As filed with the Securities and Exchange Commission on April 19, 2010
 
Registration No. 333-165387                  


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
___________________
Amendment No. 1 to
FORM S-3
___________________
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
BLUEFLY, INC.
(Exact name of registrant as specified in its charter)
 
     
Delaware
 
13-3612110
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
42 West 39th Street
New York, NY 10018
(212) 944-8000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)

Melissa Payner-Gregor
Chief Executive Officer
Bluefly, Inc.
42 West 39th Street
New York, NY 10018
(212) 944-8000
(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copy To:

Richard Goldberg, ESQ.
Dechert LLP
1095 Avenue of the Americas
New York, NY 10036-6797
(212) 698-3500

Approximate date of commencement of proposed sale to the public: From time to time after this registration statement becomes effective.
 
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: ¨
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. x
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
 
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. ¨
 
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer   ¨
Accelerated filer    ¨
 Non-accelerated filer   ¨
Smaller reporting company   x
   
  (Do not check if a smaller reporting company)
 
 

 
 

 
 
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

 

 
 

 

 

 
The information contained in this prospectus is not complete and may be changed.  These securities may not be sold, nor may offers to buy be accepted, until the registration statement filed with the Securities and Exchange Commission is effective.  This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
 

 
 
SUBJECT TO COMPLETION, DATED April 19, 2010
 
 
PROSPECTUS
 
10,640,732 Shares of
Common Stock

BLUEFLY, INC.


This prospectus relates to the resale, from time to time, of up to 10,640,732 shares of our common stock, par value $0.01 per share (the “Common Stock”), which includes up to an aggregate of 52,947 shares of our Common Stock issuable upon the exercise of warrants, by the selling stockholders listed in this prospectus under the section “Selling Stockholders.”
 
The selling stockholders may sell the shares of Common Stock being offered by this prospectus from time to time on terms to be determined at the time of sale through ordinary brokerage transactions or through any other means described in this prospectus under “Plan of Distribution.”  The prices at which the selling stockholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions.  We will not receive any proceeds from the sale of the shares by the selling stockholders.  However, we will receive the proceeds from the exercise of the warrants by the selling stockholders, if any, to the extent that the warrants are not exercised on a cashless basis.  See the section entitled “Use of Proceeds” on page 11 of this prospectus.
 
Our Common Stock is traded on the NASDAQ Capital Market under the trading symbol “BFLY”.  The last reported sale price of our Common Stock on the NASDAQ Capital Market on April 16, 2010 was $2.93.

THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.  SEE THE SECTION ENTITLED “RISK FACTORS” BEGINNING ON PAGE 5 OF THIS PROSPECTUS FOR A DISCUSSION OF INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN OUR COMMON STOCK.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus.  Any representation to the contrary is a criminal offense.

The date of this prospectus is April 19, 2010.



 
 

 


 
You should rely only on the information contained in or incorporated by reference in this prospectus and any free writing prospectus that we authorize to be delivered to you. We and the selling stockholders have not authorized anyone to provide you with additional or different information from that contained in or incorporated by reference in this prospectus and any such free writing prospectus.  If anyone provides you with additional, different or inconsistent information, you should not rely on it.  We and the selling stockholders are not making an offer to sell these securities in any jurisdiction where an offer or sale is not permitted.  You should assume that the information contained in or incorporated by reference in this prospectus and any such free writing prospectus is accurate only as of their respective dates.  Our business, prospects, financial condition and results of operations may have changed since those dates.
___________________

 
TABLE OF CONTENTS


   
Page
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   
3
 
PROSPECTUS SUMMARY
   
4
 
RISK FACTORS
   
5
 
USE OF PROCEEDS
   
11
 
SELLING STOCKHOLDERS
   
11
 
PLAN OF DISTRIBUTION
   
13
 
LEGAL MATTERS
   
15
 
EXPERTS
   
15
 
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
   
15
 
WHERE YOU CAN FIND MORE INFORMATION
   
16
 
 

 
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Special Note Regarding Forward Looking Statements

This prospectus and the documents incorporated by reference may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “believe,” “anticipate,” “expect,” “estimate,” “project,” “will be,” “will continue,” “will likely result,” or words or phrases of similar meaning.  Forward-looking statements inherently involve risks and uncertainties that may cause actual results to differ materially from the forward-looking statements (“Cautionary Statements”).  The risks and uncertainties include, but are not limited to, those matters addressed in this prospectus under the caption “Risk Factors” and elsewhere in this prospectus and in the incorporated documents.  Such developments could have a material adverse impact on our financial position and our results of operations.  All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the Cautionary Statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates.  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


 
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PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in, or incorporated by reference into, this prospectus.  As a result, it does not contain all of the information that may be important to you or that you should consider before investing in our Common Stock.  You should read the entire prospectus carefully, including the “Risk Factors” section, and the documents incorporated by reference, which are described under “Incorporation of Certain Documents by Reference” in this prospectus.  All references to “we,” “our,” “us,” “Bluefly” and the “Company” refer to Bluefly, Inc., a Delaware corporation, and its predecessors and subsidiaries.  This prospectus contains forward-looking statements, which involve risks and uncertainties.

The Company
 
Bluefly, Inc. is a leading online retailer of designer brands, fashion trends and superior value.  During 2009, we offered over 50,000 different styles for sale in categories such as men’s, women’s and accessories as well as house and home accessories from over 350 brands at discounts up to 75% off retail value.  We launched the Bluefly.com Web site (the “Web site”) in September 1998.  Since its inception, www.bluefly.com has served over one and a half million customers.
 
Recent Developments
 
On December 21, 2009, we entered into a Securities Purchase Agreement with Rho Ventures, L.P. (“Rho”), pursuant to which we agreed to issue and sell to Rho up to 8,823,529 newly issued shares (the “Private Placement Shares”) of our Common Stock for an aggregate purchase price of $15,000,000, or $1.70 per share, in a private placement transaction (the “Private Placement”).  We issued and sold 2,786,337 of the Private Placement Shares to Rho at an initial closing (the “Initial Closing”) held on December 21, 2009 for an aggregate purchase price of approximately $4,737,000.  We issued and sold the remaining 6,037,192 of the Private Placement Shares at a second closing (the “Second Closing”) held on February 25, 2010, following the receipt of stockholder approval.  At the Initial Closing, Quantum Industrial Partners LDC (“QIP”), SFM Domestic Investments LLC (“SFM” and, collectively with QIP, the “Soros Parties”), Maverick Fund USA, Ltd. (“Maverick USA”), Maverick Fund, L.D.C. (“Maverick Fund”), and Maverick Fund II, Ltd. (“Maverick Fund II” and, together with Maverick USA and Maverick Fund, the “Maverick Funds”) converted $3,000,000 in aggregate principal amount of subordinated notes into an aggregate of 1,764,706 shares of Common Stock at a conversion price of $1.70 per share.  In addition, following the receipt of stockholder approval, concurrently with the Second Closing our board of directors (the “Board”) was restructured to include 10 members, consisting of three classes of directors with staggered terms. Our Board is currently comprised of a total of 9 directors serving in three classes.  As described below under the caption “SELLING STOCKHOLDERS – Material Relationships with Selling Stockholders,” Rho is entitled to designate an additional director to our Board, subject to minimum stock ownership requirements, but has not yet done so.
 
Corporate Information
 
We were organized as a corporation under the laws of the State of Delaware in October 2000.  Our Common Stock is listed on the Nasdaq Capital Market under the symbol “BFLY.”  Our principal executive offices are located at 42 West 39th Street, New York, NY 10018, and our telephone number is (212) 944-8000.  Our Internet address is www.bluefly.com.  We make available, free of charge, through our Web site, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.  The contents of our website are not part of this prospectus and should not be relied upon with respect to this offering.

 
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RISK FACTORS
 
A purchase of our shares of Common Stock involves a high degree of risk.  Before you invest in our Common Stock, you should be aware that there are various risks, including those described below, which could affect the value of your investment in the future.  The trading price of our Common Stock could decline due to any of these risks, and you may lose all or part of your investment.  The risk factors described in this section, as well as any cautionary language in this prospectus and the documents incorporated by reference herein, provide examples of risks, uncertainties and events that could have a material adverse effect on our business, including our operating results and financial condition.  This prospectus and the documents incorporated by reference herein also contain forward-looking statements that involve risks and uncertainties.  These risks could cause our actual results to differ materially from the expectations that we describe in our forward-looking statements.  You should carefully consider the risks described below and the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2009, as well as the other information included or incorporated by reference in this prospectus, before making an investment decision.
 
Risks Related To Our Business
 
We Have A History Of Losses And Losses May Continue In The Future.  As of December 31, 2009, we had an accumulated deficit of $147,468,000.  We incurred net losses of $4,369,000, $11,340,000 and $15,829,000 for the years ended December 31, 2009, 2008 and 2007, respectively.  We have incurred negative cash flows and cumulative net losses since inception.  Although we have experienced revenue growth in recent years, this growth should not be considered indicative of future performance, particularly given the challenging economic environment that we now face.
 
Rho, The Soros Parties, The Maverick Funds, And Prentice Each Own A Large Amount Of Our Stock And Therefore Can Exert Significant Influence Over Our Management And Policies.  As of April 15, 2010, Rho owned approximately 36% of our Common Stock, the Soros Parties owned approximately 25% of our Common Stock, the Maverick Funds owned approximately 15% of our Common Stock and investment entities and accounts managed and advised by Prentice Capital Management, LP (“Prentice”) owned approximately 12% of our Common Stock.  We entered into an Amended and Restated Voting Agreement with Rho, the Soros Parties, the Maverick Funds and Prentice (the “Voting Agreement”), pursuant to which the Soros Parties (collectively) and Rho each has the right to designate two designees to our Board, and the Maverick Funds (collectively) and Prentice each has the right to designate one designee to our Board, in each case, subject to minimum ownership thresholds and compliance with applicable rules of the Nasdaq Stock Market LLC (“Nasdaq”).  The Voting Agreement also provides that one designee of each of Rho, the Soros Parties, the Maverick Funds and Prentice has the right to serve on each committee of our Board; provided that if the Nasdaq rules require that such committee must consist of members who are “independent” (as defined in applicable Nasdaq rules), then such designee must be “independent.”  If we establish an Executive Committee, a designee of each of Rho, the Soros Parties, the Maverick Funds and Prentice will be entitled to serve on such committee.
 
In view of their large percentage of ownership, Rho, the Soros Parties, the Maverick Funds and Prentice each have the ability to exert significant influence over our management and policies, such as the election of our directors, the appointment of new management and the approval of any other action requiring the approval of our stockholders, including any amendments to our certificate of incorporation, a sale of all or substantially all of our assets or a merger or a going private transaction.
 
The Continued Disruption In The Global Economic Environment, And Resulting Declines In Consumer Confidence And Spending, Could Have An Adverse Effect On Our Operating Results.  The global economic environment continued to deteriorate substantially during 2009.  This has affected our business as our business is dependent on consumer demand for our products.  As a result, during the fourth quarter of 2009 and 2008, our revenues declined by approximately 11% and 8%, compared to the fourth quarters of 2008 and 2007, respectively.  If the global economic environment continues to be weak or deteriorates further, there will likely be a negative effect on our revenues and earnings for the current fiscal year and continuing into fiscal 2011.
 
Our Lender Has Liens On Substantially All Of Our Assets And Could Foreclose In The Event That We Default Under Our Credit Facility.  Under the terms of our credit facility, our lender has a first priority lien on substantially all of our assets, including our cash balances.  If we default under the credit facility, our lender would be entitled to, among other things, foreclose on our assets (whether inside or outside a bankruptcy proceeding) in order to satisfy our obligations under the credit facility.
 
Our Ability To Maintain And Pay Our Indebtedness Under Our Credit Facility Is Dependent Upon Meeting Our Business Plan.  We are required to pay interest under our credit facility on a monthly basis.  Assuming we meet our business plan, we will be able to pay our interest as required.  To a certain extent, however, our ability to meet our business plan is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, and therefore we cannot assure you that, based on our business plan, we will generate sufficient cash flow from operations to enable us to pay our indebtedness under the credit facility and maintain our minimum availability requirement throughout the term of the credit facility.  If we fall short of our business
 

 
5

 


plan and are unable to raise additional capital, we could default under our credit facility.  In the event of a default under the credit facility, our lender would be entitled, among other things, to foreclose on our assets (whether inside or outside a bankruptcy proceeding) in order to satisfy our obligations under the credit facility.  See “Risk Factors – Our Lender Has Liens On Substantially All Of Our Assets And Could Foreclose In The Event That We Default Under Our Credit Facility.”
 
If We Are Not Accurate In Forecasting Our Revenues, We May Be Unable To Adjust Our Operating Plans In A Timely Manner.  Because our business has not yet reached a mature stage, it is difficult for us to forecast our revenues accurately.  We base our current and future expense levels and operating plans on expected revenues, but in the short-term a significant portion of our expenses are fixed.  Accordingly, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall.  This inability could cause our operating results in some future quarter to fall below the expectations of securities analysts and investors.  In that event, the trading price of our Common Stock could decline significantly.  In addition, any such unexpected revenue shortfall could significantly affect our short-term cash flow and our net worth, which could require us to seek additional financing and/or cause a default under our credit facility.  See “Risk Factors – Our Ability To Maintain And Pay Our Indebtedness Under Our Credit Facility Is Dependent Upon Meeting Our Business Plan.”
 
Our National Advertising Campaign And Other Marketing Initiatives May Not Be Successful.  Our success depends on our ability to attract customers on cost-effective terms.  We have relationships with online services, search engines, and other Web sites and e-commerce businesses to provide other links that direct customers to our Web site.  In addition, during 2005 we launched our first national television and advertising campaign, and we have continued and expanded on that campaign since that time.  Such campaigns are expensive and may not result in the cost effective acquisition of customers.  We are relying on the campaign as a source of traffic to our Web site and new customers.  If these campaigns and initiatives are not successful, our results of operations will be adversely affected.
 
We Purchase A Substantial Portion Of Our Inventory From One Supplier.  In both 2009 and 2008, we purchased approximately 31% of our inventory from one supplier.  Should our relationship with this supplier deteriorate or terminate, or should this supplier lose some or all of its access to the products that we purchase from it, our performance could be adversely affected.  Under such circumstances, we would be required to seek alternative sources of supply for these products, and there can be no assurance that we would be able to obtain such products from alternative sources on the same terms, or at all.  A failure to obtain such products on as favorable terms could have an adverse effect on our revenue and/or gross margin.
 
We Do Not Have Long Term Contracts With Our Vendors And Therefore The Availability Of Merchandise Is At Risk.  We do not have any agreements controlling the long-term availability of merchandise or the continuation of particular pricing practices.  Our contracts with suppliers typically do not restrict such suppliers from selling products to other buyers.  There can be no assurance that our current suppliers will continue to sell products to us on current terms or that we will be able to establish new or otherwise extend current supply relationships to ensure product acquisitions in a timely and efficient manner and on acceptable commercial terms.  In addition, in order to entice new vendors to open up relationships with us, we sometimes are required to either make prepayments or agree to shortened payment terms.  Our ability to develop and maintain relationships with reputable suppliers and obtain high quality merchandise is critical to our success.  If we are unable to develop and maintain relationships with suppliers that would allow us to obtain a sufficient amount and variety of quality merchandise on acceptable commercial terms, our ability to satisfy our customers’ needs, and therefore our long-term growth prospects, would be materially adversely affected.  See “Risk Factors - Brand Owners Could Establish Procedures to Limit Our Ability to Purchase Products Indirectly” and “Risk Factors – We Purchase a Substantial Portion of Our Inventory from One Supplier.”
 
Unexpected Changes In Fashion Trends Could Cause Us To Have Either Excess Or Insufficient Inventory.  Fashion trends can change rapidly, and our business is highly sensitive to such changes.  There can be no assurance that we will accurately anticipate shifts in fashion trends and adjust our merchandise mix to appeal to changing consumer tastes in a timely manner.  If we misjudge the market for our products or are unsuccessful in responding to changes in fashion trends or in market demand, we could experience insufficient or excess inventory levels or higher markdowns, either of which would have a material adverse effect on our business, financial condition and results of operations.
 
We Will Be Subject To Cyclical Variations In The Apparel And E-Commerce Markets.  The apparel industry historically has been subject to substantial cyclical variations.  The recent economic downturn has affected retailers especially hard.  Downturns, whether real or perceived, in economic conditions or prospects could adversely affect consumer spending habits and, therefore, have a material adverse effect on our revenue, cash flow and results of operations.  Alternatively, any improvement, whether real or perceived, in economic conditions or prospects could adversely impact our ability to acquire merchandise and, therefore, have a material adverse effect on our business, prospects, financial condition and results of operations, as our supply of merchandise is dependent on the inability of designers and retailers to sell their merchandise in full-price venues.  See “Risk Factors – We Do Not Have Long Term Contracts With Our Vendors And Therefore The Availability Of Merchandise Is At Risk.”
 

 
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We Purchase Product From Some Indirect Supply Sources, Which Increases Our Risk of Litigation Involving The Sale Of Non-Authentic Or Damaged Goods. We purchase merchandise both directly from brand owners and indirectly from retailers and third party distributors.  The purchase of merchandise from parties other than the brand owners increases the risk that we will mistakenly purchase and sell non-authentic or damaged goods, which could result in potential liability under applicable laws, regulations, agreements and orders.  Moreover, any claims by a brand owner, with or without merit, could be time consuming, result in costly litigation, generate bad publicity for us, and have a material adverse impact on our business, prospects, financial condition and results of operations.
 
Security Breaches To Our Systems And Database Could Cause Interruptions to Our Business And Impact Our Reputation With Customers, And We May Incur Significant Expenses To Protect Against Such Breaches.  A fundamental requirement for online commerce and communications is the secure transmission of confidential information over public networks.  There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments will not result in a compromise or breach of the algorithms we use to protect customer transaction and personal data contained in our customer database.  A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations.  If any such compromise of our security were to occur, it could have a material adverse effect on our reputation with customers, thereby affecting our long-term growth prospects.  In addition, we may be required to expend significant capital and other resources to protect against such security breaches or to remediate problems caused by such breaches.
 
Brand Owners Could Establish Procedures To Limit Our Ability To Purchase Products Indirectly.  Brand owners have implemented, and are likely to continue to implement, procedures to limit or control off-price retailers’ ability to purchase products indirectly.  In addition, several brand owners in the U.S. have distinctive legal rights rendering them the only legal importer of their respective brands into the U.S.  If we acquire such product indirectly from distributors and other third parties who may not have complied with applicable customs laws and regulations, such goods could be subject to seizure from our inventory by the U.S. Customs Service, and the importer may have a civil action for damages against us.  See “Risk Factors - We Do Not Have Long Term Contracts With Our Vendors And Therefore The Availability Of Merchandise Is At Risk.”
 
We Are Heavily Dependent On Third-Party Relationships, And Failures By A Third Party Could Cause Interruptions To Our Business.  We are heavily dependent upon our relationships with our fulfillment operations provider, third party call center and Web hosting provider, delivery companies like UPS and the United States Postal Service, and credit card processing companies such as Paymentech, Paypal and Cybersource to service our customers’ needs.  To the extent that there is a slowdown in mail service or package delivery services, whether as a result of labor difficulties, terrorist activity or otherwise, our cash flow and results of operations would be negatively impacted during such slowdown, and the results of such slowdown would have a long-term negative effect on our reputation with our customers.  The failure of our fulfillment operations provider, third party call center, credit card processors or Web hosting provider to properly perform their services for us would cause similar effects.
 
We Are In Competition With Companies Much Larger Than Ourselves.  E-commerce generally and, in particular, the online retail apparel and fashion accessories market, is a dynamic, high-growth market and is rapidly changing and intensely competitive.  Our competition for customers comes from a variety of sources including:
 
 
·
existing land-based, full price retailers, that are using the Internet to expand their channels of distribution;
 
 
·
less established online companies;
 
 
·
internet sites;
 
 
·
traditional direct marketers; and
 
 
·
traditional off-price retail stores, which may or may not use the Internet to grow their customer base.
 
Competition in our industry has intensified, and we expect this trend to continue as the list of our competitors grows.  Many of our competitors and potential competitors have longer operating histories, significantly greater resources, greater brand name recognition and more firmly established supply relationships.  We believe that the principal competitive factors in our market include:
 
 
·
brand recognition;
 
 
·
merchandise selection;
 

 
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·
price;
 
 
·
convenience;
 
 
·
customer service;
 
 
·
order delivery performance;  and
 
 
·
Web site features.
 
There can be no assurance that we will be able to compete successfully against competitors and future competitors, and competitive pressures faced by us could force us to increase expenses and/or decrease our prices at some point in the future.
 
We Need To Further Establish Brand Name Recognition.  We believe that further establishing, maintaining and enhancing our brand is a critical aspect of our efforts to attract and expand our online traffic.  The number of Internet sites that offer competing services, many of which already have well established brands in online services or the retail apparel industry generally, increases the importance of establishing and maintaining brand name recognition.  Promotion of our Web site will depend largely on our success in providing a high quality online experience supported by a high level of customer service, which cannot be assured.  In addition, to attract and retain online users, and to promote and maintain our Web site in response to competitive pressures, we may find it necessary to increase substantially our advertising and marketing expenditures.  If we are unable to provide high quality online services or customer support, or otherwise fail to promote and maintain our Web site, or if we incur excessive expenses in an attempt to promote and maintain our Web site, our long-term growth prospects would be materially adversely affected.
 
There Can Be No Assurance That Our Technology Systems Will Be Able To Handle Increased Traffic; Implementation Of Changes To Web Site.  The satisfactory performance, reliability and availability of our Web site, transaction processing systems and network infrastructure are critical to our reputation and our ability to attract and retain customers, as well as maintain adequate customer service levels.  Our revenues depend on the number of visitors who shop on our Web site and the volume of orders we can handle.  Unavailability of our Web site or reduced order fulfillment performance would reduce the volume of goods sold and could also adversely affect consumer perception of our brand name.  We may experience periodic system interruptions from time to time.  If there is a substantial increase in the volume of traffic on our Web site or the number of orders placed by customers, we will be required to expand and upgrade further our technology, transaction processing systems and network infrastructure.  There can be no assurance that we will be able to accurately project the rate or timing of increases, if any, in the use of our Web site or expand and upgrade our systems and infrastructure to accommodate such increases on a timely basis.  In order to remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our Web site, which is particularly challenging given the rapid rate at which new technologies, customer preferences and expectations and industry standards and practices are evolving in the online commerce industry.  Accordingly, we redesign and enhance various functions on our Web site on a regular basis, and we may experience instability and performance issues as a result of these changes.
 
We May Be Subject To Higher Return Rates.  We recognize that purchases of apparel and fashion accessories over the Internet may be subject to higher return rates than traditional store-bought merchandise.  We have established a liberal return policy in order to accommodate our customers and overcome any hesitancy they may have with shopping via the Internet.  As a result, our reserve for returns and credit card chargebacks for fiscal 2009, 2008 and 2007 has been 37.8%, 39.1% and 39.6%, respectively.  If return rates are higher than expected, our business, prospects, financial condition, cash flows and results of operations could be materially adversely affected.
 
Our Success Is Largely Dependent Upon Our Executive Personnel.  We believe our success will depend to a significant extent on the efforts and abilities of our executive personnel.  In particular, we rely upon their strategic guidance, their relationships and credibility in the vendor and financial communities and their ability to recruit key operating personnel.  Our current employment agreements, with our Chief Executive Officer and Chief Financial Officer run through January 1, 2013 and our agreements with our Chief Marketing Officer and SVP of eCommerce run through September 2012.  However, there can be no assurance that any of them will not terminate their employment earlier.  The loss of the services of any of our executive officers could have a material adverse effect on our credibility in the vendor communities and our ability to recruit new key operating personnel.
 
Our Success Is Dependent Upon Our Ability To Attract New Key Personnel.  Our operations will also depend to a great extent on our ability to attract new key personnel with relevant experience and retain existing key personnel in the future.  The market for qualified personnel is extremely competitive.  Our failure to attract additional qualified employees could have a material adverse effect on our prospects for long-term growth.
 

 
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We May Be Liable For Infringing The Intellectual Property Rights Of Others.  Third parties may assert infringement claims against us.  From time to time in the ordinary course of business we have been, and we expect to continue to be, subject to claims alleging infringement of the trademarks, patents and other intellectual property rights of third parties.  These claims and any resulting litigation, if it occurs, could subject us to significant liability for damages.  In addition, even if we prevail, litigation could be time-consuming and expensive and could result in the diversion of our time and attention.  Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims unless we are able to enter into agreements with the third parties making these claims.
 
We May Be Liable For Product Liability Claims.  We sell products manufactured by third parties, some of which may be defective.  If any product that we sell were to cause physical injury or injury to property, the injured party or parties could bring claims against us as the retailer of the product.  Our insurance coverage may not be adequate to cover every claim that could be asserted.  If a successful claim were brought against us in excess of our insurance coverage, it could have a material adverse effect on our cash flow and on our reputation with customers.  Unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our business.
 
We Cannot Guarantee The Protection Of Our Intellectual Property.  Our intellectual property is critical to our success, and we rely on trademark, copyright, domain names and trade secret protection to protect our proprietary rights.  Third parties may infringe or misappropriate our trademarks or other proprietary rights, which could have a material adverse effect on our business, prospects, results of operations or financial condition.  While we enter into confidentiality agreements with our employees, consultants and strategic partners and generally control access to and distribution of our proprietary information, the steps we have taken to protect our proprietary rights may not prevent misappropriation.  We are pursuing registration of various trademarks, service marks and domain names in the United States and abroad.  Effective trademark, copyright and trade secret protection may not be available in every country, and there can be no assurance that the United States or foreign jurisdictions will afford us any protection for our intellectual property.  There also can be no assurance that any of our intellectual property rights will not be challenged, invalidated or circumvented.  Moreover, even to the extent that we are successful in defending our rights, we could incur substantial costs in doing so.
 
Our Business Could Be Harmed By Consumers’ Concerns About The Security Of Transactions Over The Internet.  Concerns over the security of transactions conducted on the Internet and commercial online services, the increase in identity theft and the privacy of users may inhibit the growth of the Internet and commercial online services, especially as a means of conducting commercial transactions.  Moreover, although we have developed systems and processes that are designed to protect consumer information and prevent fraudulent credit card transactions and other security breaches, failure to mitigate such fraud or breaches could have a material adverse effect on our business, prospects, financial condition and results of operations.
 
We Face Legal Uncertainties Relating To The Internet In General And To Our Industry In Particular And May Become Subject To Costly Government Regulation.  We are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally, and laws or regulations directly applicable to online commerce.  However, it is possible that laws and regulations may be adopted that would apply to the Internet and other online services.  Furthermore, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online.  The adoption of any additional laws or regulations may increase our cost of doing business and/or decrease the demand for our products and services and increase our cost of doing business.
 
The applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve.  Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and online commerce could also increase our cost of doing business.  In addition, if we were alleged to have violated federal, state or foreign, civil or criminal law, we could face material liability and damage to our reputation and, even if we successfully defend any such claim, we would incur significant costs in connection with such defense.
 
We Face Uncertainties Relating To Sales And Other Taxes.  We are not currently required to pay sales or other similar taxes in respect of shipments of goods into states other than Ohio and New York.  However, state taxation laws and regulations may change in the future, and one or more states may seek to impose sales tax collection obligations on out-of-state companies, such as us, that engage in online commerce.  In addition, any new operation in states outside Ohio and New York could subject shipments into such states to state sales taxes under current or future laws.  A successful assertion by one or more states or any foreign country that the sale of merchandise by us is subject to sales or other taxes could subject us to material liabilities and, to the extent that we pass such costs on to our customers, could decrease our sales.
 

 
9

 

Our Ability To Utilize Our Net Operating Loss Carryforwards May Be Limited.  Our federal net operating loss carryforwards are subject to limitation on how much may be utilized on an annual basis.  The use of the net operating loss carryforwards may have additional limitations resulting from certain future ownership changes or other factors pursuant to Section 382 of the Internal Revenue Code (the “Code”), including the consummation of the Private Placement which has made us more vulnerable to an “ownership change” for purposes of Section 382 of the Code.  If our net operating loss carryforwards are further limited, and we have taxable income which exceeds the available net operating loss carryforwards for that period, we would incur an income tax liability even though net operating loss carryforwards may be available in future years prior to their expiration, which may adversely affect our future financial position, financial results and cash flow.
 
We Rely On The Effectiveness Of Our Internal Controls.  Section 404 of the Sarbanes-Oxley Act of 2002 requires that we establish and maintain an adequate internal control structure and procedures for financial reporting and assess on an on-going basis the design and operating effectiveness of our internal control structure and procedures for financial reporting.  Our independent registered public accounting firm will be required to audit the design and operating effectiveness of our internal controls and attest to management’s assessment of the design and the effectiveness of our internal controls.  The first such audit will be required for our fiscal year ending December 31, 2010.  It is possible that, as we prepare for this audit, we could discover certain deficiencies in the design and/or operation of our internal controls that could adversely affect our ability to record, process, summarize and report financial data.  We have invested and will continue to invest significant resources in this process.  Because an audit of our internal controls has not been required to be reported in the past, we are uncertain as to what impact a conclusion that deficiencies exist in our internal controls over financial reporting would have on the trading price of our Common Stock.
 
Risks Related To Our Common Stock
 
The Holders Of Our Common Stock May Be Adversely Affected By The Rights Of Holders Of Preferred Stock That May Be Issued In The Future.  Our Board has the authority to issue up to 1,000,000 shares of preferred stock, and to determine the price, rights, preferences and restrictions, including voting rights, of those shares, without any further vote or action by the stockholders.  Accordingly, our Board is empowered, without approval of the holders of Common Stock, to issue preferred stock, for any reason and at any time, with such rates of dividends, redemption provisions, liquidation preferences, voting rights, conversion privileges and other characteristics as it may deem necessary or appropriate.  The rights of holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future.
 
Future Sales Of Our Common Stock May Cause Our Stock Price To Decline.   Our principal stockholders and affiliated entities hold a substantial number of shares of our Common Stock that they are able to sell in the public market.  Subject to prospectus delivery requirements, where applicable, the shares covered by the registration statement of which this prospectus is part will also be available for public sale.  Sales by our current stockholders of a substantial number of shares, or the expectation that such sales may occur, could significantly reduce the market price of our Common Stock.
 
The Trading Price Of Our Common Stock Has Been Volatile And Is Likely To Be Volatile In The Future.  Historically the market price of our Common Stock has fluctuated significantly.  In addition to those risks described earlier in this section, the market price of our Common Stock can be expected to fluctuate significantly in response to numerous other factors, many of which are beyond our control.  If the market for retail stocks or the stock market in general experiences loss of investor confidence, the trading price of our Common Stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our Common Stock might also decline in reaction to events that affect other companies in our industry or the stock market generally even if these events do not directly affect us. Each of these factors, among others, could cause our stock price to decline. Some companies that have had volatile market prices for their securities have had securities class actions filed against them. If a suit were filed against us, regardless of its merits or outcome, it could result in substantial costs and divert management’s attention and resources.
 
We Do Not Currently Intend To Pay Dividends On Our Common Stock And, Consequently, Your Ability To Achieve A Return On Your Investment Will Depend On Appreciation In The Price Of Our Common Stock.  We have never declared or paid any cash dividends on our Common Stock and do not currently intend to do so for the foreseeable future. In addition, our credit facility with Wells Fargo Retail Finance, LLC restricts our ability to pay cash dividends.  We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your Common Stock for the foreseeable future and the success of an investment in shares of our Common Stock will depend upon any future appreciation in its value. There is no guarantee that shares of our Common Stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
 

 
10

 

USE OF PROCEEDS
 
The proceeds from the sale of the Common Stock offered pursuant to this prospectus are solely for the account of the selling stockholders.  Accordingly, we will not receive any proceeds from the sale of the shares from the selling stockholders.  If the selling stockholders exercise for cash all of the warrants underlying the 52,497 shares registered hereunder for sale upon the exercise of warrants, we will receive approximately $268,000 of total proceeds.  We intend to use these proceeds, if any, for general working capital purposes.
 

SELLING STOCKHOLDERS
 
The following table sets forth information regarding the ownership of our Common Stock by the selling stockholders in this offering.  Rho acquired the shares being offered by it under this prospectus from us in the Private Placement.  The Soros Parties and the Maverick Funds acquired the shares of Common Stock being offered by them under this prospectus from us upon the conversion of certain convertible promissory notes, as more fully described under the captions “PROSPECTUS SUMMARY – Recent Developments” and “SELLING STOCKHOLDERS – Material Relationships with Selling Stockholders.”  In addition, this prospectus covers certain shares of Common Stock which the Soros Parties and the Maverick Funds have the right to acquire pursuant to the terms of the Warrants described below under the caption “SELLING STOCKHOLDERS – Material Relationships with Selling Stockholders.”
 
The selling stockholders may have sold or transferred, in transactions exempt from the registration requirements of the Securities Act, some or all of their shares since the date on which the information in the table is presented. Information about the selling stockholders may change over time.
 
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power over securities.  To our knowledge, unless otherwise indicated, all persons named in the table below have sole voting and investment power with respect to their shares of Common Stock.  Percentage of beneficial ownership is based on 24,604,892 shares of Common Stock outstanding as of April 15, 2010.
 
   
Shares Beneficially
       
   
Owned Prior
     
Shares Beneficially Owned
   
To The Offering
 
Number of Shares sold in the
 
After The Offering(9)
Name of Address of Beneficial Owner
 
Number
 
Percentage
 
Offered
 
Number
 
Percentage
 
                           
Funds Affiliated with Rho Ventures(1)
 
8,823,529
(1)
35.9
%
 
8,823,529
 
--
 
--
%
 
Quantum Industrial Partners LDC(3)
 
5,968,283
(2)
24.3
%
 
1,096,065
 
4,872,218
(10)
19.8
% 
 
SFM Domestic Investments LLC(12)
 
195,341
(4)(12)
0.8
%
 
35,871
 
159,470
(11)
0.6
%
 
Maverick Fund, L.D.C. (5)
 
1,609,670
(6)
6.5
%
 
296,204
 
1,313,466
 
5.3
%
 
Maverick Fund II, Ltd. (5)
 
1,404,638
(7)
5.7
%
 
258,479
 
1,146,159
 
4.6
%
 
Maverick Fund USA, Ltd. (5)
 
709,589
(8)
2.9
%
 
130,584
 
579,005
 
2.3
%
 
TOTAL
 
18,711,050
 
76.1
%
 
10,640,732
 
8,070,318
 
32.6
%
 
                 
______________
(1)  
Rho Capital Partners, LLC and RMV VI, LLC (which we refer to in this prospectus as RMV) are Delaware limited liability companies.  Rho is a Delaware limited partnership.  Rho is a private investment fund engaged in the business of acquiring, holding and disposing of investments in various companies.  RMV is the general partner of Rho.  Rho Capital Partners, LLC is the managing member of RMV.  Messrs. Habib Kairouz, Joshua Ruch and Mark Leschly are the managing members of Rho Capital Partners, LLC.  Each of Messrs. Kairouz, Ruch and Leschly disclaims beneficial ownership of any of these securities held by Rho Capital Partners, LLC, RMV and Rho.  The address of Rho Capital Partners, LLC, RMV and Rho is 152 West 57th Street, 23rd Floor, New York, NY 10019.  The foregoing information was derived, in part, from certain publicly available reports, statements and schedules filed with the SEC.
 
(2)  
Represents 5,924,515 shares of Common Stock and 43,768 shares of Common Stock issuable upon the exercise of warrants held in the name of QIP.  Excludes options held by Messrs. Neil Moszkowski and David Wassong, two of the Company’s directors designated to the Board by the Soros Parties (collectively), held for the benefit of QIP.
 
(3)  
QIP is an exempted limited duration company formed under the laws of the Cayman Islands with its principal address at Kaya Flamboyan 9, Willemstad, Curacao, Netherlands Antilles.  QIH Management Investor, L.P. (“QIHMI”), an investment advisory firm organized as a Delaware limited partnership, is a minority shareholder of, and is vested with investment discretion with respect to portfolio assets held for the account of, QIP.  The sole general partner of QIHMI is QIH Management LLC, a Delaware limited liability company (“QIH Management”).  Soros Fund Management LLC, a Delaware limited liability company, is the sole managing member of QIH Management.  Mr. Soros may be deemed to have shared voting power and sole investment power with respect to our shares held by QIP (any such shares, the “QIP Shares”).  Accordingly, each of QIP, QIHMI, QIH Management, Soros Fund Management LLC and Mr. Soros may be deemed to be the beneficial owners of the QIP Shares.  Each has their principal office at 888 Seventh Avenue, 33rd Floor, New York, New York 10106.  The foregoing information was derived, in part, from certain publicly available reports, statements and schedules filed with the SEC.
 
 
11

 
 
(4)  
Represents 193,909 shares of Common Stock and 1,432 shares of Common Stock issuable upon the exercise of warrants held in the name of SFM.
 
(5)  
Maverick Capital, Ltd. is an investment adviser registered under Section 203 of the Investment Advisers Act of 1940 and, as such, has beneficial ownership of the shares held by Maverick USA, Maverick Fund and Maverick Fund II through the investment discretion it exercises over these accounts.  Maverick Capital Management, LLC is the General Partner of Maverick Capital, Ltd.  Lee S. Ainslie III is the manager of Maverick Capital Management, LLC who possesses sole investment discretion pursuant to Maverick Capital Management, LLC’s regulations.  The address of Maverick Capital, Ltd. and Maverick Capital Management, LLC is 300 Crescent Court, 18th Floor, Dallas, TX 75201; and the address of each of Lee S. Ainslie III, Maverick Fund, Maverick Fund II and Maverick USA is c/o Maverick Capital, Ltd., 300 Crescent Court, 18th Floor, Dallas, TX 75201.
 
(6)  
Represents 1,601,113 shares of Common Stock, 8,557 shares of Common Stock issuable upon the exercise of warrants held by Maverick Fund.
 
(7)  
Represents 1,397,171 shares of Common Stock, 7,467 shares of Common Stock issuable upon the exercise of warrants held by Maverick Fund II.
 
(8)  
Represents 705,817 shares of Common Stock and 3,772 shares of Common Stock issuable upon the exercise of warrants held by Maverick USA.
 
(9)  
Assuming all shares being offered in this prospectus are sold, including shares obtained from the exercise of warrants held by the selling stockholders.
 
(10)  
Represents 4,860,115 shares of Common Stock and 12,103 shares of Common Stock issuable upon the exercise of warrants held in the name of QIP.  Excludes options held by Messrs. Neil Moszkowski and David Wassong, two of the Company’s directors designated to the Board by the Soros Parties (collectively), held for the benefit of QIP.
 
(11)  
Represents 159,074 shares of Common Stock and 396 shares of Common Stock issuable upon the exercise of warrants held in the name of SFM.
 
(12)
SFM is a Delaware limited liability company.  George Soros may also be deemed the beneficial owner of the SFM Shares.  The principal address of SFM is at 888 Seventh Avenue, 33rd Floor, New York, New York 10106.  The foregoing information was derived, in part, from certain publicly available reports, statements and schedules filed with the SEC.
 
Material Relationships with Selling Stockholders
 
As discussed in greater detail above under the section “Prospectus Summary – Recent Developments,” in December 2009, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) pursuant to which we sold the Private Placement Shares to Rho.
 
In connection with the Private Placement, we entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Rho, as well as the Soros Parties, the Maverick Funds and Prentice (collectively, the “Existing Stockholders”).  Under the terms of the Registration Rights Agreement, the Company agreed to (i) file the registration statement of which this Prospectus forms a part, (ii) use its commercially reasonable best efforts to maintain the effectiveness of the existing shelf registration statement registering shares of Common Stock held by the Existing Stockholders until certain specified conditions are satisfied, (iii) grant Rho piggy-back registration rights applicable in certain circumstances upon an underwritten offering by the Company and the right to two demand registrations, (iv) terminate all registration rights previously granted by the Company to the Existing Stockholders and replace such registration rights with piggy-back registration rights applicable in certain circumstances upon an underwritten offering by the Company and, in the case of the Soros Parties, the right to two demand registrations in addition to such piggy-back registration rights, and (v) subject to the receipt of stockholder approval therefore, issue warrants to Rho under certain circumstances relating to the unavailability of a registration statement.
 
Also, in connection with the Private Placement, we entered into an Amended and Restated Voting Agreement (the “Voting Agreement”) with the Rho and the Existing Stockholders.  Pursuant to the terms of the Voting Agreement, Rho and the Soros Parties each have the right to nominate two members to the Board and the Maverick Funds and Prentice each have the right to nominate one member to the Board, in each case subject to minimum ownership thresholds and compliance with applicable rules of The Nasdaq Stock Market LLC requiring Board representation to be proportional to stock ownership.  Each of Rho, the Soros Parties, Prentice and the Maverick Funds are entitled to have one director designated by them serve on any committee of the Board, subject to applicable law, rules and regulations (including stock exchange regulations), and to have each of their director designees under the Voting Agreement serve on any executive committee of the Board.
 

 
12

 


 
Rho has nominated Habib Kairouz to serve as its designee to the Board, and Mr. Kairouz was elected to the Board effective as of immediately after the Initial Closing.  Rho is entitled to designate one additional director to the Board but has not yet done so.  The Soros Parties have designated Messrs. Moszkowski and Wassong to the Board and the Maverick Funds have designated David Janke to the Board.
 
We have agreed in the Securities Purchase Agreement to indemnify Rho and its directors, officers, stockholders, members, partners, employees and agents as well as Rho’s control persons (within the meaning of Section 15 of the Securities Act of 1933, as amended (the “Securities Act”) and Section 20 of the Exchange Act), and their directors, officers, stockholders, agents, members, partners or employees from any losses, liabilities, obligations, claims, contingencies, damages, costs and expenses arising from or relating to any of the representations, warranties, covenants or agreements made by us in the Securities Purchase Agreement, the Voting Agreement, the Registration Rights Agreement and the other agreements entered into in connection therewith (the “Transaction Documents”), except to the extent that any such losses, liabilities, obligations, claims, contingencies, damages, costs or expenses are attributable to Rho’s breach of any of the representations, warranties, covenants or agreements made by it in any of the Transaction Documents.
 
In addition, we have agreed in the Registration Rights Agreement to indemnify Rho and the Existing Stockholders against certain liabilities arising from any alleged material omission or untrue statement contained in a registration statement required to be filed by us thereunder.  This indemnification obligation will not apply to the extent any such liabilities arise from an alleged untrue statement or omission which is based upon written information regarding, and provided to us by, any such stockholder for use in such registration statement, in which case the stockholders have each severally agreed to indemnify us in an amount not to exceed the proceeds to each such stockholder in connection with any sale of Common Stock pursuant to such registration statement.
 
In March 2008, we entered into an agreement (the “Commitment”) with the Soros Parties and the Maverick Funds pursuant to which they agreed to provide up to $3 million of debt financing to us, on a standby basis, during fiscal 2008, provided that the commitment amount would be reduced by the gross proceeds of any equity financing consummated during that year.  We drew down the Commitment in July 2008, which was evidenced by the issuance of subordinated convertible notes (the “Subordinated Notes”) with a three year-term and bearing interest at the rate of 8% per annum, compounded annually.  The Subordinated Notes were convertible at the holder’s option (a) into equity securities that the Company might issue in any subsequent round of financing at a price equal to the lowest price per share to be paid by any investor in such subsequent round of financing or (b) into Common Stock at a price per share equal to the trailing 20-day average stock price on the date of issuance of the Subordinated Notes.  In connection with the Commitment, we issued warrants (the “Warrants”) to Soros and the Maverick Funds to purchase an aggregate of 52,497 shares of Common Stock at an exercise price equal to $5.10.  In connection with the Private Placement (and as a condition thereto), the Soros Parties and the Maverick Funds converted the Subordinated Notes into an aggregate of 1,764,706 shares of Common Stock contemporaneously with the First Closing.
 
PLAN OF DISTRIBUTION
 
We are registering the resale of the shares of our Common Stock on behalf of the selling stockholders.  As used in this prospectus, the term selling stockholders includes pledgees, assignees, transferees or other successors-in-interest selling shares received from the selling stockholders as pledgors, borrowers or in connection with other non-sale-related transfers after the date of this prospectus.  This prospectus may also be used by transferees of the selling stockholders, including broker-dealers or other transferees who borrow or purchase the shares to settle or close out short sales of shares of Common Stock.  The selling stockholders will act independently of us in making decisions with respect to the timing, manner, and size of each sale or non-sale related transfer.  We will not receive any of the proceeds of this offering, except that we will receive the exercise price of any warrants exercised for cash.
 
This prospectus covers the selling stockholders’ resale of up to 10,640,732 shares of Common Stock (including up to an aggregate of 52,947 shares of Common Stock issuable upon the exercise of warrants).  The shares of our Common Stock covered by this prospectus may be offered and sold from time to time by the selling stockholders.  The selling stockholders may sell the shares on the Nasdaq Capital Market, any other exchange or market on which the shares of our Common Stock are then traded, or in private sales at negotiated prices.
 
The selling stockholders may use any one or more of the following methods when selling shares:
 
 
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
 
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
 
·
an exchange distribution in accordance with the rules of the applicable exchange;
 
 
·
privately negotiated transactions;
 
 
·
settlement of short sales entered into after the date of this prospectus;
 

 
13

 


 
 
·
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
 
 
·
a combination of any such methods of sale;
 
 
·
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or
 
 
·
any other method permitted pursuant to applicable law.
 
The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
 
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales.  Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated.  The selling stockholders do not expect these commissions and a discount relating to its sales of shares to exceed what is customary in the types of transactions involved.
 
In connection with the sale of our Common Stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging the positions they assume.  The selling stockholders may also sell shares of our Common Stock short and deliver these securities to close out their short positions, or loan or pledge the Common Stock to broker-dealers that in turn may sell these securities.  The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
 
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
 
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares.  The Company has agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
 
The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the Common Stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the Common Stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b) or any other applicable provision of the Securities Act amending, if necessary, the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.  The selling stockholders also may transfer and donate the Common Stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
 
The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the Common Stock or interests therein may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act.  Each selling stockholder has represented to us that it has not entered into any agreements, understandings or arrangements, directly or indirectly, with any underwriter, broker-dealer or other person regarding the sale or other distribution of the shares of Common Stock to be sold pursuant to this prospectus.  There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the selling stockholders.
 
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the shares to be sold pursuant to this prospectus may not simultaneously engage in market making activities with respect to our Common Stock during certain restricted periods.  In addition, the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our Common Stock by the selling stockholders or any other person.  We will make copies of this prospectus available to the selling stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.
 
In order to comply with the securities laws of certain states, if applicable, the shares must be sold in such jurisdictions only through registered or licensed brokers or dealers.  In addition, in certain states the shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
 
We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates.  In addition, we will make copies of this prospectus available to the selling stockholders and we have informed them of the need for delivery of copies of this prospectus to
 

 
14

 

purchasers at or prior to the time of any sale of the shares offered hereby.  The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
 
At the time a particular offer of shares is made, if required, a prospectus supplement will be distributed that will set forth the number of shares being offered and the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to any dealer, and the proposed selling price to the public.
 
Certain of the selling stockholders may be affiliates of a broker-dealer.  The selling stockholders have represented to us that they purchased the securities to be resold pursuant to this prospectus in the ordinary course of business and, at the time of the purchase of such securities, had no agreements or understandings, directly or indirectly, with any person to distribute such securities.  We are not aware of any plans, arrangements or undertakings between the selling stockholders and any underwriter, broker-dealer or agent regarding the sale of the Common Stock covered by this prospectus by the selling stockholders.
 
LEGAL MATTERS
 
Dechert LLP, New York, New York, will pass upon the validity of the issuance of the Common Stock offered by this prospectus as our counsel.
 
EXPERTS
 
The financial statements and schedule of Bluefly, Inc. as of December 31, 2009 and for the year then ended incorporated by, reference in this prospectus and in the registration statement of which this prospectus forms a part, have been audited by Weiser LLP, independent registered public accounting firm, and are incorporated herein in reliance upon the report of Weiser LLP given upon their authority as experts in accounting and auditing.
 
The financial statements as of December 31, 2008 and for each of the two years in the period ended December 31, 2008 incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2009 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
 
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
 
The SEC allows us to “incorporate by reference” in this prospectus certain information we file with the SEC, which means that we may disclose important information in this prospectus by referring you to the document that contains the information.  The information incorporated by reference is considered to be a part of this prospectus.  We incorporate by reference the documents listed below and any future filings we will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus but before the termination of any offering made under this prospectus and accompanying prospectus:
 
 
·
Our Annual Report on Form 10-K for the year ended December 31, 2009; 
 
 
 
·
Our Current Reports on Form 8-K filed on January 12, 2010, January 22, 2010, March 3, 2010 and March 22, 2010;

 
·
Our Definitive Information Statement on Schedule 14C filed with the SEC on February 3, 2010; and

 
·
the description of our Common Stock in our registration statement on Form 8-A filed with the SEC on April 22, 1997, including any amendments or reports filed for the purpose of updating such description.

Upon oral or written request and at no cost to the requester, we will provide to any person, including a beneficial owner, to whom a prospectus is delivered, a copy of any or all the information that has been incorporated by reference in this prospectus but not delivered with this prospectus.  All requests should be made to:

Bluefly, Inc.
42 West 39th Street, 9th Floor
New York, NY 10018
ATTN: Investor Relations
(212) 944-8000
 
In addition, you may access these filings on our Web site at www.bluefly.com.


 
15

 

WHERE TO FIND ADDITIONAL INFORMATION
 
We file annual, quarterly, current reports, proxy statements and other information with the SEC.  You may read and copy materials we have filed with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549  may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants who file electronically.  In addition, we maintain an Internet website that contains information about us, including our SEC filings, at www.bluefly.com.  The information contained on our website does not constitute a part of this prospectus.

 
16

 


 




10,640,732 Shares of
Common Stock

BLUEFLY, INC.


_________________________


Prospectus


_________________________



April 19, 2010




 

 

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 14.       Other Expenses of Issuance and Distribution
 
The following fees and expenses will be paid by us in connection with the issuance and distribution of the shares of Common Stock covered by this registration statement and do not include underwriting commissions and discounts.  All such expenses, except for the SEC registration fee, are estimated.

SEC registration fee
 
$
1,844
 
Accounting fees and expenses
 
$
19,000
 
Legal fees and expenses
 
$
30,000
 
Printing and filing fees
 
$
--
 
Transfer agent fees
 
$
--
 
Miscellaneous
 
$
107,000
 
Total
 
$
157,844
 

Item 15.      Indemnification of Directors and Officers
 
Under the General Corporation Law of the State of Delaware, we can indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act.  Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders.  This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law.  In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for any transaction from which the director directly or indirectly derived an improper personal benefit, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law.  The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.

Our bylaws provide for the indemnification of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law.  We are not, however, required to indemnify any director or officer in connection with any (a) willful misconduct, (b) willful neglect, or (c) gross negligence toward or on behalf of us in the performance of his or her duties as a director or officer.  We are required to advance, prior to the final disposition of any proceeding, promptly on request, all expenses incurred by any director or officer in connection with that proceeding on receipt of any undertaking by or on behalf of that director or officer to repay those amounts if it should be determined ultimately that he or she is not entitled to be indemnified under our bylaws or otherwise.

In addition, we have entered into indemnification agreements with each of our directors that provide them with indemnification rights in addition to those provided under our certificate of incorporation and bylaws.  These agreements provide for indemnification by us to the full extent permitted under Delaware law and set forth the procedures under which indemnification and advancement of expenses will be provided to indemnitees.

We have been advised that, in the opinion of the SEC, any indemnification for liabilities arising under the Securities Act is against public policy, as expressed in the Securities Act, and is, therefore, unenforceable.

Item 16.     Exhibits and Financial Statement Schedules
 
Description
5.1(1)
Opinion of Dechert LLP.
23.1(1)
Consent of Weiser LLP.
23.2(1)
Consent of PricewaterhouseCoopers LLP.
23.3(1)
Consent of Dechert LLP (included in the opinion filed as Exhibit 5.1).
24.1 (1)
Power of Attorney (set forth on the signature page to the Registration Statement).
(1) Previously filed as an exhibit to the Company's Registration Statement on Form S-3 filed on March 10, 2010.

 

 
II-1

 

Item 17.     Undertakings
 
(a) The undersigned registrant hereby undertakes:

(1) To file, during any period during which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement.  Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

Provided, however , that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the SEC by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.

(2) That, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities to be offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for the purpose of determining liability under the Securities Act to any purchaser:

(i) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.  Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.

(b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrants annual report pursuant to section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plans annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the

 
II-2

 

SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.  In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.


 
II-3

 

SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on April 19, 2010.
     
     
  BLUEFLY, INC.  
       
 
By:
/s/ Melissa Payner-Gregor  
          Melissa Payner-Gregor  
          Chief Executive Officer  
          (principal executive officer)  
 
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacity and on the dates indicated.
 
Signature
 
Title
 
Date
         
 /s/ David Wassong*
       
David Wassong
 
Interim Chairman of the Board
 
April 19, 2010
         
 /s/ Melissa Payner Gregor
       
Melissa Payner-Gregor
 
Chief Executive Officer (Principal Executive Officer)
Director
 
April 19, 2010
 /s/ Kara B. Jenny
       
Kara B. Jenny
 
Chief Financial Officer (Principal Accounting Officer)
 
 
April 19, 2010
 /s/ Mario Ciampi*
       
Mario Ciampi
 
Director
 
April 19, 2010
         
 /s/ Michael Helfand*
       
Michael Helfand
 
Director
 
April 19, 2010
         
 /s/ Habib Kairouz*
       
Habib Kairouz
 
Director
 
April 19, 2010
         
 /s/ David Janke*
       
David Janke
 
Director
 
April 19, 2010
         
 /s/ Martin Miller*
       
Martin Miller
 
Director
 
April 19, 2010
         
 /s/ Neal Moszkowski*
       
Neal Moszkowski
 
Director
 
April 19, 2010
         
 /s/ Anthony Plesner*
       
Anthony Plesner
 
Director
 
April 19, 2010
 
         
 
  * By:  
/s/ Kara B. Jenny
 
 
   
Kara B. Jenny
Attorney in Fact