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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 001-14498
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BLUEFLY, INC.
(Name of registrant as specified in its charter)
Delaware 13-3612110
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
42 West 39th Street, New York, NY 10018
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 944-8000
----------
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of April 29, 2003, the issuer had outstanding 11,024,568 shares of Common
Stock, $.01 par value.
BLUEFLY, INC.
TABLE OF CONTENTS
PAGE
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of March 31, 2003 (unaudited)
and December 31, 2002 3
Consolidated Condensed Statements of Operations for the three months ended
March 31, 2003 and 2002 (unaudited) 4
Consolidated Condensed Statements of Cash Flows for the three months ended
March 31, 2003 and 2002 (unaudited) 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Disclosures 16
Part II. Other Information 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use Of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
Signature 16
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
BLUEFLY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 2,476,000 $ 1,749,000
Inventories, net 10,665,000 10,868,000
Accounts receivable, net 1,205,000 1,147,000
Prepaid expenses 247,000 248,000
Other current assets 93,000 78,000
------------- -------------
Total current assets 14,686,000 14,090,000
Property and equipment, net 2,303,000 2,604,000
Other assets 200,000 215,000
------------- -------------
Total assets $ 17,189,000 $ 16,909,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,472,000 $ 3,434,000
Accrued expenses and other current liabilities 1,941,000 3,067,000
Deferred revenue 1,045,000 885,000
------------- -------------
Total current liabilities 6,458,000 7,386,000
Note payable to shareholders 182,000 2,182,000
Long-term capital lease liability 210,000 257,000
------------- -------------
Total liabilities 6,850,000 9,825,000
------------- -------------
Commitments and contingencies
Shareholders' equity
Series A Preferred stock - $.01 par value; 500,000 shares authorized,
460,000 and 500,000 issued and outstanding as of March 31, 2003 and December
31, 2002, respectively (liquidation preference: $9.2 million plus accrued dividends) 5,000 5,000
Series B Preferred stock - $.01 par value; 9,000,000 shares authorized
8,889,414 and 8,910,782 shares issued and outstanding as of March 31, 2003 and
December 31, 2002, respectively (liquidation preference: $30 million plus accrued dividends) 89,000 89,000
Series C Preferred stock - $.01 par value; 3,500 shares authorized and 1,000
shares issued and outstanding as of March 31, 2003 and December 31, 2002, respectively
(liquidation preference: $1 million plus accrued dividends) -- --
Series D Preferred stock - $.01 par value; 7,150 shares authorized, issued
and outstanding as of March 31, 2003 (liquidation preference: $7.1 million plus
accrued dividends); no shares authorized, issued and outstanding as of December 31, 2002 -- --
Series 2002 Convertible Preferred stock - $.01 par value; 2,100 shares
authorized and 0 and 2,100 shares issued and outstanding as of March 31, 2003 and
December 31, 2002, respectively (liquidation preference: $2.1 million) -- --
Common stock - $.01 par value; 40,000,000 shares authorized and 11,024,568 and 10,391,904 shares
issued and outstanding as of March 31, 2003 and December 31, 2002, respectively 110,000 104,000
Additional paid-in capital 97,942,000 92,628,000
Accumulated deficit (87,807,000) (85,742,000)
------------- -------------
Total shareholders' equity 10,339,000 7,084,000
------------- -------------
Total liabilities and shareholders' equity $ 17,189,000 $ 16,909,000
============= =============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
BLUEFLY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
------------- -------------
Net sales $ 8,257,000 $ 7,646,000
Cost of sales 6,400,000 5,146,000
------------- -------------
Gross profit 1,857,000 2,500,000
Selling, marketing and fulfillment expenses 2,453,000 2,436,000
General and administrative expenses 1,162,000 1,062,000
------------- -------------
Total 3,615,000 3,498,000
Operating loss (1,758,000) (998,000)
Interest income 6,000 32,000
Interest expense (88,000) (99,000)
------------- -------------
Net loss $ (1,840,000) $ (1,065,000)
Deemed dividend related to beneficial conversion feature on
Series C Preferred Stock (225,000) --
Preferred stock dividends (638,000) (609,000)
------------- -------------
Net loss applicable to common shareholders $ (2,703,000) $ (1,674,000)
============= =============
Basic and diluted loss per common share $ (0.25) $ (0.18)
============= =============
Weighted average common shares outstanding
(basic and diluted) 10,982,390 9,205,331
============= =============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
BLUEFLY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
---------------------------
2003 2002
------------ ------------
Cash flows from operating activities
Net loss $ (1,840,000) $ (1,065,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 402,000 203,000
Provisions for returns (421,000) (329,000)
Allowance for doubtful accounts 50,000 65,000
Write-down (recovery) of inventory 12,000 (54,000)
Changes in operating assets and liabilities:
(Increase) decrease in
Inventories 191,000 195,000
Accounts receivable (108,000) (14,000)
Prepaid expenses 1,000 (28,000)
Other current assets (15,000) 66,000
Other assets -- (12,000)
Increase (decrease) in
Accounts payable 91,000 293,000
Accrued expenses and other current liabilities (705,000) (406,000)
Deferred revenue 160,000 (226,000)
------------ ------------
Net cash used in operating activities (2,182,000) (1,312,000)
------------ ------------
Cash flows from investing activities
Purchase of property, equipment and capitalized software (44,000) (344,000)
------------ ------------
Net cash used in investing activities (44,000) (344,000)
------------ ------------
Cash flows from financing activities
Proceeds from sale of Notes Payable (January 2003 Financing) 1,000,000 --
Proceeds from sale of Series D Preferred Stock 2,000,000 --
Payments of capital lease obligation (47,000) --
------------ ------------
Net cash provided by financing activities 2,953,000 --
------------ ------------
Net increase (decrease) in cash and cash equivalents 727,000 (1,656,000)
Cash and cash equivalents - beginning of period 1,749,000 5,419,000
------------ ------------
Cash and cash equivalents - end of period $ 2,476,000 $ 3,763,000
============ ============
Supplemental schedule of non-cash investing and financing activities:
Repayment of note and reallocation of proceeds to equity $ 2,027,000 $ --
============ ============
Conversion of debt to equity $ 1,009,000 $ --
============ ============
Deemed dividend related to beneficial conversion feature on Series C Preferred Stock $ 225,000 $ --
============ ============
Warrants issued to shareholders $ 43,000 $ 98,000
============ ============
Interest paid $ 15,000 $ 49,000
============ ============
Warrant issued to factor $ -- $ 80,000
============ ============
The accompanying notes are an integral part of these
consolidated condensed financial statements.
5
BLUEFLY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2003
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Bluefly, Inc. and its wholly owned subsidiary (collectively the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnote
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations of any interim period are not
necessarily indicative of the results of operations to be expected for the
fiscal year. For further information, refer to the consolidated financial
statements and accompanying footnotes included in the Company's Form 10-K for
the year ended December 31, 2002.
The Company has sustained net losses and negative cash flows from operations
since the establishment of Bluefly.com. The Company's ability to meet its
obligations in the ordinary course of business is dependent on its ability to
establish profitable operations and/or raise additional financing through public
or private debt or equity financing, or other sources to fund operations. The
Company currently plans to seek additional equity or debt financing in order to
maximize the growth of its business. There can be no assurance that any
additional financing or other sources of capital will be available to the
Company on acceptable terms, or at all. The inability to obtain additional
financing, when needed, would have a material adverse effect on the Company's
business, prospects, financial condition and results of operations. The Company
believes that cash and cash equivalents on hand at March 31, 2003 together with
the 2003 Standby Commitment (defined below) and the Loan Facility (defined
below) will be sufficient to fund operations through December 31, 2003. If the
Company is unable to obtain additional financing, and/or the Company does not
achieve its sales plan, future operations will need to be modified, scaled back
or discontinued.
NOTE 2 - THE COMPANY
The Company is a leading Internet retailer of designer fashions and home
accessories at discount prices. The Company's Web store ("Bluefly.com" or "Web
Site"), which was launched in September 1998, sells over 350 brands of designer
apparel, accessories and home products at discounts up to 75% off retail value.
NOTE 3 - SOROS FINANCINGS
JANUARY 2003 FINANCING
In January 2003 the Company issued to Quantum Industrial Partners LDC, a Cayman
Islands limited duration company ("QIP"), and SFM Domestic Investments LLC, a
Delaware limited liability company ("SFMDI;" QIP and SFMDI are each affiliates
of Soros Private Equity Partners LLC and are collectively and individually
sometimes referred to herein as "Soros") $1.0 million of demand convertible
promissory notes that bore interest at a rate of 8% per annum and had a maturity
date of July 28, 2003 ("January 2003 Financing") and warrants to purchase 25,000
shares of its common stock, exercisable at any time on or prior to January 28,
2007 at $1.12 per share. These notes were converted into Series D Convertible
Preferred Stock ("Series D Preferred Stock") in connection with the March 2003
Financing (defined below).
The Company valued the warrants issued in the January 2003 Financing using the
Black-Scholes option pricing model and credited additional paid in capital for
approximately $21,000. This entire amount was expensed as interest expense
during the first quarter of 2003.
MARCH 2003 FINANCING
In March 2003, the Company entered into an agreement with Soros pursuant to
which Soros: (i) provided $2.0 million of new capital by purchasing 2,000 shares
of Series D Preferred Stock, (ii) converted the promissory notes issued to it in
the January 2003 Financing and all of its Series 2002 Preferred Stock into
3,109.425 shares of Series D Preferred Stock and (iii) purchased 2,027.123
additional shares of Series D Preferred Stock for approximately $2.0 million,
with such $2.0 million in additional proceeds being retained by Soros as payment
in full of the Company's obligations under the demand promissory notes issued to
Soros in September 2002 (the "March 2003 Financing").
6
BLUEFLY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2003
Each share of Series D Preferred Stock has a face value of $1,000 and a
liquidation preference equal to the greater of (i) $1,000 plus accrued and
unpaid dividends or (ii) the amount the holder of such shares would receive if
it were to convert such shares into Common Stock immediately prior to the
liquidation of the Company. The Series D Preferred Stock is convertible, at any
time and from time to time at the option of the holder into Common Stock at the
rate of one to 1,315.79. The conversion price of the Series D Preferred Stock is
subject to an anti-dilution adjustment, pursuant to which, subject to certain
exceptions, to the extent that the Company issues Common Stock or securities
convertible into Common Stock at a price per share less than the Series D
Preferred Stock conversion price in the future, the conversion price of the
Series D Preferred Stock would be decreased so that it would equal the
conversion price of the new security or the price at which shares of common
stock are sold, as the case may be. However, to the extent required by the rules
of the Nasdaq SmallCap Market or any other national securities exchange or
quotation system upon which the Common Stock may be listed from time to time,
until such time as such conversion provisions are approved by the Company's
stockholders, the total number of shares of Common Stock issuable upon
conversion of the Series D Preferred Stock may not exceed 2,204,803 shares
(which represents approximately 19.99% of the Company's currently outstanding
Common Stock), regardless of any adjustment to the Series D Preferred Stock
conversion price.
Beginning on November 13, 2004, the Company is entitled to redeem all, but not
less than all, of the outstanding Series D Preferred Stock for cash at the price
of, depending upon the date of such redemption, four times, four and one-half
times or five times the market price of the Common Stock on the date of the
initial issuance of the Series D Preferred Stock. Dividends accrue on the Series
D Preferred Stock at an annual rate equal to 12% of the face value and are
payable only upon the conversion or redemption of the Series D Preferred Stock
or upon liquidation of the Company. The Series D Preferred Stock votes on an as
converted basis, except with respect to approval of the conversion provisions of
the Series D Preferred Stock or any equity securities issued in connection with
the funding of the 2003 Standby Commitment Amount, as defined below.
Additionally, Soros agreed to provide the Company with up to $1.0 million in
additional financing (the "2003 Standby Commitment Amount") on a standby basis
at any time prior to January 1, 2004, provided that the Company's cash balances
are less than $1.0 million (the "2003 Standby Commitment.") Such financing can
be made in one or more tranches as determined by the members of the Company's
Board of Directors who are not Soros designees, and any and all draws against
the 2003 Standby Commitment Amount shall be effected through the purchase of
newly-designated shares of Series E Preferred Stock on terms and conditions
substantially identical to the Series D Preferred Stock, except that: (1) the
conversion price of the Series E Preferred Stock will be the lower of (a) the
average closing price of the Common Stock on the Nasdaq SmallCap Market for the
ten trading days preceding the issuance of the Series E Preferred Stock and (b)
$0.76; and (2) the Series E Preferred Stock will not be convertible into Common
Stock (and will not be entitled to vote with the Common Stock on matters
submitted to a vote of the holders of the Common Stock) until such time as the
Company's stockholders approve the conversion rights of the Series E Preferred
Stock to the extent required by the rules of the Nasdaq SmallCap Market or any
other national securities exchange or quotation system upon which the Common
Stock may be listed from time to time. Subject to certain limitations, the 2003
Standby Commitment Amount shall be reduced on a dollar-for-dollar basis by the
gross cash proceeds received by the Company or any of its subsidiaries from the
issuance of any equity or convertible securities after March 12, 2003. To the
extent that a draw down on the 2003 Standby Commitment Amount results in the
conversion price of the Series E Preferred Stock being less than $0.76, Soros
has agreed to waive its right to readjust the conversion price on the Series B,
C and D Preferred Stock in connection with the issuance of the Series E
Preferred Stock.
As a result of the March 2003 Financing, the conversion price of the Series B
Preferred Stock and the Series C Preferred Stock, all of which is held by Soros,
automatically decreased from $0.93 to $0.76 per share. In accordance with EITF
00-27, the reduction in the conversion price of the Series C Preferred Stock
resulted in the Company recording a beneficial conversion feature in the
approximate amount of $225,000. This non-cash charge, which is analogous to a
dividend, resulted in an adjustment to the Company's computation of Loss Per
Share, in the first quarter of 2003.
7
BLUEFLY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2003
NOTE 4 - FINANCING AGREEMENT
The Company has a Financing Agreement (the "Financing Agreement") with Rosenthal
& Rosenthal, Inc. ("Rosenthal") pursuant to which Rosenthal provides the Company
with certain credit accommodations, including loans and advances,
factor-to-factor guarantees or letters of credit in favor of suppliers or
factors or purchases of payables owed to the Company's suppliers (the "Loan
Facility").
The Financing Agreement was amended in March 2003 to: (i) extend the term until
June 30, 2004; (ii) increase the maximum amount available under the Loan
Facility (subject to an existing $10 million cap) to an amount equal to the
Soros Guarantee ($2.0 million) plus the lower of (x) $2.0 million (instead of
the prior $1.0 million), (y) 20% of the book value of the Company's inventory or
(z) the full liquidation value of the Company's inventory; (iii) increase the
tangible net worth requirement to $5.0 million from $1.5 million; (iv) redefine
the working capital definition to exclude short-term debt held by affiliates
(effective as of December 19, 2002), (v) increase the working capital
requirement to $4.0 million from $3.5 million; (vi) increase the annual fee the
Company pays Rosenthal for the Loan Facility to $30,000 from $10,000, (vii)
require the Company to maintain a cash balance of at least $250,000 and; (viii)
require Soros to increase from $1.5 million to $2.0 million the amount of the
standby letter of credit that Soros is maintaining (the "Soros Guarantee") to
help collateralize the Loan Facility and extend the term of the Soros Guarantee
to November 15, 2004 from November 15, 2003. In consideration for Soros'
agreement to maintain the Soros Guarantee until November 15, 2004, the Company
issued to Soros a warrant to purchase 25,000 shares of its Common Stock at an
exercise price equal to $0.78 per share (the 10 day trailing average of the
closing sale price of our Common Stock on the date of issuance), exercisable at
any time prior to March 17, 2013. The Company valued the warrant using the
Black-Scholes option pricing model and credited additional paid in capital for
approximately $22,000. This amount is being amortized over the life of the Loan
Facility.
As of March 31, 2003, after giving effect to the amendment, the maximum
availability under the Loan Facility was approximately $3.9 million of which
approximately $2.1 million was committed, leaving approximately $1.8 million
available against the Loan Facility.
NOTE 5 - LOSS PER SHARE
The Company has determined Loss Per Share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic
loss per share excludes dilution and is computed by dividing loss available to
common shareholders by the weighted average number of common shares outstanding
for the period.
Diluted loss per share is computed by dividing loss available to common
shareholders by the weighted average number of common shares outstanding for the
period, adjusted to reflect potentially dilutive securities. Due to the loss
from continuing operations, the following options and warrants to purchase
shares of Common Stock and Preferred Stock convertible into shares of Common
Stock were not included in the computation of diluted loss per share because the
result of the exercise of such inclusion would be antidilutive:
Security March 31, 2003 March 31, 2002
-------- -------------- --------------
Options 9,570,412 3,859,578
Warrants 1,119,144 1,069,144
Preferred Stock 42,057,813 13,184,286
NOTE 6 - STOCK BASED COMPENSATION
The Company applies Statement of Financial Accounting Standards No. ("SFAS") No.
148 "Accounting for Stock Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123", SFAS No. 123 "Accounting for Stock Based
Compensation," and FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation"
8
BLUEFLY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2003
("FIN 44") in accounting for its stock based compensation plan. In accordance
with SFAS No. 123, the Company applies Accounting Principles Board ("APB")
Opinion No. 25 and related Interpretations for expense recognition. In
connection with stock option grants to employees, no compensation expense has
been recorded in fiscal quarters ended 2003 and 2002, because the exercise price
of employee stock options equals or exceeds the market price of the underlying
stock on the date of grant. Had compensation expense for the Plan been
determined consistent with the provisions of SFAS No. 123, the effect on the
Company's basic and diluted net loss per share would have been as follows:
March 31, 2003 March 31, 2002
-------------- --------------
Basic and diluted net loss, as reported $ (1,840,000) $ (1,065,000)
Basic and diluted net loss per share, as reported $ (0.25) $ (0.18)
Basic and diluted net loss, pro forma $ (2,914,000) $ (2,015,000)
Basic and diluted net loss per share, pro forma $ (0.34) $ (0.29)
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts, as additional stock option awards are anticipated
in future years.
NOTE 7 - RECLASSIFICATIONS
Certain amounts in the consolidated condensed financial statements of the prior
period have been reclassified to conform to the current period presentation for
comparative purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Bluefly, Inc. is a leading Internet retailer of designer fashions and home
accessories at outlet store prices. We sell over 350 brands of designer apparel,
accessories and home products at discounts up to 75% off retail value.
Bluefly.com, a Web Site that sells end-of-season and excess inventory of apparel
and accessories was launched in September 1998.
We have grown significantly since launching our Web Site in September 1998. Our
net sales increased approximately 8% to $8,257,000 for the three months ended
March 31, 2003 from $7,646,000 for the three months ended March 31, 2002. Our
net loss for the first quarter of 2003 totaled $1,840,000 compared to $1,065,000
in the first quarter of 2002.
At March 31, 2003 we had an accumulated deficit of $87,807,000. Historical net
losses and the accumulated deficit resulted primarily from costs associated with
developing and marketing our Web Site and building our infrastructure and the
recording of beneficial conversion feature charges.
In order to expand our business, we intend to invest in sales, marketing,
merchandising, operations, information systems, site development and additional
personnel to support these activities. We therefore expect to continue to incur
substantial operating losses for the foreseeable future. Although we have
experienced revenue growth in recent years, this growth may not be sustainable
and therefore should not be considered indicative of future performance.
Based on our current plans, we anticipate that the proceeds from the March 2003
Financing, the 2003 Standby Commitment and the Rosenthal Loan Facility together
with existing resources, should be sufficient to satisfy our cash requirements
through the end of fiscal 2003. We currently plan to seek additional debt and/or
equity financing in order to maximize the growth of our business. There can be
no assurance that any additional financing or other sources of capital will be
available to us upon acceptable terms, or at all. The inability to obtain
additional financing would have a material adverse effect on our business,
prospects, financial condition and results of operations. If we are unable to
obtain additional financing, and/or we do not achieve our sales plan, future
operations will need to be modified, scaled back or discontinued.
9
BLUEFLY, INC.
MARCH 31, 2003
In March 2003, we were advised by the Nasdaq Stock Market, Inc. ("Nasdaq") that
we were no longer in compliance with Nasdaq's continued listing requirements
(the "Listing Requirements") because shares of our common stock have closed at a
per share price of less than $1.00 for at least 30 days and that, if we are
unable to achieve compliance with the Listing Requirements by September 8, 2003,
the Nasdaq Staff will determine whether we meet the initial listing criteria of
the Nasdaq SmallCap Market. In the event that we meet such initial listing
criteria, we will be granted an additional 180-day grace period to regain
compliance. In order to regain compliance, shares of our common stock would need
to close at a price of $1.00 or more for at least ten consecutive trading days.
In the event that we do not regain compliance within the requisite time period,
we intend to appeal any delisting. However, no assurance can be provided that
any such appeal will be successful. The failure to maintain listing on the
Nasdaq SmallCap Market may have an adverse effect on the price and/or liquidity
of our common stock.
SIGNIFICANT ACCOUNTING POLICIES
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
most significant estimates and assumptions relate to the adequacy of the
allowances for returns and recoverability of inventories. Actual amounts could
differ significantly from these estimates.
Revenue Recognition
Gross sales consist primarily of revenue from product sales and shipping and
handling revenue on our Web site, and is net of promotional discounts. Revenue
is recognized when goods are received by our customers, which occurs only after
credit card authorization. Net sales represent gross sales, less provisions for
returns, credit card chargebacks, and adjustments for uncollected sales taxes.
Provision for Returns and Doubtful Accounts
We generally permit returns for any reason within 90 days of the sale.
Accordingly, we establish a reserve for estimated future returns and bad debt at
the time of shipment based primarily on historical data. However, our future
return and bad debt rates could differ significantly from historical patterns,
which would adversely affect our operating results.
Inventory Valuation
Inventories, which consist of finished goods, are stated at the lower of cost or
market value. Cost is determined by the first-in, first-out ("FIFO") method. We
review our inventory levels in order to identify slow-moving merchandise and use
markdowns to clear out merchandise. Markdowns may be used if inventory exceeds
customer demand for reasons of style, changes in customer preference or lack of
consumer acceptance of certain items, or if it is determined that the inventory
in stock will not sell at its currently marked price. Such markdowns may have an
adverse impact on earnings, depending on the extent of the markdowns and amount
of inventory affected.
Deferred Tax Valuation Allowance
We assessed the future taxable income and have determined that a 100% deferred
tax valuation allowance is deemed necessary. In the event that we were to
determine that we would be able to realize our deferred tax asset, an adjustment
to the deferred tax valuation allowance would increase income in the period such
determination is made.
RESULTS OF OPERATIONS
For The Three Months Ended March 31, 2003 Compared To The Three Months Ended
March 31, 2002
10
BLUEFLY, INC.
MARCH 31, 2003
The following table sets forth our statement of operations data, for the three
months ended March 31st. All data in is in thousands except as indicated below:
2003 2002 2001
--------------------- --------------------- ---------------------
As a % of As a % of As a % of
Net Sales Net Sales Net Sales
Net sales $ 8,257 100.0% $ 7,646 100.0% $ 4,646 100.0%
Cost of sales 6,400 77.5% 5,146 67.3% 3,363 72.4%
--------- --------- ---------
Gross profit 1,857 22.5% 2,500 32.7% 1,283 27.6%
Selling, marketing and fulfillment expenses 2,453 29.7% 2,436 31.9% 3,541 76.2%
General and administrative expenses 1,162 14.1% 1,062 13.9% 1,651 35.5%
--------- --------- ---------
Total operating expenses 3,615 43.8% 3,498 45.8% 5,192 111.7%
Operating loss (1,758) (21.3)% (998) (13.1)% (3,909) (84.1)%
Interest (expense) and other income (82) (1.0)% (67) (0.9)% (13,122) (282.4)%
--------- --------- ---------
Net loss (1,840) (22.3)% (1,065) (13.9)% (17,031) (366.6)%
We also measure and evaluate ourselves against certain other key operational
metrics. The following table sets forth our actual results based on these other
metrics for the three months ended March 31st, as indicated below:
2003 2002 2001
----------- ----------- -----------
Average Order Size (including shipping & handling) $ 167.20 $ 161.76 $ 129.11
Average Order Size Per New Customer (including shipping & handling) $ 153.01 $ 144.73 $ 114.79
Average Order Size Per Repeat Customer (including shipping & handling) $ 175.18 $ 171.53 $ 143.05
New Customers Added during the Period 27,031 24,873 24,257
Revenue from Repeat Customers as a % of total Revenue 67% 67% 56%
Customer Acquisition Costs $ 5.26 $ 9.40 $ 40.84
We define a "repeat customer" as a person who has bought more than once from us
during their lifetime. We calculate customer acquisition cost by dividing total
advertising expenditures (excluding staff related costs) during a given time
period by total new customers added during that period. All measures of the
number of customers are based on unique email addresses.
Net sales: Gross sales for the three months ended March 31, 2003 increased by
approximately 15% to $13,044,000, from $11,342,000 for the three months ended
March 31, 2002. For the three months ended March 31, 2003, we recorded a
provision for returns and credit card chargebacks and other discounts of
$4,787,000, or approximately 36.7% of gross sales. For the three months ended
March 31, 2002, the provision for returns and credit card chargebacks and other
discounts was $3,696,000, or approximately 32.6% of gross sales. The increase in
this provision as a percentage of gross sales was related primarily to an
increase in the return rate. We believe that the increase in return rate was
primarily the result of an increase in average order sizes.
After the necessary provisions for returns, credit card chargebacks and
adjustments for uncollected sales taxes, our net sales for the three months
ended March 31, 2003 were $8,257,000. This represents an increase of
approximately 8% compared to the three months ended March 31, 2002, in which net
sales totaled $7,646,000. The growth in net sales was largely driven by the
increase in the number of new customers acquired (approximately 9% compared to
first quarter 2002) and the increase in average order size.
Cost of sales: Cost of sales consists of the cost of product sold to customers,
in-bound and out-bound shipping costs, inventory reserves, commissions and
packing materials. Cost of sales for the three months ended March 31, 2003
totaled $6,400,000,
11
BLUEFLY, INC.
MARCH 31, 2003
resulting in gross margin of approximately 22.5%. Cost of sales for the three
months ended March 31, 2002 totaled $5,146,000, resulting in gross margin of
32.7%. Gross profit decreased by 26%, to $1,857,000 for the three months ended
March 31, 2003 compared to $2,500,000 for the three months ended March 31, 2002.
The decrease in gross margin resulted primarily from our decision to reduce our
product margin on fall and winter merchandise in order to sell as much of the
inventory as possible.
Selling, marketing and fulfillment expenses: Selling, marketing and fulfillment
expenses increased by approximately 1% in the first three months of 2003
compared to the first three months of 2002. As a percentage of net sales, our
selling, marketing and fulfillment expenses decreased to 29.7% in the first
three months of 2003 from 31.9% in the first three months of 2002. The decrease
in selling, marketing and fulfillment expenses as a percentage of net sales
resulted primarily from a shift toward more performance based marketing programs
including cost per new customer deals and commission based agreements and the
cost savings we derived from our move to a new web hosting facility. Selling,
marketing and fulfillment expenses were comprised of the following:
Three Months Ended Three Months Ended Percentage Difference
March 31, 2003 March 31, 2002 increase (decrease)
------------------ ------------------ ---------------------
Marketing $ 260,000 $ 346,000 (24.9%)
Operating 1,167,000 1,051,000 11.0%
Technology 724,000 769,000 (5.9%)
E-Commerce 302,000 270,000 11.9%
------------ -------------
$ 2,453,000 $ 2,436,000 0.7%
Marketing expenses include expenses related to online and print advertising,
direct mail campaigns as well as staff related costs. The decrease in marketing
expenses of approximately 24.9% was largely related to a shift in our customer
acquisition strategy. We reduced our advertising expenditures and focused more
on email, affiliate programs and other performance based programs. Primarily as
a result of this shift, we were able to decrease our customer acquisition costs
for the three months ended March 31, 2003 by approximately 44% to $5.26 per
customer from $9.40 per customer for the three months ended March 31, 2002.
However, in the event that we attempt to accelerate revenue growth, it may be
necessary to utilize less cost efficient methods of customer acquisition, and
accordingly there can be no assurance that customer acquisition costs will not
increase in the future.
Operating expenses include all costs related to inventory management,
fulfillment, customer service, and credit card processing. Operating expenses
increased in the first three months of 2003 by approximately 11% compared to the
first three months of 2002 as a result of variable costs associated with the
increased sales volume (e.g., picking and packing orders, processing returns and
credit card fees).
Technology expenses consist primarily of staff related costs, amortization of
capitalized costs and Web Site hosting. For the three months ended March 31,
2003 technology expenses decreased by approximately 5.9% compared to the three
months ended March 31, 2002. This decrease was related to a reduction in our Web
Site hosting costs in connection with our move to a new web hosting facility and
was partially offset by increased amortization expense incurred as a result of
capital costs incurred in with the upgraded version of the Web Site.
E-Commerce expenses include expenses related to our photo studio, image
processing, and Web Site design. For the three months ended March 31, 2003, this
amount increased by approximately 11.9% as compared to the three months ended
March 31, 2002, primarily due to the creation of an Online Retail Group within
the E-Commerce department. The total headcount in the E-Commerce group
increased to 17 during the first quarter of 2003 compared to 12 in the first
quarter of 2002.
General and administrative expenses: General and administrative expenses include
merchandising, finance and administrative salaries and related expenses,
insurance costs, accounting and legal fees, depreciation and other office
related expenses. General and administrative expenses for the three months ended
March 31, 2003 increased by approximately 9.4% to $1,162,000 as compared to
$1,062,000 for the three months ended March 31, 2002. The increase in general
and administrative expenses was the result of increased professional services
and salary and benefit expenses.
12
BLUEFLY, INC.
MARCH 31, 2003
As a percentage of net sales, general and administrative expenses for the first
quarter of 2003 remained relatively unchanged at approximately 14%.
Loss from operations: Operating loss increased by over 76% in the first three
months of 2003 to $1,758,000 from $998,000 in the first three months of 2002 as
a result of a decrease in gross margin.
Interest expense and other income, net: Interest expense for the three months
ended March 31, 2003 totaled $88,000, and related to fees paid in connection
with our Loan Facility as well as amortization of warrants issued in connection
with the January 2003 Financing. For the three months ended March 31, 2002,
interest expense totaled $99,000, and related primarily to fees paid in
connection with the Loan Facility.
Interest income for the three months ended March 31, 2003 decreased to $6,000
from $32,000 for the three months ended March 31, 2002. The decrease is related
to the decrease in our cash balance as interest income primarily represents
interest earned on our cash balance.
LIQUIDITY AND CAPITAL RESOURCES
General
At March 31, 2003, we had approximately $2.5 million of liquid assets, entirely
in the form of cash and cash equivalents, $1.0 available under the 2003 Standby
Commitment and working capital of approximately $8.2 million. In addition, as of
March 31, 2003, we had approximately $2.1 million of borrowings committed under
the Loan Facility, leaving approximately $1.8 million of availability.
We fund our operations through cash on hand, operating cash flow and the Loan
Facility, as well as the proceeds of any equity financing. Operating cash flow
is affected by revenue and gross margin levels, and any deterioration in our
performance on these financial measures would have a negative impact on our
liquidity. Total availability under the Loan Facility is based upon our
inventory levels and is dependent, among other things, on the Company having at
least $5.0 million of tangible net worth and $4.0 million of working capital. In
addition, both availability under the Loan Facility and our operating cash flows
are affected by the payment terms that we receive from suppliers and service
providers, and the extent to which suppliers require us to request Rosenthal to
provide credit support under the Loan Facility. We believe that our suppliers'
decision-making with respect to payment terms and/or the type of credit support
requested is largely driven by their perception of our credit rating, which is
affected by information reported in the industry and financial press and
elsewhere as to our financial strength. Accordingly, negative perceptions as to
our financial strength could have a negative impact on our liquidity.
Loan Facility
Pursuant to the Loan Facility, Rosenthal provides us with certain credit
accommodations, including loans and advances, factor-to-factor guarantees,
letters of credit in favor of suppliers or factors and purchases of payables
owed to our suppliers. The Rosenthal Financing Agreement was amended in March
2003 to: (i) extend the term until June 30, 2004; (ii) increase the maximum
amount available under the Loan Facility (subject to an existing $10 million
cap) to an amount equal to the Soros Guarantee plus the lower of (x) $2.0
million (instead of the prior $1.0 million), (y) 20% of the book value of our
inventory or (z) the full liquidation value of our inventory; (iii) increase the
tangible net worth requirement to $5.0 million from $1.5 million; (iv) redefine
the working capital definition to exclude short-term debt held by affiliates
(effective as of December 19, 2002), (v) increase the working capital
requirement to $4.0 million from $3.5 million; (vi) increase the annual fee we
pay Rosenthal for the Loan Facility to $30,000 from $10,000, (vii) require us to
maintain a cash balance of at least $250,000 and; (viii) require Soros to
increase from $1.5 million to $2.0 million the amount of the standby letter of
credit that Soros is maintaining to help secure the Loan Facility and extend the
term of the Soros Guarantee to November 15, 2004 from November 15, 2003. In
consideration for Soros' agreement to increase the amount of and to maintain the
Soros Guarantee until November 15, 2004, we issued to Soros a warrant to
purchase 25,000 shares of our Common Stock at an exercise price equal to $0.78
per share (the 10 day trailing average of the closing sale price of our Common
Stock on the date of issuance), exercisable at any time prior to March 17, 2013.
13
BLUEFLY, INC.
MARCH 31, 2003
Interest accrues monthly on the average daily amount outstanding under the Loan
Facility during the preceding month at a per annum rate equal to the prime rate
plus 1%. In addition to the annual facility fee of $30,000, we also pay
Rosenthal certain fees to open letters of credit and guarantees in an amount
equal to a certain percentage of the face amount of the letter of credit for
each thirty (30) days such letter of credit, or a portion thereof, remains open.
In consideration for the Loan Facility, among other things, we granted to
Rosenthal a first priority lien on substantially all of our assets, including
control of all of our cash accounts upon an event of default and certain of our
cash accounts in the event that the total amount of monies loaned to us under
the Loan Facility exceeds 90% of the maximum amount available under the Loan
Facility for more than 10 days. We also issued to Rosenthal a warrant to
purchase 50,000 shares of Common Stock at an exercise price of $2.34,
exercisable, as amended, for six years from the date of issuance.
Subject to certain conditions, if we default on any of our obligations under the
Loan Facility, Rosenthal has the right to draw upon the Soros Guarantee to
satisfy any such obligations. If and when Rosenthal draws on the Soros
Guarantee, pursuant to the terms of the Reimbursement Agreement, we would have
the obligation to, among other things, reimburse Soros for any amounts drawn
under the Soros Guarantee plus interest accrued thereon. In addition, to the
extent that Rosenthal draws on the Soros Guarantee during the continuance of a
default under Loan Facility or at any time that the total amount outstanding
under the Loan Facility exceeds 90% of the Soros Guarantee, we will be required
to issue to Soros a warrant (each a "Contingent Warrant") to purchase a number
of shares of Common Stock equal to the quotient of (a) any amounts drawn under
the Soros Guarantee and (b) 75% of the average of the closing price of our
Common Stock on the ten days preceding the date of issuance of such warrant.
Each Contingent Warrant will be exercisable for ten years from the date of
issuance at an exercise price equal to 75% of the average closing price of our
Common Stock on the ten days preceding the ten days after the date of issuance.
Under the terms of the Loan Facility, Soros has the right to purchase all of our
obligations from Rosenthal at any time during its term (the "Buyout Option").
With respect to such Buyout Option, Soros has the right to request that
Rosenthal make a draw under the Soros Guarantee as consideration to Soros for
the purchase of such obligations.
Commitments And Long Term Obligations
As of March 31, 2003, we had the following commitments and long term
obligations:
2003 2004 2005 2006 2007 Thereafter Total
Marketing and Advertising $ 315,000 -- -- -- -- -- $ 315,000
Operating Leases 322,000 437,000 443,000 450,000 452,000 816,000 $ 2,920,000
Capital Leases 143,000 190,000 67,000 -- -- -- $ 400,000
Employment Contracts 890,000 1,160,000 391,000 -- -- -- $ 2,441,000
Notes payable to shareholders -- -- 182,000 -- -- -- $ 182,000
------------ ------------ ------------ ------------ ------------ ------------ ------------
Grand total $ 1,670,000 1,787,000 1,083,000 450,000 452,000 816,000 $ 6,258,000
We believe that in order to grow the business, we will need to make additional
marketing and advertising commitments in the future. In addition, we expect to
hire and train additional employees for the operations and development of
Bluefly.com. However, our marketing budget and our ability to hire such
employees is subject to a number of factors, including our results of operations
as well as the amount of additional capital that we raise.
In order to continue to expand our product offerings, we intend to expand our
relationships with suppliers of end-of-season and excess name brand apparel and
fashion accessories. We expect that our suppliers will continue to include
designers and retail stores that sell excess inventory as well as third-party
end-of-season apparel aggregators. To achieve our goal of offering a wide
selection of top name brand designer clothing and fashion accessories, we may
acquire certain goods on consignment and may explore leasing or partnering
select departments with strategic partners and distributors. Due to our limited
working capital, a number of our suppliers have limited our payment terms and,
in some cases, have required us to pay for merchandise in advance of delivery.
14
BLUEFLY, INC.
MARCH 31, 2003
We anticipate that the proceeds from the March 2003 Financing, the Loan Facility
and the 2003 Standby Commitment, together with existing resources should be
sufficient to satisfy our cash requirements through the end of fiscal 2003.
However, we may seek additional debt and/or equity financing in order to
maximize the growth of our business. There can be no assurance that any
additional financing or other sources of capital will be available to us upon
acceptable terms, or at all. The inability to obtain additional financing, if
needed, would have a material adverse effect on our business, financial
condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses the accounting and
reporting for costs associated with exit or disposal activities and nullifies
EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized at fair market value when the
liability is incurred, rather than upon an entity's commitment to an exit plan,
as prescribed by EITF No. 94-3. SFAS No. 146 is effective for exit and disposal
activities initiated after December 31, 2002. We adopted SFAS No. 146 on January
1, 2003.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the
disclosure requirements of a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also requires a guarantor to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing certain
guarantees. FIN 45 also incorporates, without change, the guidance in FIN 34,
"Disclosure of Indirect Guarantees of Indebtedness of Others," which it
supersedes. The incremental disclosure requirements of FIN 45 are effective for
financial statements of interim or annual periods ending after December 15,
2002. The initial recognition and initial measurement provisions are applicable
to guarantees issued or modified after December 31, 2002. The accounting
followed by a guarantor on prior guarantees may not be changed to conform to the
guidance of FIN 45. We do not believe that the adoption of FIN 45 will have a
material impact on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. SFAS No. 148
is effective for fiscal years and interim periods beginning after December 15,
2002. We continue to account for stock-based employee compensation under the
intrinsic value method of APB 25, "Accounting for Stock Issued to Employees." We
adopted the disclosure provisions of SFAS No. 148 for the year ended December
31, 2002.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51". FIN 46 requires an investor to
consolidate a variable interest entity if it is determined that the investor is
a primary beneficiary of that entity, subject to the criteria set forth in FIN
46. Assets, liabilities, and non controlling interests of newly consolidated
variable interest entities will be initially measured at fair value. After
initial measurement, the consolidated variable interest entity will be accounted
for under the guidance provided by Accounting Research Bulletin No. 51,
"Consolidated Financial Statements." FIN 46 is effective for variable interest
entities created or entered into after January 31, 2003. For variable interest
entities created or acquired before February 1, 2003, FIN 46 applies in the
first fiscal year or interim period beginning after June 15, 2003. We do not
believe that the adoption of FIN 46 will have a material impact on our
consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have assessed our vulnerability to certain market risks, including interest
rate risk associated with financial instruments included in cash and cash
equivalents and our notes payable. Due to the short-term nature of these
investments we have determined that the risks associated with interest rate
fluctuations related to these financial instruments do not pose a material risk
to us.
15
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
BLUEFLY, INC.
MARCH 31, 2003
This report may include statements that constitute "forward-looking" statements,
usually containing the words "believe", "project", "expect", or similar
expressions. These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. The risks and
uncertainties are detailed from time to time in reports filed by the company
with the Securities and Exchange Commission, including Forms 8-A, 8-K, 10-Q, and
10-K. These risks and uncertainties include, but are not limited to, the
following: the Company's limited working capital, need for additional capital
and potential inability to raise such capital; recent losses and anticipated
future losses; the risk that favorable trends in sales, repeat customer sales,
average order size, and customer acquisition costs will not continue; risks that
the Company will be unable to reduce the levels of losses; potential adverse
effects on gross margin and gross profit resulting from mark downs and
allowances; potential dilution arising from future equity financings, including
potential dilution as a result of the anti-dilution provisions contained in the
Company's Series B Preferred Stock, the Series C Preferred Stock and the Series
D Preferred Stock; the competitive nature of the business and the potential for
competitors with greater resources to enter such business; adverse trends in the
retail apparel market; risks and uncertainties associated with the Company's
recent launch of a new version of its web site, including new internal
procedures that need to be developed to operate the new web site, site
instability and download performance issues; risks of litigation for sale of
unauthentic or damaged goods and litigation risks related to sales in foreign
countries; availability formulas under the Rosenthal credit facility which limit
the amount of funds available for borrowing; the Company's potential inability
to make repayments under the Rosenthal credit facility and the possible
shareholder dilution that could result if the Soros standby letter of credit is
drawn upon; the risk of default by the Company under the Rosenthal financing
agreement and the consequences that might arise from the Company having granted
a lien on substantially all of its assets under that agreement; the dependence
on third parties and certain relationships for certain services, including the
Company's dependence on U.P.S. (and the risks of a mail slowdown due to
terrorist activity) and the Company's dependence on its third-party web hosting
and fulfillment centers; risks related to consumer acceptance of the Internet as
a medium for purchasing apparel; the successful hiring and retaining of
personnel; the dependence on continued growth of online commerce; rapid
technological change; online commerce security risks; the startup nature of the
Internet business; governmental regulation and legal uncertainties; management
of potential growth; and unexpected changes in fashion trends.
ITEM 4. CONTROLS AND DISCLOSURES.
Within the 90 days prior to the date of this Form 10-Q, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the Company's President
and Chief Executive Officer along with the Company's Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company (including
its consolidated subsidiaries) required to be included in the Company's periodic
SEC filings. There have been no significant changes in the Company's internal
controls or in other factors which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We currently and from time to time, are involved in litigation incidental to the
conduct of our business. However we are not party to any lawsuit or proceeding
which in the opinion of management is likely to have a material adverse effect
on us.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following is a list of exhibits filed as part of this Report:
EXHIBIT NUMBER DESCRIPTION
----------------------------------------------------------------------------------------------------------------
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
16
BLUEFLY, INC.
MARCH 31, 2003
(b) Reports on Form 8-K:
Form 8K filed on April 29, 2003, attaching the Press Release announcing the
Company's first quarter results.
17
BLUEFLY, INC.
MARCH 31, 2003
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BLUEFLY, INC.
By: /s/ E. Kenneth Seiff
-----------------------------
E. Kenneth Seiff
CEO and President
By: /s/ Patrick C. Barry
-----------------------------
Patrick C. Barry
Chief Financial Officer
April 29, 2003
18
BLUEFLY, INC.
MARCH 31, 2003
CERTIFICATION
I, E. Kenneth Seiff, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bluefly, Inc;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date April 29, 2003 /s/ E. Kenneth Seiff
--------------------
E. Kenneth Seiff
Chief Executive Officer
19
BLUEFLY, INC.
MARCH 31, 2003
CERTIFICATION
I, Patrick C. Barry, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Bluefly, Inc;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date April 29, 2003 /s/ Patrick C. Barry
--------------------
Patrick C. Barry
Chief Financial Officer
20