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 June 30, 2008

[ ]      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 Identification No.)
        incorporation or organization)

               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, a non-accelerated filer  or a smaller reporting company.  See
the definitions of "large  accelerated filer," "accelerated filer"  and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated      Accelerated       Non-accelerated      Smaller reporting
    filer [ ]           filer [ ]           filer [ ]            company [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 August 12,  2008, the issuer had  outstanding 13,287,437 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

         Condensed Balance Sheets as of June 30, 2008 (unaudited)
            and December 31, 2007                                                3

         Condensed Statements of Operations for the six months ended
            June 30, 2008 and 2007 (unaudited)                                   4

         Condensed Statements of Operations for the three months ended
            June 30, 2008 and 2007 (unaudited)                                   5

         Condensed Statements of Cash Flows for the six months ended
            June 30, 2008 and 2007 (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             17

Item 4T. Controls and Procedures                                                17

Part II. Other Information                                                      18

Item 1.  Legal Proceedings                                                      18

Item 4.  Submission of Matters to a Vote of Security Holders                    18

Item 6.  Exhibits                                                               19

Signatures                                                                      20
</TABLE>

                                        2
<PAGE>

Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements

                                                BLUEFLY, INC.

CONDENSED BALANCE SHEETS (Unaudited)

<TABLE>
<CAPTION>
                                                                                  June 30,      December 31,
                                                                                    2008            2007
                                                                                    ----            ----

                                                   ASSETS
<S>                                                                             <C>             <C>
Current assets
  Cash and cash equivalents                                                       $2,591,000      $6,730,000
  Inventories, net                                                                25,255,000      28,492,000
  Accounts receivable, net of allowance for doubtful accounts                      2,492,000       2,102,000
  Prepaid inventory                                                                  106,000         294,000
  Prepaid expenses                                                                   832,000         777,000
  Other current assets                                                               652,000         416,000
                                                                                ------------    ------------
        Total current assets                                                      31,928,000      38,811,000

Property and equipment, net                                                        6,784,000       6,019,000

Other assets                                                                         190,000         189,000
                                                                                ------------    ------------
     Total assets                                                                $38,902,000     $45,019,000
                                                                                ============    ============
Current liabilities
  Accounts payable                                                                $7,615,000      $8,460,000
  Allowance for sales returns                                                      3,342,000       4,204,000
  Accrued expenses and other current liabilities                                   1,352,000       2,052,000
  Deferred revenue                                                                 2,732,000       3,206,000
                                                                                ------------    ------------
     Total current liabilities                                                    15,041,000      17,922,000

Other long-term obligations                                                               --          60,000
                                                                                ------------    ------------
     Total liabilities                                                           $15,041,000     $17,982,000
                                                                                ------------    ------------
Commitments and contingencies

Shareholders' equity
  Series F Preferred stock - $.01 par value; 7,000 shares authorized, 571.43
     issued and outstanding as of June 30, 2008 and December 31, 2007
     (liquidation preference: $571,000 plus accrued dividends of $127,000, and
     $105,000 as of June 30, 2008 and December 31, 2007, respectively)                    --              --
  Common stock - $.01 par value; 200,000,000 shares authorized as of
     June 30, 2008 and December 31, 2007, respectively, 13,434,653 and
     13,426,803 shares issued as of June 30, 2008 and December 31, 2007,
     respectively, 13,278,103 and 13,275,730 shares outstanding as of June 30,
     2008 and December 31, 2007, respectively                                      1,328,000       1,328,000
  Treasury Stock                                                                  (1,452,000)     (1,430,000)
  Additional paid-in capital                                                     160,785,000     158,965,000
  Accumulated deficit                                                           (136,800,000)   (131,826,000)
                                                                                ------------    ------------
     Total shareholders' equity                                                   23,861,000      27,037,000
                                                                                ------------    ------------
     Total liabilities and shareholders' equity                                 $ 38,902,000    $ 45,019,000
                                                                                ============    ============
</TABLE>

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

                                        3
<PAGE>

                                  BLUEFLY, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       Six Months Ended
                                                                            June 30,
                                                                  ----------------------------
                                                                     2008             2007
                                                                     ----             ----
<S>                                                               <C>              <C>
Net sales                                                         $48,579,000      $43,716,000
Cost of sales                                                      30,545,000       26,879,000
                                                                  -----------      -----------
  Gross profit                                                     18,034,000       16,837,000

Selling and fulfillment expenses                                    9,592,000        8,945,000
Marketing expenses                                                  6,448,000        6,323,000
General and administrative expenses                                 6,837,000        7,040,000
                                                                  -----------      -----------
    Total operating expenses                                       22,877,000       22,308,000

Operating loss                                                     (4,843,000)      (5,471,000)

Interest income                                                        49,000          364,000
Interest expense                                                     (180,000)        (138,000)
                                                                  -----------      -----------
Net loss                                                          $(4,974,000)     $(5,245,000)

Preferred stock dividends                                             (22,000)         (22,000)

Net loss available to common shareholders                         $(4,996,000)     $(5,267,000)
                                                                  ===========      ===========
Basic and diluted loss per common share                                $(0.38)          $(0.40)
                                                                  ===========      ===========
Weighted average common shares outstanding
(basic and diluted)                                                13,259,059       13,049,986
                                                                  ===========      ===========
</TABLE>

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

                                        4
<PAGE>

                                  BLUEFLY, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months Ended
                                                                            June 30,
                                                                  ----------------------------
                                                                     2008             2007
                                                                     ----             ----
<S>                                                               <C>              <C>
Net sales                                                         $23,334,000      $21,608,000
Cost of sales                                                      14,236,000       13,145,000
                                                                  -----------      -----------
  Gross profit                                                      9,098,000        8,463,000

Selling and fulfillment expenses                                    4,523,000        4,546,000
Marketing expenses                                                  2,926,000        2,712,000
General and administrative expenses                                 3,590,000        3,454,000
                                                                  -----------      -----------
    Total operating expenses                                       11,039,000       10,712,000

Operating loss                                                     (1,941,000)      (2,249,000)

Interest income                                                        13,000          169,000
Interest expense                                                     (108,000)         (62,000)
                                                                  -----------      -----------
Net loss                                                          $(2,036,000)     $(2,142,000)

Preferred stock dividend                                              (11,000)         (11,000)

Net loss available to common shareholders                         $(2,047,000)     $(2,153,000)
                                                                  ===========      ===========
Basic and diluted loss per common share                                $(0.15)          $(0.16)
                                                                  ===========      ===========
Weighted average common shares outstanding
(basic and diluted)                                                13,269,123       13,050,889
                                                                  ===========      ===========
</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>
                                                                                       Six Months Ended
                                                                                             June 30,
                                                                                  ----------------------------
                                                                                      2008             2007
                                                                                      ----             ----
<S>                                                                               <C>              <C>
Cash flows from operating activities
  Net loss                                                                        $(4,974,000)     $(5,245,000)
  Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                    903,000          836,000
     Stock based compensation                                                       1,647,000        3,227,000
     Provisions for returns                                                          (862,000)      (1,791,000)
     Bad debt expense                                                                 308,000          298,000
     Reserve for inventory obsolescence                                               200,000          402,000
     Changes in operating assets and liabilities:
     (Increase) decrease in
        Inventories                                                                 3,037,000          706,000
        Accounts receivable                                                          (698,000)          71,000
        Prepaid expenses                                                              133,000         (458,000)
        Other current assets                                                         (307,000)        (193,000)
        Other assets                                                                  (35,000)              --
     Increase (decrease) in
        Accounts payable and other long-term liabilities                             (905,000)        (383,000)
        Accrued expenses and other current liabilities                               (678,000)        (411,000)
        Deferred revenue                                                             (474,000)        (298,000)
                                                                                   ----------      -----------
Net cash used in operating activities                                              (2,705,000)      (3,239,000)
                                                                                   ----------      -----------
Cash flows from investing activities

  Purchase of property and equipment                                               (1,585,000)      (2,171,000)
                                                                                   ----------      -----------
  Net cash used in investing activities                                            (1,585,000)      (2,171,000)
                                                                                   ----------      -----------
Cash flows from financing activities

  Warrant issued to related party shareholders                                        173,000               --
  Payments of capital lease obligation                                                     --          (14,000)
  Net proceeds from exercise of stock options                                              --           22,000
  Purchase of Treasury Stock                                                          (22,000)        (160,000)
                                                                                   ----------      -----------
  Net cash used in financing activities                                               151,000         (152,000)
                                                                                   ----------      -----------
Net decrease in cash and cash equivalents                                          (4,139,000)      (5,562,000)
Cash and cash equivalents - beginning of period                                     6,730,000       20,188,000
                                                                                   ----------      -----------
Cash and cash equivalents - end of period                                          $2,591,000      $14,626,000
                                                                                   ==========      ===========
Supplemental disclosure of cash flow information:
Cash paid for interest                                                               $129,000          $61,000
                                                                                   ==========      ===========
</TABLE>

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

                                        6
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

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,
2007.

During  the  second  quarter  of   2008,  the  Company  revised  its  cash  flow
presentation  of  a  warrant  issued in the first quarter of 2008. The amount of
$173,000  was initially  reported  as  an operating activity. For the six months
ended June 30, 2008, the Condensed Statements of  Cash Flows has been revised to
reflect this transaction as a financing activity.

The Company  has sustained  net losses  and negative  cash flows from operations
since the launch 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  and the  Commitment (as  such
terms are  hereinafter defined),  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 - REVERSE STOCK SPLIT

On March 13, 2008, the Company's Board of Directors approved a 1-for-10  reverse
stock split of the Company's Common Stock. The record date for the reverse stock
split was April 3, 2008, and the  reverse stock split was effective as of  11:59
P.M.  EST on the same date. Retroactive restatement has been given to all  share
numbers in this report, and accordingly, all amounts including per share amounts
are shown on a post-split basis.

NOTE 4 - NASDAQ COMPLIANCE

From August 2007 to April 2008, the Company was not in compliance with the $1.00
minimum  per share  requirement for  continued listing  as set  forth in  Nasdaq
Marketplace Rule 4310(c)(4). Following  the implementation of the  reverse stock
split described in Note 3, the Company's Common Stock closed at a price of $1.00
or more for ten consecutive trading days, and regained compliance with such rule
on April 17, 2008. In addition, on April 16, 2008, the Company received a letter
from the Nasdaq Listing Qualifications  Staff (the "Staff") stating that  it had
determined that the Company had  failed to comply with the  shareholder approval
rules  set  forth  in  Nasdaq  Marketplace  Rule  4350(i)(1)(A)  because certain
warrants issued to affiliates of Soros Fund Management LLC ("Soros") and private
funds associated  with Maverick  Capital, Ltd.  ("Maverick"), each  of whom  has
representation on  the Company's  Board of  Directors, in  connection with their
debt financing  commitment had  originally been  issued with  an exercise  price
based on the twenty-day trailing  average trading price of the  Company's Common
Stock, which was lower  than the market value  of the Company's Common  Stock on
the day immediately preceding the issuance of the warrants The Staff advised the
Company that the issuance of the warrants to Soros and Maverick at a price  less
than the market value would be treated as equity compensation and would  require
shareholder approval pursuant to  Nasdaq Marketplace Rule 4350(i)(1)(A),  unless
the exercise price  of the warrants  was increased to  market value. Thereafter,
the Company, Soros  and Maverick agreed  to amend the  terms of the  warrants to
increase the exercise price of the warrants to a price equal to the market value
of the Company's Common Stock on  the day immediately preceding the issuance  of
the warrants. As a  result, the Staff determined  that the Company had  regained
compliance with  such rule  by amending  the warrants  to increase  the exercise
price.   Accordingly,  the  Company  believes  that  it  has  now  resolved  all
outstanding issues regarding Nasdaq listing requirements.

NOTE 5 - 2008 COMMITMENT FROM RELATED PARTY

In March  2008, the  Company entered  into an  agreement (the "Commitment") with
affiliates of Soros Fund Management  LLC ("Soros") and private funds  associated
with  Maverick  Capital, Ltd.  ("Maverick")  pursuant to  which  they agreed  to
provide up to $3 million of debt  financing to the Company, on a standby  basis,
available until March 2009, provided that the commitment

                                        7
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

amount  would  be  reduced  by  the  gross  proceeds  of  any  equity  financing
consummated during the year. The Company drew down the entire $3 million of debt
in July 2008. The draw down is evidenced by subordinated convertible notes  (the
"Subordinated Notes") that  have a term  expiring three years  from the date  of
issuance and bear  interest at the  rate of 8%  per annum, compounded  annually.
Interest is  payable upon  maturity or  conversion. The  Subordinated Notes  are
convertible, at the holder's option into (a) equity securities that the  Company
might issue in any subsequent round of financing at a price equal to the  lowest
price per share paid  by any investor in  such subsequent round of  financing or
(b) Common Stock at a price per  share equal to $3.65, which represented the  20
-day trailing average stock  price on the date  of issuance of the  Subordinated
Note.

As a result of the issuance of the Notes, the conversion price of the  Company's
Series  F Convertible  Preferred Stock,  automatically decreased  from $8.20  to
$3.65.  In accordance  with FASB  Emerging Issue  Task Force  Issue No.   00-27,
"Application  of  Issue  No.  98-5  to  Certain  Convertible  Instruments," this
reduction in the conversion price of the Company's Series F Preferred Stock will
result  in  the  Company  recording  a  beneficial  conversion  feature  in  the
approximate  amount  of approximately  $700,000  as part  of  its third  quarter
financial results. This non-cash charge, which is analogous to a dividend,  will
result in an adjustment to the Company's computation of Loss Per Share.

In connection  with the  Commitment, the  Company issued  warrants to  Soros and
Maverick  to  purchase an  aggregate  of 52,497  shares  of Common  Stock  at an
exercise price equal to  the trailing 20-day average  stock price, or $4.40.  On
April 8, 2008,  the warrants were  amended to increase  the exercise price  from
$4.40 per share to $5.10 per share. The exercise price of $5.10 per share equals
the closing price of the Company's Common Stock on the day immediately preceding
the issuance of the warrants.  There was no accounting impact as a result of the
modification.

The Company used the Black-Scholes option pricing method (assumption: volatility
79.6%, risk free rate 2.96%, one and a five year expected life and zero dividend
yield) to calculate the value of  the 52,497 warrants issued in connection  with
the Commitment. Using those assumptions,  a value of approximately $173,000  was
assigned to the warrants. This amount was credited to additional paid in capital
and is being accounted for as  interest expense over the life of  the commitment
which is one year.

NOTE 6 - FINANCING AGREEMENT

In March 2008, the Company amended  its credit facility (the credit facility  as
amended is  hereafter referred  to as  the "Credit  Facility") with  Wells Fargo
Retail Finance, LLC ("Wells Fargo") to  (i) extend the term until July  26, 2011
from  July 26,  2008; (ii)  change the  rate at  which interest  accrues on  the
average daily amount under the Credit  Facility during the preceding month to  a
per annum rate equal to the prime rate plus 0.75% or LIBOR plus 3.25% on average
excess availability less than  $3.0 million and prime  rate plus 0.50% or  LIBOR
plus 3% on average excess availability greater than $3.0 million; (iii) increase
the monthly commitment fee on the unused portion of the Credit Facility to 0.50%
from 0.35%; (iv) include a servicing  fee of $3,333 per month; (v)  increase the
early termination fee to 1% of the revolving credit ceiling, from 0.50%  through
maturity; and (vi) amend  the standby and documentary  letter of credit fees  to
3.25% and  2.75%, respectively,  on average  excess availability  less than $3.0
million,  and  3.00% and  2.50%,  respectively, on  average  excess availability
greater than $3.0 million.

In addition, the amendment provides that no revolving credit loans shall be made
unless the full amount available pursuant to the Commitment has been advanced to
the Company and is outstanding.  In connection with this amendment,  the Company
paid Wells Fargo a $35,000 amendment fee. Under the terms of a Subordination and
Intercreditor  Agreement,  dated  as  of  March  26,  2008  (the  "Subordination
Agreement"), Soros and Maverick have the right to purchase all of the  Company's
obligations from Wells Fargo at any time if the Company is in default under  the
Credit Facility.

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.   Availability under  the Credit  Facility is  determined by a
formula  that takes  into account  a certain  percentage of  the amount  of the
Company's  inventory  and  a  certain  percentage  of  the  Company's   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  June 30, 2008,  total availability under  the Credit Facility
was  approximately  $6,327,000,  of  which  $3,800,000  was  committed,  leaving
approximately $2,527,000 available for further borrowings.

For the three months  and six months ended  June 30, 2008, the  Company incurred
approximately  $81,000  and $129,000  of  fees, respectively,  under  the Credit
Facility.

NOTE 7 - LOSS PER SHARE

                                        8
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

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.

Due to the loss from continuing operations, (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 for shares that have not yet been delivered were not  included
in the computation of diluted loss per share:

<TABLE>
<CAPTION>
Security                        June 30, 2008        Exercise Prices     June 30, 2007        Exercise Prices
--------                        -------------        ---------------     -------------        ---------------
<S>                                   <C>             <C>                    <C>              <C>
Options                               368,353         $4.10 - $27.30           354,191        $8.00 - $143.80
Restricted Stock Awards/DSUs          856,536 (2)                 --         1,080,068 (2)                 --
Warrants                              113,574         $5.10 - $39.60           121,425         $7.80 - $39.60
Preferred Stock                        69,634 (1)                 --            69,634 (1)                 --
</TABLE>

(1) At June 30, 2008 and 2007, there were 571 shares of Series F Convertible
    Preferred Stock outstanding that are  convertible into approximately 69,634
    shares of Common Stock (excluding dividends).

(2) Includes Restricted Stock Awards and DSUs.

NOTE 8 - 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.  Total share-based  compensation
expense recorded in the Statement of Operations for the three months ended  June
30, 2008 and 2007 was $848,000 and $1,506,000, and for the six months ended June
30, 2008 and 2007 was $1,647,000 and $3,227,000, respectively.

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.

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

<TABLE>
<CAPTION>
                                                        Number of shares        Weighted Average Exercise
                                                                                         Price
<S>                                                              <C>                               <C>
Balance at January 1, 2008                                       342,879                           $10.51
  Options granted                                                 35,000                            $4.58
  Options canceled                                                (9,526)                          $10.28
  Options exercised                                                   --
Balance at June 30, 2008                                         368,353                            $9.95

Vested at December 31, 2007                                      287,112                           $10.37
Vested at June 30, 2008                                          305,969                           $10.46
</TABLE>

                                        9
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

During the second quarter of 2008,  15,387 options vested. The total fair  value
of  the  options  that  vested  during  the  quarter  ended  June  30,  2008 was
approximately $161,000. There  were no stock  options granted during  the second
quarter of 2008. At  June 30, 2008, the  aggregate intrinsic value of  the fully
vested options was $0 and the weighted average remaining contractual life of the
options  was  approximately  4  years.  The  Company  has  not  capitalized  any
compensation cost, or modified any of  its stock option grants during the  first
half of 2008. During the second  quarter of 2008, no options were  exercised and
no cash was used to settle equity instruments granted under the Plans.

As of June  30, 2008, the  total compensation cost  related to non-vested  stock
option  awards  not yet  recognized  was $225,000.  Total  compensation cost  is
expected to be recognized over one year 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 swards
and deferred stock unit awards for employees at June 30, 2008:

<TABLE>
<CAPTION>
                                                                       Restricted         Deferred Stock
                                                                      Stock Awards          Unit Awards
<S>                                                                      <C>                <C>
Balance at January 1, 2008                                                  39,653               714,750
Shares/Units Granted                                                         8,625               250,000
Shares/Units Forfeited                                                        (750)             (117,214)
Shares/Units Restriction Lapses                                            (38,528)                   --
Balance at June 30, 2008                                                     9,000               847,536

Weighted Average Grant Date Fair Value Per share                             $3.39                 $3.78
Aggregate Grant Date Fair Value                                            $30,510            $3,203,686

Vesting Service Period of Shares Granted                                 12 months          12-36 months
Number of shares/units vested at June 30, 2008                                  --               243,753
Number of shares/units unvested at June 30, 2008                             9,000               603,783
</TABLE>

For  the  quarter ended  June  30, 2008  the  Company recognized  an  expense of
approximately $689,000 in connection with these awards.

As of June 30, 2008 the total compensation cost related to non-vested restricted
stock and deferred stock units not yet recognized was $2,597,000 million.  Total
compensation cost is expected to be recognized over a one year period.

NOTE 9 - FAIR VALUE

Effective  January  1,  2008, the  Company  implemented  Statement of  Financial
Accounting Standard No. 157, Fair Value Measurement, ("SFAS 157"), which defines
fair  value,  establishes  a  framework for  measuring  fair  value  and expands
disclosure  about  fair  value  measurements.  The  fair  value  hierarchy   for
disclosure of fair value measurements under SFAS 157 is as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities

Level 2 - Quoted prices for similar assets and liabilities in active markets  or
inputs that are observable

Level 3 - Inputs  that are unobservable (for  example cash flow modeling  inputs
based on assumptions)

The adoption  of FAS  157 did  not have  an impact  on our financial position or
results of operations.

In February 2008, the FASB issued FASB Staff Position 157-2 ("FSP 175-2"), which
delayed the implementation of FAS  157 until January 1, 2009,  for non-financial
assets and liabilities that are not required  to be measured at fair value on  a
recurring basis. Pursuant to  FSP 157-2, the Company  did not adopt FAS  157 for
non-financial assets and liabilities. We  are currently assessing the impact  of
FAS 157 on our non-financial assets and liabilities.

                                       10
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

The Company did not have  any other significant financial assets  or liabilities
not currently valued at fair value.

NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS

In  March 2008,  the FASB  issued SFAS  No. 161,  "Disclosures about  Derivative
Instruments and Hedging Activities," ("SFAS  No. 161"). SFAS No. 161  amends and
expands the disclosure requirements of SFAS No. 133, "Accounting for  Derivative
Instruments  and  Hedging  Activities."   SFAS  No.  161  requires   qualitative
disclosures about objectives and strategies for using derivatives,  quantitative
disclosures  about  fair  value  amounts  of  gains  and  losses  on  derivative
instruments  and disclosures  about credit-risk-related  contingent features  in
derivative  agreements. This  statement is  effective for  financial statements
issued for fiscal years and  interim periods beginning after November  15, 2008.
The adoption of SFAS No. 161 will not affect our financial condition and results
of  operations,  but  may  require  additional  disclosures  if  we  enter  into
derivative and hedging activities.

In April 2008,  the FASB issued  EITF 07-05, "Determining  whether an Instrument
(or Embedded Feature) Is Indexed to an Entity's Own Stock", ("EITF 07-05"). EITF
07-05 provides  guidance on  determining what  types of  instruments or embedded
features in an instrument held by  a reporting entity can be considered  indexed
to its own stock for the purpose  of evaluating the first criteria of the  scope
exception in paragraph 11(a) of FAS  133. EITF 07-05 is effective for  financial
statements issued for fiscal years  beginning after December 15, 2008  and early
application is not  permitted. Management is  evaluating what effect  EITF 07-05
will have on the Company's financial position and operating results.

In  May  2008, the  FASB  issued Staff  Position  No. APB  14-1  "Accounting for
Convertible  Debt  Instruments  That  May Be  Settled  in  Cash  upon Conversion
(Including  Partial  Cash  Settlement)"  ("FSP  APB  14-1")  that  requires  the
liability and  equity components  of convertible  debt instruments  that may  be
settled  in  cash upon  conversion  (including partial  cash  settlement) to  be
separately accounted for in a  manner that reflects the issuer's  nonconvertible
debt borrowing rate. FSP APB 14-1  requires that the value assigned to  the debt
component would be  the estimated fair  value of a  similar nonconvertible debt.
The resulting debt discount would be amortized over the period during which  the
debt is expected to be outstanding (i.e., through the first optional  redemption
date)  as  additional  non-cash  interest  expense.  FSP  APB  14-1  will become
effective beginning in our first quarter  of 2009 and is required to  be applied
retrospectively  to  all  presented  periods,  as  applicable.  The  Company  is
evaluating the effects of adopting FSP APB 14-1.

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.

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
began a national advertising campaign  that featured both print and  television.
Over the past  two and a  half years, we  have increased awareness  by targeting
general advertising  efforts to  a more  fashion focused  consumer. In  2007, we
further refined our marketing strategy by aligning ourselves with  entertainment
properties, such as BravoTV.com and Project Runway.

Our  net sales  increased by  approximately 8.0%  to $23,334,000  for the  three
months ended June 30, 2008 from $21,608,000 for the three months ended June  30,
2007. Our  gross margin  remained relatively  unchanged at  39.0% for  the three
months ended June 30, 2008 from 39.2% for the three months ended June 30,  2007.
Our gross profit increased by 7.5% to $9,098,000 for the three months ended June
30, 2008 from $8,463,000 for the three months ended June 30, 2007. Our operating
loss decreased  to $1,941,000  for the  three months  ended June  30, 2008  from
$2,249,000 for the three months ended June 30, 2007. This decrease was primarily
a result  of an  increase in  net sales  compared to  the prior  year as well as
decreases in  selling and  fulfillment expenses  and was  partially offset by an
increase in total marketing  and general and administrative  expenses. Marketing
expenses (excluding staff related costs) increased to $2,664,000 for the  second
quarter of  2008 from  $2,506,000 for  the second  quarter 2007,  primarily as a
result of  growth of  online marketing  programs. Sales  attributable to  online
marketing programs  in the  period increased  by 6.6%.  Expenditures for offline
programs  decreased  3.4%  for  the  period  and  spending  for  online programs
increased 8.2%.  The company  believes that  online marketing  programs are more
efficient  and  intends to  shift  more of  its  spend toward  online  marketing
programs from offine programs.

                                       11
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

Our reserve for returns and credit card chargebacks decreased to 40.0% of  gross
sales for the second quarter of 2008 compared to 42.1% for the second quarter of
2007. The decrease was primarily caused  by a decrease in our return  rate which
was, in turn, caused in part, by a shift in our 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,  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 June 30, 2008, we had an accumulated deficit of $136,800,000. 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  non-cash  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 Six Months Ended June 30, 2008 Compared To The Six Months Ended June 30,
2007.

The following  table sets  forth our  statement of  operations data  for the six
months ended June 30. All data is in thousands except as indicated below:

<TABLE>
<CAPTION>
                                                           2008                      2007                     2006
                                                           ----                      ----                     ----
                                                              As a % of                 As a % of                As a % of
                                                              Net Sales                 Net Sales                Net Sales
<S>                                                <C>          <C>          <C>           <C>        <C>          <C>
Net sales                                          $48,579       100.0%      $43,716       100.0%     $33,669       100.0%
Cost of sales                                       30,545        62.9%       26,879        61.5%      19,784        58.8%
                                                   -------                   -------                  -------
     Gross profit                                   18,034        37.1%       16,837        38.5%      13,885        41.2%

Selling and fulfillment expenses                     9,592        19.7%        8,945        20.4%       7,281        21.6%
Marketing expenses                                   6,448        13.3%        6,323        14.5%       5,760        17.1%
General and administrative expenses                  6,837        14.1%        7,040        16.1%       5,650        16.8%
                                                   -------                   -------                  -------
     Total operating expenses                       22,877        47.1%       22,308        51.0%      18,691        55.5%

Operating loss                                      (4,843)     (10.0)%      (5,471)      (12.5)%     (4,806)      (14.3)%
Interest (expense) and income                         (131)      (0.2)%          226         0.5%       (359)       (1.1)%
                                                   -------                   -------                  -------

     Net loss                                       (4,974)     (10.2)%      (5,245)      (12.0)%     (5,165)      (15.4)%
</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 six months ended June 30:

<TABLE>
<CAPTION>
                                                                                  2008          2007         2006
                                                                                  ----          ----         ----
<S>                                                                            <C>           <C>          <C>
Average Order Size (including shipping & handling)                             $279.04       $276.49      $246.13
New Customers Added during the Period*                                         102,529        94,487       76,487
</TABLE>

* Based on unique email addresses

In addition to the financial statement  items and metrics listed above, we  also
report gross sales, which is a non-GAAP financial measure. We define gross sales
as the total dollar amount  of orders received by customers  (including shipping
and handling) net  of customer credits,  but before any  reserves are taken  for
returns or bad debt. We believe that the presentation of gross sales

                                       12
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

is useful to  investors because (a)  it provides an  alternative measure of  the
total demand for the  products sold by the  Company and (b) it  provides a basis
upon with which to measure the  percentage of total demand that is  reserved for
both returns and  bad debt. Management  uses the gross  sales measure for  these
same reasons.

Net sales:  Gross sales  for the  six months  ended June  30, 2008  increased by
approximately 10.0%  to $81,079,000  from $73,694,000  for the  six months ended
June 30, 2007. For the six months  ended June 30, 2008, we recorded a  provision
for returns and credit card  chargebacks and other discounts of  $32,500,000, or
approximately 40.1% of gross sales. For the six months ended June 30, 2007,  the
provision  for  returns and  credit  card chargebacks  and  other discounts  was
$29,978,000,  or  approximately  41.0%  of gross  sales.  The  decrease  in this
provision as a percentage of gross sales resulted from a slight decrease in  the
return rate. The  decrease was primarily  caused by a  shift in our  merchandise
mix.

After  the  necessary  provisions  for  returns,  credit  card  chargebacks  and
adjustments for sales  taxes, our net  sales for the  six months ended  June 30,
2008 were $48,579,000. This represents an increase of approximately 11% compared
to the six months ended June  30, 2007, in which net sales  totaled $43,716,000.
The growth in net sales resulted primarily from an increase in the number of new
customers acquired (over 8%  higher compared to the  first six months of  2007).
For the  six months  ended June  30, 2008,  revenue from  shipping and  handling
(which is  included in  net sales)  increased approximately  16.8% to $2,794,000
from $2,391,000 for the  six months ended June  30, 2007. Shipping and  handling
revenue increased at a greater percentage than revenue as a whole as a result of
an increased number of customers selecting express and international shipping.

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 six months ended June 30, 2008  totaled
$30,545,000, resulting in gross margin of approximately 37.1%. Cost of sales for
the  six months  ended June  30, 2007  totaled $26,879,000,  resulting in  gross
margin of  38.5%. The  gross margin  was negatively  effected, during  the first
quarter,  by  a  decrease  in  the  overall  product  margin,  as  we  were more
promotional during  the first  two months  of the  quarter compared  to 2007, in
order to liquidate some older inventory. Gross profit increased by approximately
7.1%,  to  $18,034,000  for the  six  months  ended June  30,  2008  compared to
$16,837,000 for the six months ended  June 30, 2007. The growth in  gross profit
was primarily the  result of growth  in sales and  was offset slightly  by lower
product margin percent.

Marketing expenses: Marketing expenses increased by 2% to $6,448,000 for the six
months ended June  30, 2008 from  $6,323,000 for the  six months ended  June 30,
2007.

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 13.3%  for the six months  ended June 30, 2008  from 14.5%
for the six months ended June  30, 2007. Total expenses related to  the national
print and television advertising campaign for the six months ended June 30, 2008
totaled $2.3 million compared to $2.8 million for the six months ended June  30,
2007. In addition, expenses associated with direct mail campaigns and billboards
decreased by $61,000 and $73,000,  respectively. These decreases were offset  by
planned increases to online marketing  programs with high return on  investment,
which resulted  in the  following increases:  $375,000 related  to paid  search,
$182,000 related to comparison engines, $132,000 related to banner ads and other
online  advertisements, $57,000  paid to  consultants and  $71,000 in  affiliate
expenses.

Selling and fulfillment expenses: Selling and fulfillment expenses increased  by
7.2% in the first six months of  2008 compared to the first six months  of 2007.
Selling and fulfillment expenses were comprised of the following:

<TABLE>
<CAPTION>
                    Six Months Ended     As a % of     Six Months Ended     As a % of     Percentage Difference
                     June 30, 2008       Net Sales       June 30, 2007      Net Sales      increase (decrease)
                    ----------------     ---------     ----------------     ---------     ---------------------
<S>                       <C>               <C>              <C>                <C>               <C>
Operating                 $5,401,000         11.1%            4,732,000         10.8%             14.1%
Technology                 2,494,000          5.1%            2,399,000          5.5%              4.0%
E-Commerce                 1,697,000          3.5%            1,814,000          4.2%             (6.4%)
                          ----------         -----           ----------         -----
                          $9,592,000         19.7%           $8,945,000         20.5%              7.2%
</TABLE>

As a percentage of net sales, our selling and fulfillment expenses decreased  to
19.7% for the six months ended June 30, 2008 from 20.5% for the six months ended
June 30, 2007.

                                       13
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

Operating  expenses   include  all   costs  related   to  inventory  management,
fulfillment, customer  service, and  credit card  processing. Operating expenses
increased in the first six months of 2008 by approximately 14.1% compared to the
first six  months of  2007 as  a result  of variable  costs associated  with the
increased sales volume (e.g., picking and packing orders and processing returns)
and  price per  order as  well as  an increase  in customer  service and  salary
related expenses.

Technology expenses consist  primarily of staff  related costs, amortization  of
capitalized costs and Web site hosting. For the six months ended June 30,  2008,
technology expenses increased by approximately  4.0% compared to the six  months
ended  June  30, 2007.  This  increase resulted  from  an increase  in  software
support, depreciation  and web  hosting expenses,  and was  slightly offset by a
decrease in salary related expenses. Consulting expenses incurred in the  second
quarter 2008 were related to the development of our new Web site and capitalized
accordingly. For the six months ended June 30, 2008, approximately $1,141,000 of
expenses was capitalized in connection with the development of our new Web site.
As of June 30, 2008, approximately $4,774,000 has been capitalized in connection
with the project.

E-Commerce  expenses  include  expenses  related  to  our  photo  studio,  image
processing,  and  Web  site   design. For  the six  months ended  June 30, 2008,
e-commerce  expenses  decreased  by  approximately  6.4%  as compared to the six
months ended June 30, 2007, primarily due  to a decrease  in expenses associated
with  photo  shoots,  supplies  and  research  tools, and partially offset by an
increase in salary related expenses.

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 six months  ended
June  30, 2008  decreased by  approximately 2.9%  to $6,837,000  as compared  to
$7,040,000 for the six months ended  June 30, 2007. The decrease in  general and
administrative expenses was primarily the  result of a decrease in  equity based
compensation related to equity awards of $1,363,000 . These amounts were  offset
by increased  salary related  expenses of  $899,000, which  includes $280,000 of
severance payable to  our former Chief  Financial Officer, as  well as increased
consulting and professional fees of $163,000.

As a percentage of net sales, general and administrative expenses for the  first
half of 2008 decreased to approximately  14.1% from 16.1% for the first  half of
2007.

Loss from operations: Operating loss decreased  in the first six months of  2008
to $4,843,000 from $5,471,000 in the first six months of 2007.

Interest income: Other income for the  six months ended June 30, 2008  decreased
to $49,000 from $364,000 for the  six months ended June 30, 2007.  These amounts
related primarily to interest income earned on our cash balances.

Interest  expense: Interest  expense for  the six  months ended  June 30,  2008
totaled $180,000, compared to $138,000 for  the six months ended June 30,  2007.
Interest expense consists of fees paid in connection with our Credit Facility as
well as amortization of warrants issued to a related party.

For The Three Months Ended June 30, 2008 Compared To The Three Months Ended June
30, 2007.

The following table sets  forth our statement of  operations data for the  three
months ended June 30. All data is in thousands except as indicated below:

<TABLE>
<CAPTION>
                                                           2008                      2007                     2006
                                                           ----                      ----                     ----
                                                              As a % of                 As a % of                As a % of
                                                              Net Sales                 Net Sales                Net Sales
<S>                                                <C>           <C>        <C>           <C>        <C>          <C>
Net sales                                          $23,334       100.0%     $21,608        100.0%    $16,793        100.0%
Cost of sales                                       14,236        61.0%      13,145         60.8%      9,747         58.0%
                                                   -------                  -------                  -------
     Gross profit                                    9,098        39.0%       8,463         39.2%      7,046         42.0%

Selling and fulfillment expenses                     4,523        19.4%       4,546         21.0%      3,848         22.9%
Marketing expenses                                   2,926        12.5%       2,712         12.6%      1,729         10.3%
General and administrative expenses                  3,590        15.4%       3,454         16.0%      3,223         19.2%
                                                   -------                  -------                  -------
</TABLE>

                                       14
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

<TABLE>
<CAPTION>
<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
        Total operating expenses             11,039       47.3%        10,712        49.6%        8,800        52.4%

   Operating loss                            (1,941)      (8.3)%       (2,249)      (10.4)%      (1,754)      (10.4)%
   Interest (expense) and other income          (95)      (0.4)%          107         0.5%         (147)       (0.9)%
                                             ------                    ------                    ------
        Net loss                             (2,036)      (8.7)%       (2,142)       (9.9)%      (1,901)      (11.3)%
</TABLE>

The  following  table sets  forth  our actual  results  based on  the  other key
operational  metrics discussed  above for  the three  months ended  June 30,  as
indicated below:

<TABLE>
<CAPTION>
                                                                 2008           2007            2006
                                                                 ----           ----            ----
<S>                                                              <C>            <C>             <C>
Average Order Size (including shipping & handling)               $285.14        $284.01         $248.32
New Customers Added during the Period*                            45,674         45,102          37,779

* Based on unique email addresses
</TABLE>

Net sales: Gross  sales for the  three months ended  June 30, 2008  increased by
approximately 4.2% to  $38,892,000 from $37,327,000  for the three  months ended
June 30, 2007. For the three months ended June 30, 2008, we recorded a provision
for returns and credit card  chargebacks and other discounts of  $15,558,000, or
approximately 40% of gross sales. For the three months ended June 30, 2007,  the
provision  for  returns and  credit  card chargebacks  and  other discounts  was
$15,719,000,  or  approximately  42.1%  of gross  sales.  The  decrease  in this
provision as a percentage of gross sales resulted from a decrease in the  return
rate. The decrease was primarily caused by a shift in our merchandise mix.

After  the  necessary  provisions  for  returns,  credit  card  chargebacks  and
adjustments for sales taxes, our net  sales for the three months ended  June 30,
2008  were  $23,334,000.  This  represents  an  increase  of  approximately 8.0%
compared to the  three months ended  June 30, 2007,  in which net  sales totaled
$21,608,000. The growth in net sales resulted primarily from an increase in  the
number of new  customers acquired (over  1% higher compared  to the first  three
months of 2007) as well as a  decrease in the return rate. For the  three months
ended June 30, 2008,  revenue from shipping and  handling (which is included  in
net sales) increased approximately 12.9%  to $1,344,000 from $1,190,000 for  the
three months ended June 30, 2007.  Shipping and handling revenue increased at  a
greater percentage than revenue as a whole as a result of an increased number of
customers selecting express and international shipping.

Cost of sales: Cost  of sales for the  three months ended June  30, 2008 totaled
$14,236,000, resulting in gross margin of approximately 39.0%. Cost of sales for
the three  months ended  June 30,  2007 totaled  $13,145,000, resulting in gross
margin of 39.2%. Gross profit increased by approximately 7.5%, to $9,098,000 for
the three months ended June 30, 2008 compared to $8,463,000 for the three months
ended June 30, 2007.

Marketing expenses: Marketing expenses increased  by 7.9% to $2,926,000 for  the
three months ended June 30, 2008 from $2,712,000 for the three months ended June
30, 2007.

As  a  percentage  of  net sales,  our  marketing  expenses  remained relatively
unchanged at 12.5% for  the three months ended  June 30, 2008 compared  to 12.6%
for the three months ended June 30, 2007. Total expenses related to the national
print and television  advertising campaign for  the three months  ended June 30,
2008 were  $935,000 compared  to $929,000  for the  three months  ended June 30,
2007. In addition,  expenses related to  online marketing programs  increased as
the Company believes that these  are efficient. Paid search, comparison  engines
and banner ads increased by  $154,000, $85,000 and $57,000, respectively.  These
increases were partially  offset by the  following decreases, $44,000  of direct
mail campaigns,  $36,000 related  to billboard  advertising and  $14,000 paid to
consultants.

Selling and fulfillment expenses: Selling and fulfillment expenses decreased  by
0.5% in the  first three months  of 2008 compared  to the first  three months of
2007. Selling and fulfillment expenses were comprised of the following:

                                       15
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

<TABLE>
<CAPTION>

                        Three Months                           Three Months
                           Ended             As a % of            Ended           As a % of       Percentage Difference
                       June 30, 2008         Net Sales        June 30, 2007       Net Sales        increase (decrease)
                       -------------         ---------        -------------       ---------       ---------------------
<S>                       <C>                   <C>           <C>                    <C>               <C>
Operating                 $2,457,000            10.5%           2,467,000            11.4%             (0.4%)
Technology                 1,212,000             5.2%           1,231,000             5.7%             (1.5%)
E-Commerce                   854,000             3.7%             848,000             3.9%              0.7%
                          ----------            -----         -----------            -----
                          $4,523,000            19.4%         $ 4,546,000            21.0%             (0.5%)
</TABLE>

As a percentage of net sales, our selling and fulfillment expenses decreased  to
19.4% for the  three months ended  June 30, 2008  from 21% for  the three months
ended June 30, 2007.

Operating expenses remained relatively unchanged for the three months ended June
30, 2008 compared  to June 30,  2007.  Increased variable  costs associated with
the increased  sales volume  (e.g., picking  and packing  orders and  processing
returns) and price per  order was offset by  a decrease in customer  service and
salary related expenses.

For  the three  months ended  June 30,  2008, technology  expenses decreased  by
approximately  1.5% compared  to the  three months  ended June  30, 2007.  This
decrease  resulted from  a decrease  in consulting  and salary  related expense
offset  by  an  increase  in  software  support,  depreciation  and  web hosting
expenses.  Consulting  expenses incurred  in  the second  quarter  of 2008  were
related to the development of our new Web site and capitalized accordingly.  For
the three  months ended  June 30,  2008, approximately  $730,000 of expenses was
capitalized in connection with the development of our new Web site.

For  the  three  months  ended  June  30,  2008,  e-commerce  expenses  remained
relatively  unchanged as  compared to  the three  months ended  June 30,  2007,
primarily due to an increase in salary related expenses offset by a decrease  in
expenses associated with consulting, photo shoots, supplies and research tools.

General and administrative expenses: General and administrative expenses for the
three months ended June 30,  2008 increased by approximately 3.9%  to $3,590,000
as compared to $3,454,000 for the three months ended June 30, 2007. The increase
in general and administrative expenses  was primarily the result of  an increase
in  salaries  and  related  expenses  of  $605,000  which  includes  $280,000 of
severance payable to our former Chief Financial Officer. In addition, consulting
and professional  fees increased  by $109,000.  These amounts  were offset  by a
decrease in equity based compensation of $588,000.

As a percentage of net sales, general and administrative expenses for the  three
months ended June  30, 2008 decreased  to approximately 15%  from 16.0% for  the
three months ended June 30, 2007.

Loss from operations: Operating loss decreased in the first three months of 2008
to $1,941,000 from $2,249,000 in the first three months of 2007.

Interest income: Other income for the three months ended June 30, 2008 decreased
to $13,000 from $169,000 for the three months ended June 30, 2007. These amounts
related primarily to interest income earned on our cash balances.

Interest expense:  Interest expense  for the  three months  ended June  30, 2008
totaled $108,000, compared to $62,000 for the three months ended June 30,  2007.
Interest expense consists of fees paid in connection with our Credit Facility as
well as amortization of warrants issued to a related party.

Liquidity And Capital Resources

General

At  June  30,  2008,  we  had  approximately  $2.6  million  in  cash  and  cash
equivalents. Working capital  at June 30,  2008 and 2007  was $16.9 million  and
$30.6 million,  respectively. Working  capital at  December 31,  2007 was  $21.0
million. In addition,  as of June  30, 2008, we  had approximately $3.8  million
committed  under  the Credit  Facility,  leaving approximately  $2.5  million of
availability and $3.0 million available under the Commitment.

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

                                       16
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

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  June 30,  2008, we  had approximately  $106,000 of  prepaid
inventory and approximately $610,000 of  prepaid marketing on our balance  sheet
compared to $569,000 and $696,000 in the second quarter of 2007.

Standby Financing Commitment

In March 2008,  Soros and Maverick  agreed to provide  up to $3  million of debt
financing to us, on a standby  basis, available until March 2009, provided  that
the commitment  amount would  be reduced  by the  gross proceeds  of any  equity
financing consummated during  the year. Subsequent  to quarter end,  the Company
drew down on the full amount of  the Commitment.  The draw down is evidenced  by
the Subordinated Notes. The Subordinated Notes have a term expiring three  years
from  the date  of issuance  and bear  interest at  the rate  of 8%  per annum,
compounded  annually.  Interest  is payable  upon  maturity  or conversion.  The
Subordinated  Notes are  convertible, at  the holder's  option into  (a) equity
securities that the Company might issue in any subsequent round of financing  at
a  price equal  to the  lowest price  per share  paid by  any investor  in such
subsequent round of financing or (b) Common Stock at a price per share equal  to
$3.65, which represents the 20-day trailing  average stock price on the date  of
issuance of the Subordinated Note.

Credit Facility

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. Availability  under the
Credit Facility is  determined by a  formula that takes  into account a  certain
percentage of our inventory and a certain percentage of our 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 June 30, 2008,
total availability  under the  Credit Facility  was approximately  $6,327,000 of
which $3,800,000 was committed,  leaving approximately $2,527,000 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 3.25%  on average excess availability  less
than $3.0 million and prime rate plus  0.50% or LIBOR plus 3% on average  excess
availability greater than $3.0 million. 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 0.50% and a servicing fee of $3,333 per month. 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 of such letter of credit, or a portion thereof,
remains open. No revolving  credit loans may be  made under the Credit  Facility
unless the full amount available pursuant to the Commitment has been advanced to
the Company and is outstanding.

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

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  the next 12 months. However, in  order
to accelerate the growth of our business, we intend to seek to raise  additional
equity  capital. However  there can  be no  assurance that  we will  be able  to
identify a source for  such financing, or that  such financing will be  on terms
acceptable to the Company.

Commitments and Long Term Obligations

As of June 30, 2008, we had the following commitments and long term obligations:

<TABLE>
<CAPTION>
                              Total           Less than          1-3          3-5           More
                                               1 year           years         years         than 5
                                                                                            years
<S>                           <C>             <C>               <C>           <C>           <C>
Marketing and Advertising     $2,986,000       2,986,000            --           --             --
Purchase Orders               17,494,000      17,446,000        48,000           --             --
</TABLE>

                                        17
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

<TABLE>
<CAPTION>
<S>                           <C>             <C>               <C>             <C>            <C>
Operating Leases                1,962,000        712,000        1,250,000           --            --
Employment Contracts            5,054,000      1,605,000        3,406,000       43,000            --
                              -----------     ----------        ---------       ------         -----
  Grand total                 $27,496,000     22,749,000        4,704,000       43,000            --
</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.

Item 4 T.  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; our  ability to  raise
additional capital to  support the growth  of our business;  the risk associated
with the Company's transition to a  new technology platform; the success of  our
advertising campaign; risks  associated with Soros,  Maverick 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; our ability to raise additional capital; issues related  to
our transition to a new third party fulfillment facility; 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  UPS, DHL  and USPS  (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

                                       18
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

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 4. Submission of Matters to a Vote of Security Holders

On May 29, 2008, we held our annual meeting of stockholders. At the meeting, our
stockholders voted  for ten  directors, electing  David Wassong,  Melissa Payner
-Gregor, Barry Erdos, Riad Abrahams, Ann Jackson, Christopher G. McCann,  Martin
Miller, Neal Moszkowski,  Anthony Plesner and  Lawrence Zigerelli as  members of
our  board of  directors. In  addition, our  stockholders voted  in favor  of a
proposals to approve  the conversion features  of certain promissory  notes (the
"Note Conversion Provisions"). The results of the voting were as follows:

<TABLE>
<CAPTION>
        Proposal                               Votes For               Votes Withheld
        --------                               ---------               --------------
<S>                                            <C>                      <C>
Election of David Wassong                      12,306,521                 293,914

Election of Melissa Payner-Gregor              12,303,976                 296,459

Election of Barry Erdos                        12,308,683                 291,752

Election of Riad Abrahams                      12,308,223                 292,212

Election of Christopher G. McCann              12,308,918                 291,517

Election of Ann Jackson                        10,903,116               1,697,319

Election of Martin Miller                      12,308,804                 291,631

Election of Neal Moszkowski                     12308,226                 292,209

Election of Anthony Plesner                    12,306,477                 293,958

Election of Lawrence Zigerelli*                12,308,769                 291,666
</TABLE>

<TABLE>
<CAPTION>
                                                                                                Abstentions and
                                               Votes For               Votes Against            Broker Non-Votes
                                               ---------               -------------            ----------------
                                               <C>                      <C>                       <C>

Approval of conversion provisions
of certain convertible promissory notes        11,353,473               179,657                   1,067,305
</TABLE>

*subsequent to quarter end Mr. Zigerelli resigned from the Board

Item 6. Exhibits

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

<TABLE>
<CAPTION>
Exhibit Number                                             Description
----------------------------------------------------------------------
<S>                    <C>
10.1                   Fifth Amendment, dated as of June 30, 2008, to Loan and Security Agreement, dated as of
                       July 25, 2006, by and between Bluefly, Inc. and Wells Fargo Retail Finance, LLC

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

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

                                       19
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2008

<TABLE>
<S>                    <C>
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
</TABLE>

                                       20
<PAGE>

                                   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/ Kara B. Jenny
                                                       -----------------
                                                   Kara B. Jenny
                                                   Chief Financial Officer

August 12, 2008

                                       21