2, 2014 and ~~May 4,~~August 3, 2013	56
	Notes to Condensed Consolidated Financial Statements (Unaudited)	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2025
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3039
Item 4.	Controls and Procedures	3140

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3141
Item 1A.	Risk Factors	3241
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3547
Item 3.	Defaults Upon Senior Securities	3547
Item 4.	Mine Safety Disclosures	3547
Item 5.	Other Information	3547
Item 6.	Exhibits	3648
SIGNATURES		3749
EXHIBIT 31.1 EXHIBIT 31.2 EXHIBIT 32.1 EXHIBIT 32.2 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document


	Common Stock						Paid-In Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Common Stock						Paid-In Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Class A			Class B																		Class A			Class B
	Shares	Par Value		Shares	Par Value																	Shares	Par Value		Shares	Par Value
Balance at February 1, 2014	84,730,594	$	8,473	—	$	—	$	216,944		$	(157,864	)	$	(68	)	$	(152	)	$	67,333		84,730,594	$	8,473	—	$	—	$	216,944		$	(157,864	)	$	(68	)	$	(152	)	$	67,333
Net loss	—	—		—	—		—			(21,781		)	—			—			(21,781		)	—	—		—	—		—			(43,790		)	—			—			(43,790		)
Stock issued pursuant to long-term incentive plans	123,791	12		—	—		(12		)	—			—			—			—			129,720	13		—	—		(13		)	—			—			—			—
Stock-based compensation	—	—		—	—		644			—			—			—			644			—	—		—	—		1,105			—			—			—			1,105
Settlement of SERP liability																						—	—		—	—		—			—			—			152			152
Repurchase of common stock	—	—		—	—		—			—			(71		)	—			(71		)	—	—		—	—		—			—			(73		)	—			(73		)
Balance at May 3, 2014	84,854,385	$	8,485	—	$	—	$	217,576		$	(179,645	)	$	(139	)	$	(152	)	$	46,125
Balance at August 2, 2014																						84,860,314	$	8,486	—	$	—	$	218,036		$	(201,654	)	$	(141	)	$	—		$	24,727


Options	Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value		Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at February 1, 2014	882,333		$	3.82				882,333		$	3.82
Granted	1,425,246		$	1.52				1,445,246		$	1.51
Exercised	—		$	—				—		$	—
Canceled	(101,535	)	$	3.56				(281,732	)	$	4.12
Outstanding at May 3, 2014	2,206,044		$	2.35	4.11	$	—
Vested and expected to vest in the future at May 3, 2014	1,788,006		$	2.50	3.93	$	—
Exercisable at May 3, 2014	534,255		$	3.96	2.06	$	—
Outstanding at August 2, 2014								2,045,847		$	2.15	4.22	$	—
Vested and expected to vest in the future at August 2, 2014								1,674,654		$	2.26	4.12	$	—
Exercisable at August 2, 2014								385,723		$	3.74	2.77	$	—



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding as of May 3, 2014	Weighted- Average Remaining Contractual Life (in years)	Weighted- Average Exercise Price Per Share		Number Exercisable as of May 3, 2014	Weighted- Average Exercise Price Per Share
$ 1.13 - $ 2.26	1,425,246	4.97	$	1.52	—	$	—
$ 2.36 - $ 3.57	359,333	2.94	$	3.10	245,996	$	3.16
$ 3.69 - $ 5.93	401,465	2.33	$	4.39	268,259	$	4.48
$ 6.82	20,000	0.02	$	6.82	20,000	$	6.82
$ 1.13 - $ 6.82	2,206,044	4.11	$	2.35	534,255	$	3.96


Restricted Common Stock and Restricted Stock Units	Number of Shares		Weighted-Average Grant-Date Fair Value		Number of Shares		Weighted-Average Grant-Date Fair Value
Nonvested at February 1, 2014	899,939		$	3.06	899,939		$	3.06
Granted	1,476,513		$	1.50	1,476,513		$	1.50
Vested	(202,043	)	$	2.65	(207,972	)	$	2.72
Forfeited	(80,715	)	$	2.47	(84,376	)	$	2.42
Nonvested at May 3, 2014	2,093,694		$	2.02
Nonvested at August 2, 2014					2,084,104		$	2.02



Fiscal Year	As of August 2, 2014 under the initial note		As of September 3, 2014 under the Exchange Note (1)
2014	$	1,750	$	3,500
2015	10,700		11,050
2016	12,750		12,450
2017	1,800		—


	Carrying Amount as of May 3, 2014		Fair Value Measurements at Reporting Date Using						Carrying Amount as of August 2, 2014		Fair Value Measurements at Reporting Date Using
			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Financial assets:
Money market funds	$	21,363	$	—	$	21,363	$	—	$	22,033	$	—	$	22,033	$	—
Cash equivalents	21,363								22,033

Certificates of deposit	1,442		—		1,440		—
US treasury securities	—		—		—		—
US government agency securities	1,501		—		1,500		—
Short-term investments	2,943

Financial liability:
Senior convertible notes	$	18,069	$	—	$	—	$	27,937	$	22,170	$	—	$	—	$	22,170



	Carrying Amount as of February 1, 2014		Fair Value Measurements at Reporting Date Using
	Carrying Amount as of February 1, 2014		Level 1		Level 2		Level 3
Financial assets:
Money market funds	$	22,427	$	—	$	22,427	$	—
Cash equivalents	22,427

Certificates of deposits	3,084		—		3,079		—
US government securities	4,302		—		4,300		—
Short-term investments	$	7,386


	May 3, 2014			March 26, 2014			August 2, 2014			March 26, 2014
Stock price	$	1.15		$	1.16		$	0.90		$	1.16
Exercise price	$	2.12		$	2.12		$	2.12		$	2.12
Exercise price floor	$	1.76		$	1.76		$	1.76		$	1.76
Expected volatility	52.00		%	54.00		%	51.93		%	54.00		%
Expected term (in years)	5.4			5.5			5.2			5.5
Risk free interest rate	1.86		%	1.86		%	1.72		%	1.86		%
Expected dividend yield	—		%	—		%	—		%	—		%


	May 3, 2014			March 26, 2014			August 2, 2014			March 26, 2014
Stock price	$	1.15		$	1.16		$	0.90		$	1.16
Conversion price	1.84			1.84			1.84			1.84
Expected volatility	52.0		%	52.0		%	51.93		%	52.0		%
Expected term (in years)	5.4			5.5			2.7			3.0
Risk free interest rate	0.9		%	0.9		%	0.81		%	0.89		%
Expected dividend yield	—		%	—		%	—		%	—		%
Bond yield	4.1		%	4.2		%	4.1		%	4.2		%
Recovery rate	45.0		%	45.0		%	45.0		%	45.0		%


	Carrying Amount as of May 4, 2013		Fair Value Measurements at Reporting Date Using						Carrying Amount as of August 3, 2013		Fair Value Measurements at Reporting Date Using
			Level 1		Level 2		Level 3				Level 1		Level 2		Level 3
Financial assets:
Money market funds	$	33,035	$	—	$	33,035	$	—	$	9,233	$	—	$	9,233	$	—
Cash and cash equivalents	33,035
Cash equivalents									9,233

Certificates of deposit	5,936		—		5,925		—		7,613		—		7,596		—
US treasury securities	14,989		—		14,997		—		9,991		—		9,999		—
US government securities	40,417		—		40,343		—		34,344		—		34,319		—
Short-term investments	61,342								51,948

Long-term tenant allowances receivable	$	982	$	—	$	—	$	982	$	1,005	$	—	$	—	$	1,005


	May 3, 2014
	(in thousands)		August 2, 2014
Beginning balance as of March 26, 2014	$	3,610	$	3,610
Less: Gain from change in fair value	264		264
Balance as of May 3, 2014	$	3,346	3,346
Less: Gain from change in fair value			1,409
Balance as of August 2, 2014			$	1,937



13 Weeks Ended August 2, 2014	Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	108,722		$	12,454		$	—		$	121,176
Percentage of consolidated net sales	90		%	10		%	—		%	100		%
Operating loss	$	(15,562	)	$	(947	)	$	(6,768	)	$	(23,277	)
Depreciation and amortization expense	$	1,980		$	53		$	527		$	2,560
Interest income	$	—		$	—		$	64		$	64
Interest expense	$	—		$	—		$	(1,263	)	$	(1,263	)
Gain on warrants and derivatives liabilities	$	—		$	—		$	2,496		$	2,496
Loss before provision for income taxes	$	(15,562	)	$	(947	)	$	(5,471	)	$	(21,980	)


13 Weeks Ended May 3, 2014	Wet Seal			Arden B			Corporate and Unallocated			Total
13 Weeks Ended August 3, 2013													Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	103,309		$	13,419		$	—		$	116,728		$	120,567		$	16,682		$	—		$	137,249
Percentage of consolidated net sales	89		%	11		%	—		%	100		%	88		%	12		%	—			100		%
Operating loss	$	(8,386	)	$	(4,630	)	$	(8,668	)	$	(21,684	)
Operating income (loss)													$	8,950		$	491		$	(8,463	)	$	978
Depreciation and amortization expense	$	2,250		$	165		$	524		$	2,939		$	2,732		$	322		$	383		$	3,437
Interest income	$	—		$	—		$	31		$	31		$	—		$	—		$	53		$	53
Interest expense	$	—		$	—		$	(453	)	$	(453	)	$	—		$	—		$	(54	)	$	(54	)
Gain on warrants and derivatives liabilities	$	—		$	—		$	439		$	439
Loss before provision for income taxes	$	(8,386	)	$	(4,630	)	$	(8,651	)	$	(21,667	)
Income (loss) before provision for income taxes													$	8,950		$	491		$	(8,464	)	$	977



26 Weeks Ended August 2, 2014	Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	212,031		$	25,873		$	—		$	237,904
Percentage of consolidated net sales	89		%	11		%	—		%	100		%
Operating loss	$	(23,947	)	$	(5,579	)	$	(15,435	)	$	(44,961	)
Depreciation and amortization expense	$	4,229		$	217		$	1,053		$	5,499
Interest income	$	—		$	—		$	95		$	95
Interest expense	$	—		$	—		$	(1,716	)	$	(1,716	)
Gain on warrants and derivatives liabilities	$	—		$	—		$	2,935		$	2,935
Loss before provision for income taxes	$	(23,947	)	$	(5,579	)	$	(14,121	)	$	(43,647	)


13 Weeks Ended May 4, 2013	Wet Seal			Arden B			Corporate and Unallocated			Total
26 Weeks Ended August 3, 2013													Wet Seal			Arden B			Corporate and Unallocated			Total
Net sales	$	122,799		$	17,646		$	—		$	140,445		$	243,367		$	34,327		$	—		$	277,694
Percentage of consolidated net sales	87		%	13		%	—			100		%	88		%	12		%	—			100		%
Operating income (loss)	$	9,553		$	558		$	(6,913	)	$	3,198		$	18,502		$	1,048		$	(15,374	)	$	4,176
Depreciation and amortization expense	$	2,584		$	260		$	494		$	3,338		$	5,317		$	581		$	877		$	6,775
Interest income	$	—		$	—		$	40		$	40		$	—		$	—		$	101		$	101
Interest expense	$	—		$	—		$	(46	)	$	(46	)	$	—		$	—		$	(108	)	$	(108	)
Income (loss) before provision for income taxes	$	9,553		$	558		$	(6,919	)	$	3,192		$	18,502		$	1,048		$	(15,381	)	$	4,169


	13 Weeks Ended May 3, 2014		Change From Prior Fiscal Period					13 Weeks Ended May 4, 2013		13 Weeks Ended August 2, 2014		Change From Prior Fiscal Period					13 Weeks Ended August 3, 2013
			($ in millions)									($ in millions)
Net sales	$	116.7	$	(23.7	)	(16.9	)%	$	140.4	$	121.2	$	(16.0	)	(11.7	)%	$	137.2
Comparable store sales decrease						(16.9	)%								(12.4	)%


(In thousands, except percentages, sales per square foot and number of stores data)	13 Weeks Ended May 3, 2014			13 Weeks Ended May 4, 2013			13 Weeks Ended August 2, 2014			13 Weeks Ended August 3, 2013
Net sales	$	103,309		$	122,799		$	108,722		$	120,567
Percentage of consolidated net sales	89		%	87		%	90		%	88		%
Comparable store sales percentage decrease compared to the prior year	(16.5		)%	(3.4		)%
Comparable store sales percentage (decrease) increase compared to the prior year							(11.1		)%	3.8		%
Operating (loss) income	$	(8,386	)	$	9,553		$	(15,562	)	$	8,950
Sales per square foot	$	51		$	62		$	53		$	62
Number of stores as of period end	478			464			480			464
Square footage as of period end	1,900			1,856			1,906			1,859