<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 1-14078
BLUE FISH CLOTHING, INC.
-----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Pennsylvania 22-2781253
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
No. 3 Sixth Street, Frenchtown, New Jersey 08825
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(Address of Principal Executive Offices)
(908) 996-3844
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(Issuer's Telephone Number, Including Area Code)
N/A
-----
(Former Name, Former Address and Former Fiscal Year if Changed Since Last
Report)
Check whether the issuer: (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
--------- ---------
State the number of shares outstanding of each of the issuer's classes
of common equity as of the latest practicable date: As of August 18, 1998,
4,719,200 shares of Common Stock, $.001 par value per share, were issued and
outstanding.
Transitional Small Business Disclosure Format (check one): YES NO X
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BLUE FISH CLOTHING, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets - December 31, 1997 and June 30, 1998 3
Statements of Operations - For the Three and Six Months Ended 4
June 30, 1997 and June 30, 1998
Statements of Cash Flows - For the Six Months Ended 5 June 30, 1997 and
June 30, 1998
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES 16
ITEM 3. DEFAULTS ON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 17
HOLDERS
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
</TABLE>
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BLUE FISH CLOTHING, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1997 1998
------ ----------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 350,477 $ 190,438
Restricted cash 116,065 65,007
Certificate of deposit 500,000 -
Receivables, net of allowance of 1,180,962 630,693
$40,000 and $46,453
Inventories, net 2,944,166 3,022,723
Other current assets 175,736 113,656
-------- -------
Total current assets 5,267,406 4,022,517
PROPERTY AND EQUIPMENT
Property and equipment, net of accumulated 1,898,489 1,658,012
depreciation of $819,575 and $1,079,618
OTHER ASSETS:
Restricted certificate of deposit 300,000 300,000
Security deposits 254,551 100,875
-------- -------
$ 7,720,446 $ 6,081,404
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITES
Line of credit $ 500,000 $ 1,000,000
Current portion of long-term debt 222,786 215,490
Receivable purchase line of credit 1,160,648 650,074
Accounts payable 808,893 1,176,817
Accrued expenses 364,947 692,107
-------- -------
Total current liabilities 3,057,274 3,734,488
---------- ---------
DEFERRED RENT AND OTHER NON-CURRENT LIABILITIES 267,553 75,466
-------- ------
LONG-TERM DEBT 1,055,195 975,623
---------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 11,000,000
shares authorized, 4,599,200
shares issued and outstanding 4,599 4,599
Additional paid-in capital 3,799,815 3,799,815
Retained (deficit) (463,990) (2,508,587)
--------- -----------
Total stockholders' equity 3,340,424 1,295,827
---------- ---------
$ 7,720,446 $ 6,081,404
================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
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BLUE FISH CLOTHING, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ --------------------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $3,900,007 $ 3,107,151 $ 7,342,862 $ 5,444,450
COST OF GOODS SOLD 1,815,114 1,824,572 3,416,040 3,008,509
---------- ---------- ---------- ---------
Gross margin 2,084,893 1,282,579 3,926,822 2,435,941
UNUSUAL ITEMS - 302,000 - 425,000
OPERATING EXPENSES 1,913,668 2,072,376 3,624,425 3,943,329
---------- ---------- ---------- ---------
Income (loss) from operations 171,225 (1,091,797) 302,397 (1,932,388)
INTEREST EXPENSE, NET 49,774 61,897 111,669 112,209
------- ------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES 121,451 (1,153,694) 190,728 (2,044,597)
INCOME TAX EXPENSE 56,597 - 88,880 -
------- -- ------- -
NET INCOME (LOSS) $ 64,854 $(1,153,694) $ 101,848 $ (2,044,597)
============= ============== =============== ==============
Net income (loss) per share:
============= ============== =============== ==============
Basic $ 0.01 $ (0.24) $ 0.02 $ (0.44)
============= ============== =============== ==============
============= ============== =============== ==============
Diluted $ 0.01 $ (0.24) $ 0.02 $ (0.44)
============= ============== =============== ==============
Weighted Average Shares Outstanding:
Basic 4,599,200 4,599,200 4,599,200 4,599,200
============= ============== =============== ==============
Diluted 4,777,466 4,599,200 4,775,681 4,599,200
============= ============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
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BLUE FISH CLOTHING, INC.
STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------
1997 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 101,848 $(2,044,597)
Adjustments to reconcile net income (loss) to net cash
used in operating activities -
Provision for deferred rent 45,855 7,913
Depreciation and amortization 190,888 260,043
Provision for losses on accounts receivable 25,002 6,453
(Increase) decrease in assets -
Accounts receivable (534,652) 543,816
Inventory (65,485) (78,557)
Other assets 19,707 15,756
Increase (decrease) in liabilities -
Accounts payable 82,633 367,924
Accrued expenses 88,066 327,160
------- -------
Net cash used in operating activities (46,138) (594,089)
-------- ---------
INVESTING ACTIVITIES:
Payments for purchases of property and equipment (804,558) (19,566)
Proceeds from certificate of deposit - 500,000
-- -------
Net cash (used in) provided by investing activities (804,558) 480,434
--------- -------
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit (500,000) 500,000
Receivable purchase line of credit, net 577,961 (510,574)
Repayments on long-term debt (82,325) (55,021)
Borrowing on long-term debt 800,000 -
Payments on capital lease obligations (30,528) (31,847)
S corporation distributions paid (44,041) -
-------- -
Net cash provided by (used in) financing activities 721,067 (97,442)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (129,629) (211,097)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,928,340 466,542
---------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $1,798,711 $ 255,445
========== =========
CASH PAID DURING THE PERIOD FOR:
Interest $ 111,849 $ 107,459
========= =========
Taxes $ 29,575 $ 4,087
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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BLUE FISH CLOTHING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD ENDING JUNE 30, 1998
NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION:
- ---------------------------------------------------
The accompanying unaudited financial statements are presented in accordance with
the requirements for Form 10-QSB and do not include all the disclosures required
by generally accepted accounting principles for complete financial statements.
Reference should be made to the Blue Fish Clothing, Inc.'s (the "Company")
annual report on Form 10-KSB, for additional disclosures including a summary of
the Company's accounting policies and a discussion of the Company's ability to
continue as a going concern.
In the opinion of management of the Company, the financial statements include
all adjustments, consisting of only normal recurring accruals, necessary for a
fair presentation of the financial position of Blue Fish Clothing, Inc. The
results of operations for the three months and six months ended June 30, 1998 or
any other interim period, are not necessarily indicative of the results to be
expected for the full year.
The Company incurred losses in 1996, 1997, and the first half of 1998. The net
sales in the first half of 1998 declined $1,898,412 as compared to the first
half of 1997. Wholesale sales are budgeted to be lower in the third and fourth
quarters of 1998 as compared to the same periods in 1997. The Company's existing
financing structure is not deemed adequate to support the projected 1998 cash
flow needs. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern for a reasonable period of
time.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis to comply with the terms of its financing
agreements, to obtain equity investments, additional financing or increased
availability, as may be required and ultimately to attain successful operations.
Management is currently seeking equity investments, refining its operating
structure, reorganizing its marketing function and seeking additional financing
so that it can meet its obligations and sustain operations. There can be no
assurance, however, that Management's efforts will ultimately be successful.
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NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND DISCLOSURES:
- ---------------------------------------------------------
Inventories
The components of inventory as presented are as follows:
December 31, June 30,
1997 1998
------------ -------------
Raw materials $ 296,700 $ 512,536
Work-in-process 810,737 619,200
Finished goods, net 1,836,729 1,890,987
------------ -------------
$ 2,944,166 $ 3,022,723
============ =============
Major Customers and Concentration of Credit Risk
- ------------------------------------------------
The Company has one significant customer that accounted for 17.9% and 12.5% of
total sales for the six months ended June 30, 1997 and June 30, 1998,
respectively. This same customer accounted for 17.8% and 28.7% of net accounts
receivable at December 31, 1997 and June 30, 1998, respectively.
NOTE 3 - INCOME TAXES:
- ----------------------
Due to recurring losses, the Company has provided a full valuation for the tax
benefit associated with the 1998 loss.
NOTE 4 - FINANCING ARRANGEMENTS
- -------------------------------
On June 25, 1997, the Company entered into a Business Loan Agreement with a bank
and received a promissory note in the amount of $800,000. This note was
initially secured by an $842,000 certificate of deposit and guaranteed by
Jennifer Barclay, a principal shareholder. On September 30, 1997, this Agreement
was modified and the bank reduced its security interest in the certificate of
deposit to $300,000 and the Company agreed to maintain a minimum deposit account
with the bank in an amount not less than $500,000. This minimum deposit amount
was used for working capital needs during the first quarter of 1998.
At December 31, 1997, the Company had a line of credit of $500,000 subject to a
maximum outstanding amount not to exceed 50% of finished goods inventory plus
25% of work in process. This line of credit bears interest at the bank's prime
interest rate plus 0.75% payable on demand or monthly. In March 1998, the line
was increased to $1,000,000 subject to borrowing limits based on inventory and
extended to April 1999. These additional funds were borrowed on April 10, 1998.
The Company also has a receivable purchase line of credit agreement, which
provides for the assignment and processing of Company receivables with recourse
to a maximum outstanding assigned amount of $1,500,000 for a term of one year.
The Company assigns 100% of its wholesale credit sales. The Company can borrow
up to 90% of these assigned receivables, with the remaining 10% held in reserve
in the event of customer payment default. The receivable purchase line of credit
bears interest at 1.5% as a discount to all receivables assigned, and the
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Company is responsible for reimbursing the bank for all uncollectible accounts.
In March 1998, the receivable purchase line of credit was renewed and extended
through March 1999, however, this line can be terminated by either party upon
notice, as defined.
Both the line of credit and the receivable purchase line of credit are secured
by a stockholder guarantee and have a first lien on all accounts receivable,
inventory, equipment, fixtures and deposit accounts. Borrowings under the
receivable purchase line, the line of credit, and the note payable to a bank
contain cross-default and cross-collateralization provisions.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Leases and Real Estate
- ----------------------
In December 1996, the Company entered into a lease for a new Corporate facility.
The lease was scheduled to commence in June 1998. In 1997, the lease was
amended, obligating the Company to purchase the Corporate facility and other
buildings in the complex for $3,800,000 during the sixth year after the Company
takes possession of the premises. In addition, the Company was obligated to make
payments of approximately $340,000 related primarily to building improvements at
this site of which $50,000 was paid as of June 30, 1998. In July 1998, this
lease was terminated, as were all commitments for rent and improvements, in
consideration of cash and stock valued in the aggregate at $252,000. The Company
is obligated to pay $102,000 in cash to the Lessor based on the following
payment schedule; $12,000 on each of July 6 and July 30, 1998 (both of which
were paid), $38,000 on or before June 30, 1999, and $40,000 on or before June
30, 2000. The Company must pay interest at the rate of 8.5% per annum on the
then unpaid principal balance of the amount due on the first of each month,
commencing August 1, 1998. In addition, the Company issued to the Lessor 120,000
shares of Common Stock valued at $1.25 per share, the last sale price for the
Company's Common Stock prior to issuance. The shares are restricted as they have
not been registered under the Securities Act of 1933. With the execution of the
agreement terminating the lease, the Company's principal stockholder executed
and delivered a personal guaranty for $180,000, which will be reduced to
$142,000 when the payment due June 30, 1999 is made, and shall terminate when
the payment due June 30, 2000 is made. Expenses of $302,000 are included in
unusual items in the 1998 periods presented.
In 1997, the Company received an economic development grant of $200,000, the
proceeds of which were paid to the Lessor of the proposed Corporate facility for
certain renovation costs at the site and for which the Company received a credit
against the purchase price. After the termination of the lease, the granting
authority commenced a review of the use of the grant proceeds and has indicated
that the Company will receive a report on its findings by September 30, 1998.
Management believes that the grant proceeds were expended in accordance with the
terms of the grant. No assurance can be given, however, that the granting
authority will accept Management's position on these expenditures. If the
granting authority requires a return of some or all of the grant proceeds, the
Company will record a corresponding charge.
In April 1998, the Company entered into an Agreement to purchase its production
facility in Frenchtown, New Jersey for $375,000 and paid a deposit of $37,500
upon execution of the Agreement. The scheduled closing date was June 30, 1998,
which coincided with the scheduled
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expiration date of the Company's lease for the premises. On June 25, 1998, the
Company entered into an Assignment and Assumption of Agreement of Sale with a
related party, pursuant to which the Company assigned its right to purchase its
production facility. Pursuant to the Assignment, the $37,500 deposit for the
Agreement of Sale was released to Seller and credited against the purchase
price, the Company was permitted to continue to occupy its production facility
in consideration of additional rent of $2,000 per month, to be withdrawn from a
security deposit held by the Seller, and the closing date was advanced by 30
days upon each payment to Seller of $10,000 on July 1, August 1, and September
1, 1998. The Company has made the July 1 and August 1 payments and, accordingly,
the closing date has been advanced to August 31, 1998.
In May 1998, the Company vacated the New York showroom. The Company is
negotiating with the landlord to determine a final lease termination settlement.
The original lease is scheduled to expire in December 2000.
In June 1998, the Company extended its existing lease for its second facility in
Frenchtown, NJ which expires on November 30, 1998. The term of the lease is for
three years beginning December 1, 1998 and ending November 30, 2001. The Company
will have the option for a two year lease extension.
Severance Obligations
- ---------------------
The Company recorded a charge in the first quarter of 1998 for severance to be
paid out to former employees of approximately $123,000, which is included in
unusual items in the accompanying financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- -------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1998 ("1998 QUARTER") COMPARED TO THREE MONTHS ENDED
JUNE 30, 1997 ("1997 QUARTER")
SALES. The Company's sales decreased by $792,856 or 20.3% to $3,107,151 in the
1998 quarter as compared to the 1997 quarter. The Company's wholesale sales
decreased by 46.5% from $2,352,713 in the 1997 quarter to $1,257,994 in the 1998
quarter, its retail sales increased by 22.1% from $1,208,860 in the 1997 quarter
to $1,475,521 in the 1998 quarter and craft fair sales increased by 10.4% from
$338,434 in the 1997 quarter to $373,636 in the 1998 quarter. The Company
attributes the wholesale sales decrease during the 1998 period primarily to the
decreased sales of the Summer 1998 line as compared to the Summer 1997 line. The
Company required customers to buy in prepack assortments and modified its
garment sizing structure beginning with the Spring 1998 line. These changes were
not received well by the customers. The Summer line was not received well by
customers in design concept, and the changes made in the Spring line also
negatively affected Summer sales. Boutique sales declined by 46.5% and
department store sales declined by 63.6% in the quarter. The retail sales
increase was primarily due to a store which opened in October 1997 generating
sales during the 1998 quarter. Same store sales increased by 4.2% during the
quarter primarily due to increased markdowns of the
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Spring 1998 line and the sale of noncurrent inventory. Craft sales increased due
to additional craft shows being scheduled to sell prior season inventory as well
as increased revenues at existing venues.
GROSS MARGIN. The major components affecting gross margin are raw material and
production costs, wholesale and retail maintained margins and sales mix. The
Company's gross margin decreased, as a percentage of sales, by 12.2 percentage
points from 53.5% in the 1997 period to 41.3% in the 1998 period. This decrease
was primarily due to the increased markdowns taken on current season items and
the sale of non current inventory at reduced prices at the Company's retail
stores.
UNUSUAL ITEMS. The Company incurred expenses of $302,000 in connection with the
termination of the Corporate facility lease in Palmer Township, Pennsylvania.
These expenses related to lost deposits, cash and stock payments.
OPERATING EXPENSES. The Company's operating expenses increased by $158,708 or
8.3% from $1,913,668 in the 1997 period to $2,072,376 in the 1998 period. The
increase in operating expenses in the 1998 period was primarily due to expenses
of one new retail store which did not exist in the 1997 quarter, depreciation,
advertising and professional expenses. See Liquidity and Capital Resources for
management actions in response to the increased operating expenses.
INTEREST EXPENSE, NET. The Company's interest expense, net, increased by $12,123
or 24.4% from $49,774 in the 1997 period to $61,897 in the 1998 period. Interest
expense decreased by $1,916 primarily due to a decrease in assigned wholesale
credit receivables as a result of decreased wholesale sales partially offset by
increased borrowings for the Company's working capital needs. Interest income
decreased by $14,039 as a result of spending a portion of the Company's initial
public offering proceeds that were held in interest bearing instruments in 1996.
PRE-TAX INCOME (LOSS). As a result of the foregoing, income before income tax
provision decreased $1,275,145 from $121,451 of pre-tax income in the 1997
period to a pre-tax loss of $1,153,694 in the 1998 period.
INCOME TAX (BENEFIT) PROVISION. Due to recurring losses, no tax benefit has been
recorded in the 1998 period. During the 1997 period the effective tax rate was
46.6% primarily due to Federal and state taxes and the impact of certain
non-deductible expenditures.
SIX MONTHS ENDED JUNE 30, 1998 ("1998 PERIOD") COMPARED TO SIX MONTHS ENDED JUNE
30, 1997 ("1997 PERIOD")
- --------------------------------------------------------------------------------
SALES. The Company's sales decreased by $1,898,412 or 25.9% to $5,444,450 in the
1998 period as compared to the 1997 period. The Company's wholesale sales
decreased by 48.4% from $4,958,208 in the 1997 period to $2,560,161 in the 1998
period, its retail sales increased by 16.7% from $1,949,936 in the 1997 period
to $2,274,762 in the 1998 period and craft fair sales increased by 40.2% from
$434,717 in the 1997 period to $609,527 in the 1998 period. The Company
attributes the wholesale sales decrease during the 1998 period primarily to the
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decreased sales of the Spring and Summer 1998 line. The Company began requiring
customers to buy the Spring line in prepack assortments and modified its garment
sizing structure. These changes were not received well by the customers. The
Summer line was not received well by customers in design concept, and the
changes made in the Spring line also negatively affected Summer sales. Boutique
sales declined by 48.4% and department store sales declined by 58.0%. The retail
sales increase was primarily due to stores which opened in March 1997 and
October 1997 generating sales during the entire 1998 period, partially offset by
a same store sales decrease of 8.4%. Same store sales decreased primarily due to
increased customer returns and a sizing problem for larger customers who did not
purchase goods in the period. Craft sales increased due to additional craft
shows being scheduled to sell prior season inventory as well as increased
revenues at existing venues.
GROSS MARGIN. The major components affecting gross margin are raw material and
production costs, wholesale and retail maintained margins and sales mix. The
Company's gross margin decreased, as a percentage of sales, by 8.8 percentage
points from 53.5% in the 1997 period to 44.7% in the 1998 period. This decrease
was primarily due to increased markdowns taken at the Company's retail stores,
and noncurrent inventory sold at a reduced price at the Company's retail stores
during the second quarter.
UNUSUAL ITEMS. Unusual items consist of lease termination and severance costs.
The Company incurred expenses of $302,000 in connection with the termination of
the Corporate facility lease in Palmer Township, Pennsylvania. These expenses
related to lost deposits, cash and stock payments. In connection with the
termination of certain employees, the Company incurred expenses of $123,000 for
severance during first quarter 1998.
OPERATING EXPENSES. The Company's operating expenses increased by $318,904 or
8.8% from $3,624,425 in the 1997 period to $3,943,329 in the 1998 period. The
increase in operating expenses in the 1998 period was primarily due to expenses
of two new retail stores which did not exist for the entire 1997 period,
depreciation, advertising and professional expenses. See Liquidity and Capital
Resources for management actions in response to the increased operating
expenses.
INTEREST EXPENSE, NET. The Company's interest expense, net, increased by $541 or
0.5% from $111,669 in the 1997 period to $112,210 in the 1998 period. Interest
expense decreased by $22,044 primarily due to a decrease in assigned wholesale
credit receivables resulting from decreased wholesale sales, partially offset by
increased borrowings for the Company's working capital needs. Interest income
decreased by $22,585 as a result of spending a portion of the Company's initial
public offering proceeds that were held in interest bearing instruments in 1996.
PRE-TAX INCOME (LOSS). As a result of the foregoing, income before income tax
provision decreased $2,235,325 from $190,728 of pre-tax income in the 1997
period to a pre-tax loss of $2,044,597 in the 1998 period.
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INCOME TAX (BENEFIT) PROVISION. Due to recurring losses, no tax benefit has been
recorded in the 1998 period. During the 1997 period the effective tax rate was
46.6% primarily due to Federal and state taxes and the impact of certain
non-deductible expenditures.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1998, the Company had $255,445 in cash and cash equivalents (of
which $65,007 was restricted), a receivable purchase line of credit for up to
$1,500,000 (with $650,074 outstanding and in transit), a demand bank line of
credit for up to $1,000,000 (with a $1,000,000 outstanding balance), an $800,000
note payable to a bank (with a $750,000 outstanding balance) which requires a
$300,000 certificate of deposit as security, and a $345,000 loan from a
shareholder. At June 30, 1998, the Company had working capital of $288,029,
reflecting a decrease in working capital of $1,922,103 from $2,210,132 on
December 31, 1997. Working capital is defined as current assets less current
liabilities.
Net cash used in operations was ($594,089) during the six months ended June 30,
1998, consisting primarily of the net loss before depreciation and amortization
of $1,784,554 partially offset by a decrease in accounts receivable of $543,816,
an increase in accounts payable of $367,924 and an increase in accrued expenses
of $327,160. The decrease in accounts receivable and increase in inventory are
primarily due to lower wholesale sales. Net cash used in operating activities
during the same period for 1997 was ($46,138), which consisted primarily of
increases in accounts receivable of $534,652 partially offset by net income
before depreciation and amortization of $292,736 and increases in accounts
payable and accrued expenses of $82,633 and $88,066 respectively.
Net cash provided by investing activities in the 1998 period was $480,434
consisting of proceeds from a certificate of deposit of $500,000, partially
offset by capital expenditures. Net cash used in investing activities in the
1997 period was ($804,558) which consisted of capital expenditures to purchase
property and equipment, including construction and buildout of the Company's New
York retail store which opened in March, 1997, and the ongoing implementation of
the Company's Management Information System.
Net cash used in financing activities in the 1998 period was ($97,442),
consisting primarily of a decrease in the Company's receivable purchase line of
credit of $510,574 offset by additional net borrowings on long term debt of
$413,132. Net cash provided by financing activities in the 1997 period was
$721,067, which consisted primarily of an increase in the Company's receivable
purchase line of credit of $577,961 and additional net borrowings of $187,147.
On June 25, 1997, the Company entered into a Business Loan Agreement with a bank
and received a promissory note in the amount of $800,000. This note is subject
to monthly interest payments beginning July 25, 1997, with interest calculated
on the unpaid principal balances at an interest rate of two percentage points
over the Index. The Index represents the bank's one year certificate of deposit
yield. Four principal payments of $50,000 are to be paid in annual installments
commencing June 25, 1998 through June 25, 2001, and one principal payment of
$600,000 is to be paid on June 25, 2002. This note was initially secured by an
$842,000
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certificate of deposit and guaranteed by Jennifer Barclay, the principal
stockholder. On September 30, 1997, this Agreement was modified and the bank
reduced its security interest in the certificate of deposit to $300,000. In
addition, the Company agreed to maintain a minimum deposit account with the bank
in an amount not less than $500,000. This minimum deposit amount was spent for
working capital needs during the first quarter of 1998.
At December 31, 1997, the Company had a line of credit of $500,000 subject to a
maximum outstanding amount not to exceed 50% of finished goods inventory plus
25% of work in process. This line of credit bears interest at the bank's prime
interest rate plus 0.75% payable on demand or monthly. In March 1998, the line
was increased to $1,000,000 subject to borrowing limits based on inventory and
extended to April 1999. These additional funds were borrowed on April 10, 1998.
The Company also has a receivable purchase line of credit agreement, which
provides for the assignment and processing of Company receivables with recourse
to a maximum outstanding assigned amount of $1,500,000 for a term of one year.
The Company assigns 100% of its wholesale credit sales. The Company can borrow
up to 90% of these assigned receivables, with the remaining 10% held in reserve
in the event of customer payment default. The receivable purchase line of credit
bears interest at 1.5% as a discount to all receivables assigned, and the
Company is responsible for reimbursing the bank for all uncollectible accounts.
In March 1998, the receivable purchase line of credit was renewed and extended
through March 1999, however, this line can be terminated by either party upon
notice, as defined.
Both the line of credit and the receivable purchase line of credit are secured
by a stockholder guarantee and have a first lien on all accounts receivable,
inventory, equipment, fixtures and deposit accounts. Borrowings under the
receivable purchase line, the line of credit, and the note payable to a bank
contain cross-default and cross-collateralization provisions.
In December 1996, the Company entered into a lease for a new Corporate facility.
The lease was scheduled to commence in June 1998. Minimum lease payments were
due monthly and began at $267,120 per year and increased 3% per year throughout
the term plus a common area maintenance charge at the greater of $15,000 or 5%
of base rent. In 1997, the lease was amended, obligating the Company to purchase
the Corporate facility and other buildings in the complex for $3,800,000 during
the sixth year after the Company takes possession of the premises. In addition,
the Company was obligated to make payments of approximately $340,000 related
primarily to building improvements at this site of which $50,000 was paid as of
June 30, 1998. In July 1998, this lease was terminated, as were all commitments
for rent and improvements, in consideration of cash and stock valued in the
aggregate at $252,000. The Company is obligated to pay $102,000 in cash to the
Lessor based on the following payment schedule; $12,000 on each of July 6 and
July 30, 1998 (both of which were paid), $38,000 on or before June 30, 1999, and
$40,000 on or before June 30, 2000. The Company must pay interest at the rate of
8.5% per annum on the then unpaid principal balance of the amount due on the
first of each month, commencing August 1, 1998. In addition, the Company issued
to the Lessor 120,000 shares of Common Stock valued at $1.25 per share, the last
sale price for the Company's Common Stock prior to issuance. The shares are
restricted as they have not been registered under the Securities Act of 1933.
With the execution of the agreement terminating the lease, the Company's
principal stockholder executed and delivered a personal guaranty for $180,000,
13
<PAGE> 14
which will be reduced to $142,000 when the payment due June 30, 1999 is made,
and shall terminate when the payment due June 30, 2000 is made. Expenses of
$302,000 are included in unusual items in the 1998 periods presented.
In 1997, the Company received an economic development grant of $200,000, the
proceeds of which were paid to the Lessor of the proposed Corporate facility for
certain renovation costs at the site and for which the Company received a credit
against the purchase price. After the termination of the lease, the granting
authority commenced a review of the use of the grant proceeds and has indicated
that the Company will receive a report on its findings by September 30, 1998.
Management believes that the grant proceeds were expended in accordance with the
terms of the grant. No assurance can be given, however, that the granting
authority will accept Management's position on these expenditures. If the
granting authority requires a return of some or all of the grant proceeds, the
Company will record a corresponding charge.
In April 1998, the Company entered into an Agreement to purchase its production
facility in Frenchtown, New Jersey for $375,000 and paid a deposit of $37,500
upon execution of the Agreement. The scheduled closing date was June 30, 1998,
which coincided with the scheduled expiration date of the Company's lease for
the premises. On June 25, 1998, the Company entered into an Assignment and
Assumption of Agreement of Sale with a related party, pursuant to which the
Company assigned its right to purchase its production facility. Pursuant to the
Assignment, the $37,500 deposit for the Agreement of Sale was released to Seller
and credited against the purchase price, the Company was permitted to continue
to occupy its production facility in consideration of additional rent of $2,000
per month, to be withdrawn from a security deposit held by the Seller, and the
closing date was advanced by 30 days upon each payment to Seller of $10,000 on
July 1, August 1, and September 1, 1998. The Company has made the July 1 and
August 1 payments and, accordingly, the closing date has been advanced to August
31, 1998.
In May 1998, the Company vacated the New York showroom. The Company is
negotiating with the landlord to determine a final lease termination settlement.
The original lease is scheduled to expire in December 2000.
In June 1998, the Company extended its existing lease for its second facility in
Frenchtown, NJ which expires on November 30, 1998. The term of the lease is for
three years beginning December 1, 1998 and ending November 30, 2001. The Company
will have the option for a two year lease extension.
GOING CONCERN
- -------------
During the first and second quarters of 1998, the Company experienced
diminishing cash flow, due primarily to a significant drop in wholesale sales.
The Company experienced a reduction in net sales in the first and second
quarters of 1998, as compared to the first and second quarters of 1997, and
expects to report a loss in 1998. In response to lower sales and revised
budgets, the Company has undertaken significant personnel and other cost
reductions to realign the Company's production and management functions to
improve operational efficiencies. The effects of these changes are expected to
be realized in subsequent quarters. In their report on the
14
<PAGE> 15
Company's financial statements for the year ended December 31, 1997, the
Company's independent public accountants have included an explanatory paragraph
raising substantial doubt about the Company's ability to continue as a going
concern, unless the Company is able to secure additional financing to meet its
obligations on a timely basis and to increase sales. Management intends to
continue to make cost reductions where possible and to initiate various
management actions to address the sales shortfall, as well as to pursue
aggressively additional sources of financing and evaluate ways to sell excess
inventory. No assurance can be given that these management actions will be
successful.
FORWARD LOOKING INFORMATION
- ---------------------------
THIS QUARTERLY REPORT ON FORM 10-QSB CONTAINS FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "LIQUIDITY AND CAPITAL
RESOURCES." THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH MATTERS WILL BE
REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (1) UNCERTAIN FUTURE SALES GROWTH AND OPERATING
RESULTS; (2) COMPETITION; (3) SEASONALITY; (4) DEPENDENCE ON FOUNDER AND
EXECUTIVE OFFICERS; (5) RELIANCE ON AND POSSIBLE LIMITED APPEAL OF THE "BLUE
FISH CONCEPT"; (6) SENSITIVITY OF APPAREL DESIGN; (7) SIGNIFICANT WHOLESALE
CUSTOMERS; AND (8) FUTURE CAPITAL NEEDS. THE COMPANY HAS NO DUTY UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE FORWARD LOOKING
STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB AND THE COMPANY DOES NOT
INTEND TO PROVIDE SUCH UPDATES.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
Not applicable
ITEM 2. CHANGES IN SECURITIES
---------------------
a-b. Not applicable
c. On July 8, 1998, the Registrant issued 120,000 shares of its
restricted Common Stock, $.001 par value per share, to William I. Roberts, as
nominee of Upper Mill, L.P. pursuant to a letter agreement by and between the
Registrant and Upper Mill, L.P. dated July 6, 1998 in consideration of the
termination of a certain lease agreement for premises located in Palmer
Township, Pennsylvania. The Registrant claimed the exemption provided by Section
4(2) of the Securities Act of 1933 as this issuance was not in connection with a
public offering of the Registrant's securities.
d. On November 13, 1995, the Registrant commenced a direct public
offering of 800,000 shares of Common Stock, $.001 par value per share,
registered under the Securities Act of 1993 on Form SB-2, Commission File No.
33-974218-NY, which was declared effective on that date. The offering was
conducted directly by the Registrant (with no underwriter) on a minimum/maximum
basis. On May 15, 1996, the Registrant sold 787,200 shares of its Common Stock
and the offering was terminated. After the deduction of offering expenses of
approximately $500,000, all of which were paid to non-affiliates of the
Registrant, the net proceeds of the offering were approximately $3,436,000.
There were no underwriting discounts and commissions, finders' fees, or expenses
paid to or for underwriters. As of June 30, 1998, approximately $921,000 of the
net proceeds was used for construction of plant, building and facilities;
approximately $700,000 was used for purchase and installation of machinery and
equipment, including management information systems hardware and software;
approximately $1,515,000 was used for working capital; and approximately
$300,000 was in temporary investments consisting of a certificate of deposit.
All payments of proceeds were to non-affiliates of the Registrant. The only
material changes from the use of proceeds listed in the Registrant's Prospectus
are that the Registrant used approximately $950,000 less for retail store
expansion, due to a change in the Registrant's plan for new store openings, and
approximately $640,000 more in working capital and general corporate purposes.
Previously, the Registrant reported the application of proceeds on Form
SR--"Report of Sales of Securities and Use of Proceeds Therefrom."
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable
16
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable
ITEM 5. OTHER INFORMATION
-----------------
On August 7, 1998, the Registrant announced that Richard E. Swarttz,
Vice President of Finance and Chief Financial Officer, resigned effective
immediately to pursue other career opportunities. Acting Chief Executive Officer
Jeffrey L. Haims assumed the CFO function.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.41. Letter Agreement by and between Upper Mill, L.P. and the
Registrant dated July 6, 1998
10.42. Guaranty of Jennifer Barclay in favor of Upper Mill, L.P.
dated July 6, 1998
10.43. Assignment and Assumption of Agreement of Sale by and
between the Registrant and David Barclay dated June 25,
1998
27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
Not applicable
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant certifies that it has caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Frenchtown in the
State of New Jersey on August 19, 1998.
BLUE FISH CLOTHING, INC.
---------------------------------
(Registrant)
DATE: August 19, 1998 /s/ Jeffrey L. Haims
---------------------------------
Jeffrey L. Haims
Acting Chief Executive Officer and
Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
10.41. Letter Agreement by and between Upper Mill, L.P. and the
Registrant dated July 6, 1998
10.42. Guaranty of Jennifer Barclay in favor of Upper Mill, L.P.
dated July 6, 1998
10.43. Assignment and Assumption of Agreement of Sale by and
between the Registrant and David Barclay dated June 25,
1998
27. Financial Data Schedule
19
<PAGE> 1
EXHIBIT 10.41
BLUE FISH CLOTHING, INC.
NO. 3 SIXTH STREET
FRENCHTOWN, NJ 08825
July 6, 1998
VIA REGISTERED MAIL
RETURN RECEIPT REQUESTED
Upper Mill, L.P.
99 South Cameron Street
Harrisburg, Pennsylvania 17101
Attn: William I. Roberts
Re: Termination of Lease: 2035 Edgewood Avenue, Palmer Twp., PA
Ladies and Gentlemen:
In consideration of cash and stock valued in the aggregate at $252,000
as set forth below and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Upper Mill, L.P. ("Upper Mill")
and Blue Fish Clothing, Inc. ("Blue Fish") hereby agree as follows:
1. The Lease Agreement dated December 16, 1996 by and between William
I. Roberts as Lessor and Blue Fish Clothing, Inc. as Lessee for certain premises
located at 2035 Edgewood Avenue, Palmer Township, Northampton County,
Pennsylvania (the "Lease Agreement"), as amended by the First Addendum to Lease
Agreement dated May 19, 1997, as assigned by William I. Roberts to Upper Mill,
L.P. on October 21, 1997, and as amended by the Second Addendum to Lease
Agreement dated as of December 31, 1997, and all other amendments, assignments,
or modifications, if any, is hereby terminated and the parties have no
obligations to one another other than those in this letter agreement. It is
specifically acknowledged that the rent payments by Blue Fish to Upper Mill due
on June 1, 1998 and July 1, 1998 under the Lease Agreement, as amended, are not
due and payable and there are no other payments of any kind due and payable to
the Lessor or at its direction other than as set forth herein.
2. The Guarantee of Lease dated August __, 1997 by Jennifer Paige
Barclay is hereby cancelled and revoked in its entirety. Upper Mill and William
I. Roberts shall promptly return to Ms. Barclay the Guarantee of Lease and all
copies thereof, including any copies that might have been given to third
parties.
3. Blue Fish shall pay $102,000 in cash to Upper Mill as follows:
a. $12,000 on July 6, 1998 (or the date of execution of this
letter agreement, if later)
b. $12,000 on or before July 30, 1998
c. $38,000 on or before June 30, 1999
d. $40,000 on or before June 30, 2000
<PAGE> 2
4. Blue Fish shall pay interest at the rate of 8.5% per annum on the
then unpaid principal balance of the amount in Section 3 above Upper Mill on the
first of each month, commencing August 1, 1998.
5. Within five (5) days of the execution of this letter agreement, Blue
Fish shall cause to be issued to William I. Roberts 120,000 shares of Blue Fish
Common Stock (which represents $150,000 valued at $1.25 per share, the price of
the last sale, which occurred on June 25, 1998). Such shares are restricted as
they have not been registered under the Securities Act of 1933 and shall bear a
legend to that effect substantially in the following form:
"The securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, transferred, assigned or hypothecated unless
there is an effective Registration Statement under such Act
covering such securities, the transfer is made in compliance
with Rule 144 promulgated under such Act or the Company
receives an opinion of counsel for the holder of these
securities reasonably satisfactory to the Company, stating that
such sale, transfer, assignment or hypothecation is exempt from
the registration and prospectus delivery requirements of such
Act."
These shares are being issued pursuant to exemptions from registration under
Section 4(2) of the Securities Act of 1933 and Section 203(r) of the
Pennsylvania Securities Act.
6. Concurrently with the execution of this letter agreement, Jennifer
Barclay shall execute and deliver a personal guaranty to Upper Mill for $180,000
in the form attached as Exhibit A. The amount of this guaranty shall be reduced
by $38,000 when the payment due June 30, 1999 for that amount is made to Upper
Mill. The personal guaranty of Ms. Barclay shall be cancelled and revoked when
the payment due June 30, 2000 for $40,000 is made to Upper Mill.
7. Upper Mill and Blue Fish shall each obtain, on or before the date of
execution of this letter agreement, all third party consents required for each
party to enter into this letter agreement, including the consent of Upper Mill's
lender.
8. For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, William I. Roberts, Upper Mill and Blue Fish
hereby remise, release and forever discharge each other, their predecessors and
successors in interest, and partners, agents, attorneys, employees, assigns and
heirs ("the Releasees") of and from any and all debts, demands, actions, causes
of action, suits, accounts, covenants, contracts, guaranties, bonds, warranties,
agreements, torts, damages, statutes, and any and all claims and liabilities
whatsoever of every name and nature, both in law and in equity, arising from the
Lease Agreement, as amended and assigned, which either party may
<PAGE> 3
have, have had, or may hereafter have against the Releasees, other than claims
for breach of this letter agreement, which are hereby reserved to the parties.
9. The parties shall each, at the request of the other, furnish,
execute and deliver such documents, instruments, certificates, notices and
further assurances as counsel for the requesting party shall reasonably require
as necessary or desirable to effect complete consummation of this letter
agreement, or in connection with the preparation and filing of reports required
or requested by governmental agencies, stock exchanges or other regulatory
bodies.
10. This letter agreement supersedes all prior agreements, oral and
written, on this subject matter.
11. This letter agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
If the foregoing correctly reflects our agreement, please so indicate
by signing the enclosed copy of this letter agreement where indicated below and
return it in the postage prepaid envelope provided.
Sincerely,
/s/ Richard E. Swarttz
----------------------
Richard E. Swarttz
Chief Financial Officer
Attachment
ACCEPTED AND AGREED:
UPPER MILL, L.P.
BY: I.B.S. DEVELOPMENT CORPORATION,
ITS GENERAL PARTNER
BY: /S/ WILLIAM I. ROBERTS /S/ WILLIAM I. ROBERTS
----------------------------- --------------------------------
WILLIAM I. ROBERTS, PRESIDENT WILLIAM I. ROBERTS, INDIVIDUALLY
<PAGE> 4
EXHIBIT A
GUARANTY
THIS GUARANTY AGREEMENT (this "Guaranty") is made this 6th day of July,
1998, by JENNIFER BARCLAY, of Bucks County, Pennsylvania (the "Guarantor") in
favor of UPPER MILL, L.P.
W I T N E S S E T H T H A T:
WHEREAS, a certain Lease Agreement dated December 16, 1996, by and
between WILLIAM I. ROBERTS, herein referred to as "Roberts", and BLUE FISH
CLOTHING, INC., herein referred to as "Blue Fish", as amended by the first
Addendum to Lease Agreement dated May 19, 1997, as assigned by Roberts to Upper
Mill, L.P. herein referred to as "Upper Mill" on October 21, 1997 and as amended
by the Second Addendum to Lease Agreement dated as of December 31, 1997 (the
"Lease") has been executed; and
WHEREAS, by letter agreement dated July 6, 1998 (the "Letter
Agreement") Upper Mill and Blue Fish agreed to terminate the Lease effective
July 6, 1998 and release each other of all obligations under the Lease in
consideration of certain payments by Blue Fish to Upper Mill and the issuance of
the Blue Fish's Common Stock to Roberts all as set forth in the Letter
Agreement; and
WHEREAS, Guarantor agreed as a condition to the execution of said
Letter Agreement to guaranty the performance of the obligations of Blue Fish
thereunder as set forth therein; and
WHEREAS, the Letter Agreement is and will be to the financial interest
and advantage of Guarantor; and
WHEREAS, Upper Mill was willing to enter into the Letter Agreement only
if Guarantor guaranteed the performance of each and all of the terms, covenants
and conditions of said Letter Agreement to be kept and performed by Blue Fish,
including the payments to Upper Mill as listed therein, on the terms and
conditions and for the maximum amount and for the duration set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, Grantor covenants and agrees as follows:
RECITALS INCORPORATED. Guarantor acknowledges and agrees that the
foregoing recitals constitute a material part of this Guaranty, and the same are
expressly incorporated herein by this reference.
MATERIAL INDUCEMENT. Guarantor acknowledges and agrees that Upper Mill
would not have entered into the Letter Agreement without the execution of this
<PAGE> 5
Guaranty by Guarantor, and that this Guaranty constitutes a material inducement
to Upper Mill's entering into the Letter Agreement with Blue Fish.
AMOUNT AND DURATION OF GUARANTY. This Guaranty shall be limited to
$180,000. The Guaranty amount shall be reduced to $142,000 when Blue Fish makes
a payment of $38,000 which is due to Upper Mill on June 30, 1999 pursuant to the
Letter Agreement. This Guaranty shall terminate and shall be rendered null and
void when Blue Fish makes the final payment of $40,000, which is due to Upper
Mill on June 30, 2000, or at such earlier time as all of the Blue Fish's
payments to the Upper Mill pursuant to the Letter Agreement have been made. Upon
termination of this Guaranty, the original and all copies thereof made by Upper
Mill and Roberts shall be returned to Guarantor.
GUARANTY. Guarantor hereby personally, unconditionally, and irrevocable
guaranties the full performance of each and all of the terms, covenants and
conditions of said Letter Agreement to be performed by Blue Fish, including the
full prompt payment of all amounts to be paid thereunder and the performance of
all obligations in favor of Upper Mill and Roberts pursuant to the Letter
Agreement, subject to the limitations in Section 3. This Guaranty will continue
unchanged by: (i) any bankruptcy, reorganization or insolvency of Blue Fish or
any successor or assignee thereof or by any disaffirmance or abandonment by a
trustee of Blue Fish, and/or (ii) any transfer or other disposition of
Guarantor's interest in Blue Fish.
RIGHTS OF MODIFICATION. This covenant and agreement on Guarantor's part
shall constitute a guaranty in favor of Upper Mill notwithstanding any
extension, modification, or alteration of said Letter Agreement entered into by
and between the parties thereto, or their successors or assigns, and no
extension, modification, alteration or assignment of the Letter Agreement shall
in any manner release or discharge the Guarantor, unless otherwise agreed to by
the parties.
NATURE OF GUARANTY. The liability of Guarantor under this Guaranty,
shall be contingent on pursuit by Upper Mill of any remedies it may have against
Blue Fish or Blue Fish's successors or assigns, with respect to the Letter
Agreement, whether pursuant to the terms thereof or by law; provided, however,
that Upper Mill may enforce this Guaranty if demand is first made upon the Blue
Fish and such demand is not satisfied in full within fifteen (15) days after
such demand is made by notice given as provided herein.
NO IMPAIRMENT OF GUARANTOR'S OBLIGATIONS. No course of dealing between
Upper Mill and Blue Fish, nor any failure or delay on the part of Upper Mill to
exercise any of Upper Mill's rights and remedies under the Letter Agreement
shall have the effect of impairing or releasing Guarantor's obligations and
liabilities to Upper Mill, or of waiving any of Upper Mill's rights and remedies
under this Guaranty or otherwise. Any partial exercise of any rights and
remedies granted to Upper Mill shall, furthermore, not constitute a waiver of
any of Upper Mill's other rights and remedies; it being Guarantor's intent and
agreement that Upper Mill's rights and remedies shall be
<PAGE> 6
cumulative in nature. A waiver or forbearance on the part of Upper Mill as to
one event of default shall not constitute a waiver or forbearance as to any
other default.
WAIVER OF JURY TRIAL. GUARANTOR HEREBY KNOWINGLY AND IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE, OR OTHERWISE
INVOLVING, THIS GUARANTY. GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE
JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT SITTING IN OR FOR
NORTHAMPTON COUNTY, PENNSYLVANIA.
FULL KNOWLEDGE. Guarantor has had the opportunity to discuss this
Guaranty, and all waivers, consents, agreements and covenants herein contained,
with counsel of her own choosing, and Guarantor understands the significance and
the consequences thereof, and acknowledges the reasonableness of the same.
ATTORNEYS' FEES/COSTS. The Guarantor shall pay Upper Mill's reasonable
attorneys' fees and all costs and other expenses incurred in enforcing this
Guaranty against the Guarantor.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are
a part of this Guaranty:
Amendment. No amendment, modification, consent or waiver of any
provision of this Guaranty, and no consent to any departure by Guarantor
therefrom, shall be effective unless the same shall be in writing signed by a
duly authorized officer of Upper Mill, and then shall be effective only as to
the specific instance and for the specific purpose for which given.
Caption Headings. Caption headings of the sections of this
Guaranty are for convenience purposes only and are not to be used to interpret
or to define the provisions hereof.
Gender and Form. In this Guaranty, whenever the context so
requires, the reference to any gender applies to all genders, and the singular
includes the plural and the plural includes the singular.
Governing Law. This Guaranty shall be governed and
construed in accordance with the law of the Commonwealth of Pennsylvania.
Notices. All notices, demands and communications provided for
herein or made hereunder shall be effective when delivered in person, or three
days after being sent via certified mail, return receipt requested, or on the
day after being sent via overnight courier requiring a signature for delivery,
or, if sent via facsimile, provided notice is also given by another approved
means, when such confirmation notice is effective, addressed in each case as
follows, until some other address shall have been designated in a written notice
to the other parties hereto in like manner.
<PAGE> 7
If to Upper Mill: Upper Mill, L.P.
99 South Cameron Street
Harrisburg, PA 17101
Attn: William I. Roberts
If to Jennifer Barclay Jennifer Barclay
c/o Blue Fish Clothing, Inc.
No. 3 Sixth Street
Frenchtown, NJ 08825
Severability. If any provision of this Guaranty is held to be
illegal, invalid or unenforceable under present or future laws during the
effectiveness of this Guaranty, such provision shall be fully severable; and,
this Guaranty shall be construed and enforceable as if the illegal, invalid or
unenforceable provision had never comprised a part of it, and the remaining
provisions of this Guaranty shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Further, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Guaranty, a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and legal, valid and enforceable.
Successors and Assigns. This Guaranty shall inure to the
benefit of, and be enforceable by, Upper Mill and its successors and assigns,
and shall be binding on, and enforceable against, Guarantor and Guarantor's
heirs, representatives, successors and assigns.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
as of the day and year first above written.
GUARANTOR:
--------------------
Jennifer Barclay
<PAGE> 1
EXHIBIT 10.42
GUARANTY
THIS GUARANTY AGREEMENT (this "Guaranty") is made this 6th day of July,
1998, by JENNIFER BARCLAY, of Bucks County, Pennsylvania (the "Guarantor") in
favor of UPPER MILL, L.P.
W I T N E S S E T H T H A T :
WHEREAS, a certain Lease Agreement dated December 16, 1996, by and
between WILLIAM I. ROBERTS, herein referred to as "Roberts", and BLUE FISH
CLOTHING, INC., herein referred to as "Blue Fish", as amended by the first
Addendum to Lease Agreement dated May 19, 1997, as assigned by Roberts to Upper
Mill, L.P. herein referred to as "Upper Mill" on October 21, 1997 and as amended
by the Second Addendum to Lease Agreement dated as of December 31, 1997 (the
"Lease") has been executed; and
WHEREAS, by letter agreement dated July 6, 1998 (the "Letter
Agreement") Upper Mill and Blue Fish agreed to terminate the Lease effective
July 6, 1998 and release each other of all obligations under the Lease in
consideration of certain payments by Blue Fish to Upper Mill and the issuance of
the Blue Fish's Common Stock to Roberts all as set forth in the Letter
Agreement; and
WHEREAS, Guarantor agreed as a condition to the execution of said
Letter Agreement to guaranty the performance of the obligations of Blue Fish
thereunder as set forth therein; and
WHEREAS, the Letter Agreement is and will be to the financial interest
and advantage of Guarantor; and
WHEREAS, Upper Mill was willing to enter into the Letter Agreement only
if Guarantor guaranteed the performance of each and all of the terms, covenants
and conditions of said Letter Agreement to be kept and performed by Blue Fish,
including the payments to Upper Mill as listed therein, on the terms and
conditions and for the maximum amount and for the duration set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, Grantor covenants and agrees as follows:
RECITALS INCORPORATED. Guarantor acknowledges and agrees that the
foregoing recitals constitute a material part of this Guaranty, and the same are
expressly incorporated herein by this reference.
MATERIAL INDUCEMENT. Guarantor acknowledges and agrees that Upper Mill
would not have entered into the Letter Agreement without the execution of this
Guaranty by Guarantor, and that this Guaranty constitutes a material inducement
to Upper Mill's entering into the Letter Agreement with Blue Fish.
<PAGE> 2
AMOUNT AND DURATION OF GUARANTY. This Guaranty shall be limited to
$180,000. The Guaranty amount shall be reduced to $142,000 when Blue Fish makes
a payment of $38,000 which is due to Upper Mill on June 30, 1999 pursuant to the
Letter Agreement. This Guaranty shall terminate and shall be rendered null and
void when Blue Fish makes the final payment of $40,000, which is due to Upper
Mill on June 30, 2000, or at such earlier time as all of the Blue Fish's
payments to the Upper Mill pursuant to the Letter Agreement have been made. Upon
termination of this Guaranty, the original and all copies thereof made by Upper
Mill and Roberts shall be returned to Guarantor.
GUARANTY. Guarantor hereby personally, unconditionally, and irrevocable
guaranties the full performance of each and all of the terms, covenants and
conditions of said Letter Agreement to be performed by Blue Fish, including the
full prompt payment of all amounts to be paid thereunder and the performance of
all obligations in favor of Upper Mill and Roberts pursuant to the Letter
Agreement, subject to the limitations in Section 3. This Guaranty will continue
unchanged by: (i) any bankruptcy, reorganization or insolvency of Blue Fish or
any successor or assignee thereof or by any disaffirmance or abandonment by a
trustee of Blue Fish, and/or (ii) any transfer or other disposition of
Guarantor's interest in Blue Fish.
RIGHTS OF MODIFICATION. This covenant and agreement on Guarantor's part
shall constitute a guaranty in favor of Upper Mill notwithstanding any
extension, modification, or alteration of said Letter Agreement entered into by
and between the parties thereto, or their successors or assigns, and no
extension, modification, alteration or assignment of the Letter Agreement shall
in any manner release or discharge the Guarantor, unless otherwise agreed to by
the parties.
NATURE OF GUARANTY. The liability of Guarantor under this Guaranty,
shall be contingent on pursuit by Upper Mill of any remedies it may have against
Blue Fish or Blue Fish's successors or assigns, with respect to the Letter
Agreement, whether pursuant to the terms thereof or by law; provided, however,
that Upper Mill may enforce this Guaranty if demand is first made upon the Blue
Fish and such demand is not satisfied in full within fifteen (15) days after
such demand is made by notice given as provided herein.
NO IMPAIRMENT OF GUARANTOR'S OBLIGATIONS. No course of dealing between
Upper Mill and Blue Fish, nor any failure or delay on the part of Upper Mill to
exercise any of Upper Mill's rights and remedies under the Letter Agreement
shall have the effect of impairing or releasing Guarantor's obligations and
liabilities to Upper Mill, or of waiving any of Upper Mill's rights and remedies
under this Guaranty or otherwise. Any partial exercise of any rights and
remedies granted to Upper Mill shall, furthermore, not constitute a waiver of
any of Upper Mill's other rights and remedies; it being Guarantor's intent and
agreement that Upper Mill's rights and remedies shall be cumulative in nature. A
waiver or forbearance on the part of Upper Mill as to one event of default shall
not constitute a waiver or forbearance as to any other default.
WAIVER OF JURY TRIAL. GUARANTOR HEREBY KNOWINGLY AND IRREVOCABLY WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE, OR OTHERWISE INVOLVING,
THIS GUARANTY. GUARANTOR FURTHER
<PAGE> 3
IRREVOCABLY CONSENTS TO THE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT
SITTING IN OR FOR NORTHAMPTON COUNTY, PENNSYLVANIA.
FULL KNOWLEDGE. Guarantor has had the opportunity to discuss this
Guaranty, and all waivers, consents, agreements and covenants herein contained,
with counsel of her own choosing, and Guarantor understands the significance and
the consequences thereof, and acknowledges the reasonableness of the same.
ATTORNEYS' FEES/COSTS. The Guarantor shall pay Upper Mill's reasonable
attorneys' fees and all costs and other expenses incurred in enforcing this
Guaranty against the Guarantor.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are
a part of this Guaranty:
Amendment. No amendment, modification, consent or waiver of any
provision of this Guaranty, and no consent to any departure by Guarantor
therefrom, shall be effective unless the same shall be in writing signed by a
duly authorized officer of Upper Mill, and then shall be effective only as to
the specific instance and for the specific purpose for which given.
Caption Headings. Caption headings of the sections of
this Guaranty are for convenience
purposes only and are not to be used to interpret or to define the provisions
hereof.
Gender and Form. In this Guaranty, whenever the context so
requires, the reference to any gender applies to all genders, and the singular
includes the plural and the plural includes the singular.
Governing Law. This Guaranty shall be governed and
construed in accordance with the law of the Commonwealth of Pennsylvania.
Notices. All notices, demands and communications provided for
herein or made hereunder shall be effective when delivered in person, or three
days after being sent via certified mail, return receipt requested, or on the
day after being sent via overnight courier requiring a signature for delivery,
or, if sent via facsimile, provided notice is also given by another approved
means, when such confirmation notice is effective, addressed in each case as
follows, until some other address shall have been designated in a written notice
to the other parties hereto in like manner.
If to Upper Mill: Upper Mill, L.P.
99 South Cameron Street
Harrisburg, PA 17101
Attn: William I. Roberts
<PAGE> 4
If to Jennifer Barclay Jennifer Barclay
c/o Blue Fish Clothing, Inc.
No. 3 Sixth Street
Frenchtown, NJ 08825
Severability. If any provision of this Guaranty is held to be
illegal, invalid or unenforceable under present or future laws during the
effectiveness of this Guaranty, such provision shall be fully severable; and,
this Guaranty shall be construed and enforceable as if the illegal, invalid or
unenforceable provision had never comprised a part of it, and the remaining
provisions of this Guaranty shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance herefrom. Further, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as a part of this Guaranty, a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and legal, valid and enforceable.
Successors and Assigns. This Guaranty shall inure to the
benefit of, and be enforceable by, Upper Mill and its successors and assigns,
and shall be binding on, and enforceable against, Guarantor and Guarantor's
heirs, representatives, successors and assigns.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
as of the day and year first above written.
GUARANTOR:
/s/ Jennifer Barclay
--------------------
Jennifer Barclay
<PAGE> 1
EXHIBIT 10.43
ASSIGNMENT AND ASSUMPTION OF AGREEMENT OF SALE
ASSIGNMENT AND ASSUMPTION OF AGREEMENT OF SALE, dated as the 25th day
of June, 1998, (this "Agreement") by and between BLUE FISH CLOTHING, INC., a
Pennsylvania corporation with a mailing address of 3 Sixth Street, Frenchtown,
New Jersey 08825 ("Assignor"), and DAVID BARCLAY, an individual with a mailing
address of 29 N. Sugan Rd., P.O. Box 232, Solebury, PA 18963 ("Assignee").
For and in consideration of mutual agreements and covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Assignor does hereby assign, set over and
transfer unto Assignee, effective from and after this day, all of its rights,
title and interest in and to that certain Agreement of Sale, dated April 16,
1998, between Assignor, as Purchaser, and Richard D. Krause and William P.
Krause, as Seller (collectively, the "Seller") relating to the purchase and sale
of that certain real property together with the building and improvements
commonly known as 3 Sixth Street, Frenchtown, New Jersey (the "Premises")
pursuant to the terms and conditions set forth therein (the "Agreement"). A true
and complete copy of the Agreement is attached to this Assignment.
Assignor warrants and represents to Assignee that as of the date hereof
(i) the Agreement is the only written agreement between Assignor and the Seller
regarding the Premises; (ii) there is no assignment, mortgage or pledge of, or
other encumbrance upon, Assignor's interest in or under the Agreement; (iii) the
Agreement is unmodified and is valid, in full force and effect, and Assignor has
received no written notice or written claim of default by Assignor thereunder;
(iv) all amounts due and payable to the Seller under the Agreement as a Deposit
(as such term is defined therein) as of the date hereof have been paid in full;
and (v) to Assignor's knowledge, the Seller is not in default of any of its
obligations under the Agreement.
Assignor hereby covenants and agrees to indemnify and hold Assignee
harmless from and against all costs, expenses, claims and losses, including,
without limitation, reasonable attorneys' fees arising out of or in connection
with (i) any default in Assignor's performance of its obligations under the
Agreement, which default occurred prior to the date hereof; and (ii) any
material breach, as of the date hereof, of any warranty or representation by
Assignor herein; provided, however, that Assignor shall have received written
notice of any such default from Assignee, and Assignee shall have given Assignor
reasonable cooperation, information and assistance in connection with, and
Assignor shall have sole control and authority with respect to the defense,
settlement or compromise of any action, suit or proceeding arising therefrom.
<PAGE> 2
Assignee hereby acknowledges receipt of a copy of the Agreement.
Assignee hereby assumes and agrees to perform all of Assignor's obligations
under the Agreement from and after the date hereof. Assignee further agrees to
indemnify and hold harmless Assignor from and against all costs, expenses,
claims and losses, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any default in the performance of
Assignee's obligations under the Agreement, which default occurs or arises out
of the acts or failure to act of Assignee from and after the date hereof.
ASSIGNOR, ASSIGNEE and SELLER also agree that the Agreement of Sale
dated April 16, 1998 between Assignor and Seller is hereby amended as follows:
1. The Deposit of $37,500 previously made by Assignor to Escrow Agent
shall be immediately released by Escrow Agent to Seller and credited against the
Purchase Price. Seller shall be entitled to retain the Deposit provided,
however, that the Deposit shall be refunded by Seller only in the event that (1)
Seller fails to deliver good title to the Premises and (2) Assignee was ready,
willing and able to perform the purchase of the Premises at the Closing as it
may be extended.
2. On or before July 1, 1998, Assignee shall pay to Seller as an
additional deposit the sum of $10,000 and the Closing Date shall thereupon be
extended to July 31, 1998.
3. On or before August 1, 1998, Assignee shall pay to Seller as a
further additional deposit the sum of $10,000 and the Closing Date shall
thereupon be extended to August 31, 1998.
4. On or before September 1, 1998, Assignee shall pay to Seller as a
second further deposit the sum of $10,000 and the Closing Date shall thereupon
be extended to September 30, 1998.
5. Assignee shall use his best efforts to close on the Premises as soon
as reasonably practicable.
6. Assignor, Assignee and Seller agree that on the first day of each
month commencing July 1, 1998 Assignor shall pay Seller an additional $2,000 per
month additional rent which Seller is authorized to withdraw out of the security
deposit from Assignor presently held by Seller.
This Agreement shall be governed by the laws of the State of New Jersey
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, devisees, legal representatives,
successors and assigns.
Time is of the essence for this Agreement.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this instrument
under seal as of the day and year first above written.
ASSIGNOR:
BLUE FISH CLOTHING, INC.
By: /s/ Jeff Haims
-------------------
Name: Jeff Haims
Title: CEO
ASSIGNEE:
By: /s/ David Barclay
----------------------
David Barclay
ACKNOWLEDGED AND AGREED TO
BY SELLER:
/s/ Richard D. Krause
- ---------------------
Richard D. Krause
/s/ W.P. Krause
- ---------------
William P. Krause
-3-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS DATED JUNE 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 255,445
<SECURITIES> 0
<RECEIVABLES> 677,146
<ALLOWANCES> 46,453
<INVENTORY> 3,022,723
<CURRENT-ASSETS> 4,022,517
<PP&E> 2,737,630
<DEPRECIATION> 1,079,618
<TOTAL-ASSETS> 6,081,404
<CURRENT-LIABILITIES> 3,734,488
<BONDS> 975,623
0
0
<COMMON> 4,599
<OTHER-SE> 1,291,228
<TOTAL-LIABILITY-AND-EQUITY> 6,081,404
<SALES> 3,107,151
<TOTAL-REVENUES> 3,107,151
<CGS> 1,824,572
<TOTAL-COSTS> 1,824,572
<OTHER-EXPENSES> 2,374,376
<LOSS-PROVISION> 1,091,797
<INTEREST-EXPENSE> 61,897
<INCOME-PRETAX> (1,153,694)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,153,694)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,153,694)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
