================================================================================

                                  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, 2007


[ ]   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 a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer" and "large  accelerated  filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [ ]    Accelerated filer [ ] Non-accelerated filer [X]

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

As of May 9,  2007,  the  issuer had  outstanding  130,927,212  shares of Common
Stock, $.01 par value.

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<PAGE>

                                  BLUEFLY, INC.
                                TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----
Part I.  Financial Information

Item 1.  Financial Statements

         Condensed Balance Sheets as of  March 31, 2007 (unaudited)
                  and December 31, 2006                                       3

         Condensed Statements of Operations for the three months ended
                  March 31, 2007 and 2006 (unaudited)                         4

         Condensed Statements of Changes in Shareholders' Equity for the
                  three months ended March 31, 2007 (unaudited)               5

         Condensed Statements of Cash Flows for the three months ended
                  March 31, 2007 and 2006 (unaudited)                         6

         Condensed Notes to Financial Statements (unaudited)                  7

Item 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                  11

Item 3.  Quantitative and Qualitative Disclosures About Market Risk          15

Item 4.  Controls and Procedures                                             16

Part II. Other Information                                                   16

Item 1.  Legal Proceedings                                                   16

Item 6.  Exhibits                                                            16

Signatures                                                                   17

                                        2
<PAGE>

Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements

                                  BLUEFLY, INC.

CONDENSED BALANCE SHEETS (Unaudited)

<TABLE>
<CAPTION>
                                                                                   MARCH 31,       DECEMBER 31,
                                                                                     2007             2006
                                                                                 -------------    -------------
<S>                                                                              <C>              <C>
                                     ASSETS
Current assets
    Cash and cash equivalents                                                    $  14,254,000    $  20,188,000
    Inventories, net                                                                26,133,000       24,189,000
    Accounts receivable, net of allowance for doubtful accounts                      3,624,000        2,719,000
    Prepaid inventory                                                                  378,000          616,000
    Prepaid expenses                                                                   966,000          341,000
    Other current assets                                                               486,000          553,000
                                                                                 -------------    -------------
             Total current assets                                                   45,841,000       48,606,000

Property and equipment, net                                                          4,015,000        3,573,000

Other assets                                                                           236,000          251,000
                                                                                 -------------    -------------
             Total assets                                                        $  50,092,000    $  52,430,000
                                                                                 =============    =============

Current liabilities
    Accounts payable                                                             $   5,331,000    $   4,822,000
    Allowance for sales returns                                                      4,381,000        5,043,000
    Accrued expenses and other current liabilities                                   1,509,000        1,908,000
    Deferred revenue                                                                 2,580,000        2,830,000
                                                                                 -------------    -------------
             Total current liabilities                                              13,801,000       14,603,000

             Total liabilities                                                   $  13,801,000    $  14,603,000
                                                                                 =============    =============

Commitments and contingencies

Shareholders' equity
    Series F Preferred stock - $.01 par value; 7,000 shares authorized,
     571.43 issued and outstanding as of March 31, 2007 and December 31, 2006
     (liquidation preference: $571,000 plus accrued dividends of  $73,000, and
     $62,000 as of March 31, 2007 and December 31, 2006, respectively)                      --               --

    Common stock - $.01 par value; 152,000,000 and 92,000,000 shares
     authorized as of March 31, 2007 and December 31, 2006, respectively,
     131,036,059 and 130,484,854, issued as of March 31, 2007 and
     December 31, 2006, respectively, 130,909,156 and 130,484,854 shares
     outstanding as of March 31, 2007 and December 31, 2006, respectively            1,309,000        1,305,000
    Treasury Stock                                                                    (160,000)              --
    Additional paid-in capital                                                     154,242,000      152,519,000
    Accumulated deficit                                                           (119,100,000)    (115,997,000)
                                                                                 -------------    -------------
           Total shareholders' equity                                               36,291,000       37,827,000
                                                                                 -------------    -------------
           Total liabilities and shareholders' equity                            $  50,092,000    $  52,430,000
                                                                                 =============    =============
</TABLE>

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

                                        3
<PAGE>

                                  BLUEFLY, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                   THREE MONTHS ENDED
                                                       MARCH 31,
                                             ------------------------------
                                                 2007             2006
                                             -------------    -------------
Net sales                                    $  22,108,000    $  16,876,000
Cost of sales                                   13,734,000       10,037,000
                                             -------------    -------------
     Gross profit                                8,374,000        6,839,000

Selling and fulfillment expenses                 4,399,000        3,433,000
Marketing expenses                               3,611,000        4,031,000
General and administrative expenses              3,586,000        2,427,000
                                             -------------    -------------
      Total operating expenses                  11,596,000        9,891,000

Operating loss                                  (3,222,000)      (3,052,000)

Interest and other income                          195,000           45,000
Interest and other expense                         (76,000)        (257,000)
                                             -------------    -------------

Net loss                                     $  (3,103,000)   $  (3,264,000)

Preferred stock dividends                          (11,000)      (1,231,000)
                                             -------------    -------------

Net loss available to common shareholders    $  (3,114,000)   $  (4,495,000)
                                             =============    =============

Basic and diluted loss per common share      $       (0.02)   $       (0.22)
                                             =============    =============

Weighted average common shares outstanding
(basic and diluted)                            129,629,498       20,367,508
                                             -------------    -------------

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

                                        4
<PAGE>

             CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                     YEAR ENDED DECEMBER 31, 2005, 2006 AND
              FOR THE THREE MONTHS ENDED MARCH 31, 2007 (Unaudited)

<TABLE>
<CAPTION>
                                                PREFERRED STOCK                    COMMON STOCK
                                                $.01 PAR VALUE                     $.01 PAR VALUE
                                       --------------------------------    -------------------------------
                                          NUMBER OF                           NUMBER OF
                                           SHARES            AMOUNT            SHARES           AMOUNT
                                       --------------    --------------    --------------   --------------
<S>                                        <C>           <C>                  <C>           <C>
Balance at January 1, 2005                  9,358,550    $       94,000        15,241,756   $      152,000
                                       --------------    --------------    --------------   --------------
Sale of Series F Preferred Stock
 ($1,000 per share net of
  expenses of $249,000)                         7,000                 -                 -                -

Shares Of Series D Preferred Stock
 Converted into Common Stock                     (823)   $            -         1,454,645           15,000

Shares Of Series F Preferred Stock
 Converted into Common Stock                   (1,720)   $            -           765,481            8,000

Expense recognized in connection
 with Issuance of Options                           -                 -                 -                -

Exercise of Employee Options                        -                 -         1,597,284           16,000

Net Loss                                            -                 -                 -                -
                                       --------------    --------------    --------------   --------------
Balance at December 31, 2005                9,363,007            94,000        19,059,166   $      191,000
                                       --------------    --------------    --------------   --------------
Conversion of Preferred Stock              (9,362,436)          (94,000)       48,545,527          485,000

Stock based compensation                            -                 -                 -                -

Sale of Common Stock, net of
 issuance expenses of
 approximately $2.0 million                         -                 -        60,975,610          610,000

Issuance of Common Stock to
 Placement Agent                                    -                 -         1,000,000           10,000

Warrants Issued to Third-Party                      -                 -                 -                -

Dividends Paid to Related
 Party Shareholders                                 -                 -                 -                -

Deemed Dividends related to
 beneficial conversion on
 Series F Preferred Stock                           -                 -                 -                -

Exercise of Employee Options                        -                 -            43,330                -

Issuance of Restricted Stock                        -                 -           861,221            9,000

Net Loss                                            -                 -                 -                -
                                       --------------    --------------    --------------   --------------
Balance at December 31, 2006                      571    $            -       130,484,854   $    1,305,000
                                       --------------    --------------    --------------   --------------
Stock based compensation                            -                 -                 -                -

Issuance of Restricted Stock                        -                 -           414,942            4,000

Purchase of Treasury Stock                          -                 -                 -                -

Exercise of Employee Options                        -                 -             7,500                -

Exercise of Related Party Warrant                   -                 -             1,860                -

Net Loss                                            -                 -                 -                -
                                       --------------    --------------    --------------   --------------
Balance at March 31, 2007                         571    $            -       130,909,156   $    1,309,000
                                       --------------    --------------    --------------   --------------

<CAPTION>
                                               TREASURY STOCK
                                       -------------------------------      ADDITIONAL                            TOTAL
                                          NUMBER OF                          PAID-IN          ACCUMULATED     SHAREHOLDERS'
                                           SHARES           AMOUNT           CAPITAL            DEFICIT           EQUITY
                                       --------------   --------------    --------------    --------------    --------------
<S>                                           <C>       <C>               <C>               <C>               <C>
Balance at January 1, 2005                          -   $            -    $  107,270,000    $  (96,127,000)   $   11,389,000
                                       --------------   --------------    --------------    --------------    --------------
Sale of Series F Preferred Stock
 ($1,000 per share net of
  expenses of $249,000)                             -                -         6,751,000                 -         6,751,000

Shares Of Series D Preferred Stock
 Converted into Common Stock                        -                -           (15,000)                -                 -

Shares Of Series F Preferred Stock
 Converted into Common Stock                        -                -            (8,000)                -                 -

Expense recognized in connection
 with Issuance of Options                           -                -            41,000                 -            41,000

Exercise of Employee Options                        -                -         1,488,000                 -         1,504,000

Net Loss                                            -                -                 -        (3,820,000)       (3,820,000)
                                       --------------   --------------    --------------    --------------    --------------
Balance at December 31, 2005                        -                -    $  115,527,000    $  (99,947,000)   $   15,865,000
                                       --------------   --------------    --------------    --------------    --------------
Conversion of Preferred Stock                       -                -          (391,000)                -                 -

Stock based compensation                            -                -         4,454,000                 -         4,454,000

Sale of Common Stock, net of
 issuance expenses of
 approximately $2.0 million                         -                -        47,420,000                 -        48,030,000

Issuance of Common Stock to
 Placement Agent                                    -                -         1,070,000                 -         1,080,000

Warrants Issued to Third-Party                      -                -            67,000                 -            67,000

Dividends Paid to Related
 Party Shareholders                                 -                -       (19,512,000)                -       (19,512,000)

Deemed Dividends related to
 beneficial conversion on
 Series F Preferred Stock                           -                -         3,857,000        (3,857,000)                -

Exercise of Employee Options                        -                -            36,000                 -            36,000

Issuance of Restricted Stock                        -                -            (9,000)                -                 -

Net Loss                                            -                -                 -       (12,193,000)      (12,193,000)
                                       --------------   --------------    --------------    --------------    --------------
Balance at December 31, 2006                        -   $            -    $  152,519,000    $ (115,997,000)   $   37,827,000
                                       --------------   --------------    --------------    --------------    --------------
Stock based compensation                            -                -         1,721,000                 -         1,721,000

Issuance of Restricted Stock                        -                -            (4,000)                -                 -

Purchase of Treasury Stock                    126,903         (160,000)                -                 -          (160,000)

Exercise of Employee Options                        -                -             6,000                 -             6,000

Exercise of Related Party Warrant                   -                -                 -                 -                 -

Net Loss                                            -                -                 -        (3,103,000)       (3,103,000)
                                       --------------   --------------    --------------    --------------    --------------
Balance at March 31, 2007                     126,903   $     (160,000)   $  154,242,000    $ (119,100,000)   $   36,291,000
                                       --------------   --------------    --------------    --------------    --------------
</TABLE>

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

                                        5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                                ------------------------------
                                                                                    2007             2006
                                                                                -------------    -------------
<S>                                                                             <C>              <C>
Cash flows from operating activities
  Net loss                                                                      $  (3,103,000)   $  (3,264,000)
  Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                    423,000          353,000
     Stock based compensation                                                       1,721,000          612,000
     Warrant issued to consultant                                                          --           67,000
     Provisions for returns                                                          (663,000)        (629,000)
     Bad debt expense                                                                 155,000           43,000
     Reserve for inventory obsolescence                                               302,000          240,000
     Warrant issued to supplier                                                            --           92,000
     Changes in operating assets and liabilities:
  (Increase) decrease in
        Inventories                                                                (2,246,000)      (4,787,000)
        Accounts receivable                                                        (1,060,000)      (1,274,000)
        Prepaid expenses                                                             (387,000)         960,000
        Other current assets                                                          (93,000)          34,000
     Increase (decrease) in
        Accounts payable                                                              509,000        2,063,000
        Accrued expenses and other current liabilities                               (224,000)        (186,000)
        Interest payable to related party shareholders                                     --          149,000
        Deferred revenue                                                             (250,000)         672,000
                                                                                -------------    -------------
Net cash used in operating activities                                              (4,916,000)      (4,855,000)
                                                                                -------------    -------------

Cash flows from investing activities

  Purchase of property and equipment                                                 (850,000)        (110,000)
                                                                                -------------    -------------
  Net cash used in investing activities                                              (850,000)        (110,000)
                                                                                -------------    -------------

Cash flows from financing activities
     Payments of capital lease obligation                                             (14,000)         (14,000)
     Net proceeds from exercise of stock options                                        6,000               --
     Purchase of Treasury Stock                                                      (160,000)              --
                                                                                -------------    -------------
     Net cash used in financing activities                                           (168,000)         (14,000)
                                                                                -------------    -------------

Net decrease in cash and cash equivalents                                          (5,934,000)      (4,979,000)
Cash and cash equivalents - beginning of period                                    20,188,000        9,408,000
                                                                                -------------    -------------
Cash and cash equivalents - end of period                                       $  14,254,000    $   4,429,000
                                                                                =============    =============

Supplemental schedule of non-cash investing and financing activities:
 Cash paid for interest                                                         $      23,000    $      49,000
                                                                                =============    =============
 Warrant issued to consultant                                                              --    $      67,000
                                                                                =============    =============
</TABLE>


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

                                        6
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

NOTE 1 - BASIS OF PRESENTATION

The accompanying financial statements include the accounts of Bluefly, Inc. (the
"Company").  The 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  accounting  principles  generally  accepted in the United States of
America for complete  financial  statements.  In the opinion of management,  all
adjustments   (consisting  mainly  of  normal  recurring  accruals)   considered
necessary for a fair statement 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 due to  seasonal  and other  factors.  For
further  information,   refer  to  the  financial  statements  and  accompanying
footnotes  included in the Company's  Form 10-K for the year ended  December 31,
2006.

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,  or find other sources to fund operations.  The
Company believes that its current funds,  together with working capital, and its
availability under its existing Credit Facility, will be sufficient to enable it
to meet its planned expenditures through at least the next 12 months.

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 - OFFER TO EXCHANGE

In January 2007, the Company  commenced an exchange offer (the "Exchange Offer")
pursuant to which it offered eligible  employees and non-employee  directors the
opportunity  to  exchange,  on a  grant-by-grant  basis:  (a) their  outstanding
eligible  stock  options  that were vested as of August 31, 2006 for  restricted
stock awards  consisting of the right to receive  restricted common stock of the
Company (the  "Restricted  Stock Awards");  and (b) their  outstanding  eligible
stock options that were not vested as of August 31, 2006 for deferred restricted
stock unit awards consisting of rights to receive common stock of the Company on
specified  dates  subsequent to vesting (the "Deferred  Stock Unit Awards," and,
together with the Restricted Stock Awards, the "Replacement  Awards").

In order to be eligible to participate in the Exchange  offer,  an option holder
was  required  to (a) have been an  employee  or  non-employee  director  of the
Company on the date of the  Exchange  Offer,  (b) have  neither  ceased to be an
employee or  non-employee  director,  nor have submitted or received a notice of
termination  of  employment  or  resignation,  prior  to the  expiration  of the
Exchange Offer and (c) owned eligible options.  Options eligible for exchange in
the Exchange Offer were  outstanding  options  granted under the Company's three
stock based employee compensation plans (collectively the "Plans") that, in each
case, had an exercise price per share that was greater than $1.50.

The number of Replacement Awards an eligible participant was eligible to receive
in exchange for an eligible  option was determined by a specific  exchange ratio
applicable to that option,  as set forth in the Offer to Exchange included as an
exhibit to the Schedule TO filed by the Company with the Securities and Exchange
Commission  in  connection  with the Exchange  Offer (the "Offer to  Exchange").

Restricted  Stock Awards granted  pursuant to the Exchange Offer vest and become
free  from  restriction  one year from the date of the  exchange,  except if the
grantee made an election  under  Section  83(b) of the Internal  Revenue Code of
1986, as amended,  in which case the restrictions on such Restricted Stock Award
lapsed  with  respect  only to the  number  of  shares  needed  to  satisfy  any
applicable  tax  withholding  as of the date  that  the  Company  received  such
election,  as more fully described in the Offer to Exchange.  The minimum period
for full  vesting of  Deferred  Stock Unit  Awards is two years from the date of
exchange.  The length of the vesting schedule  applicable to each Deferred Stock
Unit Award was based on the final  vesting date of the eligible  stock option as
follows:

                                        7
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

                   DEFERRED STOCK UNIT AWARDS VESTING SCHEDULE
--------------------------------------------------------------------------------
    FINAL VESTING DATE OF     TOTAL VESTING PERIOD     PERCENTAGE OF DEFERRED
    ELIGIBLE STOCK OPTION       OF DEFERRED STOCK        STOCK UNIT AWARDS
 AS OF DATE OF CANCELLATION       UNIT AWARDS                QUARTERLY*
---------------------------   --------------------   ---------------------------
  Prior to August 31, 2007          2 years                   12 1/2%
On or after August 31, 2007         3 years                    8 1/3%

*Deferred Stock Unit Awards vest in substantially  equal quarterly  installments
over the  applicable  vesting  period,  subject to the  participant's  continued
employment with (or service on the Board of Directors of) the Company.

The shares of common  stock  underlying  the  Deferred  Stock Unit Award will be
delivered  on the  Delivery  Date.  The  Delivery  Date is the date on which the
earliest of the following occurs:

                                    DELIVERY DATE
         ------------------------------------------------------------
         o    2  years  from  the  date of  grant  (with  respect  to
              Deferred  Stock Units  Awards  exchanged  for  eligible
              stock  options  with a vesting date prior to August 31,
              2007)

              OR

              3  years  from  the  date of  grant  (with  respect  to
              Deferred  Stock Units  Awards  exchanged  for  eligible
              stock  options  with a vesting  date on or after August
              31, 2007)

         o    Death

         o    The date on which the employee becomes disabled

Melissa  Payner-Gregor,  the Company's chief executive  officer,  and Patrick C.
Barry, the Company's chief financial  officer,  were not eligible to participate
in the Exchange  Offer,  but previously  participated in an exchange in November
2006  through  each of their  employment  agreements,  which is described in the
Offer to Exchange.

Pursuant to the  Exchange  Offer,  options to purchase an aggregate of 1,562,000
shares of Common  Stock were  exchanged  in return for an  aggregate  of 472,471
Restricted  Stock Awards and an aggregate of 394,405 Deferred Stock Unit Awards.
In connection  with the Exchange Offer,  the Company will recognize  $916,000 of
expense over the next three years.

NOTE 4 - FINANCING AGREEMENT

The Company has a three year revolving  credit facility (the "Credit  Facility")
with Wells Fargo Retail  Finance,  LLC ("Wells  Fargo").  Under the terms of the
Credit  Facility,  Wells  Fargo  provides  the Company  with a revolving  credit
facility  and issues  letters of credit in favor of  suppliers  or factors.  The
Credit  Facility  is secured  by a lien on  substantially  all of the  Company's
assets. Historically,  the Credit Facility had also been secured by a $2,000,000
letter of credit issued by an affiliate of Soros Fund  Management  LLC ("Soros")
in favor of Wells Fargo (the "Soros LC"). In August 2006,  Wells Fargo agreed to
release  the  Soros  LC,  and that it would no longer  require  an  availability
reserve  (although  it has the right  under the  Credit  Facility  to  establish
reserves in the future, as it deems appropriate).  In return, the Company agreed
to maintain a minimum cash balance of $5,000,000.  Availability under the Credit
Facility is  determined  by a formula  that takes into account the amount of the
Company's  inventory  and  accounts  receivable.  The  maximum  availability  is
currently  $7,500,000,  but can be increased  to  $12,500,000  at the  Company's
request, subject to certain conditions. As of March 31, 2007, total availability
under the Credit Facility was approximately  $7,500,000, of which $2,800,000 was
committed, leaving approximately $4,700,000 available for further borrowings.

Interest  accrues  monthly on the average  daily  amount  outstanding  under the
Credit  Facility  during  the  preceding  month at a per annum rate equal to the
prime rate plus  0.75% or LIBOR  plus  2.75%.  The  Company  also pays a monthly
commitment fee on the unused portion of the facility (i.e.,  $7,500,000 less the
amount of loans  outstanding)  equal to 0.35%. The Company also pays Wells Fargo
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.  For the
three months ended March 31, 2007, the Company incurred approximately $23,000 in
connection with these fees.

                                        8
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

Under the terms of the Credit  Facility,  Soros has the right to purchase all of
the Company's obligations from Wells Fargo at any time if the Company is then in
default under the Credit Facility.

NOTE 5 - LOSS PER SHARE

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

Diluted  loss per  share is  computed  by  dividing  loss  available  to  common
shareholders by the weighted average number of common shares outstanding for the
period,  adjusted to reflect potentially  dilutive  securities.  Due to the loss
from continuing  operations,  the following (i) options and warrants to purchase
shares of Common Stock,  (ii) Preferred Stock  convertible into shares of Common
Stock,  (iii) Restricted Stock Awards that have not yet vested and (iv) Deferred
Stock Unit Awards  ("DSUs") for shares that have not yet been delivered 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, 2007      Exercise Prices    March 31, 2006     Exercise Prices
----------------------------    ---------------      ---------------    -------------      ----------------
<S>                                  <C>               <C>                   <C>            <C>
Options                               3,784,538        $0.80 - $14.38        8,117,316      $0.69  - $16.47
Restricted Stock Awards/DSUs         10,671,614(3)                 --               --                   --
Warrants                              1,510,893         $0.78 - $3.96        1,945,893       $0.78 - $ 3.96
Preferred Stock                         696,341(1)                 --       42,683,619                   --
Convertible Notes                            --                    --               --(2)                --
</TABLE>

(1)  At March 31, 2007, there were 571 shares of Series F Convertible  Preferred
     Stock outstanding that are convertible into approximately 696,341 shares of
     Common Stock (excluding dividends).

(2)  Represented  debt issued in  connection  with the July 2003  financing  and
     October 2003 financing, which was convertible into equity securities of the
     Company sold in any  subsequent  round of  financing,  at the holder's 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. At March 31, 2006, such debt was
     not  convertible  into Common Stock.  In June 2006, all of the  convertible
     notes were repaid.

(3)  Includes both Restricted Stock Awards and DSUs.

NOTE 6 - STOCK BASED COMPENSATION

The  Company  accounts  for stock  based  compensation  in  accordance  with the
provisions  of  Statement  of Financial  Accounting  Standards  No. 123 (revised
2004),  "Share-Based Payment" ("SFAS No. 123(R)"), which requires that the costs
resulting  from  all  share-based  payment  transactions  be  recognized  in the
financial  statements at their fair values.  The Company adopted SFAS No. 123(R)
using the modified prospective  application method under which the provisions of
SFAS No.  123(R)  apply to new awards and to awards  modified,  repurchased,  or
cancelled  after the  adoption  date.  Additionally,  compensation  cost for the
portion of the awards for which the requisite service has not been rendered that
are  outstanding  as of the  adoption  date is  recognized  in the  Statement of
Operations  over the remaining  service  period after the adoption date based on
the award's original estimate of fair value.  Results for prior periods have not
been restated.  Total share-based compensation expense recorded in the Statement
of Operations for the three months ended March 31, 2007 was $1,721,000.

STOCK OPTIONS

The fair value of  options  granted is  estimated  on the date of grant  using a
Black-Scholes option pricing model.  Expected  volatilities are calculated based
on the historical volatility of the Company's Common Stock.  Management monitors
share option exercise and employee  termination  patterns to estimate forfeiture
rates  within  the  valuation  model.  The  expected  holding  period of options
represents  the  period  of  time  that  options  granted  are  expected  to  be
outstanding. The risk-free interest rate for periods within the expected life of
the option is based on the interest rate of U.S. Treasury notes in effect on the
date of the grant.

                                       9
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

The following table summarizes the Company's stock option activity:

                                            NUMBER            WEIGHTED
                                              OF              AVERAGE
                                            SHARES        EXERCISE PRICE
                                       ---------------    --------------
Balance at December 31, 2006                 5,417,116    $         1.68
                                       ---------------

Options granted                                      -                 -
Options canceled                            (1,625,078)   $         3.07
Options exercised                               (7,500)   $         0.84
                                       ---------------
Balance at March 31, 2007                    3,784,538    $         1.09

Vested at December 31, 2006                  3,682,877    $         1.83
Vested at March 31, 2007                     2,762,847    $         1.08

During the first quarter of 2007,  2,036,644  options  vested.  Of these options
1,116,634 were canceled,  primarily  pursuant to the Exchange  Offer.  The total
fair value of the options vested  (including  those canceled) during the quarter
ended  March 31,  2007 was  approximately  $2.5  million.  There were no options
granted during the quarter.  At March 31, 2007, the aggregate intrinsic value of
the fully  vested  options  was  $251,000  and the  weighted  average  remaining
contractual  life of the options was 5.8 years.  The Company has not capitalized
any  compensation  cost,  or modified any of its stock option  grants during the
first quarter of 2007.  Approximately  7,500 options with an intrinsic  value of
approximately $3,200 were exercised during the first quarter of 2007. No options
were granted during the quarter.  No cash was used to settle equity  instruments
granted under the Plans during the first quarter of 2007.

As of March 31, 2007, the total  compensation  cost related to non-vested awards
not yet  recognized  was  $804,000.  Total  compensation  cost is expected to be
recognized over 2 years on a weighted average basis.

RESTRICTED STOCK AWARDS AND DEFERRED STOCK UNIT AWARDS

The following table is a summary of activity  related to Restricted Stock Awards
and Deferred Stock Unit Awards for employees at March 31, 2007:

<TABLE>
<CAPTION>
                                                       RESTRICTED       DEFERRED STOCK
                                                      STOCK AWARDS       UNIT AWARDS
                                                    ----------------   ----------------
<S>                                                 <C>                <C>
Balance at January 1, 2007                                   861,221          9,862,267
Shares/Units Granted                                         414,942            394,405
Shares/Units Forfeited                                            --                 --
Shares/Units Restriction Lapses                              861,221                 --
Balance at March 31, 2007                                    414,942         10,256,672

Weighted Average Grant Date Fair Value Per share    $           1.27   $           0.95
Aggregate Grant Date Fair Value                     $      1,102,363   $        414,125

Vesting Service Period of Shares Granted                   12 months       12-36 months
Number of shares/units vested at March 31, 2007                   --                 --
Number of shares/units unvested at March 31, 2007            414,942         10,256,672
</TABLE>

For the  quarter  ended  March 31,  2007 the  Company  recognized  an expense of
approximately $1.5 million in connection with these awards.

As of  March  31,  2007  the  total  compensation  cost  related  to  non-vested
restricted  stock and deferred  stock units not yet recognized was $9.8 million.
Total compensation cost is expected to be recognized over a two year period.

                                       10
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

NOTE 7 - NEW ACCOUNTING PRONOUNCEMENTS

In  July  2006,  the  Financial   Accounting  Standards  Board  ("FASB")  issued
Interpretation   No.  48,   "Accounting  for  Uncertainty  in  Income  Taxes--an
interpretation  of FASB  Statement  No. 109" ("FIN  48"),  which  clarifies  the
accounting for  uncertainty in tax positions.  This  Interpretation  requires an
entity to recognize the impact of a tax position in its financial  statements if
that  position  is more likely  than not to be  sustained  on audit based on the
technical  merits of the position.  The provisions of FIN 48 are effective as of
the beginning of fiscal year 2007,  with the cumulative  effect of the change in
accounting principle recorded as an adjustment to opening retained earnings.

The implementation of FIN 48 had no impact on the Company's  financial statement
as the Company has no uncertain tax positions.  The Company is primarily subject
to US federal and New York State income tax. Tax years subsequent to 2004 remain
open to review by US federal and state tax authorities.

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

OVERVIEW

Bluefly,  Inc.  is a leading  Internet  retailer  that  sells over 350 brands of
designer apparel, accessories and home furnishings at discounts of up to 75% off
of retail value.  We launched our Web site in September 1998. Over the past five
years,  our sales have grown at a compounded  annual  growth rate of almost 23%,
while our gross margin  percentage has increased from 22.5% in the first quarter
of 2003 to 37.9% in the first quarter of 2007.

The  increase  in our  margin  and sales  over the past few years is the  direct
result of the merchandise strategy that we began to implement in spring 2004. As
part of that strategy, we are bringing current season merchandise and the latest
fashion  trends  to our  customer  for great  value.  While  there  will be some
fluctuation in our gross margin percentage from quarter to quarter as we further
develop our  merchandising  and marketing  strategy,  we believe that we will be
able to maintain margins in the 38% to 40% range.

We believe that there is an opportunity to accelerate the growth of our business
while  continuing to provide our customers  with the great values that they have
become  accustomed  to. In an effort to take advantage of this  opportunity,  we
have invested much more aggressively in marketing during the past 18 months.

Our net sales  increased by 31% to $22,108,000  for the three months ended March
31, 2007 from  $16,876,000  for the three months ended March 31, 2006. Our gross
margin  decreased  slightly to 37.9% for the three  months  ended March 31, 2007
from 40.5% for the three months  ended March 31,  2006,  but was still above our
levels of 36.2%  for the three  months  ended  March 31,  2005 and 34.0% for the
three  months  ended  March 31,  2004.  Our  gross  profit  increased  by 22% to
$8,374,000  for the three  months ended March 31, 2007 from  $6,839,000  for the
three months ended March 31, 2006.  During the first  quarter of 2007 we changed
our shipping method to better serve our customers.  This negatively impacted the
gross margin  percentage by approximately 1%.  Accordingly,  we will continue to
revaluate our options for a more cost  beneficial  solution.  Our operating loss
increased slightly to $3,222,000 for the three months ended March 31, 2007, from
$3,052  ,000 for the three  months  ended  March 31,  2006.  This  increase  was
primarily  a result of an increase in  stock-based  compensation  as a result of
equity  awards  granted  in the fourth  quarter  of 2006 as well as  incremental
expense  recorded  in  connection  with  the  Offer  to  Exchange,  recorded  in
accordance  with SFAS No.  123(R).  These  increases  were  partially  offset by
decreased marketing expenditures in the first quarter of 2007.

Spending  decreased in marketing  expenses  (excluding  staff related  costs) to
$3,182,000  for the first quarter of 2007 from  $3,648,000 for the first quarter
2006, primarily as a result of the timing of our campaign.

Our reserve for returns and credit card chargebacks  increased to 39.2% of gross
sales for the first  quarter of 2007  compared to 38.1% for the first quarter of
2006.  The  increase  was  primarily  caused by a shift in our  merchandise  mix
towards  higher end products.  However,  we believe that this increase in return
rates has been more than offset by the higher gross  margin  dollars and average
order sizes that have been generated by this shift in merchandise mix.

A portion of our inventory  includes  merchandise  that we either purchased with
the  intention  of holding  for the  appropriate  season or were  unable to sell
through in its  entirety in a prior season and have  determined  to hold for the
next  selling  season,

                                       11
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

subject (in some cases) to  appropriate  mark-downs.  In recent  years,  we have
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, 2007, we had an accumulated deficit of $119,100,000. 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 our Preferred Stock and the payment of dividends to holders
of  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.

RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 2006.

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>
                                               2007                       2006                       2005
                                      ----------------------     ----------------------     ----------------------
                                                     As a %                     As a %                    As a %
                                                     of Net                     of Net                    of Net
                                                     Sales                      Sales                     Sales
                                                   ---------                  ---------                  ---------
<S>                                   <C>              <C>       <C>              <C>       <C>              <C>
Net sales                             $  22,108        100.0%    $  16,876        100.0%    $  13,502        100.0%
Cost of sales                            13,734         62.1%       10,037         59.5%        8,617         63.8%
                                      ---------                  ---------                  ---------
         Gross profit                     8,374         37.9%        6,839         40.5%        4,885         36.2%

Selling and fulfillment expenses          4,399         19.9%        3,433         20.3%        3,141         23.3%
Marketing expenses                        3,611         16.3%        4,031         23.9%          894          6.6%
General and administrative expenses       3,586         16.2%        2,427         14.4%        1,586         11.7%
                                      ---------                  ---------                  ---------
         Total operating expenses        11,596         52.4%        9,891         58.6%        5,621         41.6%

Operating loss                           (3,222)       (14.5)%      (3,052)       (18.1)%        (736)        (5.4)%
Interest (expense) and other income         119          0.5%         (212)        (1.3)%        (157)        (1.2)%
                                      ---------                  ---------                  ---------
         Net loss                        (3,103)       (14.0)%      (3,264)       (19.4)%        (893)        (6.6)%
</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>
                                                        2007         2006         2005
                                                     ----------   ----------   ----------
<S>                                                  <C>          <C>          <C>
Average Order Size (including shipping & handling)   $   269.21   $   243.92   $   200.06
New Customers Added during the Period                    49,385       38,688       36,765
</TABLE>

Net sales:  Gross sales for the three months  ended March 31, 2007  increased by
approximately  33% to $36,367,000  from  $27,245,000  for the three months ended
March 31,  2006.  For the three  months  ended  March 31,  2007,  we  recorded a
provision  for  returns  and credit  card  chargebacks  and other  discounts  of
$14,259,000,  or approximately  39.2% of gross sales. For the three months ended
March 31, 2006, the provision for returns and credit card  chargebacks and other
discounts was $10,369,000,  or approximately  38.1% of gross sales. The increase
in this  provision as a percentage  of gross sales  resulted from an increase in
the return rate. The increase was primarily caused by a shift in our merchandise
mix towards  higher end  products.  However,  we believe  that this  increase in
return rates has been more than offset by the higher  gross  margins and average
order sizes that have been generated by this shift in merchandise mix.

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,  2007  were  $22,108,000.   This  represents  an  increase  of
approximately  31% compared to the

                                       12
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

three months ended March 31, 2006, in which net sales totaled  $16,876,000.  The
growth  in net  sales  resulted  from  both an  increase  in the  number  of new
customers  acquired (over 27% higher compared to the first three months of 2006)
and an  increase  in average  order size (over 10% higher  compared to the first
three months of 2006).  For the three months ended March 31, 2007,  revenue from
shipping and handling (which is included in net sales)  increased  approximately
25% to $1,202,000 from $965,000 for the three months ended March 31, 2006.

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,  2007
totaled  $13,734,000,  resulting in gross margin of approximately 37.9%. Cost of
sales for the three months ended March 31, 2006 totaled  $10,037,000,  resulting
in  gross  margin  of  40.5%.  The  gross  margin  was  negatively  effected  by
approximately  1% due to a new shipping method that we used in the first quarter
of 2007.  We will  continue to evaluate our options in order to find a more cost
beneficial solution.  Gross profit increased by approximately 22%, to $8,374,000
for the three months ended March 31, 2007 compared to  $6,839,000  for the three
months ended March 31, 2006. The growth in gross profit was primarily the result
of  increased  average  order size and growth in sales,  which was driven by the
continuing success of our merchandising  strategy,  which focuses on negotiating
better prices with vendors as well as selling more in-season product.  In-season
merchandise  has more  value to our  customers  and  therefore  commands  higher
margins.

Marketing  expenses:  Marketing  expenses decreased by 10% to $3,611,000 for the
three  months  ended March 31, 2007 from  $4,031,000  for the three months ended
March 31, 2006.

Marketing  expenses include  expenses  related to paid search,  online and print
advertising,  television, fees to marketing affiliates, direct mail campaigns as
well as staff  related  costs.  As a  percentage  of net  sales,  our  marketing
expenses decreased to 16.3% for the three months ended March 31, 2007 from 23.9%
for the three  months  ended  March 31,  2006.  Total  expenses  related  to the
national  print and television  advertising  campaign for the three months ended
March 31, 2007  totaled  $1.9  million  compared  to $2.9  million for the three
months ended March 31, 2006,  and some of this decrease is related to the timing
of the launch.  The decrease in marketing  expenses in the first quarter of 2007
compared  to the  first  quarter  of 2006 is  attributable  to an  approximately
$981,000 decrease in costs related to the national  advertising  campaign.  This
decrease was partially  offset by the following  increases:  $254,000 related to
paid search, $65,000 in affiliate expenses, $54,000 in direct mail campaigns and
$43,000 related to comparison engines.

Selling and fulfillment expenses:  Selling and fulfillment expenses increased by
28% in the first three  months of 2007  compared  to the first  three  months of
2006. Selling and fulfillment expenses were comprised of the following:

<TABLE>
<CAPTION>
                                                                                            Percentage
                   Three Months                        Three Months                         Difference
                      Ended           As a % of            Ended           As a % of         increase
                  March 31, 2007      Net Sales       March 31, 2006       Net Sales        (decrease)
                  --------------    --------------    --------------    --------------    --------------
<S>               <C>                         <C>     <C>                         <C>                 <C>
Operating         $    2,266,000              10.2%   $    1,750,000              10.4%               29%
Technology             1,167,000               5.3%          971,000               5.7%               20%
E-Commerce               966,000               4.4%          712,000               4.2%               36%
                  --------------    --------------    --------------    --------------    --------------
                  $    4,399,000              19.9%   $    3,433,000              20.3%               28%
</TABLE>

As a percentage of net sales, our selling and fulfillment  expenses decreased to
19.9% for the three  months ended March 31, 2007 from 20.3% for the three months
ended March 31, 2006.

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 2007 by approximately 29% compared to the
first three  months of 2006 as a result of variable  costs  associated  with the
increased sales volume (e.g., picking and packing orders and processing returns)
and an increase in customer  service and salary  related  expenses.  Included in
operating expenses for 2006, was a refund from one of our credit card processors
due to the fact  that it had  charged  us at  incorrect  rates  during  previous
periods.

Technology  expenses consist  primarily of staff related costs,  amortization of
capitalized  costs and Web site  hosting.  For the three  months ended March 31,
2007,  technology  expenses increased by approximately 20% compared to the three
months ended March 31, 2006.  This increase  resulted from an increase in salary
related  expenses,  as well as an increase in  software  support,  depreciation,
training  and web hosting  expenses.  The  increase  was  partially  offset by a
decrease in consulting  expenses as most

                                       13
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

of the  consulting  expenses  incurred in the first quarter 2007 were related to
the development of our new Web site and capitalized  accordingly.  For the three
months ended March 31, 2007,  approximately $534,000 of expenses was capitalized
in connection with the development of our new Web site.

E-Commerce  expenses  include  expenses  related  to  our  photo  studio,  image
processing,  and Web site  design.  For the three  months  ended March 31, 2007,
e-commerce  expenses  increased  by  approximately  36% as compared to the three
months  ended March 31,  2006,  primarily  due to an increase in salary  related
expenses  as well as an  increase  in  expenses  associated  with photo  shoots,
supplies and research tools.  In addition,  for the three months ended March 31,
2007,  equity based  compensation  increased  compared to the three months ended
March 31, 2006, as a result of the Exchange Offer and new equity awards.

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, 2007  increased  by  approximately  48% to  $3,586,000  as compared to
$2,427,000  for the three months  ended March 31, 2006.  The increase in general
and  administrative  expenses was  primarily  the result of the  recording of an
additional  $999,000  of equity  based  compensation  related  to equity  awards
granted during the fourth quarter of 2006 (stock based compensation  expense was
approximately $1.5 million in the first quarter 2007 compared to $481,000 in the
first quarter 2006) as well as increased  consulting  and  professional  fees of
$33,000.

As a percentage of net sales, general and administrative  expenses for the first
three months of 2007 increased to  approximately  16.2% from 14.4% for the first
three months of 2006.

Loss from  operations:  Operating  loss  increased  slightly  in the first three
months of 2007 to $3,222,000 from $3,052,000 in the first three months of 2006.

Interest  and other  income:  Other  income for the three months ended March 31,
2007  increased  to $195,000  from  $45,000 for the three months ended March 31,
2006.  These  amounts  related  primarily to interest  income earned on our cash
balances.

Interest and other  expense:  Interest  expense for the three months ended March
31, 2007 totaled $76,000,  compared to $257,000 for the three months ended March
31, 2006.  Interest  expense for the three months ended March 31, 2006  included
fees paid in connection with our Credit Facility, as well as interest expense on
our then outstanding promissory notes.

LIQUIDITY AND CAPITAL RESOURCES

General

At  March  31,  2007,  we had  approximately  $14.3  million  in cash  and  cash
equivalents.  Working  capital at March 31, 2007 and 2006 was $32.0  million and
$15.7  million,  respectively.  Working  capital at December  31, 2006 was $34.0
million.  In addition,  as of March 31, 2007, we had approximately  $2.8 million
committed  under the Credit  Facility,  leaving  approximately  $4.7  million of
availability.

We fund  our  operations  through  cash on  hand,  operating  cash  flow and 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  with  respect  to these  financial  measures  would  have a
negative impact on our liquidity.  Total  availability under the Credit Facility
is based primarily upon our inventory  levels.  In addition,  both  availability
under the Credit  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 Wells Fargo to provide  credit
support under the Credit  Facility.  In some instances,  new vendors may require
prepayments.   We  may  make   prepayments   in  order  to  open  up  these  new
relationships,  or to gain  access to  inventory  that  would not  otherwise  be
available to us. In addition,  we sometimes make  prepayments in connection with
our advertising  campaign, as in some circumstances we need to pay in advance of
production.  As of March 31,  2007,  we had  approximately  $378,000  of prepaid
inventory on our balance sheet.

Our inventory levels as of March 31, 2007 were approximately $4.8 million higher
than at March 31, 2006. The increase in inventory  generally  reflects a ramp up
in connection  with our sales growth.  However,  the increased  inventory  level
could  adversely  affect our  flexibility  in taking  advantage  of other buying
opportunities  that may become  available in the near term.

                                       14
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

On June 15, 2006, we raised $50 million of additional  capital  through the sale
of 60,975,610  shares of our Common  Stock.  We used $25 million of the proceeds
from such sale to pay all accrued but unpaid  dividends on the  Preferred  Stock
converted by Soros in  connection  with such sale and to payoff the  convertible
promissory notes held by Soros.  The remaining  proceeds from the sale are being
used for general corporate purposes.

We believe  that our current  funds,  together  with  operating  cash flow,  and
availability  under our existing Credit Facility will be sufficient to enable us
to meet our planned expenditures through at least the next 12 months.

Credit Facility

In July 2005, we entered into a new three year  revolving  credit  facility with
Wells Fargo.  Pursuant to the Credit  Facility,  Wells Fargo  provides us with a
revolving  loan and issues  letters of credit in favor of  suppliers or factors.
The Credit Facility is secured by a lien on all of our assets. Historically, the
Credit  Facility had also been  secured by the Soros LC. In August  2006,  Wells
Fargo  agreed to release  the Soros LC,  and that it would no longer  require an
availability  reserve  (although  it has the right under the Credit  Facility to
establish reserves in the future, as it deems appropriate). In return, we agreed
to maintain a minimum cash balance of $5,000,000.  Availability under the Credit
Facility is  determined  by a formula  that takes into account the amount of our
inventory  and  accounts  receivable.  The  maximum  availability  is  currently
$7,500,000,  but can be increased  to  $12,500,000  at our  request,  subject to
certain  conditions.  As of March 31, 2007, total  availability under the Credit
Facility was approximately $7,500,000 of which $2,800,000 was committed, leaving
approximately $4,700,000 available for further borrowings.

Interest  accrues  monthly on the average  daily  amount  outstanding  under the
Credit  Facility  during  the  preceding  month at a per annum rate equal to the
prime rate plus 0.75% or LIBOR plus 2.75%. We also pay a monthly  commitment fee
on the unused portion of the facility (i.e., $7,500,000 less the amount of loans
outstanding)  equal to  0.35%.  We also pay  Wells  Fargo  certain  fees to open
letters  of credit  and  guarantees  in an amount  equal to a certain  specified
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.

Under the terms of the Credit  Facility,  Soros has the right to purchase all of
our obligations from Wells Fargo at any time if we are then in default under the
Credit Facility.

Commitments and Long Term Obligations

As  of  March  31,  2007,  we  had  the  following  commitments  and  long  term
obligations:

<TABLE>
<CAPTION>
                                             Less than         1-3           3-5        More than 5
                               Total          1 year          years         years          years
                            ------------   ------------   ------------   ------------   ------------
<S>                         <C>              <C>             <C>                   <C>            <C>
Marketing and Advertising   $    671,000        671,000                            --             --
Purchase Orders               14,058,000     14,058,000             --             --             --
Operating Leases               1,280,000        486,000        794,000             --             --
Technology Commitments           206,000        206,000             --             --             --
Employment Contracts           3,883,000      2,032,000      1,851,000             --             --
                            ------------   ------------   ------------   ------------   ------------
     Grand total            $ 20,098,000     17,453,000      2,645,000             --             --
</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.

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.  Due  to  the  short-term  nature  of  these  instruments  we  have
determined that the risks associated with interest rate fluctuations  related to
these financial instruments do not pose a material risk to us.

                                       15
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

ITEM 4. CONTROLS AND PROCEDURES.

As of the end of the period covered by this Form 10-Q (the  "Evaluation  Date"),
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, as of the Evaluation Date, our
disclosure  controls and procedures were effective in ensuring that  information
required to be  disclosed  by us in the reports that we file or submit under the
Exchange Act were recorded, processed,  summarized and reported, within the time
periods  specified  in the  Commission's  rules and forms and are  effective  to
ensure that  information  required to be  disclosed by us in the reports that we
file or submit under the Exchange Act is  accumulated  and  communicated  to our
management,  including our principal executive and principal financial officers,
to allow timely  decisions  regarding  required  disclosure.  There have been no
changes in our internal  control over financial  reporting that occurred  during
the Company's most recent fiscal quarter that have materially  affected,  or are
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;  the  success  of our
advertising campaign; risks associated with Soros, private funds associated with
Maverick  Capital Ltd. and private funds  associated  with and Prentice  Capital
Management,  LP each owning a  significant  portion 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;
the risk of default by us under the Credit  Facility and the  consequences  that
might  arise from us having  granted a lien on  substantially  all of our assets
under that  agreement;  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;  and  uncertainties  relating to the  imposition  of sales tax on
Internet sales.

PART II  - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 6.  EXHIBITS

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

EXHIBIT NUMBER                                 DESCRIPTION
--------------      ------------------------------------------------------------
     10.1           Offer  to   Exchange,   dated  as  of   January   25,   2007
                    (incorporated  by  reference  to  Exhibit  (a)(1)(A)  to the
                    Schedule TO filed by the  Company  with the  Securities  and
                    Exchange Commission on January 25, 2007).

     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

                                       16
<PAGE>

                                  BLUEFLY, INC.
                                 MARCH 31, 2007

                                   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 9, 2007

                                       17