UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

        For the quarterly period ended March 31, 2005

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

        For the transition period from ______ to ______

                        Commission File Number: 001-14498

                                   ----------

                                  BLUEFLY, INC.
             (Exact name of registrant as specified in its charter)

                 Delaware                                    13-3612110
     (State or other jurisdiction of                     (I.R.S. Employer
      incorporation or organization)                    Identification No.)

          42 West 39th Street, New York, NY                     10018
       (Address of principal executive offices)              (Zip Code)

                    Issuer's telephone number: (212) 944-8000

                                   ----------

Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of May 2, 2005, the issuer had outstanding 15,341,015 shares of Common Stock,
$.01 par value.

<PAGE>

                                  BLUEFLY, INC.
                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----
Part I.  Financial Information

Item 1.  Financial Statements

         Consolidated Condensed Balance Sheets as of March 31, 2005
          and December 31, 2004 (unaudited)                                    3

         Consolidated Condensed Statements of Operations for the three
          months ended March 31, 2005 and 2004 (unaudited)                     4

         Consolidated Condensed Statements of Cash Flows for the three
          months ended March 31, 2005 and 2004 (unaudited)                     5

         Notes to Consolidated Condensed Financial Statements
          (unaudited)                                                          6

Item 2.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                            9

Item 3.  Quantitative and Qualitative Disclosures About Market Risk           15

Item 4.  Controls and Disclosures                                             16

Part II. Other Information                                                    16

Item 1.  Legal Proceedings                                                    16

Item 2.  Changes in Securities and Use of Proceeds                            16

Item 6.  Exhibits and Reports on Form 8-K                                     16

Signature                                                                     18

<PAGE>

Part I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
                                  BLUEFLY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)

<TABLE>
<CAPTION>
                                                                                       MARCH 31,        DECEMBER 31,
                                                                                         2005               2004
                                                                                    ---------------   ---------------
<S>                                                                                 <C>               <C>
                                     ASSETS

Current assets
  Cash and cash equivalents                                                         $     4,150,000   $     6,685,000
  Restricted cash                                                                         1,260,000         1,253,000
  Inventories, net                                                                       13,591,000        12,958,000
  Accounts receivable, net of allowance for doubtful accounts                             1,889,000         1,206,000
  Prepaid inventory                                                                       1,736,000            84,000
  Prepaid expenses                                                                          217,000           296,000
  Other current assets                                                                      640,000           973,000
                                                                                    ---------------   ---------------
      Total current assets                                                               23,483,000        23,455,000

Property and equipment, net                                                               2,520,000         1,933,000

Other assets                                                                                153,000           153,000
                                                                                    ---------------   ---------------
      Total assets                                                                  $    26,156,000   $    25,541,000
                                                                                    ===============   ===============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable                                                                  $     5,617,000   $     4,190,000
  Accrued expenses and other current liabilities                                          3,180,000         3,526,000
  Deferred revenue                                                                        1,900,000         1,697,000
                                                                                    ---------------   ---------------
      Total current liabilities                                                          10,697,000         9,413,000

Notes payable to related party shareholders                                               4,000,000         4,000,000
Long-term interest payable to related party shareholders                                    791,000           658,000
Long-term obligations under capital lease                                                    67,000            81,000
                                                                                    ---------------   ---------------
      Total liabilities                                                                  15,555,000        14,152,000
                                                                                    ---------------   ---------------

Commitments and contingencies

Shareholders' equity
  Series A Preferred stock - $.01 par value; 500,000 shares authorized, 460,000
   issued and outstanding as of March 31, 2005 and December 31, 2004,
   respectively (liquidation preference: $9.2 million plus accrued dividends of
   $5.3 million and $5.0 million as of March 31, 2005 and December 31, 2004,
   respectively)                                                                              5,000             5,000

  Series B Preferred stock - $.01 par value; 9,000,000 shares authorized,
   8,889,414 shares issued and outstanding as of March 31, 2005 and December 31,
   2004, respectively (liquidation preference: $30 million plus accrued dividends
   of $7.8 million and $7.3 million as of March 31, 2005 and December 31, 2004,
   respectively)                                                                             89,000            89,000

  Series C Preferred stock - $.01 par value; 3,500 shares authorized and 1,000
   shares issued and outstanding as of March 31, 2005 and December 31, 2004,
   respectively (liquidation preference: $1 million plus accrued dividends of
   $214,000 and $191,000 as of March 31, 2005 and December 31, 2004,
   respectively)                                                                                 --                --

  Series D Preferred stock - $.01 par value; 7,150 shares authorized, 7,136.548
   issued and outstanding as of March 31, 2005 and December 31, 2004
   (liquidation preference: $7.1 million plus accrued dividends of $1.9 million
   and $1.6 million as of March 31, 2005 and December 31, 2004, respectively)                    --                --

  Series E Preferred stock - $.01 par value; 1,000 shares authorized, issued and
   outstanding as of March 31, 2005 and December 31, 2004, respectively
   (liquidation preference: $1.0 million plus accrued dividends of $236,000 and
   $202,000 as of March 31, 2005 and December 31, 2004, respectively)                            --                --

  Common stock - $.01 par value; 92,000,000 shares authorized and 15,341,015 and
   15,241,756 shares issued and outstanding as of March 31, 2005 and December
   31, 2004, respectively                                                                   153,000           152,000

  Additional paid-in capital                                                            107,374,000       107,270,000
  Accumulated deficit                                                                   (97,020,000)      (96,127,000)
                                                                                    ---------------   ---------------
      Total shareholders' equity                                                         10,601,000        11,389,000
                                                                                    ---------------   ---------------
      Total liabilities and shareholders' equity                                    $    26,156,000   $    25,541,000
                                                                                    ===============   ===============
</TABLE>

        The accompanying notes are an integral part of these consolidated
                         condensed financial statements.

                                        3
<PAGE>

                                  BLUEFLY, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     THREE MONTHS ENDED
                                                                          MARCH 31,
                                                              ---------------------------------
                                                                    2005              2004
                                                              ---------------   ---------------
<S>                                                           <C>               <C>
Net sales                                                     $    13,502,000   $    11,114,000
Cost of sales                                                       8,617,000         7,332,000
                                                              ---------------   ---------------
  Gross profit                                                      4,885,000         3,782,000

Selling, marketing and fulfillment expenses                         4,035,000         3,449,000
General and administrative expenses                                 1,586,000         1,752,000
                                                              ---------------   ---------------
  Total operating expenses                                          5,621,000         5,201,000

Operating loss                                                       (736,000)       (1,419,000)

Interest and other income                                              40,000           456,000
Interest and other expense                                           (197,000)         (167,000)
                                                              ---------------   ---------------
Net loss                                                      $      (893,000)  $    (1,130,000)

Preferred stock dividends                                          (1,115,000)       (1,024,000)
                                                              ---------------   ---------------
Net loss available to common shareholders                     $    (2,008,000)  $    (2,154,000)
                                                              ===============   ===============
Basic and diluted loss per common share                       $         (0.13)  $         (0.15)
                                                              ===============   ===============
Weighted average common shares outstanding
 (basic and diluted)                                               15,299,040        14,314,722
                                                              ===============   ===============
</TABLE>

        The accompanying notes are an integral part of these consolidated
                         condensed financial statements.

                                        4
<PAGE>

                                  BLUEFLY, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                            THREE MONTHS ENDED
                                                                                                MARCH 31,
                                                                                    ---------------------------------
                                                                                          2005             2004
                                                                                    ---------------   ---------------
<S>                                                                                 <C>               <C>
Cash flows from operating activities
  Net loss                                                                          $      (893,000)  $    (1,130,000)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization                                                           290,000           362,000
    Stock options expense                                                                    16,000                --
    Provisions for returns                                                                   27,000          (588,000)
    Allowance for doubtful accounts                                                          64,000            38,000
    Reserve for inventory obsolescence                                                      158,000           100,000
    Change in value of warrants                                                                  --          (261,000)
    Non-cash expense related to warrant issued to supplier                                   67,000            24,000
    Changes in operating assets and liabilities:
     (Increase) decrease in
        Inventories                                                                        (858,000)          734,000
        Accounts receivable                                                                (754,000)         (319,000)
        Prepaid inventory                                                                (1,652,000)          (21,000)
        Prepaid expenses                                                                     79,000            79,000
        Other current assets                                                                333,000           (82,000)
    Increase (decrease) in
        Accounts payable                                                                  1,427,000           847,000
        Accrued expenses and other current liabilities                                     (273,000)         (245,000)
        Interest payable to related party shareholders                                      133,000           119,000
        Deferred revenue                                                                    203,000           325,000
                                                                                    ---------------   ---------------
  Net cash used in operating activities                                                  (1,633,000)          (18,000)
                                                                                    ---------------   ---------------

Cash flows from investing activities
  Purchase of property and equipment                                                       (877,000)         (224,000)
                                                                                    ---------------   ---------------
Net cash used in investing activities                                                      (877,000)         (224,000)
                                                                                    ---------------   ---------------

Cash flows from financing activities
    Net proceeds from January 2004 Financing                                                     --         4,577,000
    Net proceeds from exercise of stock options                                              89,000            96,000
    Payments of capital lease obligation                                                   (114,000)          (71,000)
                                                                                    ---------------   ---------------
Net cash (used in) provided by financing activities                                         (25,000)        4,602,000
                                                                                    ---------------   ---------------

Net (decrease) increase in cash and cash equivalents                                     (2,535,000)        4,360,000
Cash and cash equivalents - beginning of period                                           6,685,000         7,721,000
                                                                                    ---------------   ---------------
Cash and cash equivalents - end of period                                           $     4,150,000   $    12,081,000
                                                                                    ===============   ===============

Supplemental schedule of non-cash investing and financing activities:
 Cash paid for interest                                                             $        40,000   $         7,000
                                                                                    ===============   ===============
</TABLE>

        The accompanying notes are an integral part of these consolidated
                         condensed financial statements.

                                        5
<PAGE>

                                  BLUEFLY, INC.
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED
                                 MARCH 31, 2005

NOTE 1 - BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Bluefly, Inc. and its wholly owned subsidiary (collectively the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnote
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations of any interim period are not
necessarily indicative of the results of operations to be expected for the
fiscal year. For further information, refer to the consolidated financial
statements and accompanying footnotes included in the Company's Form 10-K for
the year ended December 31, 2004.

The Company has sustained net losses and negative cash flows from operations
since the formation of Bluefly.com. The Company's ability to meet its
obligations in the ordinary course of business is dependent on its ability to
establish profitable operations and/or raise additional financing through public
or private debt or equity financing, or other sources to fund operations. The
Company believes that its current funds, together with working capital, will be
sufficient to enable it to meet its planned expenditures through December 31,
2005. The Company may seek additional equity or debt financing to maximize the
growth of its business or if anticipated operating results are not achieved. If
such financings are not available on terms acceptable to the Company, and/or the
Company does not achieve its sales plan, future operations will need to be
modified, scaled back or discontinued.

NOTE 2 - THE COMPANY

The Company is a leading Internet retailer that sells over 350 brands of
designer apparel, accessories and home products at discounts of up to 75% off of
retail value. The Company's e-commerce Web site ("Bluefly.com" or "Web Site")
was launched in September 1998.

NOTE 3 - NOTES PAYABLE TO RELATED PARTY SHAREHOLDERS

In February 2005, the Company extended the maturity dates on the Convertible
Promissory Notes issued in July and October 2003 (the "Notes") to affiliates of
Soros Private Equity Partners, LLC (collectively, "Soros") that collectively own
a majority of the Company's capital stock. The maturity dates of the Notes were
each extended for one year, from May 1, 2005 to May 1, 2006.

NOTE 4 - FINANCING AGREEMENT

The Company has a Financing Agreement (the "Financing Agreement") with Rosenthal
& Rosenthal, Inc. ("Rosenthal") pursuant to which Rosenthal provides the Company
with certain credit accommodations, including loans and advances,
factor-to-factor guarantees or letters of credit in favor of suppliers or
factors or purchases of payables owed to the Company's suppliers (the "Loan
Facility").

The Financing Agreement was amended in February 2005 to extend the term until
March 30, 2006. The Loan Facility requires the Company to maintain tangible net
worth of $7.0 million, working capital of at least $6.0 million and a minimum
cash balance of $750,000 (exclusive of $1.25 million in cash collateral).

As of March 31, 2005, the maximum availability under the Loan Facility was
approximately $3.5 million of which approximately $2.6 million was committed,
leaving approximately $900,000 available against the Loan Facility.

                                        6
<PAGE>

                                  BLUEFLY, INC.
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED
                                 MARCH 31, 2005

NOTE 5 - LOSS PER SHARE

The Company has determined Loss Per Share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Basic
loss per share excludes dilution and is computed by dividing loss available to
common shareholders by the weighted average number of common shares outstanding
for the period.

Diluted loss per share is computed by dividing loss available to common
shareholders by the weighted average number of common shares outstanding for the
period, adjusted to reflect potentially dilutive securities. Due to the loss
from continuing operations, the following options and warrants to purchase
shares of Common Stock and Preferred Stock convertible into shares of Common
Stock were not included in the computation of diluted loss per share because the
result of the exercise of such inclusion would be antidilutive:

<TABLE>
<CAPTION>
Security              March 31, 2005    Exercise Prices   March 31, 2004    Exercise Prices
--------              --------------    ---------------   --------------   ----------------
<S>                       <C>           <C>                   <C>           <C>
Options                    9,211,885    $0.69 - $15.90         9,087,447    $0.69 - $16.60
Warrants                   1,704,945    $0.78 - $9.08          1,704,945    $0.78 - $ 9.08
Preferred Stock           43,323,430(1)                       43,323,430(1)
Convertible Notes(2)              --                                  --
</TABLE>

        (1) Excludes dividends on preferred stock, which are payable in cash or
            common stock, at the Company's option, upon conversion, redemption
            or liquidation.
        (2) Excludes debt issued in connection with the July 2003 financing and
            October 2003 financing, which is convertible into equity securities
            of the Company sold in any subsequent round of financing, at the
            holders option, at a price that is equal to the lowest price per
            share accepted by any investor in such subsequent round of
            financing. Until such financing occurs, such debt is not convertible
            into Common Stock.

NOTE 6 - STOCK BASED COMPENSATION

At March 31, 2005, the Company has three stock-based employee compensation
plans. The Company applies Statement of Financial Accounting Standards ("SFAS")
No. 148 "Accounting for Stock Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123," SFAS No. 123 "Accounting for Stock Based
Compensation," and FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation" in accounting for its stock based
compensation plan. In accordance with SFAS No. 123, the Company applies
Accounting Principles Board Opinion No. 25 and related Interpretations for
expense recognition. For the quarter ended March 31, 2005, compensation expense
of $8,000 was recorded in connection with certain options issued below market
value to the Company's Chief Executive Officer in accordance with the terms of
her employment agreement. In addition, $8,000 of consulting expense was
recognized in connection with options issued to a consultant. Except for these
options, no compensation expense has been recorded for the three months ended
March 31, 2005 and March 31, 2004 in connection with stock option grants to
employees, because the exercise price of employee stock options equals or
exceeds the market price of the underlying stock on the date of grant. Had
compensation expense for the Plan been determined consistent with the provisions
of SFAS No. 123, the effect on the Company's basic and diluted net loss per
share would have been as follows:

                                        THREE MONTHS ENDED   THREE MONTHS ENDED
                                          MARCH 31, 2005       MARCH 31, 2004
                                        ------------------   ------------------
Net loss, as reported                   $         (893,000)  $       (1,130,000)
Deduct: total stock based compensation
 expense determined under fair value
 based methods for all awards                     (712,000)            (742,000)
Add: Stock-based employee compensation
 Expense included in net loss                       16,000                   --
Pro forma net loss                              (1,589,000)          (1,872,000)
Loss per share
 Basic and diluted, as reported         $            (0.13)  $            (0.15)
 Basic and diluted, pro forma           $            (0.18)  $            (0.20)

                                        7
<PAGE>

                                  BLUEFLY, INC.
        NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED
                                 MARCH 31, 2005

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which replaces SFAS 123 and supersedes APB No. 25. Under
the new standard, companies will no longer be able to account for stock-based
compensation transactions using the intrinsic value method in accordance with
APB No. 25. Instead, companies will be required to account for such transactions
using a fair-value method and to recognize the expense in the statements of
income. The adoption of SFAS 123R will also require additional accounting
related to the income tax effects and additional disclosure regarding the cash
flow effects resulting from share-based payment arrangements. SFAS 123R will be
effective for annual periods beginning after June 15, 2005 and allows, but does
not require, companies to restate prior periods. We are evaluating the impact of
adopting SFAS 123R and expect that we will record substantial non-cash stock
compensation expenses. The adoption of SFAS 123R is not expected to have a
significant effect on our financial condition or cash flows but the non-cash
charges associated therewith are expected to have a significant, adverse effect
on our results of operations.

The effects of applying SFAS No. 123R in this pro forma disclosure are not
indicative of future amounts, as additional stock option awards are anticipated
in future years.

NOTE 7 - RECLASSIFICATIONS

Certain amounts in the consolidated condensed financial statements of the prior
period have been reclassified to conform to the current period presentation for
comparative purposes.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

OVERVIEW

We are a leading Internet retailer that sells over 350 brands of designer
apparel, accessories and home products at discounts of up to 75% off retail
value. The Bluefly.com Web site was launched in September 1998.

Our net sales increased approximately 21% to $13,502,000 for the first quarter
ended March 31, 2005 from $11,114,000 for the first quarter ended March 31,
2004.

Our gross margin increased to 36.2% in the first quarter of 2005 from 34.0% in
the first quarter of 2004. Our gross profit increased by approximately 29% to
4,885,000 in the first quarter of 2005, from $3,782,000 in the first quarter of
2004. This growth was driven by increases in both net sales and gross margins,
and allowed us to decrease our operating loss by approximately 48%, to $736,000
in the first quarter of 2005, from $1,419,000 in the first quarter of 2004.

We have previously measured our customer acquisition cost by dividing our entire
advertising expense for a period (exclusive of staff related costs) by the
number of customers acquired during the period. However, because we have begun
to spend significant amounts on marketing initiatives that are geared towards
customer retention and brand awareness, rather than customer acquisition, we do
not believe that this is an appropriate method for measuring our customer
acquisition cost going forward. For example, if measured under the method
described above, our customer acquisition cost for the first quarter of 2005
would have been $19.66, as compared to $10.72 during the first quarter of 2004.
We believe that this measurement would overstate our actual customer acquisition
cost because it includes significant retention and brand awareness expenses.
Because the allocation of marketing expenses between customer acquisition,
customer retention and brand awareness is necessarily subjective in nature, we
have determined that we will not publicly report customer acquisition cost as a
separate metric going forward. Instead, we will discuss the relationship of our
marketing expenses to our sales growth through more traditional measures such as
marketing expense as a percentage of revenue.

We increased our spending in marketing (excluding staff related costs) by 103%
to $723,000 in the first quarter of 2005, from $357,000 in the first quarter of
2004. While some of the growth in sales was a result of our marketing
initiatives, a large portion of the increased marketing expense was the result
of testing new marketing programs. While this more aggressive growth strategy
will cause our marketing expense as a percentage of revenue to increase in the
short-term, we believe that it is a prudent investment in our business given
that our improved margin structure and average order size result in a relatively
high positive contribution to overhead on a customer's first order.

Our reserve for returns and credit card chargebacks decreased slightly to 36.3%
of gross sales in the first quarter of 2005 from 37.0% in 2004. We believe that
the slight improvement in the return rate is attributable to more detailed
analysis of customer purchase and return habits as well as initiatives related
to the way we photograph and describe our product and improved buying by the
merchant team.

                                        8
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2005

Our inventory includes merchandise that we either purchased with the intention
of holding for the appropriate season or were unable to sell in a prior season
and have determined to hold for the next selling season, subject (in some cases)
to appropriate mark-downs. We have recently increased the amount of inventory
purchased on a pack and hold basis in order to take advantage of opportunities
in the market.

At March 31, 2005, we had an accumulated deficit of $97,020,000. The net losses
and accumulated deficit resulted primarily from the costs associated with
developing and marketing our Web site and building our infrastructure as well as
non cash beneficial conversion charges resulting from decreases in the
conversion price of the Company's Preferred Stock. In order to expand our
business, we intend to invest in sales, marketing, merchandising, operations,
information systems, site development and additional personnel to support these
activities. Therefore, we may continue to incur substantial operating losses.
Although we have experienced revenue growth in recent years, this growth may not
be sustainable and therefore should not be considered indicative of future
performance.

CRITICAL ACCOUNTING POLICIES

Management Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
most significant estimates and assumptions relate to the adequacy of the
allowances for sales returns, the recoverability of inventories and deferred tax
valuation allowances. Actual amounts could differ significantly from these
estimates.

Revenue Recognition

We recognize revenue in accordance with Staff Accounting Bulletin ("SAB") No.
101 "Revenue Recognition in the Financial Statements" as amended. Gross sales
consists primarily of revenue from product sales and shipping and handling
charges and is net of promotional discounts. Net sales represent gross sales,
less provisions for returns, credit card chargebacks, and adjustments for
uncollected sales taxes. Revenue is recognized when all the following criteria
are met:

        .   A customer executes an order.

        .   The product price and the shipping and handling fee have been
            determined.

        .   Credit card authorization has occurred and collection is reasonably
            assured.

        .   The product has been shipped and received by the customer.

Shipping and handling billed to customers are classified as revenue in
accordance with Financial Accounting Standards Board ("FASB") Task Force's
Emerging Issues Task Force ("EITF") No. 00-10, "Accounting for Shipping and
Handling Fees and Costs" ("EITF No. 00-10").

Provision for Returns and Doubtful Accounts

We generally permit returns for any reason within 90 days of the sale.
Accordingly, we establish a reserve for estimated future returns and bad debt at
the time of shipment based primarily on historical data. We perform credit card
authorizations and check the verification of our customers prior to shipment of
merchandise. However, our future return and bad debt rates could differ from
historical patterns, and, to the extent that these rates increase significantly,
it could have a material adverse effect on our business, prospects, cash flows,
financial condition and results of operations.

                                        9
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2005

Inventory Valuation

Inventories, which consist of finished goods, are stated at the lower of cost or
market value. Cost is determined by the first-in, first-out ("FIFO") method. We
review our inventory levels in order to identify slow-moving merchandise and
establish a reserve for such merchandise.

Deferred Tax Valuation Allowance

We recognize deferred income tax assets and liabilities on the differences
between the financial statement and tax bases of assets and liabilities using
enacted statutory rates in effect for the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
realized in income in the period that included the enactment date. We have
assessed the future taxable income and determined that a 100% deferred tax
valuation allowance is necessary. In the event that we were to determine that we
would be able to realize our deferred tax assets, or a portion thereof, an
adjustment to the deferred tax valuation allowance would increase income in the
period such determination is made.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2004

The following table sets forth our statement of operations data, for the three
months ended March 31st. All data is in thousands, except as indicated below:

<TABLE>
<CAPTION>
                                                       2005                       2004                       2003
                                              -----------------------    -----------------------    -----------------------
                                                            As a % of                  As a % of                  As a % of
                                                            Net Sales                  Net Sales                  Net Sales
<S>                                           <C>               <C>      <C>               <C>      <C>               <C>
Net sales                                     $   13,502        100.0%   $   11,114        100.0%   $    8,257        100.0%
Cost of sales                                      8,617         63.8%        7,332         66.0%        6,400         77.5%
                                              ----------                 ----------                 ----------
         Gross profit                              4,885         36.2%        3,782         34.0%        1,857         22.5%

Selling, marketing and fulfillment expenses        4,035         29.9%        3,449         31.0%        2,412         29.2%
General and administrative expenses                1,586         11.7%        1,752         15.8%        1,203         14.6%
                                              ----------                 ----------                 ----------
         Total operating expenses                  5,621         41.6%        5,201         46.8%        3,615         43.8%

Operating loss                                      (736)        (5.4)%      (1,419)       (12.8)%      (1,758)       (21.3)%
Interest (expense) and other income, net            (157)        (1.2)%         289          2.6%          (82)        (1.0)%
                                              ----------                 ----------                 ----------

         Net loss                                   (893)        (6.6)%      (1,130)       (10.2)%      (1,840)       (22.3)%
</TABLE>

We also measure and evaluate ourselves against certain other key operational
metrics. The following table sets forth our actual results based on these other
metrics for the three months ended March 31st, as indicated below:

<TABLE>
<CAPTION>
                                                           2005         2004         2003
                                                     ----------   ----------   ----------
<S>                                                  <C>          <C>          <C>
Average Order Size (including shipping & handling)   $   200.06   $   189.56   $   167.20
New Customers Added during the Period                    36,765       33,335       27,031
</TABLE>

Net sales: Gross sales for the three months ended March 31, 2005 increased by
over 20% to $21,211,000, from $17,650,000 for the three months ended March 31,
2004. For the three months ended March 31, 2005, we recorded a provision for
returns and credit card chargebacks and other discounts of $7,709,000, or
approximately 36.3% of gross sales. For the three months ended March 31, 2004,
the provision for returns and credit card chargebacks and other discounts was
$6,536,000, or approximately 37.0% of gross sales. The decrease in this
provision as a percentage of gross sales resulted from a decrease in the return
rate. We believe that the decrease was primarily caused by more detailed
analysis of customer purchase and return habits as well as initiatives related
to the way we photograph and describe our product and improved buying by the
merchant team.

                                       10
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2005

After the necessary provisions for returns, credit card chargebacks and
adjustments for uncollected sales taxes, our net sales for the three months
ended March 31, 2005 were $13,502,000. This represents an increase of
approximately 21% compared to the three months ended March 31, 2004, in which
net sales totaled $11,114,000. The growth in net sales resulted from both an
increase in the number of new customers acquired (approximately 10% higher
compared to first quarter 2004) and an increase in average order size
(approximately 6% higher compared to the first quarter 2004). For the three
months ended March 31, 2005 revenue from shipping and handling (which is
included in net sales) increased by 15% to $960,000 from $837,000 for the
quarter ended March 31, 2004. Revenue as a whole increased at a slightly higher
rate than shipping and handling revenue because of the increase in average order
size.

Cost of sales: Cost of sales consists of the cost of product sold to customers,
in-bound and out-bound shipping costs, inventory reserves, commissions and
packing materials. Cost of sales for the three months ended March 31, 2005
totaled $8,617,000, resulting in gross margin of approximately 36.2%. Cost of
sales for the three months ended March 31, 2004 totaled $7,332,000, resulting in
gross margin of 34.0%. Gross profit increased by over 29%, to $4,885,000 for the
three months ended March 31, 2005 compared to $3,782,000 for the three months
ended March 31, 2004. The growth in gross margin is primarily the result of
increased product margins which was driven by a merchandising strategy that
focused on negotiating better prices with vendors as well as selling more
in-season product, which has more value to our customers and therefore demands
higher margins.

Selling, marketing and fulfillment expenses: Selling, marketing and fulfillment
expenses increased by approximately 17% in the first three months of 2005
compared to the first three months of 2004. Selling, marketing and fulfillment
expenses were comprised of the following:

<TABLE>
<CAPTION>
                          Three Months Ended   Three Months Ended    Percentage Difference
                            March 31, 2005       March 31, 2004       increase (decrease)
                          ------------------   ------------------    ---------------------
    <S>                   <C>                  <C>                                    <C>
    Marketing             $          894,000   $          579,000                     54.4%
    Operating                      1,704,000            1,501,000                     13.5%
    Technology                       895,000              986,000                     (9.2)%
    E-Commerce                       542,000              383,000                     41.5%
                          ------------------   ------------------    ---------------------
                          $        4,035,000   $        3,449,000                     17.0%
</TABLE>

As a percentage of net sales, our selling, marketing and fulfillment expenses
decreased slightly to 29.9% for the three months ended March 31, 2005 from 31.0%
in the three months ended March 31, 2004.

Marketing expenses include expenses related to paid search, online and print
advertising, fees to marketing affiliates, direct mail campaigns as well as
staff related costs. Marketing expenses increased by a higher percentage than
revenue because we focused more of our marketing initiatives on testing new
marketing programs. While this more aggressive growth strategy will cause our
marketing expense as a percentage of revenue to increase in the short-term, we
believe that it is a prudent investment in our business given that our improved
margin structure and average order size result in a relatively high positive
contribution to overhead on a customers first order.

Operating expenses include all costs related to inventory management,
fulfillment, customer service, and credit card processing. Operating expenses
increased in the first three months of 2005 by approximately 14% compared to the
first three months of 2004 as a result of variable costs associated with the
increased sales volume (e.g., picking and packing orders, processing returns and
credit card fees), as well as costs associated with our temporary clearance
store which was open for an extra month this year. Operating expenses increased
by a lower percentage than revenue due to our higher average order size.

Technology expenses consist primarily of staff related costs, amortization of
capitalized costs and Web site hosting. For the three months ended March 31,
2005 technology expenses decreased by approximately 9% compared to the three
months ended March 31, 2004. This decrease resulted from a decrease in salary
related expenses, as well as a decrease in depreciation expense. We are planning
to move to a new hosting facility during the second quarter. As a result of the
move our depreciation expenses will likely increase in the second quarter by
approximately $36,000.

                                       11
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2005

E-Commerce expenses include expenses related to our photo studio, image
processing, and Web site design. For the three months ended March 31, 2005, this
amount increased by approximately 42% as compared to the three months ended
March 31, 2004, primarily due to an increase in salary related expenses,
temporary help and consultants, as well as an increase in expenses associated
with outside research tools.

General and administrative expenses: General and administrative expenses include
merchandising, finance and administrative salaries and related expenses,
insurance costs, accounting and legal fees, depreciation and other office
related expenses. General and administrative expenses for the three months ended
March 31, 2005 decreased by approximately 9% to $1,586,000 as compared to
$1,752,000 for the three months ended March 31, 2004. The decrease in general
and administrative expenses was primarily the result of reduced consulting and
professional fees, partially offset by an increase in public company expenses.

As a percentage of net sales, general and administrative expenses for the first
quarter of 2005 decreased to approximately 11.7% from 15.8%.

Loss from operations: Operating loss decreased by over 48% in the first three
months of 2005 to $736,000 from $1,419,000 in the first three months of 2004 as
a result of the increase in net sales and gross margin.

Interest and other income: Other income for the three months ended March 31,
2005 decreased to $40,000 from $456,000 for the three months ended March 31,
2004. In the first quarter of 2005, this amount was related primarily to
interest income. During the first quarter of 2004, the amount was comprised of:
$261,000 recognized to adjust a liability associated with warrants issued by us
at fair value as of March 31, 2004, and $169,000 realized in connection with the
judgment we received in the Breider Moore litigation. The remaining increase was
related to income earned on our cash balances.

Interest and other expense: Interest expense for the three months ended March
31, 2005 totaled $197,000, and related primarily to fees paid in connection with
the Loan Facility and interest expense on the Convertible Notes. For the three
months ended March 31, 2004, interest expense totaled $167,000, and related to
fees paid in connection with our Loan Facility, as well as interest expense on
the Convertible Notes.

LIQUIDITY AND CAPITAL RESOURCES

General

At March 31, 2005, we had approximately $4.2 million of liquid assets, entirely
in the form of cash and cash equivalents, and working capital of approximately
$11.5 million (both amounts exclude the $1.26 million of restricted cash). In
addition, as of March 31, 2005, we had approximately $2.6 million of borrowings
committed under the Loan Facility, leaving approximately $900,000 of
availability.

We fund our operations through cash on hand, operating cash flow, as well as the
proceeds of any equity or debt financing. Operating cash flow is affected by
revenue and gross margin levels, as well as return rates, and any deterioration
in our performance on these financial measures would have a negative impact on
our liquidity. Total availability under the Loan Facility is based upon our
inventory levels and is dependent, among other things, on the Company having at
least $7.0 million of tangible net worth, $6.0 million of working capital and
cash balances of at least $750,000 (exclusive of the $1.25 million cash
collateral pledged to Rosenthal to secure our obligations under the Loan
Facility). In addition, both availability under the Loan Facility and our
operating cash flows are affected by the payment terms that we receive from
suppliers and service providers, and the extent to which suppliers require us to
request Rosenthal to provide credit support under the Loan Facility. We believe
that our suppliers' decision-making with respect to payment terms and/or the
type of credit support requested is largely driven by their perception of our
credit rating, which is affected by information reported in the industry and
financial press and elsewhere as to our financial strength. Accordingly,
negative perceptions as to our financial strength could have a negative impact
on our liquidity. In addition, newer vendors generally do not provide us with
payment terms that are as favorable as those we get from existing relationships
and, in some instances, new vendors may require prepayments. During the first
quarter, we increased our prepayments in order to open up new relationships and
gain access to inventory that was not previously available to us. As of March
31, 2005, we had approximately $1.7 of prepaid inventory on our balance sheet.

In addition, our inventory levels as of March 31, 2005 are approximately $3.1
million higher than at the same time last year. The increase in inventory, along
with the increase in prepaid inventory, generally reflects opportunistic buying
of fresh inventory that has not previously been available to us. However, the
increased inventory level, as well as the increased prepayments, could adversely
affect our flexibility in taking advantage of other buying opportunities that
may become available in the near term.

                                       12
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2005

We believe that our current funds, together with working capital, will be
sufficient to enable us to meet our planned expenditures through December 31,
2005. We may seek additional equity or debt financing to maximize the growth of
our business or if anticipated operating results are not achieved. If such
financings are not available on terms acceptable to us, and/or we do not achieve
our sales plan, future operations will need to be modified, scaled back or
discontinued.

Loan Facility

Pursuant to the Loan Facility, Rosenthal provides us with certain credit
accommodations, including loans and advances, factor-to-factor guarantees,
letters of credit in favor of suppliers or factors and purchases of payables
owed to our suppliers. The Financing Agreement was amended in February 2005 to
extend the term until March 30, 2006. The Loan Facility requires us to maintain
tangible net worth of $7.0 million, working capital of at least $6.0 million and
a minimum cash balance of $750,000 (exclusive of $1.25 million in cash
collateral).

Interest accrues monthly on the average daily amount outstanding under the Loan
Facility during the preceding month at a per annum rate equal to the prime rate
plus 1%. We pay an annual facility fee equal to 1.5% of the portion of the Loan
Facility that is provided on the basis of our inventory level. This formula
currently results in an annual facility fee of $33,750. We also pay Rosenthal
certain fees to open letters of credit and guarantees in an amount equal to a
certain percentage of the face amount of the letter of credit for each thirty
(30) days such letter of credit, or a portion thereof, remains open.

In consideration for the Loan Facility, among other things, we granted to
Rosenthal a first priority lien on substantially all of our assets, including
control of all of our cash accounts (including the $1.25 million of cash
collateral, which has been placed in a segregated, restricted account) upon an
event of default and certain of our cash accounts in the event that the total
amount of funded debt loaned to us under the Loan Facility exceeds 90% of the
maximum amount available under the Loan Facility for more than 10 days.

Under the terms of the Loan Facility, Soros has the right to purchase all of our
obligations from Rosenthal at any time during its term.

Commitments and Long Term Obligations

As of March 31, 2005, we had the following commitments and long term
obligations:

<TABLE>
<CAPTION>
                                                                                                More
                                                 Less than         1-3            3-5          than 5
                                    Total         1 year          years          years          years
                                ------------   ------------   ------------   ------------   ------------
<S>                             <C>              <C>             <C>              <C>                 <C>
Marketing and Advertising       $    359,000        359,000             --             --             --
Purchase Orders                 $ 12,906,000     12,906,000
Operating Leases                $  2,215,000        347,000      1,392,000        476,000             --
Capital Leases                  $    119,000         38,000         81,000             --             --
Employment Contracts            $  2,546,000      1,080,000      1,466,000             --             --
Notes payable to shareholders   $  4,000,000             --      4,000,000             --             --
                                ------------   ------------   ------------   ------------   ------------
    Grand total                 $ 22,145,000     14,730,000      6,939,000        476,000             --
</TABLE>

We believe that in order to grow the business, we will need to make additional
marketing and advertising commitments in the future. In addition, we expect to
hire and train additional employees for the operations and development of
Bluefly.com. However, our marketing budget and our ability to hire such
employees is subject to a number of factors, including our results of operations
as well as the amount of additional capital that we raise.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"), which replaces SFAS 123 and supersedes APB No. 25. Under
the new standard, companies will no longer be able to account for stock-based
compensation transactions using the intrinsic value method in accordance with
APB No. 25. Instead, companies will be required to account for such transactions
using a fair-value method and to recognize the expense in the statements of
income. The adoption of SFAS 123R will also require additional accounting
related to the income tax effects and additional

                                       13
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2005

disclosure regarding the cash flow effects resulting from share-based payment
arrangements. SFAS 123R will be effective for annual periods beginning after
June 15, 2005 and allows, but does not require, companies to restate prior
periods. We are evaluating the impact of adopting SFAS 123R and expect that we
will record substantial non-cash stock compensation expenses. The adoption of
SFAS 123R is not expected to have a significant effect on our financial
condition or cash flows but the non-cash charges associated therewith are
expected to have a significant, adverse effect on our results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have assessed our vulnerability to certain market risks, including interest
rate risk associated with financial instruments included in cash and cash
equivalents and our notes payable. Due to the short-term nature of these
investments we have determined that the risks associated with interest rate
fluctuations related to these financial instruments do not pose a material risk
to us.

ITEM 4. CONTROLS AND DISCLOSURES.

As of the end of the period covered by this Form 10-Q, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer along with our Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based
upon that evaluation, our Chief Executive Officer along with our Chief Financial
Officer concluded that our disclosure controls and procedures are effective in
ensuring that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
There have been no changes in our internal control over financial reporting that
occurred during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This report may include statements that constitute "forward-looking" statements,
usually containing the words "believe", "project", "expect", or similar
expressions. These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. The risks and
uncertainties are detailed from time to time in reports filed by us with the
Securities and Exchange Commission, including Forms 8-A, 8-K, 10-Q, and 10-K.
These risks and uncertainties include, but are not limited to, the following:
our history of losses and anticipated future losses; need for additional capital
and potential inability to raise such capital; the risk of default by us under
the Rosenthal financing agreement and the consequences that might arise from us
having granted a lien on substantially all of our assets under that agreement;
potential dilution arising from future equity financings, including potential
dilution as a result of the anti-dilution provisions contained in our Preferred
Stock and Convertible Notes; risks associated with Soros owning a majority of
our stock; the potential failure to forecast revenues and/or to make adjustments
to our operating plans necessary as a result of any failure to forecast
accurately; unexpected changes in fashion trends; cyclical variations in the
apparel and e-commerce markets; risks of litigation for sale of unauthentic or
damaged goods and litigation risks related to sales in foreign countries; the
dependence on third parties and certain relationships for certain services,
including our dependence on U.P.S. (and the risks of a mail slowdown due to
terrorist activity) and our dependence on our third-party web hosting,
fulfillment and customer service centers; online commerce security risks; risks
related to brand owners' efforts to limit our ability to purchase products
indirectly; management of potential growth; the competitive nature of our
business and the potential for competitors with greater resources to enter the
business; the availability of merchandise; the need to further establish brand
name recognition; risks associated with our ability to handle increased traffic
and/or continued improvements to our Web site; rising return rates; dependence
upon executive personnel; the successful hiring and retaining of new personnel;
risks associated with expanding our operations; risks associated with potential
infringement of other's intellectual property; the potential inability to
protect our intellectual property; government regulation and legal
uncertainties; uncertainties relating to the imposition of sales tax on Internet
sales; and risks associated with the agreements with Soros with respect to a
change of control and the liquidation preference of the Preferred Stock owned by
Soros.

                                       14
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2005

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We currently and from time to time, are involved in litigation incidental to the
conduct of our business. However we are not party to any lawsuit or proceeding
which in the opinion of management is likely to have a material adverse effect
on us.

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
        SECURITIES

None.

ITEM 6.  EXHIBITS

The following is a list of exhibits filed as part of this Report:

  EXHIBIT NUMBER                              DESCRIPTION
  --------------    ------------------------------------------------------------
  31.1              Certification Pursuant to Rule 13a-14(a)/15d-14(a)

  31.2              Certification Pursuant to Rule 13a-14(a)/15d-14(a)

  32.1              Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  32.2              Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

                                       15
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2005

                                   SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                                   BLUEFLY, INC.

                                                   By: /s/ Melissa Payner-Gregor
                                                       -------------------------
                                                       Melissa Payner-Gregor
                                                       Chief Executive Officer


                                                   By: /s/ Patrick C. Barry
                                                       -------------------------
                                                       Patrick C. Barry
                                                       Chief Financial Officer

May 3, 2005

                                       16