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

                                  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 September 30, 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 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, 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 November 9, 2007, the issuer had outstanding 132,442,231 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 September 30, 2007 (unaudited)
                  and December 31, 2006                                      3

         Condensed Statements of Operations for the nine months ended
                  September 30, 2007 and 2006 (unaudited)                    4

         Condensed Statements of Operations for the three months ended
                  September 30, 2007 and 2006 (unaudited)                    5

         Condensed Statements of Changes in Shareholders' Equity for the
                  nine months ended September 30, 2007 (unaudited)           6

         Condensed Statements of Cash Flows for the nine months ended
                  September 30, 2007 and 2006 (unaudited)                    7

         Condensed Notes to Financial Statements (unaudited)                 8

Item 2.  Management's Discussion and Analysis of Financial Condition
                  and Results of Operations                                  12

Item 3.  Quantitative and Qualitative Disclosures About Market Risk          19

Item 4.  Controls and Procedures                                             20

Part II. Other Information                                                   20

Item 1.  Legal Proceedings                                                   20

Item 1A. Risk Factors                                                        20

Item 6.  Exhibits                                                            21

Signatures                                                                   22

                                        2
<PAGE>

PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS

                                  BLUEFLY, INC.
CONDENSED BALANCE SHEETS (Unaudited)

<TABLE>
<CAPTION>
                                                                                               SEPTEMBER 30,    DECEMBER 31,
                                                                                                   2007             2006
                                                                                               -------------    -------------
<S>                                                                                            <C>              <C>
                                               ASSETS
Current assets
    Cash and cash equivalents                                                                  $   7,172,000    $  20,188,000
    Inventories, net                                                                              30,345,000       24,189,000
    Accounts receivable, net of allowance for doubtful accounts                                    2,763,000        2,719,000
    Prepaid inventory                                                                                422,000          616,000
    Prepaid expenses                                                                               3,779,000          341,000
    Other current assets                                                                             474,000          553,000
                                                                                               -------------    -------------
               Total current assets                                                               44,955,000       48,606,000

Property and equipment, net                                                                        5,383,000        3,573,000
Other assets                                                                                         204,000          251,000
                                                                                               -------------    -------------
            Total assets                                                                       $  50,542,000    $  52,430,000
                                                                                               =============    =============

                                LIABILITIES AND SHAREHOLDERS'EQUITY
Current liabilities
    Accounts payable                                                                           $   8,189,000    $   4,822,000
    Allowance for sales returns                                                                    4,636,000        5,043,000
    Accrued expenses and other current liabilities                                                 1,991,000        1,908,000
    Deferred revenue                                                                               3,474,000        2,830,000
                                                                                               -------------    -------------
            Total current liabilities                                                             18,290,000       14,603,000

Other long-term obligations                                                                           98,000               --
                                                                                               -------------    -------------
            Total liabilities                                                                  $  18,388,000    $  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 September 30, 2007 and December 31, 2006, respectively
      (liquidation preference: $571,000 plus accrued dividends of  $94,000 and $62,000
      as of September 30, 2007 and December 31, 2006, respectively)                                       --               --
    Common stock - $.01 par value; 200,000,000 and 152,000,000 shares authorized as of
      September 30, 2007 and December 31, 2006, respectively, and 131,048,197 and 130,484,854
      shares issued  as of September 30, 2007 and December 31, 2006, respectively and
      130,921,294 and 130,484,854 outstanding as of September 30, 2007 and December 31, 2006,
      respectively                                                                                 1,309,000        1,305,000
     Treasury Stock                                                                                 (160,000)              --
    Additional paid-in capital                                                                   157,275,000      152,519,000
    Accumulated deficit                                                                         (126,270,000)    (115,997,000)
                                                                                               -------------    -------------
            Total shareholders' equity                                                            32,154,000       37,827,000
                                                                                               -------------    -------------
            Total liabilities and shareholders' equity                                         $  50,542,000    $  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)

<TABLE>
<CAPTION>
                                                                    NINE MONTHS ENDED
                                                                      SEPTEMBER 30,
                                                             ------------------------------
                                                                 2007             2006
                                                             -------------    -------------
<S>                                                          <C>              <C>
Net sales                                                    $  61,795,000    $  49,991,000
Cost of sales                                                   39,230,000       29,995,000
                                                             -------------    -------------
     Gross profit                                               22,565,000       19,996,000

Selling and fulfillment expenses                                13,528,000       11,152,000
Marketing expenses                                               9,130,000        9,256,000
General and administrative expenses                             10,450,000        8,019,000
                                                             -------------    -------------
      Total operating expenses                                  33,108,000       28,427,000

Operating loss                                                 (10,543,000)      (8,431,000)

Interest and other income                                          463,000          311,000
Interest and other expense                                        (193,000)        (530,000)
                                                             -------------    -------------

Net loss                                                     $ (10,273,000)   $  (8,650,000)

Preferred stock dividends                                          (33,000)      (2,237,000)
Deemed dividends related to beneficial conversion feature
on Series F Preferred Stock                                             --       (3,857,000)
                                                             -------------    -------------

Net loss available to common shareholders                    $ (10,306,000)   $ (14,744,000)
                                                             =============    =============

Basic and diluted loss per common share                      $       (0.08)   $       (0.23)
                                                             =============    =============

Weighted average common shares outstanding                     130,504,601       63,612,059
                                                             =============    =============
(basic and diluted)
</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
                                                                      SEPTEMBER 30,
                                                             ------------------------------
                                                                 2007             2006
                                                             -------------    -------------
<S>                                                          <C>              <C>
Net sales                                                    $  18,079,000    $  16,322,000
Cost of sales                                                   12,351,000       10,211,000
                                                             -------------    -------------
     Gross profit                                                5,728,000        6,111,000

Selling and fulfillment expenses                                 4,583,000        3,871,000
Marketing expenses                                               2,807,000        3,496,000
General and administrative expenses                              3,410,000        2,369,000
                                                             -------------    -------------
      Total operating expenses                                  10,800,000        9,736,000

Operating loss                                                  (5,072,000)      (3,625,000)

Interest and other income                                           99,000          199,000
Interest and other expense                                         (55,000)         (59,000)
                                                             -------------    -------------

Net loss                                                     $  (5,028,000)   $  (3,485,000)

Preferred stock dividends                                          (11,000)         (16,000)

Net loss available to common shareholders                    $  (5,039,000)   $  (3,501,000)
                                                             =============    =============

Basic and diluted loss per common share                      $       (0.04)   $       (0.03)
                                                             =============    =============

Weighted average common shares outstanding                     130,513,931      129,007,488
                                                             =============    =============
(basic and diluted)
</TABLE>

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

                                        5
<PAGE>

                                  BLUEFLY, INC.
             CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
        YEARS ENDED DECEMBER 31, 2005, 2006 AND FOR THE NINE MONTHS ENDED
                         SEPTEMBER 30, 2007 (Unaudited)

<TABLE>
<CAPTION>
                                                   PREFERRED STOCK               COMMON STOCK
                                                   $.01 PAR VALUE               $.01 PAR VALUE                TREASURY STOCK
                                              ------------------------  ------------------------------  ---------------------------
                                              NUMBER OF                   NUMBER OF                      NUMBER OF
                                                SHARES        AMOUNT        SHARES           AMOUNT        SHARES         AMOUNT
                                              ----------    ----------  -------------    -------------  ------------   ------------
<S>                                           <C>           <C>         <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                               -             -        (19,673)               -             -              -

Issuance of Restricted Stock                           -             -        426,192            4,000             -              -

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

Exercise of Employee Options                           -             -         28,061                -             -              -

Exercise of Related Party Warrant                      -             -          1,860                -             -              -

Net Loss                                               -             -              -                -             -              -
                                              ==========    ==========  =============    =============  ============   ============
Balance at September 30, 2007                        571    $        -    130,921,294    $   1,309,000       126,903   $   (160,000)
                                              ==========    ==========  =============    =============  ============   ============

<CAPTION>
                                               ADDITIONAL                            TOTAL
                                                 PAID-IN        ACCUMULATED      SHAREHOLDERS'
                                                 CAPITAL          DEFICIT            EQUITY
                                              -------------    --------------    -------------
<S>                                           <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 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                          4,735,000                 -        4,735,000

Issuance of Restricted Stock                         (4,000)                -                -

Purchase of Treasury Stock                                -                 -         (160,000)

Exercise of Employee Options                         25,000                 -           25,000

Exercise of Related Party Warrant                         -                 -                -

Net Loss                                                  -       (10,273,000)     (10,273,000)
                                              =============    ==============    =============
Balance at September 30, 2007                 $ 157,275,000    $ (126,270,000)   $  32,154,000
                                              =============    ==============    =============
</TABLE>

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

                                        6
<PAGE>

                                  BLUEFLY, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                    NINE MONTHS ENDED
                                                                                                      SEPTEMBER 30,
                                                                                             --------------------------------
                                                                                                  2007              2006
                                                                                             --------------    --------------
<S>                                                                                          <C>               <C>
Cash flows from operating activities
  Net loss                                                                                   $  (10,273,000)   $   (8,650,000)
  Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                                1,292,000         1,125,000
     Stock options expense                                                                        4,735,000         1,820,000
     Warrant issued to consultant                                                                        --            67,000
     Provisions for returns                                                                        (406,000)          156,000
     Bad debt expense                                                                               493,000           533,000
     Reserve for inventory obsolescence                                                           1,252,000           890,000
     Warrant issued to supplier                                                                          --           147,000
    Changes in operating assets and liabilities:
     (Increase) decrease in
        Inventories                                                                              (7,408,000)      (10,921,000)
        Accounts receivable                                                                        (537,000)       (1,705,000)
        Prepaid inventory                                                                           194,000          (626,000)
        Prepaid expenses                                                                         (3,438,000)       (1,378,000)
        Other current assets                                                                        (81,000)           67,000
     Increase (decrease) in
        Accounts payable                                                                          3,465,000           963,000
        Accrued expenses and other  liabilities                                                     256,000         2,027,000
        Interest payable to related party shareholders                                                   --           271,000
        Deferred revenue                                                                            644,000           710,000
                                                                                             --------------    --------------
Net cash used in operating activities                                                            (9,812,000)      (14,504,000)
                                                                                             --------------    --------------
Cash flows from investing activities
   Purchase of property and equipment                                                            (3,055,000)         (847,000)
                                                                                             --------------    --------------
Net cash used in investing activities                                                            (3,055,000)         (847,000)
                                                                                             --------------    --------------
Cash flows from financing activities
   Payments of capital lease obligation                                                             (14,000)          (40,000)
   Net proceeds from exercise of stock options                                                       25,000            36,000
   Purchase of treasury stock                                                                      (160,000)               --
   Net proceeds from June 2006 financing                                                                 --        48,002,000
   Repayment of related party notes payable and interest                                                 --        (5,488,000)
   Dividends paid to related party shareholders                                                          --       (19,512,000)
                                                                                             --------------    --------------
   Net cash (used in) provided by financing activities                                             (149,000)       22,998,000
                                                                                             --------------    --------------
Net (decrease) increase in cash and cash equivalents                                            (13,016,000)        7,647,000
Cash and cash equivalents - beginning of period                                                  20,188,000         9,408,000
                                                                                             --------------    --------------
Cash and cash equivalents - end of period                                                    $    7,172,000    $   17,055,000
                                                                                             ==============    ==============
Supplemental schedule of non-cash investing and financing activities:
 Cash paid for interest                                                                      $       86,000    $      116,000
                                                                                             ==============    ==============
 Cash paid for interest - to related shareholder                                                         --    $    1,488,000
                                                                                             ==============    ==============
 Warrant issued to consultant                                                                            --    $       67,000
                                                                                             ==============    ==============
 Deemed dividend related to beneficial conversion feature on Series F Preferred Stock                    --    $    3,857,000
                                                                                             ==============    ==============
 Issuance of Common Stock to placement agent                                                             --    $    1,080,000
                                                                                             ==============    ==============
 Conversion of Preferred Stock to Common Stock                                                           --    $     (387,000)
                                                                                             ==============    ==============
</TABLE>

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

                                        7
<PAGE>

                                  BLUEFLY, INC.
               CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
                               SEPTEMBER 30, 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 online retailer of designer brands,  fashion trends and
superior 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) have  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  only  with  respect  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:

                                        8
<PAGE>

                                  BLUEFLY, INC.
               CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
                               SEPTEMBER 30, 2007

                   DEFERRED STOCK UNIT AWARDS VESTING SCHEDULE

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

*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 pursuant to 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. For the nine months ended September 30, 2007,
approximately $353,000 of this amount has been expensed.

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  September  30,  2007,  total
availability  under the Credit Facility was approximately  $7,500,000,  of which
$3,650,000 was committed, leaving approximately $3,850,000 available for further
borrowings.

                                        9
<PAGE>

                                  BLUEFLY, INC.
               CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
                               SEPTEMBER 30, 2007

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
nine  months  ended   September  30,  2007  and  2006,   the  Company   incurred
approximately $86,000 and $116,000, respectively, in connection with these fees.

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.

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                        September 30, 2007        Exercise Prices     September 30, 2006     Exercise Prices
----------------------------   --------------------      -----------------   --------------------   -----------------
<S>                                      <C>                 <C>                        <C>            <C>
Options                                   3,501,257          $0.80 - $2.73              8,007,910      $0.80 - $16.47
Restricted Stock Awards/DSUs             10,804,436 (2)                 --                     --                  --
Warrants                                  1,214,249          $0.78 - $3.96              1,945,893      $0.78 - $ 3.96
Preferred Stock                             696,341 (1)                 --                     --                  --
</TABLE>

(1)  At  September  30,  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)  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. Effective January 1, 2006 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 nine months ended  September 30,
2007 was $4,735,000,  compared to $1,820,000 for the nine months ended September
30, 2006.

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.

                                       10
<PAGE>

                                  BLUEFLY, INC.
               CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
                               SEPTEMBER 30, 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                                     60,000    $          0.97
Options canceled                                (1,947,798)   $          2.82
Options exercised                                  (28,061)   $          0.89
                                                ----------
Balance at September 30, 2007                    3,501,257    $          1.05

Vested at December 31, 2006                      3,682,877    $          1.83
Vested at September 30, 2007                     2,776,345    $          1.03

During the third quarter of 2007,  103,661  options  vested.  Of these  options,
17,264  were  canceled or  expired.  The total fair value of the options  vested
(including  those  canceled)  during the quarter  ended  September  30, 2007 was
approximately  $107,000.  During the third quarter of 2007,  30,000 options were
granted.  At September  30, 2007,  the  aggregate  intrinsic  value of the fully
vested options was $4,000 and the weighted average remaining contractual life of
the options was 6.1 years.  The Company  has not  capitalized  any  compensation
cost,  or modified any of its stock option  grants  during the nine months ended
September 30, 2007,  except for those  described in connection with the Offer to
Exchange.  Approximately  2,505 options with an intrinsic value of approximately
$150 were exercised during the third quarter of 2007. No cash was used to settle
equity instruments granted under the Plans during the third quarter of 2007.

As of September  30, 2007,  the total  compensation  cost related to  non-vested
options not yet recognized was $588,000.  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 September 30, 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                                              426,192            544,405
Shares/Units Forfeited                                            (19,673)            (8,753)
Shares/Units Restriction Lapses                                  (861,221)                --
                                                          ---------------    ---------------
Balance at September 30, 2007                                     406,519         10,397,919

Weighted Average Grant Date Fair Value Per share          $          1.26    $          0.95
Aggregate Grant Date Fair Value                           $       512,214    $     9,878,023

Vesting Service Period of Shares Granted                        12 months       12-36 months
Number of shares/units vested at September 30, 2007                    --                 --
Number of shares/units unvested at September 30, 2007             406,519         10,397,919
</TABLE>

For the quarter ended  September 30, 2007, the Company  recognized an expense of
approximately $1.4 million in connection with these awards.

                                       11
<PAGE>

                                  BLUEFLY, INC.
               CONDENSED NOTES TO FINANCIAL STATEMENTS - UNAUDITED
                               SEPTEMBER 30, 2007

As of September  30, 2007,  the total  compensation  cost related to  non-vested
restricted  stock and deferred  stock units not yet recognized was $8.0 million.
Total compensation cost is expected to be recognized over a two year period.

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.

NOTE 8 - NASDAQ COMPLIANCE

On August 16, 2007,  the Company was notified by the Nasdaq Stock Market that it
was not in compliance  with the continued  listing  requirements  for the Nasdaq
Capital  Market because shares of its Common Stock had closed at a per share bid
price of less than $1.00 for at least 30 trading days.  Under Nasdaq rules,  the
Company  has a 180-day  grace  period to regain  compliance,  which  extends  to
February 11, 2008.  If the Company is unable to regain  compliance by such date,
the Nasdaq Staff will determine whether it meets the initial listing criteria of
the Nasdaq  Capital  Market other than the bid price  requirement.  In the event
that the Company  meets such  initial  listing  criteria,  it will be granted an
additional  180-day  grace  period  to  regain  compliance.  In order to  regain
compliance,  shares of its Common  Stock would need to close at a price of $1.00
or more for at least ten consecutive trading days. In the event that it does not
regain  compliance  within the  requisite  time period,  the Company  intends to
appeal any delisting. However, no assurance can be provided that any such appeal
will be successful. The failure to maintain listing on the Nasdaq Capital Market
may have an adverse effect on the price and/or liquidity of the Company's Common
Stock.

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 approximately
22%.

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 24 months.

During the third  quarter of 2007 we  completed  our  transition  to a new third
party  fulfillment  center.  In  connection  with this  transition  we  incurred
incremental expenses of approximately  $632,000 ($462,000 for the third quarter)
in costs directly  related to the move (including  trucking,  labor,  insurance,
etc.).  We  took  additional  charges  of  approximately  $550,000  against  our
inventory based on the  reconciliation  of inventory that we normally perform in
connection with each quarter's close. We believe, at this time, that the charges
that were taken will be sufficient to cover any loss of inventory resulting from
the transition,  and that we will be able to work with the fulfillment center to
implement necessary changes to their inventory reporting systems. However, there
can be no  assurance  that this will be the case.  We intend to perform the full
physical  inventory  in  January,  following  the end of the  Holiday  sales and
returns  cycle.  Start-up  issues  associated  with  the  transition  to the new
fulfillment   center  also  resulted  in  certain  cancelled  orders  and  other
incremental costs such as expedited shipping costs.  During the period from June
2007 through mid September of 2007 a portion of the Company's  inventory was not
available  for  sale.  This had a  significant  impact  on the  offering  to the
consumer  and  hence the  ultimate  sales  recognized  in this  time  frame.  In
addition,  during this transition period the Company experienced some processing
issues with a small  percentage  of orders

                                       12
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2007

and  returns.  We  believe  that these  issues  had a  negative  impact on those
customers  affected.  We believe we have taken the appropriate action related to
the customers  affected.  In the long term, we expect the  transition to the new
fulfillment center to improve customer service and increase efficiencies.

Our net sales increased by approximately 11% to $18,079,000 for the three months
ended  September 30, 2007 from  $16,322,000 for the three months ended September
30,  2006.  Our gross  margin  decreased  to 31.7% for the  three  months  ended
September 30, 2007 from 37.4% for the three months ended September 30, 2006. Our
gross profit  decreased by 6% to $5,728,000 for the three months ended September
30, 2007 from  $6,111,000  for the three months ended  September  30, 2006.  The
decrease in gross margin was primarily  related to (i) the  additional  reserves
against  inventory  taken as a result of the  transition to the new  fulfillment
center,  as  described  above,  (ii) a change in the  merchandise  mix and (iii)
expedited  shipping cost incurred in connection  with our  transition to the new
third-party  fulfillment  center. Our operating loss increased to $5,072,000 for
the three months ended  September 30, 2007 from  $3,625,000 for the three months
ended September 30, 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 (stock based  compensation was $1.5 million in the third quarter
of 2007  versus  $  597,000  for the  same  period  last  year) as well as costs
incurred in connection  with our transition to the new fulfillment  center.  The
increase in  operating  loss was  partially  offset by a decrease  in  marketing
expenses  (including  staff related  costs) of $689,000 for the third quarter of
2007 as compared to the third quarter of 2006.

Our reserve for returns and credit card chargebacks  decreased slightly to 39.8%
of gross  sales for the third  quarter of 2007  compared  to 40.4% for the third
quarter of 2006.  In general,  our  merchandise  mix has been  shifting  towards
higher end products which tend to drive return rates higher.  We continually try
to refine the mix to reduce the return rate. However, we believe that the higher
return  rates will be more than offset by the higher  gross  margin  dollars and
average order sizes. As such, we continually  evaluate our merchandise mix in an
effort to reduce return rates.

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  to  appropriate  mark-downs.  We  evaluate  our
inventory on a quarterly basis to determine the lower of cost or the fair market
value of that inventory  based upon age of the inventory,  market  factors,  and
historical trends among other factors, and take the appropriate reserves against
inventory.  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 September 30, 2007, we had an accumulated  deficit of  $126,270,000.  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 NINE MONTHS ENDED  SEPTEMBER  30, 2007 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2006.

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

<TABLE>
<CAPTION>
                                                     2007                         2006                         2005
                                           ------------------------     ------------------------     ------------------------
                                                         As a % of                    As a % of                    As a % of
                                                         Net Sales                    Net Sales                    Net Sales
<S>                                           <C>             <C>       <C>                <C>           <C>            <C>
Net sales                                      61,795         100.0%    $   49,991         100.0%        37,576         100.0%
Cost of sales                                  39,230          63.5%        29,995          60.0%        23,465          62.4%
                                           ----------                   ----------                   ----------
         Gross profit                          22,565          36.5%        19,996          40.0%        14,111          37.6%
Selling and fulfillment expenses               13,528          21.9%        11,152          22.3%         9,133          24.3%
Marketing expenses                              9,130          14.7%         9,256          18.5%         3,538           9.4%
General and administrative expenses            10,450          16.9%         8,019          16.1%         4,716          12.6%
                                           ----------                   ----------                   ----------
         Total operating expenses              33,108          53.5%        28,427          56.9%        17,387          46.3%
Operating loss                                (10,543)        (17.0)%       (8,431)        (16.9)%       (3,276)         (8.7)%
Interest (expense) and other income               270           0.4%          (219)         (0.4)%         (489)         (1.3)%
                                           ----------                   ----------                   ----------
         Net loss                             (10,273)        (16.6)%       (8,650)        (17.3)%       (3,765)        (10.0)%
</TABLE>

                                       13
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2007

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 nine months ended September 30th, as indicated below:

<TABLE>
<CAPTION>
                                                              2007           2006           2005
                                                          ------------   ------------   ------------
<S>                                                       <C>            <C>            <C>
Average Order Size (including shipping & handling)        $     277.60   $     250.65   $     214.07
New Customers Added during the Period                          131,895        112,457         95,088
</TABLE>

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 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 nine months ended September 30, 2007 increased by
24% to  $103,703,000  from  $83,483,000  for the nine months ended September 30,
2006. For the nine months ended  September 30, 2007, we recorded a provision for
returns and credit card  chargebacks  and other  discounts  of  $41,908,000,  or
approximately  40.4% of gross  sales.  For the nine months ended  September  30,
2006, the provision for returns and credit card  chargebacks and other discounts
was $33,492,000,  or approximately  40.1% of gross sales. The slight increase in
this provision as a percentage of gross sales resulted from a slight increase in
the return rate. The overall  increase in return rate was primarily caused by an
increase in average order size as well as 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  profit and average  order sizes that
have been generated by this shift in  merchandise  mix. Gross margin dollars per
order  continue  to  increase,  growing  to  $62.60  for the nine  months  ended
September 30, 2007 from $60.62 for the nine months ended September 30, 2006.

After  the  necessary  provisions  for  returns,  credit  card  chargebacks  and
adjustments for uncollected sales taxes, our net sales for the nine months ended
September   30,  2007  were   $61,795,000.   This   represents  an  increase  of
approximately 24% compared to the nine months ended September 30, 2006, in which
net sales  totaled  $49,991,000.  The growth in net sales  resulted from both an
increase in the number of new customers  acquired  (over 17% higher  compared to
the first nine months of 2006) and an  increase in average  order size (over 10%
higher  compared  to the first nine months of 2006).  For the nine months  ended
September 30, 2007, revenue from shipping and handling (which is included in net
sales)  increased  approximately  14% to $3,315,000 from $2,909,000 for the nine
months ended 2006.

Cost of sales: Cost of sales consists of the cost of products sold to customers,
in-bound and out-bound  shipping  costs,  inventory  reserves,  commissions  and
packing  materials.  Cost of sales for the nine months ended  September 30, 2007
totaled  $39,230,000,  resulting in gross margin of approximately 36.5%. Cost of
sales  for the  nine  months  ended  September  30,  2006  totaled  $29,995,000,
resulting in gross margin of 40.0%.  Gross profit increased by approximately 13%
to  $22,565,000  for the nine  months  ended  September  30,  2007  compared  to
$19,996,000  for the nine months ended  September  30,  2006.  The growth in the
high-end  designer  items  has a  significant  impact on the  Company's  overall
merchandise  mix,  which  continues  to  negatively   impact  the  gross  margin
percentage.  The combination of the high demand for high-end merchandise and the
decline in value of the US Dollar  relative to the Euro had a negative impact on
our gross margins related to designer  accessory  items. In addition,  the gross
margin was negatively affected by additional  inventory reserves,  and expedited
shipping  expenses that were incurred in connection with our transition to a new
fulfillment center.

                                       14
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2007

Marketing expenses:  Marketing expenses remained relatively unchanged decreasing
by 1% to  $9,130,000  for the nine months ended  September  30, 2007 compared to
$9,256,000 for the nine months ended September 30, 2006. While net sales for the
nine months  increased by almost 24%, our marketing  expenses as a percentage of
net sales  decreased to 14.7% of net sales for the nine months  ended  September
30, 2007 from 18.5% for the nine months ended September 30, 2006.

Marketing  expenses include  expenses  related to paid search,  online and print
advertising, television, fees to marketing affiliates, direct mail campaigns and
staff related costs. Total expenses related to the national print and television
advertising  campaign  for the nine months  ended  September  30,  2007  totaled
$3,500,000  compared to $4,600,000 for the nine months ended September 30, 2006.
The $1.1 million  decrease in costs  associated  with our  national  advertising
campaign  was  partially  offset by an increase of $745,000 in  connection  with
costs associated with online marketing initiatives.

Selling and fulfillment expenses:  Selling and fulfillment expenses increased by
21% for the nine months  ended  September  30, 2007  compared to the nine months
ended September 30, 2006. Selling and fulfillment expenses were comprised of the
following:

<TABLE>
<CAPTION>
                Nine Months Ended   As a % of  Nine Months Ended   As a % of  Percentage Difference
                September 30, 2007  Net Sales  September 30, 2006  Net Sales   increase (decrease)
                ------------------  ---------  ------------------  ---------  ---------------------
<S>                     <C>              <C>           <C>              <C>          <C>
Operating                7,219,000       11.7%          5,638,000       11.3%        28%
Technology               3,543,000        5.7%          3,067,000        6.1%        15%
E-Commerce               2,766,000        4.5%          2,447,000        4.9%        13%
                ------------------  ---------  ------------------  ---------  ---------------------
                        13,528,000       21.9%         11,152,000       22.3%        21%
</TABLE>

As a percentage of net sales,  our selling and  fulfillment  expenses  decreased
slightly to 21.9% for the nine months  ended  September  30, 2007 from 22.3% for
the nine months ended September 30, 2006.

Operating   expenses   include  all  costs  related  to  inventory   management,
fulfillment,  customer service,  and credit card processing.  Operating expenses
increased  for the nine months ended  September  30, 2007 by  approximately  28%
compared to the nine  months  ended  September  30, 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 as well as incremental costs of approximately $632,000 incurred
in connection  with our  transition to the new third party  fulfillment  center.
Included in operating expenses for 2006 was a refund of $274,000 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 nine months ended September 30,
2007,  technology  expenses  increased by approximately 15% compared to the nine
months ended  September 30, 2006. This increase was attributed to an increase in
staff and related costs,  software  support,  depreciation  and training and was
partially  offset by a  decrease  in  consulting  expenses.  A  majority  of the
consulting  expenses  incurred for the nine months ended September 30, 2007 were
related to the development of our new Web site and capitalized  accordingly.  As
of September 30, 2007  approximately  $1,865,000  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 nine months ended September 30, 2007,
e-commerce  expenses  increased  by  approximately  13% as  compared to the nine
months ended  September 30, 2006. This increase was primarily due to an increase
in salary related  expenses as well as an increase in expenses  associated  with
software used to support the web site.

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 nine months ended
September 30, 2007 increased by approximately  30% to $10,450,000 as compared to
$8,019,000 for the nine months ended September 30, 2006. The increase in general
and  administrative  expenses  was  primarily  the  result of the  recording  of
$4,209,000 of expense related to employee stock options in the nine month period
and increased consulting and professional fees of $152,000. These increases were
partially  offset by a decrease in public  company  expenses  of $214,000  and a
decrease in salary and salary related expenses of $133,000.

                                       15
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2007

As a percentage of net sales,  general and administrative  expenses for the nine
months ended September 30, 2007 increased to approximately  16.9% from 16.1% for
the nine months ended September 30, 2006.

Loss from operations: Operating loss increased by approximately 25% for the nine
months ended  September 30, 2007 to  $10,543,000  from  $8,431,000  for the nine
months ended September 30, 2006. While net sales and gross margin increased over
this period,  the increase in net sales and gross margin was more than offset by
the recording of stock option expenses in connection with SFAS No. 123(R).

Interest and other income:  Other income for the nine months ended September 30,
2007 increased to $463,000 from $311,000 for the nine months ended September 30,
2006.  These  amounts  relate  primarily to interest  income  earned on our cash
balances.

Interest and other expense: Interest expense for the nine months ended September
30,  2007  totaled  $193,000,  compared to  $530,000  for the nine months  ended
September 30, 2006. Interest expense relates to fees paid in connection with our
Credit Facility, as well as interest expense on the Notes.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2006

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

<TABLE>
<CAPTION>
                                                      2007                         2006                         2005
                                           -------------------------    -------------------------    -------------------------
                                                          As a % of                    As a % of                    As a % of
                                                          Net Sales                    Net Sales                    Net Sales
<S>                                        <C>                 <C>      <C>                 <C>      <C>                 <C>
Net sales                                  $    18,079         100.0%   $    16,322         100.0%   $    12,045         100.0%
Cost of sales                                   12,351          68.3%        10,211          62.6%         7,470          62.0%
                                           -----------                  -----------                  -----------
         Gross profit                            5,728          31.7%         6,111          37.4%         4,575          38.0%

Selling and fulfillment expenses                 4,583          25.3%         3,871          23.7%         2,965          24.6%
Marketing expenses                               2,807          15.5%         3,496          21.4%         1,603          13.3%
General and administrative expenses              3,410          18.9%         2,369          14.5%         1,528          12.7%
                                           -----------                  -----------                  -----------
         Total operating expenses               10,800          59.7%         9,736          59.6%         6,096          50.6%

Operating loss                                  (5,072)        (28.0)%       (3,625)        (22.2)%       (1,521)        (12.6)%
Interest (expense) and other income, net            44           0.2%           140           0.9%          (182)         (1.5)%
                                           -----------                  -----------                  -----------
         Net loss                               (5,028)        (27.8)%       (3,485)        (21.3)%       (1,703)        (14.1)%
</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 September 30th, as indicated below:

<TABLE>
<CAPTION>
                                                        2007         2006         2005
                                                     ----------   ----------   ----------
<S>                                                  <C>          <C>          <C>
Average Order Size (including shipping & handling)   $   280.22   $   260.58   $   228.72
New Customers Added during the Period                    37,408       35,970       28,762
</TABLE>

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 is useful
to  investors  because  (a) it  provides a measure  of the total  demand for the
products  sold by the  Company  and (b) it provides a base 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.

                                       16
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2007

Net sales:  Gross sales for the three months ended  September 30, 2007 increased
by approximately  10% to $30,009,000 from $27,366,000 for the three months ended
September 30, 2006. For the three months ended September 30, 2007, we recorded a
provision  for  returns  and credit  card  chargebacks  and other  discounts  of
$11,930,000,  or approximately  39.8% of gross sales. For the three months ended
September 30, 2006,  the provision for returns and credit card  chargebacks  and
other discounts was  $11,044,000,  or  approximately  40.4% of gross sales.  The
decrease in the return rate in this  provision  as a  percentage  of gross sales
resulted  from a slight  decrease in the return rate.  However,  there can be no
assurance  that a decrease in return rates will continue.  Historically,  as our
merchandise mix has moved more towards higher end products,  our return rate has
increased.

After  the  necessary  provisions  for  returns,  credit  card  chargebacks  and
adjustments  for  uncollected  sales  taxes,  our net sales for the three months
ended  September  30,  2007 were  $18,079,000.  This  represents  an increase of
approximately  11%  compared to the three months ended  September  30, 2006,  in
which net sales totaled $16,322,000.  The growth in net sales resulted from both
an increase in the number of new  customers  acquired  (approximately  4% higher
compared  to  third  quarter  2006)  and  an  increase  in  average  order  size
(approximately  7% higher  compared to the third  quarter  2006).  For the three
months ended  September 30, 2007,  revenue from shipping and handling  decreased
approximately  1% to $924,000 from $939,000 for the three months ended September
30, 2006.

Cost of sales:  Cost of sales for the three  months  ended  September  30,  2007
totaled  $12,351,000,  resulting in gross margin of approximately 31.7%. Cost of
sales for the  three  months  ended  September  30,  2006  totaled  $10,211,000,
resulting in gross margin of 37.4%. Gross profit decreased by 6 %, to $5,728,000
for the three months ended  September 30, 2007  compared to  $6,111,000  for the
three  months  ended  September  30,  2006.  Included in the cost of sales was a
charge for $550,000  against our inventory  based on a inventory  reconciliation
(as described above in more detail).  The growth in the high-end  designer items
has a  significant  impact  on the  Company's  overall  merchandise  mix,  which
continues to negatively impact the gross margin  percentage.  The combination of
the high  demand  for this  merchandise  and the  decline in the value of the US
Dollar  relative to the Euro had a negative  impact on our gross margins related
to designer  accessory  items.  In  addition,  the gross  margin was  negatively
affected by additional inventory reserves,  and expedited shipping expenses that
were incurred in connection with our transition to a new fulfillment center.

Marketing  expenses:  Marketing  expenses decreased by 20% to $2,807,000 for the
three months ended September 30, 2007 from $3,496,000 for the three months ended
September  30,  2006.  While  net  sales  for  the  three  months  increased  by
approximately 11%, our marketing expenses as a percentage of net sales decreased
to 15.5% for the three months ended  September 30, 2007 from 21.4% for the three
months ended September 30, 2006.

Total expenses related to the national print and television advertising campaign
for the three  months ended  September  30, 2007  totaled  $693,000  compared to
$1,486,000  for the three  months ended  September  30, 2006. A majority of this
variance is the result of the timing of expensing production costs related to TV
advertisements.

Selling and fulfillment expenses:  Selling and fulfillment expenses increased by
approximately  18% in the third quarter of 2007 compared to the third quarter of
2006. Selling and fulfillment expenses were comprised of the following:

<TABLE>
<CAPTION>
               Three Months Ended  As a % of  Three Months Ended  As a % of  Percentage Difference
               September 30, 2007  Net Sales  September 30, 2006  Net Sales   increase (decrease)
               ------------------  ---------  ------------------  ---------  ---------------------
<S>                     <C>             <C>            <C>             <C>          <C>
Operating               2,486,000       13.7%          1,939,000       11.9%        28%
Technology              1,144,000        6.3%          1,079,000        6.6%         6%
E-Commerce                953,000        5.3%            853,000        5.2%        12%
               ------------------  ---------  ------------------  ---------  ---------------------
                        4,583,000       25.3%          3,871,000       23.7%        18%
</TABLE>

As a percentage of net sales, our selling and fulfillment  expenses increased to
25.3% for the three  months  ended  September  30, 2007 from 23.7% for the three
months ended September 30, 2006.

Operating  expenses  increased in the third quarter of 2007 by approximately 28%
compared to the third quarter of 2006 as a result of variable  costs  associated
with the increased sales volume (e.g.,  picking and packing  orders,  processing
returns and credit card fees) as well as an increase in customer  service costs.
In addition, during the third quarter we completed our transition to a new third
party fulfillment center and incurred incremental expenses during the quarter of
approximately

                                       17
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2007

$462,000  in costs  directly  related to the move  (including  trucking,  labor,
insurance,  etc.).  Start-up  issues  associated  with the transition to the new
fulfillment center resulted in certain cancelled orders and associated  expenses
during the third quarter of 2007. In the long term, we expect the  transition to
the new  fulfillment to improve  customer  service and to result in efficiencies
and cost savings.

For the three months ended September 30, 2007,  technology expenses increased by
approximately  6% compared to the three months ended  September  30, 2006.  This
increase resulted from an increase in software support,  depreciation,  training
and web hosting  expenses.  The increase was  partially  offset by a decrease in
consulting  expenses.  Most of the  consulting  expenses  incurred  in the third
quarter  of 2007  were  related  to the  development  of our new  Web  site  and
capitalized  accordingly.  For  the  three  months  ended  September  30,  2007,
approximately  $646,000 of expenses  were  capitalized  in  connection  with the
development of our new Web site.

For the three months ended September 30, 2007, e-commerce expenses increased by
approximately 12% as compared to the three months ended September 30, 2006. This
increase was primarily due to an increase in salary related expenses, including
the recording of non-cash employee stock option expenses as well as an increase
in expenses associated with photo shoots.

General and administrative expenses: General and administrative expenses for the
three  months  ended  September  30,  2007  increased  by  approximately  44% to
$3,410,000  as compared to $2,369,000  for the three months ended  September 30,
2006.  The increase in general and  administrative  expenses was  primarily  the
result of the recording of $1,365,000  of expense  related to non-cash  employee
stock options in the current period verses $463,000 last year.

As a percentage of net sales, general and administrative  expenses for the third
quarter  of 2007  increased  to  approximately  18.9%  from  14.5% for the third
quarter of 2006.

Loss from operations: Operating loss increased by approximately 40% in the third
quarter of 2007 to  $5,072,000  from  $3,625,000  in the third  quarter of 2006.
While net sales  increased over this period,  the increase in net sales was more
than  offset by the  $550,000  inventory  charge,  the  incremental  operational
expenses and the recording of stock option  expenses in accordance with SFAS No.
123(R).

Interest and other income:  Other income for the third  quarter ended  September
30,  2007  decreased  to  $99,000  from  $199,000  for the third  quarter  ended
September 30, 2006.  These amounts relate primarily to interest income earned on
our cash balances.

Interest  and  other  expense:  Interest  expense  for the  three  months  ended
September  30, 2007  totaled  $55,000,  compared to $59,000 for the three months
ended  September 30, 2006.  Interest  expense relates to fees paid in connection
with our Credit Facility.

LIQUIDITY AND CAPITAL RESOURCES

General

At  September  30,  2007,  we had  approximately  $7.2  million in cash and cash
equivalents, as compared to $17.1 million at September 30, 2006 and $5.1 million
at September 30, 2005. Cash and cash  equivalents at December 31, 2006 was $20.2
million. Working capital at September 30, 2007, 2006 and 2005 was $26.7 million,
$35.8 million and $11.6 million,  respectively.  Working capital at December 31,
2006  was  $34.0  million.  In  addition,  as of  September  30,  2007,  we  had
approximately  $3.7  million  committed  under  the  Credit  Facility,   leaving
approximately  $3.8  million  of  availability,  as  compared  to  $3.2  million
committed and $4.3 million  available as of September 30, 2006, and $2.7 million
committed and $3.7 million available as of September 30, 2005.

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,

                                       18
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2007

as in  some  circumstances  we  need  to pay in  advance  of  production.  As of
September  30, 2007,  we had  approximately  $422,000 of prepaid  inventory  and
$3,395,000  of  prepaid  advertising  on  our  balance  sheet,  as  compared  to
$1,111,000  and $2,096,000 as of September 30, 2006, and $436,000 and $1,082,000
as of September 30, 2005. The increase in the prepaid advertising related to ads
that will run in the fourth quarter of 2007 and the first quarter of 2008.

Our inventory  levels as of September 30, 2007 were  approximately  $3.6 million
higher than at September 30, 2006. The increase in inventory  generally reflects
a ramp up in  connection  with our sales  growth but also is a result of some of
our  inventory  not being  available  for sale  during our move to our new third
party fulfillment  center. As a result we expect to carry some of this inventory
into next season.  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.

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 September  30, 2007,  total  availability  under the
Credit Facility was approximately  $7,500,000 of which $3,650,000 was committed,
leaving approximately $3,850,000 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.

Commitments and Long Term Obligations

As of  September  30,  2007,  we had the  following  commitments  and long  term
obligations:

<TABLE>
<CAPTION>
                                           Less than        1-3           3-5        More than
                              Total         1 year         years         years        5 years
                           ------------   -----------   -----------   -----------   -----------
<S>                        <C>             <C>            <C>                  <C>           <C>
Marketing and Advertising  $  5,225,000     5,225,000            --            --            --
Purchase Orders              16,803,000    16,803,000            --            --            --
Operating Leases              1,061,000       470,000       591,000            --            --
Employment Contracts          2,543,000       579,000     1,964,000            --            --
                           ------------   -----------   -----------   -----------   -----------
     Grand total           $ 25,632,000    23,077,000     2,555,000            --            --
</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.

                                       19
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2007

ITEM 4.  CONTROLS AND PROCEDURES.

As of the end of the  period  covered  by this  Form  10-Q,  we  carried  out an
evaluation,  under the supervision and with the participation of our management,
including our Chief Executive Officer along with our Chief Financial Officer, of
the  effectiveness  of the design and operation of our  disclosure  controls and
procedures  (as defined in Exchange Act Rules  13a-15(e) and  15d-15(e)).  Based
upon that evaluation, our Chief Executive Officer along with our Chief Financial
Officer  concluded that our disclosure  controls and procedures are effective in
ensuring that information  required to be disclosed by us in the reports that we
file or submit under the Exchange Act is  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;  risks  related to our
transition to a new order  fulfillment  center;  the success of our  advertising
campaign;  risks  associated  with Soros,  Maverick and  Prentice  each owning a
significant  portion of our stock; the need for additional capital and potential
inability to raise such  capital;  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 such litigation that
in the opinion of management is likely to have a material adverse effect on us.

ITEM 1A. RISK FACTORS

The Risk Factors  included in our Annual Report on Form 10-K for the fiscal year
ended  December  31, 2006 have not  materially  changed  other than as set forth
below.

During the third  quarter of 2007 we  completed  our  transition  to a new third
party  fulfillment  center.  In  connection  with this  transition  we  incurred
incremental expenses of approximately  $632,000 ($462,000 for the third quarter)
in costs directly  related to the move (including  trucking,  labor,  insurance,
etc.).  We  took  additional  charges  of  approximately  $550,000  against  our
inventory based on the  reconciliation  of inventory that we normally perform in
connection with each quarter's close. We believe, at this time, that the charges
that were taken will be sufficient to cover any loss of inventory resulting from
the

                                       20
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 2007

transition,  and that we will be able to work  with the  fulfillment  center  to
implement necessary changes to their inventory reporting systems. However, there
can be no  assurance  that this will be the case.  We intend to perform the full
physical  inventory  in  January,  following  the end of the  Holiday  sales and
returns  cycle.  Start-up  issues  associated  with  the  transition  to the new
fulfillment   center  also  resulted  in  certain  cancelled  orders  and  other
incremental costs such as expedited shipping costs.  During the period from June
2007 through mid September of 2007 a portion of the Company's  inventory was not
available  for  sale.  This had a  significant  impact  on the  offering  to the
consumer  and  hence the  ultimate  sales  recognized  in this  time  frame.  In
addition,  during this transition period the Company experienced some processing
issues with a small  percentage  of orders and  returns.  We believe  that these
issues had a negative  impact on those  customers  affected.  We believe we have
taken the  appropriate  action  related to the customers  affected.  In the long
term, we expect the transition to the new fulfillment center to improve customer
service and increase  efficiencies,  however, there can be no assurance that the
transition  will not  continue  to have a  negative  impact  upon our  business,
financial condition and results of operations.

ITEM 6.  EXHIBITS

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

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

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

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

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

                                       21
<PAGE>

                                  BLUEFLY, INC.
                               SEPTEMBER 30, 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

November 14, 2007

                                       22