<PAGE>   1
             U.S. SECURITIES AND EXCHANGE COMMISSION
                      Washington, DC  20549
   
                           FORM 10-QSB/A
    
(Mark One)

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

For the quarterly period ended      June 30, 1997
                              ---------------------------

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

For the transition period from _______________ to _______________

Commission File Number:  1-14078
                         -------
                     BLUE FISH CLOTHING, INC.
- -----------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)

               Pennsylvania                      22-2781253
     -------------------------------         ------------------
     (State or Other Jurisdiction of         (I.R.S. Employer
      Incorporation or Organization)         Identification No.)

         No. 3 Sixth Street, Frenchtown, New Jersey  08825
         -------------------------------------------------
             (Address of Principal Executive Offices)

                        (908) 996-3844
                        --------------
          (Issuer's Telephone Number, Including Area Code)

                             N/A
       ----------------------------------------------------
       (Former Name, Former Address and Former Fiscal Year,
                  If Changed Since Last Report)

     Check whether the issuer:  (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 
           -----                                       -----
   
     State the number of shares outstanding of each of the 
issuer's classes of common equity as of the latest practicable 
date:  As of April 14, 1998, 4,599,200 shares of Common Stock, 
       --------------------------------------------------------
$.001 par value per share, were issued and outstanding.
- ---------------------------------------------------------------
    
     Transitional Small Business Disclosure Format (check one):  
YES          NO   X
    -----       -----

<PAGE>   2

                     BLUE FISH CLOTHING, INC.

                              INDEX

                                                             Page
                                                             ----
PART I - FINANCIAL INFORMATION

  ITEM 1.  FINANCIAL STATEMENTS

    Balance Sheets - December 31, 1996 and June 30, 1997       3

    Statements of Operations - For the Three Months Ended
      June 30, 1996 and June 30, 1997                          4

    Statements of Cash Flows - For the Three Months Ended
      June 30, 1996 and June 30, 1997                          5

    Notes to Financial Statements                              6


  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS       9

PART II - OTHER INFORMATION

  ITEM 1.  LEGAL PROCEEDINGS                                  15

  ITEM 2.  CHANGES IN SECURITIES                              15

  ITEM 3.  DEFAULTS ON SENIOR SECURITIES                      15

  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
           HOLDERS                                            15

  ITEM 5.  OTHER INFORMATION                                  15

  ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                   15

  SIGNATURES                                                  17

<PAGE>   3

                      BLUE FISH CLOTHING, INC.
                           BALANCE SHEETS
                           --------------
                             (unaudited)

                                      December 31,     June 30,
ASSETS                                   1996            1997
- ------                                ------------     --------

CURRENT ASSETS
     Cash and cash equivalents        $1,887,994      $1,700,568
     Restricted cash                      40,346          98,143
     Receivables, net of
       allowance of $33,000 
       and $39,139                       526,157       1,035,807
     Inventories                       3,005,717       3,071,202
     Other current assets                 63,013         188,208
     Deferred income taxes               222,119         222,119
                                      ----------      ----------
          Total current assets         5,745,346       6,316,047

PROPERTY AND EQUIPMENT
     Property and equipment,
     net of accumulated
     depreciation of 
     $472,343 and $613,417             1,113,411       1,716,781

OTHER ASSETS:
     Noncompete and consulting
     agreement, net                       56,667          32,111
     Security deposits                   197,884          52,982
     Deferred income taxes                15,876          15,876
                                      ----------      ----------
                                      $7,129,184      $8,133,797
                                      ==========      ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

CURRENT LIABILITIES
     Line of credit                   $1,000,000      $  500,000
     Current portion of 
       long-term debt                    193,698         167,683
     Receivable purchase line
       of credit                         403,464         981,425
     Accounts payable                    849,667         932,300
     Accrued expenses                    432,099         485,309
                                      ----------      ----------
          Total current
          liabilities                  2,878,928       3,066,717
                                      ----------      ----------
DEFERRED RENT                                 --          45,855
                                      ----------      ----------
LONG-TERM DEBT                           482,982       1,196,144
COMMITMENTS AND CONTINGENCIES         ==========      ==========

STOCKHOLDERS' EQUITY:
     Common stock, $.001 par value
       11,000,000 shares authorized,
       6,647,896 and 4,599,200 shares
       issued and 4,599,200 and
       4,599,200 shares outstanding,
       respectively                        6,648           4,599
     Additional paid-in capital        4,027,766       3,799,815
     Retained earnings                   (37,140)         20,667
     Less - Treasury stock,
       2,048,696 common shares,
       at cost                          (230,000)             - 
                                      ----------      ----------
          Total stockholders' equity   3,767,274       3,825,081
                                      ----------      ----------
                                      $7,129,184      $8,133,797
                                      ==========      ==========

The accompanying notes are an integral part of these statements.

                                 3

<PAGE>   4

                         BLUE FISH CLOTHING, INC.
                         STATEMENTS OF OPERATIONS
                         ------------------------
                               (unaudited)

                                  Three Months Ended       Six Months Ended
                                       June 30,                June 30,
                                  ------------------       ----------------
                                  1996          1997       1996        1997
                                  ----          ----       ----        ----

SALES                           $3,121,717  $3,900,007  $5,873,896  $7,342,862
COST OF GOODS SOLD               1,459,890   1,815,114   2,815,191   3,416,040
                                ----------  ----------  ----------  ----------
  Gross margin                   1,661,827   2,084,893   3,058,705   3,926,822

OPERATING EXPENSES               1,472,275   1,913,668   2,942,993   3,624,425
                                ----------  ----------  ----------  ----------
  Income from operations           189,552     171,225     115,712     302,397

INTEREST EXPENSE, NET               31,259      49,774      94,239     111,669
                                ----------  ----------  ----------  ----------
INCOME BEFORE INCOME TAXES         158,293     121,451      21,473     190,728

INCOME TAX (BENEFIT)
  PROVISION                       (149,427)     56,597    (163,109)     88,880
                                ----------  ----------  ----------  ----------

NET INCOME                      $  307,720  $   64,854  $  184,582  $  101,848
                                ==========  ==========  ==========  ==========

NET INCOME PER SHARE                        $     0.01              $     0.02

WEIGHTED AVERAGE SHARES
  OUTSTANDING                                4,777,466               4,775,681

PRO FORMA DATA unaudited:(Note 5)
  Historical income before
    income taxes                $  158,293              $   21,473
  Pro forma income tax
    provision                       77,089                  10,457
                                ----------              ----------
PRO FORMA NET INCOME            $   81,204              $   11,016
                                ==========              ==========
PRO FORMA NET INCOME PER SHARE  $     0.02              $     0.00

PRO FORMA WEIGHTED AVERAGE 
  SHARES OUTSTANDING             4,250,519               4,064,172

     The accompanying notes are an integral part of these statements.

                                 4

<PAGE>   5

                    BLUE FISH CLOTHING, INC.
                    STATEMENTS OF CASH FLOW
                          (unaudited)

                                         Six Months Ended June 30,
                                         -------------------------
                                         1996                 1997
                                         ----                 ----
OPERATING ACTIVITIES:
  Net income                            $  184,582      $  101,848
  Adjustments to reconcile 
    net income to net cash
    used in operating activities -
      Depreciation and amortization        101,222         190,888
      Deferred tax benefit                (173,566)             - 
      Provision for deferred rent               -           45,855 
      Provision for losses
        (recoveries) on
        accounts receivable                (10,024)         25,002 
      (Increase) decrease in
        assets -
          Accounts receivable               14,522        (534,652)
          Inventory                       (324,003)        (65,485)
          Other assets                      (9,877)         19,707 

      Increase (decrease) in
       liabilities -
         Accounts payable                 (225,198)         82,633 
         Accrued expenses                   (6,304)         88,066 
         Accrued bonus-stock grant        (219,625)             -
                                        ----------      ----------
            Net cash used in
             operating activities         (668,271)        (46,138)
                                        ----------      ----------

INVESTING ACTIVITIES:
  Payments for purchases of
   property and equipment                  (57,545)       (804,558)
                                        ----------      ----------
  Net cash used in investing
   activities                              (57,545)       (804,558)
                                        ----------      ----------

FINANCING ACTIVITIES:
  Net borrowings (repayments)
   on line of credit                       370,000        (500,000)
  Receivable purchase 
   line of credit, net                    (114,171)        577,961 
  Borrowing on long-term debt              450,000         800,000 
  Repayments on long-term debt            (109,464)       (112,853)
  Net cash proceeds received from
    public offering                      3,751,068              -  
  Stockholder cash distributions          (463,926)        (44,041)
                                        ----------      ----------
     Net cash provided by financing
      activities                         3,883,507         721,067
                                        ----------      ----------

NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                   3,157,691        (129,629)
CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD                      205,878       1,928,340
                                        ----------      ----------
CASH AND CASH EQUIVALENTS,
  END OF PERIOD                         $3,363,569      $1,798,711 
                                        ==========      ==========

CASH PAID DURING THE PERIOD FOR:
  Interest                              $   91,543      $  111,849
                                        ==========      ========== 
  Taxes                                 $    2,426      $   29,575 
                                        ==========      ==========

The accompanying notes are an integral part of these statements.

                                 5

<PAGE>   6

                     BLUE FISH CLOTHING, INC.
                  Notes to Financial Statements
               For the Period Ending March 31, 1997
               ------------------------------------


Note 1 - Basis of Financial Statement Presentation:
- --------------------------------------------------
The accompanying unaudited financial statements are presented in accordance 
with the requirements for Form 10-QSB and do not include all the 
disclosures required by generally accepted accounting principles for 
complete financial statements.  Reference should be made to the Blue Fish 
Clothing, Inc.'s (the "Company") annual report on Form 10-KSB, as amended, 
for additional disclosures including a summary of the Company's accounting 
policies.

In the opinion of management of the Company, the financial statements 
include all adjustments, consisting of only normal recurring accruals, 
necessary for a fair presentation of the financial position of Blue Fish 
Clothing, Inc. The results of operations for the three months and six 
months ended June 30, 1997 or any other interim period, are not necessarily 
indicative of the results to be expected for the full year.

Note 2 - Initial Public Offering:
- --------------------------------

On November 13, 1995, the Company commenced the sale of 800,000 shares of 
common stock in a public offering at a price of $5.00 per share.  The 
offering was made directly by the Company on a "Minimum/Maximum" basis 
subject to subscription and payment for not less than 500,000 shares (the 
Minimum) and not more than 800,000 shares (the Maximum).  The Minimum was 
raised as of May 13, 1996, and the public offering was closed as of May 15, 
1996, generating cash of approximately $3,215,000, net of transaction costs 
of $721,000, of which approximately $247,000 was expended in 1995. Upon the 
closing of the offering, offering costs deferred prior to the offering were 
reclassified to stockholders' equity and the Company converted to C 
Corporation status and recorded deferred income tax assets of $173,566 (see 
Note 4).  All S Corporation earnings were reclassified to additional paid 
in capital.

Note 3 - Significant Accounting Policies and Disclosures:
- --------------------------------------------------------

Inventories
- -----------
The components of inventory as presented are as follows:

                             December 31,        June 30, 
                                 1996              1997
                             ------------      -----------
     Raw materials           $    304,361      $   549,907
     Work-in-process              709,302          963,716
     Finished goods             1,992,054        1,557,579
                             ------------      -----------
                             $  3,005,717      $ 3,071,202
                             ============      ===========

                                  6
<PAGE>   7

Earnings Per Share (EPS)
- ------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued 
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per 
Share", which the Company is required to adopt for both interim and annual 
periods ending after December 15, 1997. SFAS No. 128 simplifies the EPS 
calculation by replacing primary EPS with basic EPS. Basic EPS is computed 
by dividing reported earnings available to common stockholders by weighted 
average shares outstanding. Fully diluted EPS, now called diluted EPS, is 
still required. Early application is prohibited, although footnote 
disclosure of proforma EPS amounts computed is required. Under SFAS 128, 
proforma basic EPS and diluted EPS for the three months and six months 
ended June 30, 1997 would not have changed from the amount reported. All 
other EPS amounts for the periods presented remain the same.

Major Customers and Concentration of Credit Risk
- ------------------------------------------------
The Company has one significant customer that accounted for 10.0% and 17.9% 
of total sales for the six months ended June 30, 1996 and June 30, 1997, 
respectively.  This same customer accounted for 6.3% and 17.8% of net 
accounts receivable at December 31, 1996 and June 30, 1997, respectively.


Note 4 - Income Taxes:
- ---------------------

The Company accounts for income taxes in accordance with Statement of 
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income 
Taxes," the objective of which is to recognize the amount of current and 
deferred income taxes payable or refundable at the date of the financial 
statements as a result of all events that have been recognized in the 
financial statements as measured by enacted tax laws.

Prior to the closing of the Offering, the Company had elected to be taxed 
under Subchapter S of the Internal Revenue Code. As a result, the Company 
was not subject to federal income taxes, and the taxable income of the 
Company was included in the stockholders' tax returns. The Company had also 
elected S Corporation status in certain states and, therefore, had recorded 
a provision for state income taxes for those states that do not recognize 
or partially recognize S Corporation treatment.

Shortly before the closing of the Offering, the Company terminated its 
status as an S Corporation and is now subject to federal and additional 
state income taxes. The Company recorded a tax benefit of $173,566 as a 
result of establishing deferred income tax assets upon its conversion to a 
C Corporation.

                                  7
<PAGE>   8

Note 5 - Pro Forma Information:
- ------------------------------

Pro Forma Statement of Operations Data
- --------------------------------------
For informational purposes, the accompanying statements of operations for 
the quarter and six months ended June 30, 1996 include an unaudited pro 
forma adjustment for the income taxes which would have been recorded if the 
Company had not been an S Corporation, based on the tax laws in effect 
during the respective period.

The differences between the federal statutory income tax rate and the pro 
forma income tax rate for all periods presented are as follows:

                                                 1996
                                                 ----
     Federal statutory tax rate                  34.0%
     State income taxes, net of federal benefit   7.9
     Other                                        6.8
                                                 -----
                                                 48.7%
                                                 =====

Pro Forma Net Income Per Share
- ------------------------------
Pro forma net income per share was calculated by dividing pro forma net 
income by the weighted average number of shares of common stock outstanding 
for the respective periods, adjusted for the dilutive effect of common 
stock equivalents which consist of stock options.  Pursuant to the 
requirements of the Securities and Exchange Commission, common stock issued 
by the Company during the twelve months immediately preceding the initial 
public offering, plus the number of common equivalent shares which were 
authorized and will become issuable during the same period pursuant to the 
grant of common stock options, have been included in the calculation of the 
shares used in computing pro forma net income per share as if they were 
outstanding for all periods presented using the treasury stock method and 
the offering price of $5.00 per share.

Note 6 - Financing Arrangements:
- -------------------------------

On June 25 and June 27, 1997, the Company refinanced its existing debt and 
increased its borrowings. On June 25, 1997, the Company entered into a 
Business Loan Agreement with a bank and received a promissory note in the 
amount of $800,000. This note is subject to monthly interest payments 
beginning July 25, 1997, with interest calculated on the unpaid principal 
balances at an interest rate of two percentage points over the Index. The 
Index represents the bank's one year certificate of deposit yield (5.9% at 
June 30, 1997). Four principal payments of $50,000 are to be paid in annual 
installments commencing June 25, 1998 through June 25, 2001, and one 
principal payment of $600,000 is to be paid on June 25, 2002. This note is 
secured by an $842,000 certificate of deposit and guaranteed by Jennifer 
Barclay, a principal shareholder. This certificate of deposit is included 
in cash and cash equivalents at June 30, 1997.

                                   8
<PAGE>   9

As of June 27, 1997, the Company had an outstanding line of credit of 
$1,000,000 subject to a maximum outstanding amount not to exceed 50% of 
finished goods inventory plus 25% of work in process. On that date, the 
Company modified this Note and Security Agreement and paid $500,000, 
thereby reducing the outstanding principal balance due to $500,000 and 
extended the term through April 1998. Interest shall be charged on the 
outstanding principal balance of the loan from June 27, 1997, until the 
full amount of principal due has been paid at a rate equal at all times to 
the Prime Rate plus three quarters percent per annum. The Security 
Agreement shall continue to be a first lien on the Collateral and shall 
secure the Note as extended. 

Note 7 - Commitments and Contingencies:
- --------------------------------------

Operating Leases
- ----------------
The Company has entered into a 10 year lease, commencing June 15, 1997, for 
a 2,300 sq. ft. (approximately 2,000 selling sq. ft.) Westport, Connecticut 
retail store at a monthly rent of $4,600 with an adjustment each year for 
CPI.

   
In December 1996, the Company entered into a lease for a new Corporate facility.
The lease is currently scheduled to commence in June 1998. Minimum lease
payments are due monthly and begin at $267,120 per year and increase 3% per year
throughout the term plus a common area maintenance charge of the greater of
$15,000 or 5% of base rent.
 
In 1997, the lease was amended and obligates the Company to purchase the
Corporate facility and other buildings in the complex for $3,800,000 during the
sixth year after the Company takes possession of the premises. A deposit of
$200,000 was required which will be applied to the purchase price of the
property. This was funded through receipt of an economic development grant and
has been included in other non-current liabilities on the accompany balance
sheet until all obligations related to the grant have been achieved. In
addition, the Company is obligated to make payments of approximately $340,000
related primarily to building improvements at this site. The lease will be
accounted for as a capital lease upon commencement.
    

Note 8 - Treasury Stock:
- -----------------------

The Company repurchased 2,048,696 shares of the Company's Common Stock.  
These shares were held in Treasury by the Company (the "Treasury Stock").  
Pursuant to a Security Agreement, the Treasury Stock, together with all 
accounts receivable, inventories, work-in-progress, bank accounts, 
trademarks, choses in action, leasehold interests, and fixed assets, served 
as collateral to secure the Company's obligations under certain promissory 
notes. The Company satisfied all of its obligations pursuant to the 
Agreement and promissory notes on April 5, 1997.  On April 20, 1997 the 
Company retired the Treasury Stock and returned it to the status of 
authorized but unissued shares.

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

Six Months Ended June 30, 1997  ("1997 period") Compared to Six Months 
Ended June 30, 1996 ("1996 period")

     SALES.  The Company's sales increased by $1,468,966 or 25.0% to 
$7,342,862 in the 1997 period.  The Company's wholesale sales increased by 
20.9% from $4,100,940 in the 1996 period to $4,958,208 in the 1997 period, 
its retail sales increased by 40.7% from $1,386,123 in the 1996 period to 
$1,949,936 in the 1997 period and craft fair sales increased by 12.4% from 
$386,833 in the 1996 period to $434,717 in the 1997 period. The Company 
attributes the wholesale sales increase during the 1997 period primarily to 
the enthusiastic customer response to the Spring and Summer lines, which 
are particularly strong selling seasons for the Company, a 67.7% increase 
in department store business, and to increased boutique account business 
resulting from improved relations with existing wholesale accounts and new 
business generated through the Messenger Program.  The retail sales 
increase was primarily due to a same store sales increase of $168,305 or 
14.1%, and stores which opened in September 1996 and March 1997 generating 
sales during the 1997 period. The Company attributes these results to 
increased marketing efforts, personal shopping through its phone sales, and 
repeat customer purchases. As a result of closing the Company's Taos, New 
Mexico retail location in January 1997, sales at this location decreased 
$165,132 to $27,563 in the 1997 period. The increase in craft fair sales 
was due to the continued sale of past season and slightly damaged goods at 
special showplaces. 

                                9
<PAGE>   10

     GROSS MARGIN.  The major components affecting gross margin are raw 
material and production costs, wholesale and retail maintained margins and 
sales mix. The Company's gross margin increased, as a percentage of sales, 
by 1.4 percentage points from 52.1% in the 1996 period to 53.5% in the 1997 
period. The Company attributes this increase to fewer discounted sales and 
increased initial mark-ups at its retail stores. 

     OPERATING EXPENSES.  The Company's operating expenses increased by 
$681,432 or 23.2% from $2,942,993 in the 1996 period to $3,624,425 in the 
1997 period and decreased as a percentage of sales by 0.7 percentage points 
from 50.1% in the 1996 period to 49.4% in the 1997 period.  The increase in 
operating expenses in the 1997 period was primarily due to the addition of 
management team members and staff support,  expenses of two new retail 
stores offset by a discontinued store accounting for 44.6% of the total 
dollar increase which did not exist in the 1996 period, and  accounting and 
legal expenses.  Operating expenses related to general and administrative 
functions have increased throughout 1996 and 1997, providing capacity for 
future sales growth. The decline as a percent of sales is primarily 
attributable to sales increasing at a faster rate than expenses.

    INTEREST EXPENSE, NET.  The Company's interest expense, net, increased 
by $17,430 or 18.5% from $94,239 in the 1996 period to $111,669 in the 1997 
period. Interest expense  increased by $26,973 due to increased borrowings 
for the Company's working capital needs, an increase in assigned wholesale 
credit receivables as a result of increased wholesale sales, and an 
increase in interest on capitalized leases. Interest income increased by 
$9,543 as a result of the Company investing cash raised from the initial 
public offering in interest bearing instruments in May 1996.

     PRE-TAX INCOME.  As a result of the foregoing, income before income 
tax provision increased $169,255 or 788.2% from $21,473 in the 1996 period 
to an income before income tax provision of $190,728 in the 1997 period. 

     INCOME TAX (BENEFIT) PROVISION.  During the 1997 period the effective 
tax rate was 46.6% primarily due to Federal and state taxes and the impact 
of certain non-deductible expenditures. The benefit of $163,109 in the 1996 
period was primarily due to the recording of a tax benefit of $173,566 as a 
result of establishing deferred income tax assets upon the conversion of 
the Company to a C Corporation shortly before the closing of the Offering.

                               10
<PAGE>   11

Three Months Ended June 30, 1997  ("1997 quarter") Compared to Three Months 
Ended June 30, 1996 ("1996 quarter")

     SALES.  The Company's sales increased by $778,290 or 24.9% to 
$3,900,007 in the 1997 quarter.  The Company's wholesale sales increased by 
23.9% from $1,900,254 in the 1996 quarter to $2,354,328 in the 1997 
quarter, its retail sales increased by 43.5% from $842,611 in the 1996 
quarter to $1,208,860 in the 1997 quarter and craft fair sales decreased by 
10.6% from $378,852 in the 1996 quarter to $338,818 in the 1997 quarter. 
The Company attributes the wholesale sales increase during the 1997 quarter 
primarily to the enthusiastic response to the Summer line, which is a 
particularly strong selling season for the Company, a 110.1% increase in 
department store business, and to increased boutique account business 
resulting from improved relations with existing wholesale accounts and new 
business generated from through the Messenger Program.  The retail sales 
increase was primarily due to a same store sales increase of $58,000 or 
8.0%, and stores which opened in September 1996 and March 1997 generating 
sales during the 1997 quarter. The Company attributes these results to 
increased marketing efforts, personal shopping through its phone sales, and 
repeat customer purchases. As a result of closing the Company's Taos, New 
Mexico retail location in January 1997, sales at this location decreased 
$114,022 in the 1997 quarter. The decrease in craft fair sales was 
primarily due to attending an event during the March 31, 1997 period which 
previously occurred in the June 30, 1996 quarter. 

     GROSS MARGIN.  The major components affecting gross margin are raw 
material and production costs, wholesale and retail maintained margins and 
sales mix.  The Company's gross margin increased, as a percentage of sales, 
by 0.2 percentage points from 53.2% in the 1996 period to 53.4% in the 1997 
period.  The Company attributes this increase to fewer discounted sales and 
increased initial mark-ups at its retail stores and overall production 
efficiencies.

     OPERATING EXPENSES.  The Company's operating expenses increased by 
$441,393 or 30.0% from $1,472,275 in the 1996 quarter to $1,913,668 in the 
1997 quarter and increased as a percentage of sales by 1.9 percentage 
points from 47.2% in the 1996 period to 49.1% in the 1997 period.  The 
increase in operating expenses in the 1997 quarter was primarily due to the 
addition of management team members and staff support, expenses of two new 
retail stores offset by a discontinued store accounting for 53.6% of the 
total dollar increase which did not exist in the 1996 quarter, and 
accounting and legal expenses.  Operating expenses related to general and 
administrative functions have increased throughout 1996 and 1997, providing 
capacity for future sales growth. 

    INTEREST EXPENSE, NET.  The Company's interest expense, net, increased 
by $18,515 or 59.2% from $31,259 in the 1996 quarter to $49,774 in the 1997 
quarter. Interest expense  increased by $11,204 due to increased borrowings 
for the Company's working capital needs, an increase in assigned wholesale 
credit receivables as a result of increased wholesale sales, and an 
increase in interest on capitalized leases. Interest income decreased by 
$7,311 as a result of spending a portion of the Company's initial 
investment of approximately $3.9 million of cash raised from the initial 
public offering in interest bearing instruments in the 1996 quarter.

                               11
<PAGE>   12

     PRE-TAX INCOME.  As a result of the foregoing, income before income 
tax provision decreased $36,842 or 23.3% from $158,293 in the 1996 period 
to an income before income tax provision of $121,451 in the 1997 period. 

     INCOME TAX (BENEFIT) PROVISION.  During the 1997 quarter the effective 
tax rate was 46.6% primarily due to Federal and state taxes and the impact 
of certain non-deductible expenditures. The benefit of $149,427 in the 1996 
quarter was primarily due to the recording of a tax benefit of $173,566 as 
a result of establishing deferred income tax assets upon the conversion of 
the Company to a C Corporation shortly before the closing of the Offering.

Liquidity and Capital Resources:
- -------------------------------
   
     Since its inception, the Company has financed its operations through bank
lines of credit, factoring agreements, bank notes and capital lease financing.
In May 1996, the Company completed an initial public offering which generated
approximately $3.2 million in proceeds in 1996, net of expenses. At December 31,
1997, the Company had $467,000 in cash and cash equivalents (of which $116,000
was restricted), a $500,000 certificate of deposit, a receivable purchase line
of credit for up to $1,500,000 (with a $1,161,000 outstanding balance), a demand
bank line of credit for up to $500,000 (with a $500,000 outstanding balance)
with borrowing limits subject to 50% of finished goods and 25% of work in
progress inventory levels, an $800,000 note payable to a bank (with an $800,000
outstanding balance) which requires a $300,000 certificate of deposit as
security and a $345,000 loan from a shareholder. The Company had working capital
of $2.2 million on December 31, 1997, reflecting a decrease in working capital
of $700,000 from $2.9 million on December 31, 1996. Working capital is defined
as current assets less current liabilities.
 
     On September 11, 1995 the Company's then sole stockholder Ms. Barclay
requested a distribution of $450,000 of the taxed but undistributed S
corporation earnings. Ms. Barclay received this distribution on January 2, 1996.
Ms. Barclay loaned these funds back to the Company on an unsecured basis. The
Company issued her a promissory note in the principal amount of $450,000 and
bearing interest of 7% per annum, payable monthly. At December 31, 1997,
$345,000 was outstanding. The principal amount of the note will be payable upon
demand by Ms. Barclay, subject to the following limitations upon repayment: (i)
the maximum amount of principal that the Company is required to pay in any
3-month period is $50,000 and in any 12-month period is $100,000; (ii) the
Company is not required to make any repayments of principal when its current
assets to current liabilities ratio as set forth in its latest quarterly balance
sheet is below 1.0, excluding liabilities related to amounts due pursuant to the
note; and (iii) no repayment of principal will be paid in the event that a
disinterested majority of the Company's Board of Directors determines that it is
not advisable to make a repayment of principal based upon the Company's then
current cash flow or liquidity needs. Although the restrictions imposed on
repayment were designed to protect the Company from experiencing liquidity
problems, no assurance can be given that a demand for repayment by Ms. Barclay
will not result in a shortage of cash available to the Company for operations.
See "Certain Relationships and Related Transactions."
 
     Net cash used in operations was $284,000 during 1997, consisting primarily
of a net loss of $383,000 and an increase in accounts receivable of $701,000
partially offset by depreciation and amortization of $429,000 and deferred tax
expense of $238,000. Net cash used by operating activities during the same
period for 1996 was $1.2 million, consisting primarily of a net loss before
deferred tax benefit, an increase in inventories of $979,000 for store stock
levels and planned 1997 wholesale shipments, and a decrease in accrued
bonus-stock grant of $403,000 partially offset by a decrease in accounts
receivable of $293,000.
 
     Net cash used in investing activities in 1996 and 1997 was $425,000 and
$2,192,000, respectively. Net cash used in investing activities in 1997
consisted primarily of capital expenditures to purchase property and equipment,
including construction and buildout of the Company's New York retail store which
opened in March, 1997, and the Company's Westport, Connecticut retail store
which opened in October, 1997, the implementation of new software, ongoing
implementation of the Company's Management Information System, and the purchase
of $800,000 in certificates of deposits. A certificate of deposit of $300,000 is
restricted as collateral on the $800,000 note payable to the bank. The remaining
$500,000 was used to maintain a minimum deposit with the bank. The majority of
the 1996 expenditures consisted of the buildout of the wholesale showroom in New
York and Austin retail store.
 
     Net cash provided by financing activities in the 1997 period was
$1,014,000, consisting primarily of an increase in the Company's receivable
purchase line of credit of $757,000, a $200,000 economic development grant and
additional net borrowings on debt of $101,000. Net cash provided by financing
activities in 1996 was $3.3 million, consisting primarily of net cash proceeds
received from the public offering of $3.5 million in 1996, an increase on
borrowings on the Company's line of credit of $500,000, and $450,000 of
borrowings from a majority shareholder. This funding was offset in part by
equity distributions of $556,000 to pay stockholder taxes and distribute S
corporation earnings.
 
     On June 25 and June 27, 1997, the Company refinanced its existing debt and
increased its borrowings. On June 25, 1997, the Company entered into a Business
Loan Agreement with a bank and received a promissory note in the amount of
$800,000. This note is subject to monthly interest payments beginning July 25,
1997, with interest calculated on the unpaid principal balances at an interest
rate of two percentage points over the Index. The Index represents the bank's
one year certificate of deposit yield. Four principal payments of $50,000 are to
be paid in annual installments commencing June 25, 1998 through June 25, 2001,
and one principal payment of $600,000 is to be paid on June 25, 2002. This note
was initially secured by an $842,000 certificate of deposit and guaranteed by
Jennifer Barclay, a principal shareholder. On September 30, 1997, this Agreement
was modified and the bank reduced its security interest in the certificate of
deposit to $300,000. In addition, the Company agreed to maintain a minimum
deposit account with the bank in an amount not less than $500,000. At December
31, 1997, $800,000 was outstanding on this note and the interest rate was 7.9%.
 
     As of June 27, 1997, the Company had an outstanding line of credit of
$1,000,000 subject to a maximum outstanding amount not to exceed 50% of finished
goods inventory plus 25% of work in process. On that date, the Company modified
this Note and Security Agreement and paid $500,000, thereby reducing the
outstanding principal balance due to $500,000 and extended the term through
April 1998. The Security Agreement shall continue to be a first lien on the
Collateral and shall secure the Note as extended. This line of credit bears
interest at the bank's prime interest rate plus 0.75% payable on demand or
monthly. At December 31, 1997, outstanding borrowings under the line of credit
were $500,000, and the interest rate was 9.25%. The line of credit is subject to
a maximum outstanding balance not to exceed 50% of finished goods inventory plus
25% of work in process. In March 1998, the line was increased to $1,000,000
subject to borrowing limits based on inventory and extended the line to April
1999. As of April 14, 1998, the Company had borrowed $950,000 under the line.
The Company also has a receivable purchase line of credit agreement,
which provides for the assignment and processing of Company receivables with
recourse to a maximum outstanding assigned amount of $1,500,000 for a term of
one year. The Company assigns 100% of its wholesale credit sales. The Company
can borrow up to 90% of these assigned receivables, with the remaining 10% held
in reserve in the event of customer payment default. The receivable purchase
line of credit bears interest at 1.5% as a discount to all receivables assigned,
    
                               12
<PAGE>   13
   
and the Company is responsible for reimbursing the bank for all uncollectible
accounts. Interest expense under this agreement was $117,000 and $131,000 during
1996 and 1997, respectively. Both the line of credit and the receivable purchase
line of credit are secured by a stockholder guarantee and have a first lien on
all accounts receivable, inventory, equipment, fixtures and deposit accounts. In
March 1998, the receivable purchase line of credit was renewed and extended
through March 1999, however, this line can be terminated by either party upon
notice, as defined.
 
     Borrowings under this agreement, the line of credit, and the note payable
to a bank contain cross-default and cross-collateralization provisions.
 
     The Company has three other notes payable to banks with outstanding
balances of $34,000 on December 31, 1997 and mature October 1998 through
November 2000. As of December 31, 1997, the Company has $99,000 outstanding in
capital lease obligations for various pieces of equipment. Four leases expire in
1998, and two leases expire in 1999.
 
     The Company repurchased 2,048,696 shares of the Company's Common Stock in
1993. These shares were held in Treasury by the Company (the "Treasury Stock").
Pursuant to a Security Agreement, the Treasury Stock, together with all accounts
receivable, inventories, work-in-progress, bank accounts, trademarks, choses in
action, leasehold interests, and fixed assets now or hereafter acquired, served
as collateral to secure the Company's obligations under certain promissory
notes. The Company satisfied all of its obligations pursuant to the Agreement
and promissory notes on April 5, 1997. On April 20, 1997 the Company retired the
Treasury Stock and returned it to the status of authorized but unissued shares.
 
     In December 1996, the Company entered into a lease agreement for a new
corporate headquarters and production facility in Palmer Township, Pennsylvania,
commencing in June 1998 at an annual rent of approximately $267,000 during the
first year, $275,000 during the second year, with a three percent (3%) escalator
per year thereafter, plus taxes and operating expenses. This rent, plus
anticipated moving expenses, constitutes a significant increase over the
Company's current occupancy cost. In addition, the Company has committed to pay
approximately $340,000 related to building improvements at this site during
1998. If the Company is unable to generate sufficient funds from operations to
finance these additional costs, the Company will require additional debt or
equity financing. In addition, the lease agreement, as amended, provides that
the Company must purchase the leased premises plus adjoining space and a
building comprising a total of approximately 96,000 square feet and 7.5 acres of
land during the sixth year after the Company takes possession of the leased
premises for $3,800,000. The Company plans to pursue mortgage financing for this
purchase.
 
     During the first quarter of 1998, the Company experienced diminishing cash
flow, due primarily to a significant drop in wholesale sales. The Company
experienced a reduction in net sales in the first quarter of 1998 as compared to
the first quarter of 1997 and expects to report a loss in the first quarter of
1998. In response, the Company has undertaken cost reductions, including
personnel, and is negotiating with its existing lender and new lender(s) for an
increased debt facility. No assurance can be given that the Company will be
successful in securing this increased debt facility. In their report on the
Company's financial statements for the year ended December 31, 1997, the
Company's independent public accountants have included an explanatory paragraph
raising substantial doubt about the Company's ability to continue as a going
concern, unless the Company is able to secure additional financing to meet it
obligations on a timely basis and to increase sales. Management intends to
continue to make cost reductions where possible and to initiate various
management actions to address the sales shortfall, as well as to pursue
aggressively additional sources of financing. No assurance can be given that
such management actions or attempts to raise additional financing or increase
sales will be successful.
    
                               13
<PAGE>   14


                   PART II - OTHER INFORMATION


Item 1.  Legal Proceedings
         -----------------

     Not applicable


Item 2.  Changes in Securities
         ---------------------

     Not applicable


Item 3.  Defaults upon Senior Securities
         -------------------------------

     Not applicable


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

     Not applicable 


Item 5.  Other Information
         -----------------

     Not applicable


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

     (a)  Exhibits

          10.26           Agreement by and between Blue Fish Clothing, Inc. 
                          (Sub-Tenant), Michael J. Herbst (Tenant) and 
                          Charles F. Schaefer and Shirley Kaplan Mellor 
                          (Landlords) effective June 25, 1997.

          10.27           Business Loan Agreement by and between Blue Fish 
                          Clothing, Inc. and Carnegie Bank, N.A. dated June 
                          25, 1997.

          10.28           Promissory Note in the principal amount of 
                          $800,000 by and between Blue Fish Clothing, Inc. 
                          and Carnegie Bank, N.A. dated June 25, 1997.

          10.29           Assignment of Deposit Account by and between Blue 
                          Fish Clothing, Inc. and Carnegie Bank, N.A. dated
                          June 25, 1997.

          10.30           Note and Loan and Security Agreement Modification 
                          Agreement by and between Blue Fish Clothing, Inc. 
                          and Carnegie Bank, N.A. dated June 27, 1997.
   
          10.33           First Addendum dated May 19 1997 to Lease Agreement
                          dated December 16, 1996 between William I. Roberts and
                          the Registrant.
    
          27              Financial Data Schedule.


     (b)  Reports on Form 8-K
          Not applicable

                               14
<PAGE>   15

                           SIGNATURES

   
     Pursuant to the requirements of the Securities Act of 1934, the 
Registrant certifies that it has caused this Report to be signed on its 
behalf by the undersigned, thereunto duly authorized, in the Town of 
Frenchtown in the State of New Jersey on April 15, 1998.


                                   BLUE FISH CLOTHING, INC.
                                   ------------------------
                                   (Registrant)





DATE:  April 15, 1998              /s/ Jennifer Barclay
                                   -----------------------------------
                                   Jennifer Barclay
                                   Chairman
                                   




DATE:  April 15, 1998             /s/ Richard E. Swarttz
                                   -----------------------------------
                                   Richard E. Swarttz
                                   Chief Financial Officer and
                                   Treasurer

                               15
<PAGE>   16

                                  INDEX TO EXHIBITS

          
   
          10.33           First Addendum dated May 19, 1997 to the Lease
                          Agreement dated December 16, 1996 between
                          William I. Roberts and the Registrant.