<PAGE>


                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q



(Mark One)

[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the quarterly period ended March 31, 2001


[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the transition period from ______ to ______



                        Commission File Number: 333-22895

                     ---------------------------------------

                                  BLUEFLY, INC.
                (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 [ ]



As of May 11, 2001, the issuer had outstanding 9,205,331 shares of Common Stock,
$.01 par value.






<PAGE>


                                  BLUEFLY, INC.
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                                                                     PAGE
                                                                                     ----
<S>      <C>                                                                         <C>
Part I . Financial Information

Item 1.  Financial Statements

         Consolidated Balance Sheets as of March 31, 2001 (unaudited) and
              December 31, 2000                                                         3

         Consolidated Statements of Operations for the three months ended
              March 31, 2001 and 2000 (unaudited)                                       4

         Consolidated Statements of Changes in Shareholders' Equity (Deficit)
              and Redeemable Preferred Stock for the year ended December
              31, 2000 and for the three months ended March 31, 2001(unaudited)         5

         Consolidated Statements of Cash Flows for the three months ended
              March 31, 2001 and 2000 (unaudited)                                       6

         Notes to Consolidated Financial Statements                                     7

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                    13

Part II. Other Information                                                             13

Item 1.  Legal Proceedings                                                             13

Item 2.  Changes in Securities and Use Of Proceeds                                     14

Item 3.  Defaults Upon Senior Securities                                               14

Item 4.  Submission of Matters to a Vote of Security Holders                           14

Item 5.  Other Information                                                             15

Item 6.  Exhibits and Reports on Form 8-K                                              15

Signatures                                                                             16

</TABLE>






                                       2
<PAGE>




PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS

                                                   BLUEFLY, INC.
                                            CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           MARCH 31,        DECEMBER 31,
                                                                                             2001               2000
                                                                                             ----               ----
                                                                                          (Unaudited)
<S>                                                                                       <C>               <C>
                                                          ASSETS
Current assets
    Cash                                                                                  $ 10,554,000      $  5,350,000
    Inventories, net                                                                         6,452,000         7,294,000
    Accounts receivable                                                                        904,000           861,000
    Prepaid expenses                                                                           768,000           303,000
    Other current assets                                                                       600,000           540,000
                                                                                          ------------      ------------
          Total current assets                                                              19,278,000        14,348,000

Property and equipment, net                                                                  1,188,000         1,326,000

Other assets                                                                                   153,000           194,000
                                                                                          ------------      ------------

                                                                                          $ 20,619,000      $ 15,868,000
                                                                                          ============      ============

                                  LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

Current liabilities
    Accounts payable                                                                      $  2,276,000      $  3,593,000
    Accrued expenses and other current liabilities                                           1,956,000         2,538,000
    Note payable (net of $302,000 of unamortized discount)                                          --        19,698,000
                                                                                          ------------      ------------
          Total current liabilities                                                          4,232,000        25,829,000

Commitments and contingencies


 Redeemable preferred stock - $.01 par value; 2,000,000 shares authorized and 0
    and 500,000 shares issued and outstanding as of March 31, 2001 and December
    31, 2000, respectively (liquidation preference: $20 per share plus accrued
    dividends)                                                                                      --        11,088,000

Shareholders' equity (deficit)

    Series A Preferred stock - $.01 par value; 500,000 shares authorized and
       500,000 and 0 shares issued and outstanding as of March 31, 2001 and
       December 31, 2000, respectively (liquidation preference: face value plus
       accrued dividends)                                                                        5,000                --

    Series B Preferred stock - $.01 par value; 9,000,000 shares authorized and
       8,910,782 and 0 shares issued and outstanding as of March 31, 2001 and
       December 31, 2000, respectively (liquidation preference: face value plus
       accrued dividends, plus $10,000,000)                                                     89,000                --

    Common stock - $.01 par value; 40,000,000 shares authorized and 9,205,331 and
       4,924,906 shares issued and outstanding as of March 31, 2001 and December 31,
       2000, respectively                                                                       92,000            49,000

    Additional paid-in capital                                                              72,194,000        17,242,000
    Accumulated deficit                                                                    (55,993,000)      (38,340,000)
                                                                                          ------------      ------------
          Total shareholders' equity (deficit)                                              16,387,000       (21,049,000)
                                                                                          ------------      ============
          Total liabilities and shareholders' equity (deficit)                            $ 20,619,000      $ 15,868,000
                                                                                          ============      ============
</TABLE>


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



                                       3
<PAGE>




                                       BLUEFLY, INC.
                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                        (Unaudited)

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED
                                                                                 MARCH 31,
                                                                     --------------------------------
                                                                          2001              2000
                                                                          ----              ----
<S>                                                                  <C>               <C>
Net sales                                                            $  4,646,000      $  3,736,000
Cost of sales                                                           3,363,000         3,068,000
                                                                     ------------      ------------
     Gross profit                                                       1,283,000           668,000


Selling, marketing and fulfillment expenses                             3,541,000         5,139,000
General and administrative expenses                                     1,651,000         1,267,000
                                                                     ------------      ------------

      Total                                                             5,192,000         6,406,000


Operating loss                                                         (3,909,000)       (5,738,000)

Interest income                                                            63,000            73,000

Interest expense (includes a $13,007,000 one-time, non-cash charge
    in connection with the conversion of debt and redeemable
    preferred equity to permanent equity)                             (13,185,000)           (2,000)
                                                                     ------------      ------------

Net loss                                                             $(17,031,000)     $ (5,667,000)


Preferred stock dividends                                              (1,066,000)         (200,000)
                                                                     ------------      ------------

Net loss available to common shareholders                            $(18,097,000)     $ (5,867,000)
                                                                     ============      ============

Basic and diluted loss per common share                                    $(3.57)           $(1.19)
                                                                           ======            ======


Weighted average common shares outstanding                              5,067,587         4,924,906
                                                                        =========         =========
</TABLE>



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



                                       4
<PAGE>



<TABLE>
<CAPTION>
                                                   BLUEFLY, INC.
        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) AND REDEEMABLE PREFERRED STOCK
               YEAR ENDED DECEMBER 31, 2000 AND FOR THE THREE MONTHS ENDED MARCH 31, 2001(UNAUDITED)

                                                                   Series A            Series B
                                                                Preferred Stock     Preferred Stock         Common Stock
                                   Redeemable Preferred Stock    $.01 par value     $.01 par value         $.01 par value
                                   --------------------------    --------------     --------------         --------------
                                                                Number             Number
                                   Number of                      of                 of                 Number
                                     shares         Amount      shares   Amount    shares    Amount    of shares    Amount
                                     ------         ------      ------   ------    ------    ------    ---------    ------
<S>                                <C>        <C>              <C>      <C>       <C>        <C>      <C>         <C>
Balance at December 31, 1999        500,000    $ 10,286,000         --   $   --          --  $    --   4,924,906   $49,000
Issuance of warrants in
   connection with Convertible
   Notes                                 --              --         --       --          --       --          --        --
Issuance of warrants to supplier         --              --         --       --          --       --          --        --
Accrued dividends on Series A
   Preferred Stock                       --         802,000         --       --          --       --          --        --

Net loss                                 --              --         --       --          --       --          --        --
                                 ----------    ------------    -------   ------  ----------  -------   ---------   -------
Balance at December 31, 2000        500,000      11,088,000         --       --          --       --   4,924,906    49,000
Conversion of Redeemable
   Preferred Stock to Preferred
   Stock Series A                  (500,000)    (11,088,000)   500,000    5,000          --       --          --        --
Conversion of debt to Preferred
   Stock Series B                        --              --         --       --   8,910,782   89,000          --        --
Sale of common stock in
   connection with Rights
   Offering ($2.34 per share)
   net of $350,000 of expenses           --              --         --       --          --       --   4,280,425    43,000
Issuance of warrants to lender           --              --         --       --          --       --          --        --
Issuance of warrants in
   exchange for services                 --              --         --       --          --       --          --        --
Issuance of warrants to investor         --              --         --       --          --       --          --        --

Net loss                                 --              --         --       --          --       --          --        --
                                 ----------    ------------    -------   ------  ----------  -------   ---------   -------
Balance at March 31, 2001                --    $         --    500,000   $5,000   8,910,782  $89,000   9,205,331   $92,000
                                 ----------    ------------    =======   ======  ==========  =======   =========   =======


<CAPTION>


                                         Additional
                                          Paid-in      Accumulated
                                          capital        Deficit         Total
                                          -------        -------         -----
<S>                                    <C>          <C>             <C>
Balance at December 31, 1999            $17,482,000  $(17,231,000)   $    300,000
Issuance of warrants in
   connection with Convertible
   Notes                                    467,000            --         467,000
Issuance of warrants to supplier             95,000            --          95,000
Accrued dividends on Series A
   Preferred Stock                         (802,000)           --        (802,000)

Net loss                                         --   (21,109.000)    (21,109.000)
                                        -----------  ------------    ------------
Balance at December 31, 2000             17,242,000   (38,340,000)    (21,049,000)
Conversion of Redeemable
   Preferred Stock to Preferred
   Stock Series A                        18,852,000      (622,000)     18,235,000
Conversion of debt to Preferred
   Stock Series B                        26,318,000            --      26,407,000
Sale of common stock in
   connection with Rights
   Offering ($2.34 per share)
   net of $350,000 of expenses            9,622,000            --       9,665,000
Issuance of warrants to lender               45,000            --          45,000
Issuance of warrants in
   exchange for services                     41,000            --          41,000
Issuance of warrants to investor             74,000            --          74,000

Net loss                                         --   (17,031,000)    (17,031,000)
                                        -----------  ------------    ------------
Balance at March 31, 2001               $72,194,000  $(55,993,000)   $ 16,387,000
                                        ===========  ============    ============
</TABLE>

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


                                       5
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                         THREE MONTHS ENDED
                                                                                              MARCH 31,
                                                                                ----------------------------------
                                                                                       2001              2000
                                                                                       ----              ----


<S>                                                                                <C>              <C>
Cash flows from operating activities

  Net loss                                                                        $(17,031,000)     $ (5,667,000)
  Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                     202,000            56,000
     Warrants issued for service                                                        41,000                --
     Interest expense on conversion of debt to equity                               13,007,000                --
     Changes in operating assets and liabilities:
     (Increase) decrease in
          Inventories                                                                  842,000          (442,000)
          Accounts receivable                                                          (43,000)         (418,000)
          Other current assets                                                          58,000           (99,000)
          Prepaid expenses                                                            (465,000)         (103,000)
          Other assets                                                                  20,000                --
     Increase (decrease) in
          Accounts payable                                                            (466,000)          397,000
          Accrued expenses and other current liabilities                              (582,000)         (624,000)
                                                                                  ------------      ------------
    Net cash used in operating activities                                           (4,417,000)       (6,900,000)
                                                                                  ------------      ------------
Cash flows from investing activities
  Purchase of property and equipment                                                   (44,000)         (125,000)
                                                                                  ------------      ------------
Net cash used in investing activities                                                  (44,000)         (125,000)
                                                                                  ------------      ------------
Cash flows from financing activities
   Net proceeds from Rights Offering                                                 9,665,000                --
   Proceeds from notes payable                                                              --         3,000,000
                                                                                  ------------      ------------
Net cash provided by financing activities                                            9,665,000         3,000,000
                                                                                  ------------      ------------
Net increase (decrease) in cash and cash equivalents                                 5,204,000        (4,025,000)
Cash and cash equivalents - beginning of period                                      5,350,000         7,934,000
                                                                                  ------------      ------------
Cash and cash equivalents - end of period                                         $ 10,554,000      $  3,909,000
                                                                                  ============      ============
Supplemental disclosure of cash flow information:
  Warrant issued to lender                                                        $     45,000      $         --
                                                                                  ============      ============
  Warrant issued to investor                                                      $     74,000      $         --
                                                                                  ============      ============
  Conversion of debt to equity                                                    $ 20,851,000      $         --
                                                                                  ============      ============
</TABLE>

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


                                       6
<PAGE>


                                  BLUEFLY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2001


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 without
audit 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
footnotes 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, 2000.

There have been no changes in significant accounting policies since December 31,
2000. The Company has sustained net losses and negative cash flows from
operations since the establishment of Bluefly.com. The Company's ability to meet
its obligations in the ordinary course of business is dependent on its ability
to establish profitable operations or raise additional financing through public
or private equity financing, collaborative or other arrangements with corporate
sources, or other sources to fund operations. There can be no assurance that the
Company will establish profitable operations, such financing will be
consummated, or that any additional financing or other sources of capital will
be available to the Company upon acceptable terms, or at all. The inability to
obtain additional financing, when needed, would have a material adverse effect
on the Company's business, financial condition and results of operations.


NOTE 2 - THE COMPANY

The Company is a leading Internet retailer of designer fashions and home
accessories at outlet store prices. The Company's full service Web store
("Bluefly.com" or "Web Site") sells over 450 brands of designer apparel,
accessories and home products at discounts of up to 75%. Bluefly.com, which
launched in September 1998, also offers information on current fashion trends.

NOTE 3 - RIGHTS OFFERING

On November 13, 2000, the Company entered into an investment agreement with
affiliates of Soros Private Equity Partners (collectively referred to herein as
"Soros") pursuant to which Soros agreed to invest up to an additional $15
million in the Company, subject to certain conditions. Under the terms of the
agreement, Soros initially invested, in November 2000, an additional $5 million
in the form of a promissory note (the "New Note"), convertible into preferred
stock at a price of $2.34 per share. In February 2001, pursuant to the
agreement, the Company offered the public shareholders of the Company the right
to purchase up to an aggregate of $20 million of common stock (the "Rights
Offering"). Soros purchased the difference between $20 million and the amount
purchased by the public shareholders (approximately $16,000), up to a total of
$10 million, all at a price of $2.34 per share (the "Standby Commitment"). As
part of the transaction, on February 5, 2001, $15 million of convertible
promissory notes (the "Amended Notes") as well as the New Note, and the related
accrued interest converted into 8,910,782 shares of the Company's Series B
Convertible Preferred Stock ("the Series B Preferred Stock") at a price of $2.34
per share. Immediately after the closing of the Rights Offering, Soros
beneficially owned 78% of the outstanding Common Stock of the Company.

The conversion price of the Company's Series A Convertible Preferred Stock
("Series A Preferred Stock") previously issued to Soros and other investors was
reduced to $2.34 per share.

The accompanying financial statements reflect the conversion of the Amended
Notes and the New Note into Series B Preferred Stock at a price of $2.34 per
share, after giving effect to the remaining unamortized discount of $302,000 and
the conversion of accrued interest on both the Amended Notes and New Note of
$851,000 through February 5, 2001 into shares of Series B Preferred Stock. The
Company recorded a beneficial conversion feature of approximately $5,556,000 in
connection with the conversion of the Amended Notes into Series B Preferred
Stock. This amount was credited to additional paid-in capital and charged
against interest expense in accordance with Emerging Issues Task Force Issue No.
98-5 ("EITF No. 98-5"). In addition, as a result of certain changes made to the
Certificate of Designation for the Series A Preferred Stock in connection with
the second closing of the agreement, the Series A Preferred Stock was converted
into permanent equity and the conversion price was reduced from $10.50 to


                                       7
<PAGE>


                                  BLUEFLY, INC.
                                 MARCH 31, 2001


$2.34. This resulted in the recording of approximately $7,771,000 to additional
paid-in capital. The corresponding charge to accumulated deficit was broken out
as follows: $5,000,000 was classified as debt discount on the New Note, and
charged to interest expense, $2,149,000 was classified as interest expense and
$622,000 was assigned to dividends.


NOTE 4 - FINANCING AGREEMENT

On March 30, 2001, the Company entered into a Financing Agreement (the
"Financing Agreement") with Rosenthal & Rosenthal, Inc. ("Rosenthal") pursuant
to which Rosenthal will provide to the Company certain credit accommodations,
including loans or 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 maximum amount available under the Loan
Facility is an amount equal to the lesser of (i) the undrawn amount of the Soros
Guarantee (defined below) plus the lesser of (x) $2 million, (y) 20% of the book
value of the Company's inventory or (z) the full liquidation value of the
Company's inventory or (ii) $10 million. As of March 31, 2001, the Company had
approximately $3.5 million available under the Loan Facility. The Company will
pay interest monthly on the average daily amount outstanding under the Loan
Facility during the preceding month at a per annum rate equal to the prime rate
plus 1%.

In consideration for the Loan Facility, among other things, the Company granted
to Rosenthal a first priority lien (the "Rosenthal Lien") on substantially all
of its assets, including control of all of the Company's cash accounts upon an
event of default and certain of its cash accounts in the event that the total
amount of monies loaned the Company under the Loan Facility exceeds 90% of the
undrawn amount of the Standby Letter of Credit (defined below) for more than 10
days. The Company also issued to Rosenthal a warrant to purchase 50,000 shares
of the Company's Common Stock at an exercise price of $2.34 per share
exercisable for five years. The Company valued the warrant using the
Black-Scholes option pricing model and credited additional paid in capital for
$45,000. This amount is being amortized over the life of the Loan Facility.

In connection with the Loan Facility, the Company entered into a Reimbursement
Agreement with Soros pursuant to which Soros agreed to issue a Standby Letter of
Credit at closing in the amount of $2.5 million in favor of Rosenthal to
guarantee a portion of the Company's obligations under the Financing Agreement.
In addition, during the term of the Financing Agreement, at the Company's
request, Soros will issue another Standby Letter of Credit for an additional
$1.5 million. As used herein, the term "Soros Guarantee" means the total face
amount of all Standby Letters of Credit which Soros is maintaining in connection
with the Loan Facility and the term "Standby Letter of Credit" shall mean any
standby letter of credit issued by Soros in favor of Rosenthal in connection
with the Loan Facility. In consideration for the Soros Guarantee, the Company
granted to Soros a lien (the "Soros Lien") subordinated to the Rosenthal Lien on
substantially all of the Company's assets, and issued to Soros a warrant (the
"Soros Upfront Warrant") to purchase 100,000 shares of the Company's Common
Stock at an exercise price equal to the average closing price of the Company's
Common Stock on the 10 trading days preceding September 15, 2001, exercisable
for ten years beginning on September 16, 2001. The Company accounted for the
warrant in accordance with Accounting Principles Board Opinion No. 14 ("APB No.
14") and credited additional paid in capital for approximately $74,000. This
amount is being amortized over the life of the Loan Facility.

Subject to certain conditions, if the Company defaults on any of its obligations
under the Financing Agreement, Rosenthal has the right to draw upon the Standby
Letter of Credit to satisfy any such obligations. If Rosenthal draws on the
Standby Letter of Credit, pursuant to the terms of the Reimbursement Agreement,
the Company would have the obligation to, among other things, reimburse Soros
for any amounts drawn under such Standby Letter of Credit plus interest accrued
thereon. In addition, to the extent that Rosenthal draws on the Standby Letter
of Credit during the continuance of a default under the Financing Agreement or
at any time that the total amount outstanding under the Loan Facility exceeds
90% of the Standby Letter of Credit, the Company would be required to issue to
Soros another warrant (each a "Contingent Warrant") to purchase a number of
shares of Common Stock equal to the quotient of (a) any amounts drawn under the
Soros Guarantee and (b) 75% of the average closing price of the Company's Common
Stock on the 10 trading days preceding the date of issuance of such warrant.
Each Contingent Warrant will be exercisable for ten years from the date of
issuance at an exercise price equal to 75% of the average closing price of the
Company's Common Stock on the 10 trading days preceding the later of (a) 10
trading days after the date of issuance and (b) September 15, 2001.


                                       8
<PAGE>


                                  BLUEFLY, INC.
                                 MARCH 31, 2001


Under the Financing Agreement, Soros has the right to purchase all of the
Company's obligations to Rosenthal under the Loan Facility from Rosenthal (the
"Buyout Option") at any time during the term of the Financing Agreement. With
respect to such Buyout Option, Soros has the right to request that Rosenthal
make a draw under the Standby Letter of Credit as consideration for Soros'
purchase of such obligations.


NOTE 5 - EARNINGS (LOSS) PER SHARE

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

Diluted earnings (loss) per share is computed by dividing earnings (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, options and warrants to purchase
5,398,562 shares of Common Stock and Preferred Stock convertible into 13,184,286
shares of Common Stock were not included in the computation of diluted earnings
per share because the result of the exercise of such would be antidilutive.


NOTE 6 - RECLASSIFICATIONS

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


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

OVERVIEW

Bluefly is a leading Internet retailer of designer fashion at discounted prices.
We sell over 450 brands of designer clothing, fashion accessories and home
products at discounts ranging from 25% to 75% off of retail prices. We were
incorporated in 1991 under the laws of the state of New York as Pivot
Corporation. In 1994, we changed our name to Pivot Rules, Inc. We had our
initial public offering in May of 1997. In June 1998, we discontinued our golf
sportwear line to devote our time and resources to building Bluefly.com, a Web
site to sell end of season and excess inventory of apparel and accessories. We
launched the Web site in September 1998 and changed our name to Bluefly, Inc. in
October 1998. In February 2001, we changed our state of incorporation from New
York to Delaware.

We derive revenue primarily from the sale of designer products on our Web Site.
Revenue is recognized when goods are received by our customers, which occurs
only after credit card authorization. We generally permit returns for any reason
within 90 days of the sale. Accordingly, we reserve for estimated future returns
and bad debt at the time of shipment based on historical data. However, our
future return and bad debt rates could differ significantly from historical
patterns.

We have incurred substantial costs to develop our Web Site and infrastructure.
In order to expand our business, we intend to invest in sales, marketing,
merchandising, operations, information systems, site development and additional
personnel to support these activities. We therefore expect to continue to incur
substantial operating losses for the foreseeable future.

Our net sales increased over 24% to $4,646,000 for the three months ended March
31, 2001 from $3,736,000 for the three months ended March 31, 2000. Our gross
profit increased by approximately 92%. Gross margin grew to 27.6% in the first
quarter of 2001 from 17.9% in the first quarter of 2000. Operating loss (before
interest income and interest expense) for the first quarter of 2001 decreased to
$3,909,000, or $0.77 per share, from $5,738,000, or $1.17 per share, in the
first quarter of 2000. This decrease was due to an increase in sales, an
increase in gross margin, and a reduction in selling, marketing and fulfillment
expenses.

We have incurred net losses of $17,031,000 or $3.57 per share, for the three
months ended March 31, 2001 as compared to


                                       9
<PAGE>


                                  BLUEFLY, INC.
                                 MARCH 31, 2001


$5,667,000, or $1.19 per share, for the three months ended March 31, 2000. This
increase in net loss is the result of a one-time non-cash charge of $13,007,000
recorded in connection with the conversion of our debt and redeemable equity
into permanent equity. This increase was partially offset by a decrease in net
operating loss as discussed above.

New customer acquisition cost for the three months ended March 31, 2001
decreased by nearly 61% to approximately $41 from approximately $104 for the
first quarter of 2000. For the quarter ended March 31, 2001, we acquired
approximately 24,250 new customers, down approximately 26% from the
approximately 32,600 new customers acquired in the same period in 2000. Although
the number of new customers acquired decreased in the quarter, the effect was
offset by the increase in the percentage of quarterly sales from repeat
customers as well as the increase in average order size. The percentage of total
sales from repeat customers increased to 56% for the quarter ended March 31,
2001 from 40% in 2000 and average order size (including shipping and handling
revenue) grew by approximately 30% to $129 in the first quarter of 2001 compared
to $99 in the first quarter of 2000.

In accordance with Emerging Issue Task Force Issue No. 00-10, we have included
in net revenue, revenues from shipping and handling. Out-bound shipping costs
are included in cost of goods sold. These amounts were previously offset against
each other and included in selling, marketing and fulfillment expenses in the
Statement of Operations. All prior periods have been reclassified to conform
with this presentation.


RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2000

NET SALES: Gross sales, which consists primarily of revenue from product sales
and shipping and handling revenue (before any adjustment for reserves or
promotional discounts), totaled $6,513,000 for the three months ended March 31,
2001. We recorded a provision for returns and credit card chargebacks and other
discounts of $1,867,000, or approximately 28.7% of gross sales. The reserve
allowance takes into account our 90-day return policy and actual experience to
date, which may vary over time. 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, 2001 were $4,646,000. This represents
an increase of over 24% compared to net sales for the three months ended March
31, 2000, in which net sales totaled $3,736,000. The increase in sales is
attributed to an increase in average order size as well as 3% increase in the
number of units sold.

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, 2001
totaled $3,363,000, resulting in gross margin of approximately 27.6%. Cost of
sales for the three months ended March 31, 2000 were $3,068,000, resulting in
gross margin of 17.9%. The increase in gross margin resulted primarily from
improved product margins and (now that out-bound shipping costs are included in
costs of good sold rather than as a part of selling marketing and fulfillment
expenses) from limiting the amount of free shipping that we offered our
customers during the first quarter of 2001 as compared to the same period in
2000.

SELLING, MARKETING AND FULFILLMENT EXPENSES: Selling, marketing and fulfillment
expenses consist of costs associated with online strategic marketing
relationships, print advertising, Web Site hosting, inventory management,
fulfillment costs, and customer service. Selling, marketing and fulfillment
expenses totaled $3,541,000 for the three months ended March 31, 2001. Of the
total selling, marketing and fulfillment expenses for the quarter ended March
31, 2001, marketing expenses related to online and print advertising totaled
approximately $991,000, Web Site hosting costs totaled approximately $712,000,
fulfillment costs totaled approximately $437,000 and salaries related to those
departments totaled $943,000. Selling, marketing and fulfillment expenses for
the three months ended March 31, 2000 were approximately $5,139,000. Of the
total selling, marketing and fulfillment expenses for the quarter ended March
31, 2000, marketing expenses related to online and print advertising totaled
approximately $3,390,000, Web Site hosting costs totaled approximately $460,000,
fulfillment costs totaled approximately $303,000 and salaries related to those
departments totaled $786,000.

The decreased marketing expenses is a result of our effort to increase the
efficiency of our marketing budget. The increase in Web


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                                  BLUEFLY, INC.
                                 MARCH 31, 2001


Site hosting costs resulted from our efforts to improve the speed and stability
of the Web Site and effectively handle traffic to the Web Site. The increased
fulfillment costs were largely attributable to the increased sales volume.

GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
consists of 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, 2001 were $1,651,000 as compared to $1,267,000 for the
three months ended March 31, 2000. The increase in general and administrative
expenses was largely the result of an increase in the number of our employees,
and their related benefits as well as increased professional fees. In addition,
in July 2000 we increased our office space by leasing an additional floor.

INTEREST EXPENSE: Interest expense for the three months ended March 31, 2001
totaled $13,185,000. Included in this amount is approximately $13,007,000 of
non-cash, one-time charges that were incurred in connection with the conversion
of our notes payable and redeemable equity into permanent equity. This amount
also includes interest expense of $175,000, related to the interest on the notes
payable that were issued during fiscal 2000.


LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2001, we had approximately $10.6 million of cash and cash
equivalents and working capital of approximately $15.0 million. In addition, as
of March 31, 2001, there was approximately $3.5 million of credit available
under the Loan Facility described below.

On November 13, 2000, we entered into an investment agreement with affiliates of
Soros pursuant to which Soros agreed to invest up to an additional $15 million
in the Company, subject to certain conditions. Under the terms of the agreement,
Soros initially invested, in November 2000, an additional $5 million in the form
of a New Note, convertible into preferred stock at a price of $2.34 per share.
In February 2001, pursuant to the agreement, we offered the public shareholders
of the Company the right to purchase up to an aggregate of $20 million of common
stock. Soros purchased the difference between $20 million and the amount
purchased by the public shareholders (approximately $16,000), up to a total of
$10 million, all at a price of $2.34 per share. As part of the transaction, on
February 5, 2001, the Amended Notes as well as the New Note, converted into
shares of our Series B Convertible Preferred Stock at a price of $2.34 per
share. Immediately after the closing of the Rights Offering, Soros beneficially
owned 78% of the outstanding Common Stock of the Company.

The conversion price of our Series A Convertible Preferred Stock ("Series A
Preferred Stock") previously issued to Soros and other investors was reduced to
$2.34 per share.

The accompanying financial statements reflect the conversion of the Amended
Notes and the New Notes into Series B Preferred Stock at a price of $2.34 per
share, after giving effect to the remaining unamortized discount of $302,000 and
the conversion of accrued interest on both the Amended Notes and New Notes of
$851,000 through February 5, 2001, into shares of Series B Preferred Stock. We
recorded a beneficial conversion feature of approximately $5,556,000 in
connection with the conversion of the Amended Notes into Series B Preferred
Stock. This amount was credited to additional paid-in capital and charged
against interest expense in accordance with EITF No. 98-5. In addition, as a
result of certain changes made to the Certificate of Designation for the Series
A Preferred Stock in connection with the second closing of the investment
agreement, the Series A Preferred Stock was converted into permanent equity and
the conversion price was reduced from $10.50 to $2.34. This resulted in the
recording of approximately $7,771,000 to additional paid-in capital. The
corresponding charge to accumulated deficit was broken out as follows:
$5,000,000 was classified as debt discount on the New Note, and charged to
interest expense, $2,149,000 was classified as interest expense and $622,000 was
assigned to dividends.

On March 30, 2001, we entered into a Financing Agreement with Rosenthal pursuant
to which Rosenthal will provide us certain credit accommodations, including
loans or advances, factor-to-factor guarantees or letters of credit in favor of
suppliers or factors or purchases of payables owed to our suppliers . The
maximum amount available under the Loan Facility is an amount equal to the
lesser of (i) the undrawn amount of the Soros Guarantee (defined below) plus the
lesser of (x) $2 million, (y) 20% of the book value of


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<PAGE>


                                  BLUEFLY, INC.
                                 MARCH 31, 2001


the Company's inventory or (z) the full liquidation value of the Company's
inventory or (ii) $10 million. We will pay interest monthly on the average daily
amount outstanding under the Loan Facility during the preceding month at a per
annum rate equal to the prime rate plus 1%.

In consideration for the Loan Facility, among other things, we granted to
Rosenthal a first priority lien (the "Rosenthal Lien") on substantially all of
our assets, including control of all of our cash accounts upon an event of
default and certain of our cash accounts in the event that the total amount of
monies loaned us under the Loan Facility exceeds 90% of the undrawn amount of
the Standby Letter of Credit (defined below) for more than 10 days. We also
issued to Rosenthal a warrant to purchase 50,000 shares of our Common Stock at
an exercise price of $2.34 per share exercisable for five years.

In connection with the Loan Facility, we entered into a Reimbursement Agreement
with Soros pursuant to which Soros agreed to issue a Standby Letter of Credit at
closing in the amount of $2.5 million in favor of Rosenthal to guarantee a
portion of our obligations under the Financing Agreement. In addition, during
the term of the Financing Agreement, at our request, Soros will issue another
Standby Letter of Credit for an additional $1.5 million. As used herein, the
term "Soros Guarantee" means the total face amount of all Standby Letters of
Credit which Soros is maintaining in connection with the Loan Facility and the
term "Standby Letter of Credit" shall mean any standby letter of credit issued
by Soros in favor of Rosenthal in connection with the Loan Facility. In
consideration for the Soros Guarantee, we granted to Soros a lien (the "Soros
Lien") subordinated to the Rosenthal Lien on substantially all of our assets,
and issued to Soros a warrant (the "Soros Upfront Warrant") to purchase 100,000
shares of our Common Stock at an exercise price equal to the average closing
price of our Common Stock on the 10 trading days preceding September 15, 2001,
exercisable for ten years beginning on September 16, 2001.

Subject to certain conditions, if we default on any of our obligations under the
Financing Agreement, Rosenthal has the right to draw upon the Standby Letter of
Credit to satisfy any such obligations. If Rosenthal draws on the Standby Letter
of Credit, pursuant to the terms of the Reimbursement Agreement, we would have
the obligation to, among other things, reimburse Soros for any amounts drawn
under such Standby Letter of Credit plus interest accrued thereon. In addition,
to the extent that Rosenthal draws on the Standby Letter of Credit during the
continuance of a default under the Financing Agreement or at any time that the
total amount outstanding under the Loan Facility exceeds 90% of the Standby
Letter of Credit, we would be required to issue to Soros another warrant (each a
"Contingent Warrant") to purchase a number of shares of Common Stock equal to
the quotient of (a) any amounts drawn under the Soros Guarantee and (b) 75% of
the average closing price of our Common Stock on the 10 trading days preceding
the date of issuance of such warrant. Each Contingent Warrant will be
exercisable for ten years from the date of issuance at an exercise price equal
to 75% of the average closing price of our Common Stock on the 10 trading days
preceding the later of (a) 10 trading days after the date of issuance and (b)
September 15, 2001.

Under the Financing Agreement, Soros has the right to purchase all of our
obligations to Rosenthal under the Loan Facility from Rosenthal (the "Buyout
Option") at any time during the term of the Financing Agreement. With respect to
such Buyout Option, Soros has the right to request that Rosenthal make a draw
under the Standby Letter of Credit as consideration for Soros' purchase of such
obligations.

As of March 31, 2001, we had marketing and advertising commitments of
approximately $2.0 million through December 31, 2001. 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 our ability to raise
additional capital.

In order to continue to expand our product offerings, we intend to expand our
relationships with suppliers of end-of-season and excess name brand apparel and
fashion accessories. We expect that our suppliers will continue to include
designers and retail stores that sell excess inventory as well as third-party
end-of-season apparel aggregators. To achieve our goal of offering a wide
selection of top name brand designer clothing and fashion accessories, we may
acquire certain goods on consignment and may explore leasing or partnering
select departments with strategic partners and distributors. Due to our
recurring losses, a number of our suppliers have limited our payment terms and,
in some cases, have required us to pay for merchandise in advance of delivery.
We

                                       12
<PAGE>


                                  BLUEFLY, INC.
                                 MARCH 31, 2001


believe that the Loan Facility will allow us to negotiate more favorable payment
terms with suppliers in the future, although there can be no assurance that this
will be the case.

We anticipate that the proceeds from the New Note, the Rights Offering and the
Financing Agreement together with existing resources and cash generated from
operations, should be sufficient to satisfy our cash requirements through the
end of 2001. However, we may seek additional debt and/or equity financing in
order to maximize the growth of our business. There can be no assurance that any
additional financing or other sources of capital will be available to us upon
acceptable terms, or at all. The inability to obtain additional financing, when
needed, would have a material adverse effect on our business, financial
condition and 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 convertible 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.


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 the company
with the Securities and Exchange Commission, including Forms 8-A, 8-K, 10-Q, and
10-K. These risks and uncertainties include, but are not limited to, the
following: the Company's limited working capital, need for additional capital
and potential inability to raise such capital; the competitive nature of the
business and the potential for competitors with greater resources to enter such
business; risks of litigation for sale of unauthentic or damaged goods and
litigation risks related to sales in foreign countries; availability formulas
under the Rosenthal credit facility which limit the amount of funds available
for borrowing; the Company's potential inability to make repayments under the
Rosenthal credit facility and the possible shareholder dilution that could
result if the Soros standby letter of credit is drawn upon; the risk of default
by the Company under the Rosenthal financing agreement and the consequences that
might arise from the Company having granted a lien on substantially all of its
assets under that agreement; consumer acceptance of the Internet as a medium for
purchasing apparel; recent losses and anticipated future losses; potential
adverse effects on gross margin resulting from mark downs and allowances; the
capital intensive nature of such business (taking into account the need for
advertising to promote such business); the dependence on third parties and
certain relationships for certain services, including uncertainty arising from a
lack of operating history with the company's new fulfillment center; the
successful hiring and retaining of personnel; the dependence on continued growth
of online commerce; rapid technological change; online commerce security risks;
the startup nature of the Internet business; governmental regulation and legal
uncertainties; management of potential growth; and unexpected changes in fashion
trends.


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.


                                       13
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                                  BLUEFLY, INC.
                                 MARCH 31, 2001


ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

The net proceeds from the sale of 6,921 shares of common stock in the Rights
Offering was approximately $16,000. We intend to use these proceeds for working
capital and general corporate purposes.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We held our annual meeting of shareholders for the year 2000 on February 1,
2001. At such meeting, we submitted the following proposals to a vote of our
shareholders:

1.   The reincorporation of the Company from a New York corporation to a
     Delaware corporation (the "Reincorporation");

2.   The issuance of at least 8,547,009 shares of our newly-designated Series B
     Convertible Preferred Stock and up to 4,273,504 shares of our Common Stock
     to certain affiliates of Soros Private Equity Partners LLC, and the change
     of control in the Company resulting therefrom (the "Soros Issuance");

3.   The election of three Class I directors, subject to the approval of the
     Soros Issuance (the "Election");

4.   Amendments to our 1997 Stock Option Plan (as amended, the "Plan") to: (i)
     increase the aggregate number of shares of Common Stock which may be the
     subject of options granted under the Plan from 1,500,000 shares to
     5,400,000 shares and (ii) increase the number of shares as to which any
     participant may be granted options in any fiscal year from 100,000 shares
     to one million shares (the "Plan Amendments"); and

5.   Ratification of appointment of PricewaterhouseCoopers LLP, as independent
     accountants of the Company for the fiscal year ended December 31, 2000,
     ("Appointment of Accountants")

Red Burns, Martin Miller and Robert G. Stevens were elected to serve as Class I
directors of the Company until our annual meeting of shareholders in 2003. Ms.
Burns resigned as a director of the Company effective as of February 5, 2001 in
order to allow the designee of the holders of the Company's newly-issued Series
B Convertible Preferred Stock to serve as a director. As a result of the
consummation of the Reincorporation, the board of directors of the Company is no
longer classified and, therefore, Messrs. Miller and Stevens will serve as
directors of the Company until the next annual meeting of the shareholders. The
votes for the election were tabulated as follows:

    Nominee                          For                     Against
    -------                          ---                     -------

    Red Burns                        5,688,881               96,135
    Martin Miller                    5,689,071               95,945
    Robert G. Stevens                5,688,471               96,545


The Reincorporation was approved by the shareholders, having received two-thirds
of the vote entitled to be voted at the meeting. The Soros Issuance, the Plan
Amendments and the Appointment of Accountants were approved by the shareholders,
having received a majority of the votes cast by the shareholders entitled to
vote at the meeting. The votes for each of these proposals were tabulated as
follows:

Proposal                      For          Against      Abstained     Unvoted
--------                      ---          -------      ---------     -------

Reincorporation               4,067,134    47,045       21,596        1,649,241
Soros Issuance                4,060,114    46,736       28,925        1,649,241
Plan Amendments               5,634,624    126,007      24,385        --
Appointment of Accountants    5,695,685    71,677       17,654        --


                                       14
<PAGE>


                                  BLUEFLY, INC.
                                 MARCH 31, 2001



ITEM 5.  OTHER INFORMATION

     None.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K


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



     EXHIBIT NO.           DESCRIPTION
     -----------           -----------
     10.1                  Promissory Note dated April 27, 2001 by and between
                           the Company and E. Kenneth Seiff



(b) Reports on Form 8-K:

The Company filed a report on Form 8-K, dated February 6, 2001 concerning the
second closing of the investment agreement between the Company and affiliates of
Soros Private Equity Partners LLC and the change in control resulting therefrom.





                                       15
<PAGE>


                                  BLUEFLY, INC.
                                 MARCH 31, 2001


                                   SIGNATURES



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


                                                BLUEFLY, INC.

                                                By: /s/  E. Kenneth Seiff
                                                    ---------------------
                                                E. Kenneth Seiff
                                                CEO and President



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



May  11, 2001







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