<SUBMISSION>
<ACCESSION-NUMBER>0001169232-02-000801
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>6
<PERIOD>20020630
<FILING-DATE>20020813
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>BLUEFLY INC
<CIK>0001030896
<ASSIGNED-SIC>5961
<IRS-NUMBER>133612110
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>333-22895
<FILM-NUMBER>02729661
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>42 WEST 39TH ST
<CITY>NEW YORK
<STATE>NY
<ZIP>10018
<PHONE>2129448000
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>42 WEST 39TH ST
<CITY>NEW YORK
<STATE>NY
<ZIP>10018
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>PIVOT RULES INC
<DATE-CHANGED>19970305
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d51460_10-q.txt
<DESCRIPTION>QUARTERLY REPORT
<TEXT>
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(Mark One)

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

      For the quarterly period ended June 30, 2002

|_|   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.
                (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 |_|

As of August 12, 2002, the issuer had outstanding 10,391,904 shares of Common
Stock, $.01 par value.

<PAGE>

                                  BLUEFLY, INC.
                                TABLE OF CONTENTS

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

Item 1.  Financial Statements

         Consolidated Balance Sheets as of June 30, 2002 (unaudited) and
                   December 31, 2001                                                    3

         Consolidated Statements of Operations for the six months ended
                   June 30, 2002 and 2001 (unaudited)                                   4

         Consolidated Statements of Operations for the three months ended
                   June 30, 2002 and 2001 (unaudited)                                   5

         Consolidated Statements of Changes in Shareholders' Equity
                   and Redeemable Preferred Stock for the year ended December
                   31, 2001 and for the six months ended June 30, 2002 (unaudited)      6

         Consolidated Statements of Cash Flows for the six months ended
                   June 30, 2002 and 2001 (unaudited)                                   7

         Notes to Consolidated Financial Statements                                     8

Item 2.  Management's Discussion and Analysis of Financial Condition
                   and Results of Operations                                           10

Item 3.  Quantitative and Qualitative Disclosures About Market Risk                    20

Part II. Other Information                                                             21

Item 1.  Legal Proceedings                                                             21

Item 2.  Changes in Securities and Use Of Proceeds                                     21

Item 3.  Defaults Upon Senior Securities                                               21

Item 4.  Submission of Matters to a Vote of Security Holders                           21

Item 5.  Other Information                                                             21

Item 6.  Exhibits and Reports on Form 8-K                                              21

Signature                                                                              23
</TABLE>

<PAGE>

Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements

                                  BLUEFLY, INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                         June 30,      December 31,
                                                                                                           2002           2001
                                                                                                       ------------    ------------
                                                                                                       (Unaudited)
<S>                                                                                                    <C>             <C>
                                                           ASSETS
Current assets
  Cash and cash equivalents                                                                            $  2,017,000    $  5,419,000
  Inventories, net                                                                                        8,138,000       6,388,000
  Accounts receivable                                                                                     1,198,000       1,252,000
  Prepaid expenses                                                                                          448,000         219,000
  Other current assets                                                                                      186,000         255,000
                                                                                                       ------------    ------------
            Total current assets                                                                         11,987,000      13,533,000

Property and equipment, net                                                                               2,633,000       1,155,000

Other assets                                                                                                413,000         193,000
                                                                                                       ------------    ------------

      Total assets                                                                                     $ 15,033,000    $ 14,881,000
                                                                                                       ============    ============

                                              LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable                                                                                     $  4,165,000    $  3,338,000
  Accrued expenses and other current liabilities                                                          1,761,000       2,268,000
  Deferred revenue                                                                                          573,000         691,000
                                                                                                       ------------    ------------
      Total current liabilities                                                                           6,499,000       6,297,000

Note payable to shareholders                                                                                182,000         182,000

Long-term lease liability                                                                                   374,000              --

Commitments and contingencies

Shareholders' equity
  Series A Preferred stock - $.01 par value; 500,000 shares authorized and 500,000 shares
      issued and outstanding as of June 30, 2002 and December 31, 2001, respectively (liquidation
      preference: $10 million plus accrued dividends)                                                         5,000           5,000
  Series B Preferred stock - $.01 par value; 9,000,000 shares authorized and 8,910,782 shares
      issued and outstanding as of June 30, 2002 and December 31, 2001, respectively (liquidation
      preference: $30 million plus accrued dividends)                                                        89,000          89,000
  Common stock - $.01 par value; 40,000,000 shares authorized and 10,391,904 and 9,205,331
      shares issued and outstanding as of June 30, 2002 and December 31, 2001, respectively                 104,000          92,000
  Additional paid-in capital                                                                             84,558,000      72,184,000
  Accumulated deficit                                                                                   (76,778,000)    (63,968,000)
                                                                                                       ------------    ------------
      Total shareholders' equity                                                                          7,978,000       8,402,000
                                                                                                       ------------    ------------
      Total liabilities and shareholders' equity                                                       $ 15,033,000    $ 14,881,000
                                                                                                       ============    ============
</TABLE>

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


                                       3
<PAGE>

                                  BLUEFLY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                             Six Months Ended
                                                                                                  June 30,
                                                                                     --------------------------------
                                                                                         2002                2001
                                                                                         ----                ----
<S>                                                                                  <C>                 <C>
Net sales                                                                            $ 14,445,000        $  9,931,000
Cost of sales                                                                           9,538,000           6,924,000
                                                                                     ------------        ------------
  Gross profit                                                                          4,907,000           3,007,000

Selling, marketing and fulfillment expenses                                             5,066,000           8,076,000
General and administrative expenses                                                     2,298,000           3,038,000
                                                                                     ------------        ------------
   Total                                                                                7,364,000          11,114,000

Operating loss                                                                         (2,457,000)         (8,107,000)

Interest income                                                                            49,000             148,000
Interest expense (the six months ended June 30, 2001, includes a
    $13,007,000 non-cash charge in connection with the conversion of debt and
    redeemable preferred equity to permanent equity)                                     (176,000)        (13,240,000)
                                                                                     ------------        ------------

Net loss                                                                             $ (2,584,000)       $(21,199,000)

Deemed dividend related to beneficial conversion feature on
       Series B Preferred Stock                                                       (10,226,000)                 --

Preferred stock dividends                                                              (1,224,000)         (1,681,000)
                                                                                     ------------        ------------

Net loss applicable to common shareholders                                           $(14,034,000)       $(22,880,000)
                                                                                     ============        ============

Basic and diluted loss per common share                                              $      (1.48)       $      (3.20)
                                                                                     ============        ============

Weighted average common shares outstanding                                              9,454,446           7,147,889
(basic and diluted)                                                                  ============        ============
</TABLE>

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


                                       4
<PAGE>

                                  BLUEFLY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months Ended
                                                                            June 30,
                                                                -----------------------------
                                                                    2002              2001
                                                                    ----              ----
<S>                                                             <C>               <C>
Net sales                                                       $  6,799,000      $ 5,285,000
Cost of sales                                                      4,392,000        3,561,000
                                                                ------------      -----------
  Gross profit                                                     2,407,000        1,724,000

Selling, marketing and fulfillment expenses                        2,645,000        4,535,000
General and administrative expenses                                1,221,000        1,387,000
                                                                ------------      -----------
   Total                                                           3,866,000        5,922,000

Operating loss                                                    (1,459,000)      (4,198,000)

Interest income                                                       17,000           85,000
Interest expense                                                     (77,000)         (55,000)
                                                                ------------      -----------

Net loss                                                        $ (1,519,000)     $(4,168,000)

Deemed dividend related to beneficial conversion feature on
       Series B Preferred Stock                                  (10,226,000)              --

Preferred stock dividends                                           (615,000)        (615,000)
                                                                ------------      -----------

Net loss applicable to common shareholders                      $(12,360,000)     $(4,783,000)
                                                                ============      ===========

Basic and diluted loss per common share                         $      (1.27)     $     (0.52)
                                                                ============      ===========

Weighted average common shares outstanding                         9,700,823        9,205,331
(basic and diluted)                                             ============      ===========
</TABLE>

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


                                       5
<PAGE>

                                  BLUEFLY, INC.

   CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND REDEEMABLE
                                PREFERRED STOCK
            YEAR ENDED DECEMBER 31, 2001 AND FOR THE SIX MONTHS ENDED
                            JUNE 30, 2002 (Unaudited)

<TABLE>
<CAPTION>
                                                                          Series A Preferred        Series B Preferred
                                                                                Stock                     Stock
                                         Redeemable Preferred Stock        $.01 par value            $.01 par value
                                         --------------------------       ------------------      ---------------------
                                                                          Number                  Number
                                          Number of                         of                      of
                                           shares          Amount         shares      Amount      shares         Amount
                                           ------          ------         ------      ------      ------         ------
<S>                                       <C>           <C>               <C>         <C>        <C>           <C>
Balance at January 1, 2001                 500,000      $ 11,088,000           --     $   --            --     $       --
Conversion of Redeemable Preferred
   Stock to Preferred Stock Series A      (500,000)      (11,088,000)     500,000      5,000            --             --
Conversion of debt to Preferred Stock
   Series B                                     --                --           --         --     8,910,782         89,000
Sale of common stock in connection
   with Rights Offering ($2.34 per
   share) net of $350,000 of expenses           --                --           --         --            --             --
Issuance of warrants to lender                  --                --           --         --            --             --
Issuance of warrants in exchange for
   services                                     --                --           --         --            --             --
Issuance of warrants to investor                --                --           --         --            --             --

Net loss                                        --                --           --         --            --             --
                                           -------      ------------      -------     ------     ---------     ----------

Balance at December 31, 2001                    --                --      500,000      5,000     8,910,782         89,000
Sale of common stock in connection
   with the Standby Commitment
   Agreement ($1.57 per share) net of
   $75,000 of expenses                          --                --           --         --            --             --
Sale of warrants to investor in
   connection with the Standby
   Agreement                                    --                --           --         --            --             --
Deemed dividend related to beneficial
   conversion feature on Series B
   Preferred Stock                              --                --           --         --            --             --
Issuance of warrants to lender                  --                --           --         --            --             --
Issuance of warrants to investor                --                --           --         --            --             --
Net loss                                        --                --           --         --            --             --
                                           -------      ------------      -------     ------     ---------     ----------

Balance at June 30, 2002                        --      $         --      500,000     $5,000     8,910,782     $   89,000
                                           =======      ============      =======     ======     =========     ==========

<CAPTION>
                                                    Common Stock
                                                   $.01 par value
                                                ---------------------
                                                                              Additional
                                               Number of                        Paid-in         Accumulated
                                                shares         Amount           capital            Deficit            Total
                                                ------         ------         -----------       -----------           -----
<S>                                            <C>           <C>             <C>               <C>               <C>
Balance at January 1, 2001                     4,924,906     $    49,000     $ 17,242,000      $(38,340,000)     ($21,049,000)
Conversion of Redeemable Preferred
   Stock to Preferred Stock Series A                  --              --       18,852,000          (622,000)       18,235,000
Conversion of debt to Preferred Stock
   Series B                                           --              --       26,318,000                --        26,407,000
Sale of common stock in connection
   with Rights Offering ($2.34 per
   share) net of $350,000 of expenses          4,280,425          43,000        9,622,000                --         9,665,000
Issuance of warrants to lender                        --              --           45,000                --            45,000
Issuance of warrants in exchange for
   services                                           --              --           31,000                --            31,000
Issuance of warrants to investor                      --              --           74,000                --            74,000

Net loss                                              --              --               --       (25,006,000)      (25,006,000)
                                              ----------     -----------     ------------      ------------      ------------

Balance at December 31, 2001                   9,205,331          92,000       72,184,000       (63,968,000)        8,402,000
Sale of common stock in connection
   with the Standby Commitment
   Agreement ($1.57 per share) net of
   $75,000 of expenses                         1,186,573          12,000        1,776,000                --         1,788,000
Sale of warrants to investor in
   connection with the Standby
   Agreement                                          --              --           37,000                --            37,000
Deemed dividend related to beneficial
   conversion feature on Series B
   Preferred Stock                                    --              --       10,226,000       (10,226,000)               --
Issuance of warrants to lender                        --              --           80,000                --            80,000
Issuance of warrants to investor                      --              --          255,000                --           255,000
Net loss                                              --              --               --        (2,584,000)       (2,584,000)
                                              ----------     -----------     ------------      ------------      ------------

Balance at June 30, 2002                      10,391,904     $   104,000     $ 84,558,000      $(76,778,000)     $  7,978,000
                                              ==========     ===========     ============      ============      ============
</TABLE>

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


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                Six Months Ended
                                                                                                     June 30,
                                                                                          ------------------------------
                                                                                              2002               2001
                                                                                              ----               ----
<S>                                                                                       <C>               <C>
Cash flows from operating activities

   Net loss                                                                               $ (2,584,000)     $(21,199,000)
   Adjustments to reconcile net loss to net cash used in operating activities:
      Depreciation and amortization                                                            448,000           395,000
      Warrants issued for services                                                                  --            42,000
      Beneficial conversion - interest expense                                                      --        13,007,000
      Provisions for returns                                                                  (542,000)         (504,000)
     Changes in operating assets and liabilities:
     (Increase) decrease in
          Inventories                                                                       (1,750,000)          478,000
          Accounts receivable                                                                   54,000             3,000
          Prepaid expenses                                                                    (229,000)          194,000
          Other current assets                                                                  20,000           (54,000)
          Other assets                                                                           1,000            20,000
      Increase (decrease) in
          Accounts payable                                                                     827,000          (227,000)
          Accrued expenses and other current liabilities                                       (51,000)         (210,000)
          Deferred revenue                                                                    (118,000)          230,000
                                                                                          ------------      ------------
    Net cash used in operating activities                                                   (3,924,000)       (7,825,000)
                                                                                          ------------      ------------

Cash flows from investing activities
   Purchase of property, equipment and capitalized software                                 (1,282,000)         (124,000)
                                                                                          ------------      ------------

Net cash used in investing activities                                                       (1,282,000)         (124,000)
                                                                                          ------------      ------------

Cash flows from financing activities
    Net proceeds from sale of Common Stock and Warrants                                      1,899,000                --
    Payments of capital lease obligation                                                       (95,000)               --
    Net proceeds from Rights Offering                                                               --         9,665,000
                                                                                          ------------      ------------

Net cash provided by financing activities                                                    1,804,000         9,665,000
                                                                                          ------------      ------------

Net (decrease) increase in cash and cash equivalents                                        (3,402,000)        1,716,000
Cash and cash equivalents - beginning of period                                              5,419,000         5,350,000
                                                                                          ------------      ------------
Cash and cash equivalents - end of period                                                 $  2,017,000      $  7,066,000
                                                                                          ============      ============

Supplemental schedule of non-cash investing and financing activities:
 Equipment acquired under capital lease                                                   $    556,000      $         --
                                                                                          ============      ============
 Warrant issued to factor                                                                 $     80,000      $     45,000
                                                                                          ============      ============
 Warrant issued to shareholder                                                            $    292,000      $     74,000
                                                                                          ============      ============
 Deemed dividend related to beneficial conversion feature on Series B Preferred Stock     $ 10,226,000      $         --
                                                                                          ============      ============
 Beneficial conversion charge on conversion of debt to equity                             $         --      $ 20,851,000
                                                                                          ============      ============
</TABLE>

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


                                       7
<PAGE>

                                  BLUEFLY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

NOTE 1 - BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Bluefly, Inc. and its wholly owned subsidiary (collectively the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. The results of operations of any interim period are not necessarily
indicative of the results of operations to be expected for the fiscal year. For
further information, refer to the consolidated financial statements and
accompanying footnotes included in the Company's Form 10-K for the year ended
December 31, 2001.

The Company has sustained net losses and negative cash flows from operations
since the establishment of Bluefly.com. The Company's ability to meet its
obligations in the ordinary course of business is dependent on its ability to
establish profitable operations or raise additional financing through public or
private debt or equity financing, or other sources to fund operations. The
Company may seek additional equity or debt financing to maximize the growth of
its business or if anticipated operating results are not achieved. If such
financings are not available on terms acceptable to the Company, the Company
will seek to delay or reduce its expenditures in order to prolong the
availability of sufficient cash flow to satisfy its obligations while additional
funding is sought. The inability to obtain additional financing, when needed,
would have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.

NOTE 2 - THE COMPANY

The Company is a leading Internet retailer of designer fashions and home
accessories at outlet store prices. The Company's Web store ("Bluefly.com" or
"Web Site"), which was launched in September 1998, sells over 400 brands of
designer apparel, accessories and home products at discounts up to 75% off
retail prices.

NOTE 3 - STANDBY COMMITMENT

On March 27, 2002, the Company entered into a Standby Commitment Agreement (the
"Soros Standby Agreement") with Quantum Industrial Partners LDC, a Cayman
Islands limited duration company ("QIP"), and SFM Domestic Investments LLC, a
Delaware limited liability company ("SFMDI", QIP and SFMDI are each affiliates
of Soros Private Equity Partners LLC and are collectively and individually
sometimes referred to as "Soros"). Under the Soros Standby Agreement, Soros
agreed to provide the Company with up to four million dollars ($4,000,000) of
additional financing on a standby basis at any time prior to January 1, 2003.

In June 2002, Soros invested $1.9 million in the Company, thereby reducing its
standby commitment to $2.1 million. Under the terms of the transaction, the
Company issued 1,186,573 shares of Common Stock at $1.57 per share, and warrants
to purchase 296,644 shares of Common Stock at any time during the next five
years at an exercise price of $1.88 per warrant for a purchase price of $0.125
per warrant.

The June 2002 Soros investment was negotiated as part of an equity financing in
which third party investors would also participate. In particular, one third
party investor committed to invest $7 million on the same terms and conditions
as those that applied to Soros' investment. However, this third party investment
has not been consummated, and the Company does not know when or if it will be
consummated. To date, the only funds that the Company has received from the
third party investor are a $140,000 good faith deposit, for which the Company
has agreed, for a limited period of time, not to pursue remedies against the
third party investor as a result of its failure to honor its investment
commitment. The Company believes that the third party investor's obligations to
consummate the investment are enforceable. However, in the event that the third
party investor does not honor its obligations, the Company will be forced to
resort to litigation, which is subject to inherent risks and uncertainties.
Moreover, given the substantial costs involved with litigation, there can be no
assurance that the amount that the


                                       8
<PAGE>

                                  BLUEFLY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

Company would be able to collect with respect to any judgment rendered in such
litigation would exceed the costs associated with obtaining such judgment.

In connection with the June 2002 financing, the Company agreed to file a
registration statement with the Securities and Exchange Commission within 45
days of closing, in order to register the Common Stock issued in the financing,
as well as the Common Stock underlying the warrants. However, given the failure
to date of the third party investors to consummate their investment, the Company
and Soros have agreed to delay the filing of such registration statement,
although the Company expects that it will be required to file such registration
statement at some point in the future.

As a result of the June 2002 financing, the conversion price of the Company's
Series B Preferred Stock, almost all of which is held by Soros, automatically
decreased from $2.34 to $1.57. In accordance with FASB Emerging Issue Task Force
Issue No. 00-27, "Application of Issue No. 98-5 to Certain Convertible
Instruments," ("EITF 00-27") this reduction in the conversion price of the
Company's Series B Preferred Stock resulted in the Company recording a
beneficial conversion feature in the approximate amount of $10.2 million as part
of its second quarter financial results. This non-cash charge, which is
analogous to a dividend, resulted in an adjustment to the Company's computation
of Loss Per Share.

In August 2002, Soros invested an additional $2.1 million in the Company,
thereby reducing its standby commitment to zero. Under the terms of the deal,
the Company issued to Soros 2,100 shares of its newly-designated Series 2002
Convertible Preferred Stock at a price of $1,000 per share. The Series 2002
Convertible Preferred Stock has a liquidation preference of $1,000 per share and
is convertible in whole or in part, at the holder's option, into the type of
equity securities sold by the Company in any subsequent round of equity
financing, at the same price, and upon the same terms and conditions, as such
securities are sold in such equity financing. Of course, there can be no
assurance as to when, or, if, such subsequent round of financing will occur. The
Series 2002 Convertible Preferred Stock does not have any fixed dividend rate,
and does not provide the holders thereof with any voting rights, other than with
respect to transactions or actions that would adversely affect the rights,
preference, powers and privileges of the Series 2002 Convertible Preferred
Stock.

NOTE 4 - FINANCING AGREEMENT

On March 22, 2002, the Company amended its Financing Agreement (the "Rosenthal
Financing Agreement") with Rosenthal & Rosenthal, Inc. ("Rosenthal"), pursuant
to which Rosenthal provides the Company with certain credit accommodations,
including loans and advances, factor-to-factor guarantees, letters of credit in
favor of suppliers or factors and purchases of payables owed to its suppliers
(the "Loan Facility"). Under the terms of this amendment (the "Rosenthal
Amendment"), the Company extended the Rosenthal Financing Agreement until March
30, 2003, reduced the annual fee it pays Rosenthal for the Loan Facility from
$20,000 to $10,000, agreed to a decrease from $2.5 million to $1.5 million in
the face amount of the standby letter of credit that Soros is maintaining (the
"Soros Guarantee") to help collateralize the Loan Facility, and limited the
maximum amount available under the Loan Facility to an amount equal to the Soros
Guarantee plus the lowest of (x) $1 million, (y) 20% of the book value of the
Company's inventory or (z) the full liquidation value of the Company's
inventory. In addition, pursuant to the Rosenthal Amendment, the Company
adjusted the threshold amount that entitles Rosenthal to take control of certain
of the Company's cash accounts for a period of time to be 90% of the maximum
amount available under the Loan Facility instead of 90% of the Soros Guarantee,
as had been provided previously. As of June 30, 2002, the maximum amount
available under the Loan Facility was $2.5 million. The Company had
approximately $2.4 million outstanding as of such date.

As partial consideration for the Rosenthal Amendment, the Company extended from
March 30, 2006 to March 30, 2007 the termination date of the warrant issued to
Rosenthal on March 30, 2001 to purchase 50,000 shares of Common Stock at an
exercise price of $2.34 per share. The Company revalued the warrant as of the
new measurement date, using the Black-Scholes option pricing model and credited
additional paid-in capital for approximately $80,000. This amount is being
amortized over the life of the Loan Facility.

On March 22, 2002, in connection with the Rosenthal Amendment, the Company
amended the Reimbursement Agreement (the "Reimbursement Agreement") pursuant to
which Soros agreed to guarantee a portion of the Loan Facility to reduce the
total amount of standby letters of credit that Soros is obligated to issue to
collateralize the Loan Facility to $1.5 million from $4


                                       9
<PAGE>

                                  BLUEFLY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2002

million. The Company is obligated to reimburse Soros for any amounts it pays to
Rosenthal pursuant to the Reimbursement Agreement. The Company's obligation to
Rosenthal is collateralized by a lien on substantially all of its assets and it
has granted Soros a subordinated lien on substantially all of its assets,
including its cash balances, in order to collateralize the reimbursement
obligations of Soros. In exchange for Soros' agreement to maintain the amended
Soros Guarantee until August 15, 2003, the Company issued to Soros a warrant to
purchase 60,000 shares of its Common Stock at an exercise price of $1.66 per
share (the 20 day trailing average of the closing sale price of its Common Stock
on the date of issuance), exercisable at any time until March 30, 2007. The
Company valued the warrant using the Black-Scholes option pricing model and
credited additional paid-in capital for approximately $98,000. This amount is
being amortized over the life of the Loan Facility.

NOTE 5 - LOSS PER SHARE

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

Diluted loss per share is computed by dividing loss available to common
shareholders by the weighted average number of common shares outstanding for the
period, adjusted to reflect potentially dilutive securities. Due to the loss
from continuing operations, the following options and warrants to purchase
shares of Common Stock and Preferred Stock convertible into shares of Common
Stock were not included in the computation of diluted loss per share because the
result of the exercise of such inclusion would be antidilutive:

               Security                  June 30, 2002          June 30, 2001
               --------                  -------------          -------------

               Options                       3,863,078              4,859,062
               Warrants                      1,069,144                573,000
               Preferred Stock              17,554,542             13,184,286

NOTE 6 - RECLASSIFICATIONS

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

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

Overview

Bluefly, Inc. is a leading Internet retailer of designer fashions and home
accessories at outlet store prices. We sell over 400 brands of designer apparel,
accessories and home products at discounts up to 75% off retail prices. We were
incorporated in 1991 under the laws of the state of New York as Pivot
Corporation. In 1994, we changed our name to Pivot Rules, Inc. We had our
initial public offering in May of 1997. In June 1998, we discontinued our golf
sportswear line to devote our time and resources to building Bluefly.com, a Web
site to sell end-of-season and excess inventory of apparel and accessories. We
launched the Web site in September 1998 and changed our name to Bluefly, Inc. in
October 1998. In February 2001, we changed our state of incorporation from New
York to Delaware.

We have grown rapidly since launching our Web site in September 1998. Our net
sales increased approximately 29% to $6,799,000 for the three months ended June
30, 2002 from $5,285,000 for the three months ended June 30, 2001. In addition,
our net loss for the second quarter of 2002 decreased to $1,519,000 from
$4,168,000 in the second quarter of 2001. The decrease in the net loss for the
second quarter of 2002 was due to an increase in gross profit and a decrease in
both selling, marketing and fulfillment expenses and general and administrative
expenses both on an absolute basis, and as a percentage of revenue.


                                       10
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

At June 30, 2002 we had an accumulated deficit of $76,778,000. Historical net
losses and the accumulated deficit resulted primarily from the costs associated
with developing and marketing our Web site and building our infrastructure. In
order to expand our business, we intend to invest in sales, marketing,
merchandising, operations, information systems, site development and additional
personnel to support these activities. We therefore expect to continue to incur
substantial operating losses at least until the fourth quarter of 2002. We
expect to be profitable in the fourth quarter of 2002. However, we anticipate
losses in the first two quarters of 2003 and perhaps beyond. 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.

Significant Accounting Policies

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
most significant estimates and assumptions relate to the adequacy of the
allowances for returns and recoverability of inventories. Actual amounts could
differ significantly from these estimates.

Revenue Recognition

Gross sales consist primarily of revenue from product sales and shipping and
handling revenue on our Web site, and is net of promotional discounts. Revenue
is recognized when goods are received by our customers, which occurs only after
credit card authorization. Net sales represent gross sales, less provisions for
returns, credit card chargebacks, and adjustments for uncollected sales taxes.

Provision for Returns and Doubtful Accounts

We generally permit returns for any reason within 90 days of the sale.
Accordingly, we establish a reserve for estimated future returns and bad debt at
the time of shipment based primarily on historical data. However, our future
return and bad debt rates could differ significantly from historical patterns,
which would adversely affect our operating results.

Inventory Valuation

Inventories, which consist of finished goods, are stated at the lower of cost or
market value. Cost is determined by the first-in, first-out ("FIFO") method. We
review our inventory levels in order to identify slow-moving merchandise and use
markdowns to clear merchandise. Markdowns may be used if inventory exceeds
customer demand for reasons of style, changes in customer preference or lack of
consumer acceptance of certain items, or if it is determined that the inventory
in stock will not sell at its currently marked price. Such markdowns may have an
adverse impact on earnings, depending on the extent of the markdowns and amount
of inventory affected.

Tax Valuation Allowance

We assessed the future taxable income and have determined that a 100% deferred
tax valuation allowance is deemed necessary. In the event that we were to
determine that we would be able to realize our deferred tax asset, an adjustment
to the deferred tax value allowance would increase income in the period such
determination is made.

Results Of Operations

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


                                       11
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

<TABLE>
<CAPTION>
                                                             2002                       2001                      2000
                                                             ----                       ----                      ----
                                                                 As a % of                  As a % of                   As a % of
                                                                 Net Sales                  Net Sales                   Net Sales
<S>                                                   <C>         <C>            <C>         <C>            <C>           <C>
Net sales                                             $6,799      100.0%         $5,285      100.0%         $4,560        100.0%
Cost of sales                                          4,392       64.6%          3,561       67.4%          3,717         81.5%
                                                      ------                     ------                     ------
           Gross profit                                2,407       35.4%          1,724       32.6%            843         18.5%

Selling, marketing and fulfillment expenses            2,645       38.9%          4,535       85.8%          4,890        107.2%
General and administrative expenses                    1,221       18.0%          1,387       26.2%          1,191         26.1%
                                                      ------                     ------                     ------
           Total operating expenses                    3,866       56.9%          5,922      112.0%          6,081        133.3%

Operating loss from continuing operations             (1,459)     (21.5)%        (4,198)     (79.4)%        (5,238)      (114.9)%

Interest (expense) and other income                      (60)      (0.9)%             30       0.6%            (63)        (1.4)%
                                                      ------                     ------                     ------
           Net loss                                   (1,519)     (22.4)%        (4,168)     (78.8)%        (5,301)      (116.3)%
</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 June 30th, as indicated below:

<TABLE>
<CAPTION>
                                                                                 2002           2001         2000
                                                                                 ----           ----         ----
<S>                                                                         <C>            <C>            <C>
Average Order Size (including shipping & handling)                          $  161.65      $  140.29      $104.24
Average Order Size Per New Customer (including shipping & handling)         $  149.01      $  125.92      $ 94.06
Average Order Size Per Repeat Customer  (including shipping & handling)     $  167.80      $  154.02      $120.01

Registered Users                                                            1,269,948      1,001,534      638,269
Registered Users Added During the Period                                       76,060        138,271      129,554
Total Customers                                                               333,567        235,485      123,574
Customers Added during the Period                                              21,057         25,988       36,063
Revenue from Repeat Customers as a % of total Revenue                              70%            56%          45%
Customer Acquisition Costs                                                  $   16.92      $   75.40      $ 73.21
</TABLE>

We define a "repeat customer" as a person who has bought more than once from us
during their lifetime. We calculate customer acquisition cost by dividing total
advertising expenditures (excluding staff related costs) during a given time
period by total new customers added during that period. All measures of the
number of customers are based on unique email addresses.

For The Six Months Ended June 30, 2002 Compared To The Six Months Ended June 30,
2001

Net sales: Gross sales for the six months ended June 30, 2002, increased by 56%
to $22,089,000, from $14,144,000 for the six months ended June 30, 2001. For the
six months ended June 30, 2002, we recorded a provision for returns and credit
card chargebacks and other discounts of $7,644,000, or approximately 34.6% of
gross sales. For the six months ended June 30, 2001, the provision for returns
and credit card chargebacks and other discounts was $4,213,000 or approximately
29.8% of gross sales. The increase in this provision as a percentage of gross
sales is related primarily to an increase in the return rate. We believe that
the increase in return rate is partly the result of a shift in our merchandise
mix towards certain product categories that historically have generated higher
return rates, but also higher gross margins.

After the necessary provisions for returns, credit card chargebacks and
adjustments for uncollected sales taxes, our net sales for the six months ended
June 30, 2002 were $14,445,000. This represents an increase of 45% compared to
the six months ended June 30,


                                       12
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

2001, in which net sales totaled $9,931,000. The growth in net sales was largely
driven by the increases in average order size and sales to repeat customers, as
illustrated by the fact that the number of new customers acquired in the first
six months of 2002 decreased from that of the first six months of 2001. The
increase in average order size, we believe, is related to changes in our product
mix, which is now focused on higher priced goods. We believe that the increase
in sales to repeat customers and the decline in the number of new customers was
the result of increased marketing efforts to repeat customers and a reduction in
the amount of advertising we do that is directed to new customers.

Cost of sales: Cost of sales consists of the cost of product sold to customers,
in-bound and out-bound shipping costs, inventory reserves, commissions and
packing materials. Cost of sales for the six months ended June 30, 2002 totaled
$9,538,000, resulting in gross margin of approximately 34%. Cost of sales for
the six months ended June 30, 2001 totaled $6,924,000, resulting in gross margin
of 30%. Gross profit increased by 63%, to $4,907,000 for the six months ended
June 30, 2002 compared to $3,007,000 for the six months ended June 30, 2001. The
increase in gross margin resulted primarily from improved product margins.

Selling, marketing and fulfillment expenses: Selling, marketing and fulfillment
expenses decreased by approximately 37% in the first six months of 2002 compared
to the first six months of 2001. Selling, marketing and fulfillment expenses
were comprised of the following:

<TABLE>
<CAPTION>
                          Six Months Ended    Six Months Ended   Percentage Difference
                            June 30, 2002       June 30, 2001     increase (decrease)
                          ----------------    ----------------   ---------------------
<S>                           <C>                <C>                   <C>
    Marketing                 $  869,000         $ 3,410,000           (74.5%)
    Operating                  2,121,000           1,783,000            19.0%
    Technology                 1,580,000           2,172,000           (27.3%)
    Creative Services            496,000             711,000           (30.2%)
                              ----------         -----------           ------
                              $5,066,000         $ 8,076,000           (37.3%)
</TABLE>

Marketing expenses include expenses related to online and print advertising,
direct mail campaigns as well as staff related costs. The decrease in marketing
expenses of approximately 75% is largely related to a shift in our customer
acquisition strategy. Consistent with our streamlined operating plan announced
in June 2001, we significantly reduced our advertising expenditures and focused
more on email and direct mail programs. Primarily as a result of this shift, we
were able to decrease our customer acquisition costs for the six months ended
June 30, 2002 by approximately 78% to $12.85 per customer from $58.72 per
customer for the six months ended June 30, 2001.

Operating expenses include all costs related to inventory management,
fulfillment, customer service, and credit card processing. Operating expenses
increased in the first six months of 2002 by approximately 19% compared to the
first six months of 2001. Variable costs associated with the increased sales
volume (picking and packing orders, processing returns and credit card fees)
increased in connection with the increase in gross sales.

Technology expenses consist primarily of Web site hosting and staff related
costs. For the six months ended June 30, 2002 technology expenses decreased by
approximately 27% compared to the six months ended June 30, 2001. This reduction
is primarily related to a reduction in our Web site hosting costs in connection
with our move to a new web hosting facility. We are currently developing an
upgraded version of our Web site based on Blue Martini software. Costs directly
associated with this project are being capitalized and will be amortized after
the new site has been launched, over the useful life of the new site.

Creative services expenses include expenses related to our photo studio, image
processing, and Web site design. For the six months ended June 30, 2002, this
amount decreased by approximately 30% as compared to the six months ended June
30, 2001, primarily due to a headcount reduction in the creative services
department in June 2001.


                                       13
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

As a percentage of net sales, our selling, marketing and fulfillment expenses
decreased to 35% in the first six months of 2002 from 81% in the first six
months of 2001. The decrease resulted primarily from a more targeted marketing
strategy aimed at our existing customer base and the cost savings we derived
from our move to a new web hosting facility.

General and administrative expenses: General and administrative expenses include
merchandising, finance and administrative salaries and related expenses,
insurance costs, accounting and legal fees, depreciation and other office
related expenses. General and administrative expenses for the six months ended
June 30, 2002 decreased by approximately 24% to $2,298,000 as compared to
$3,038,000 for the six months ended June 30, 2001. The decrease in general and
administrative expenses was largely the result of decreased salary and benefit
expenses related to the headcount reduction that was put into place in
connection with the Company's June 2001 streamlined operating plan. The number
of employees categorized as general and administrative for the six months ended
June 30, 2002 was 23, compared to 31 for the six months ended June 30, 2001.

As a percentage of net sales, general and administrative expenses decreased to
16% in 2002 from 31% in 2001.

Loss from operations: Operating loss decreased by almost 70% in the first six
months of 2002 to $2,457,000 from $8,107,000 in the first six months of 2001 as
a result of the increase in gross margin and decreases, on an absolute basis and
as a percentage of net sales, in selling, marketing and fulfillment expenses and
general and administrative expenses.

Interest expense and other income, net: Interest expense for the six months
ended June 30, 2002 totaled $176,000, and related primarily to fees paid in
connection with our Loan Facility. For the six months ended June 30, 2001,
interest expense totaled $13,240,000. This amount consisted principally of
approximately $13,007,000 of non-cash, one-time charges that were incurred in
connection with the conversion of certain notes payable and redeemable equity
into permanent equity. This amount also included interest expense of $175,000,
related to the interest on the notes payable that were issued during fiscal 2000
and converted to permanent equity in fiscal 2001.

Interest income for the six months ended June 30, 2002 decreased to $49,000 from
$148,000 for the six months ended June 30, 2001. The decrease is related to the
decrease in our cash balance as interest income primarily represents interest
earned on our cash balance.

For The Three Months Ended June 30, 2002 Compared To The Three Months Ended June
30, 2001

Net sales: Gross sales for the three months ended June 30, 2002, increased by
41% to $10,747,000, from $7,631,000 for the three months ended June 30, 2001.
For the three months ended June 30, 2002, we recorded a provision for returns
and credit card chargebacks and other discounts of $3,948,000, or approximately
36.7% of gross sales. For the three months ended June 30, 2001, the provision
for returns and credit card chargebacks and other discounts was $2,346,000 or
approximately 30.7% of gross sales. The increase in this provision as a
percentage of gross sales is related primarily to an increase in the return
rate. We believe that the increase in return rate is partly the result of a
shift in our merchandise mix towards certain product categories that
historically have generated higher return rates, but also higher gross margins.

After the necessary provisions for returns, credit card chargebacks and
adjustments for uncollected sales taxes, our net sales for the three months
ended June 30, 2002 were $6,799,000. This represents an increase of 29% compared
to the three months ended June 30, 2001, in which net sales totaled $5,285,000.
The growth in net sales was largely driven by the increases in average order
size and sales to repeat customers, as illustrated by the fact that the number
of new customers acquired in the second quarter of 2002 decreased from that of
the second quarter of 2001. The increase in average order size, we believe, is
related to changes in our product mix, which is now focused on higher priced
goods. We believe that the increase in sales to repeat customers and the decline
in the number of new customers was the result of increased marketing efforts to
repeat customers and a reduction in the amount of advertising we do that is
directed to new customers.

Cost of sales: Cost of sales for the three months ended June 30, 2002 totaled
$4,392,000, resulting in gross margin of over 35%. Cost of sales for the three
months ended June 30, 2001 totaled $3,561,000, resulting in gross margin of
approximately 33%. Gross


                                       14
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

profit increased by almost 40%, to $2,407,000 for the three months ended June
30, 2002 compared to $1,724,000 for the three months ended June 30, 2001. The
increase in gross margin resulted primarily from improved product margins.

Selling, marketing and fulfillment expenses: Selling, marketing and fulfillment
expenses decreased by approximately 42% in the second quarter of 2002 compared
to the second quarter of 2001. Selling, marketing and fulfillment expenses were
comprised of the following:

<TABLE>
<CAPTION>
                          Three Months Ended      Three Months Ended     Percentage Difference
                            June 30, 2002           June 30, 2001         increase (decrease)
                          ------------------      ------------------     ---------------------
<S>                           <C>                    <C>                        <C>
    Marketing                 $  507,000             $ 2,206,000                (77.0%)
    Operating                  1,070,000                 918,000                 16.6%
    Technology                   810,000               1,041,000                (22.2%)
    Creative Services            258,000                 370,000                (30.3%)
                              ----------             -----------                ------
                              $2,645,000             $ 4,535,000                (41.7%)
</TABLE>

The decrease in marketing expenses of 77% is largely related to the shift in our
customer acquisition strategy discussed above. Primarily as a result of this
shift, we were able to decrease our customer acquisition costs for the three
months ended June 30, 2002 by almost 78% to $16.92 per customer from $75.40 per
customer for the three months ended June 30, 2001.

Operating expenses increased in the second quarter of 2002 by approximately 17%
compared to the second quarter of 2001. Variable costs associated with the
increased sales volume (picking and packing orders, processing returns and
credit card fees) increased in connection with the increase in gross sales.

For the three months ended June 30, 2002 technology expenses decreased by
approximately 22% compared to the three months ended June 30, 2001. This
reduction is primarily related to a reduction in our Web site hosting costs in
connection with our move to a new web hosting facility.

For the second quarter of 2002, this amount decreased by approximately 30% as
compared to the first quarter of 2001, primarily due to a headcount reduction in
the creative services department in June 2001.

As a percentage of net sales, our selling, marketing and fulfillment expenses,
decreased to 39% in the second quarter of 2002 from 86% in the second quarter of
2001. The decrease resulted primarily from a more targeted marketing strategy
aimed at our existing customer base and the cost savings we derived from our
move to a new web hosting facility.

General and administrative expenses: General and administrative expenses for the
three months ended June 30, 2002 decreased by approximately 12% to $1,221,000 as
compared to $1,387,000 for the three months ended June 30, 2001. The decrease in
general and administrative expenses was largely the result of decreased salary
and benefit expenses related to the headcount reduction that was put into place
in connection with the Company's June 2001 streamlined operating plan. The
number of employees categorized as general and administrative for the three
months ended June 30, 2002 was 22, compared to 32 for the three months ended
June 30, 2001.

As a percentage of net sales, general and administrative expenses decreased to
18% in 2002 from 26% in 2001.

Loss from operations: Operating loss decreased by almost 65% in the second
quarter of 2002 to $1,459,000 from $4,198,000 in the second quarter of 2001 as a
result of the increase in gross margin and decreases, as a percentage of net
sales, in selling, marketing and fulfillment expenses and general and
administrative expenses.


                                       15
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

Interest expense and other income, net: Interest expense for the three months
ended June 30, 2002 totaled $77,000 and $55,000 for the three months ended June
30, 2001. Both periods of interest expense related primarily to fees paid in
connection with our Loan Facility.

Interest income for the three months ended June 30, 2002 decreased to $17,000
from $85,000 for the three months ended June 30, 2001. The decrease is related
to the decrease in our cash balance as interest income primarily represents
interest earned on our cash balance.

Liquidity And Capital Resources

General

At June 30, 2002, the Company had approximately $2.0 million of liquid assets,
entirely in the form of cash and cash equivalents, working capital of
approximately $5.5 million and $2.1 million available under the Soros Standby
Agreement. In addition, as of June 30, 2002, the Company had approximately $2.4
million of borrowings committed under the Loan Facility, leaving approximately
$100,000 of availability. In August 2002, the Company received an additional
$2.1 million under the Soros Standby Agreement as more fully described below,
thus reducing Soros' standby commitment to zero.

We fund our operations through cash on hand, operating cash flow and the Loan
Facility, as well as the proceeds of any equity financing. Operating cash flow
is affected by revenue and gross margin levels, as well as return rates, and any
deterioration in our performance on these financial measures would have a
negative impact on our liquidity. Total availability under the Loan Facility is
based upon our inventory levels and dependent, among other things, on the
Company having at least $1.5 million of tangible net worth and $3.5 million of
working capital. In addition, both availability under the Loan 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 Rosenthal to provide credit support under the Loan Facility. We believe
that our suppliers' decision-making with respect to payment terms and/or the
type of credit support requested is largely driven by their perception of our
credit rating, which is affected by information reported in the industry and
financial press and elsewhere as to our financial strength. Accordingly,
negative perceptions as to our financial strength could have a negative impact
on our liquidity.

Loan Facility

Pursuant to the Rosenthal Financing Agreement, as amended, Rosenthal provides us
with certain credit accommodations, including loans and advances,
factor-to-factor guarantees, letters of credit in favor of suppliers or factors
and purchases of payables owed to our suppliers. The maximum amount available
under the Loan Facility is an amount equal to the amount of Soros Guarantee
(currently $1.5 million) plus the lowest of (x) $1 million, (y) 20% of the book
value of our inventory and (z) the full liquidation value of our inventory.
However, the maximum availability under the Loan Facility can never exceed $10
million. Under the Loan Facility, we are required to have at least $1,500,000 of
tangible net worth and $3,500,000 of working capital. Interest accrues monthly
on the average daily amount outstanding under the Loan Facility during the
preceding month at a per annum rate equal to the prime rate plus 1%. As of June
30, 2002, maximum availability under the Loan Facility was approximately $2.5
million. The Company had approximately $2.4 million outstanding as of such date.

We also pay Rosenthal (a) an annual facility fee equal to a certain percentage
of the maximum inventory facility available under the Loan Facility and (b)
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 or guarantee plus,
a certain percentage of the face amount of such letters of credit or guarantees
for each thirty (30) days or a portion thereof that such letters of credit or
guarantees are open.

In consideration for the Loan Facility, among other things, we granted to
Rosenthal a first priority lien on substantially all of our assets, including
control of all of our cash accounts upon an event of default and certain of our
cash accounts in the event that the total amount of monies loaned to us under
the Loan Facility exceeds 90% of the maximum amount available under the Loan


                                       16
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

Facility for more than 10 days. We also issued to Rosenthal on March 31, 2001 a
warrant to purchase 50,000 shares of our Common Stock at an exercise price of
$2.34 exercisable, as amended, for six years from the date of issuance.

In connection with the Loan Facility, we entered into a Reimbursement Agreement
with Soros pursuant to which Soros issued a standby letter of credit at closing
(the "Soros Guarantee") in the amount of $2.5 million in favor of Rosenthal to
guarantee a portion of the Company's obligations under the Rosenthal Financing
Agreement, we agreed to reimburse Soros for any amounts it pays to Rosenthal
pursuant to such guarantee and we granted Soros a subordinated lien on
substantially all of our assets, including our cash balances, in order to secure
our reimbursement obligations. In connection with the recent amendment of the
Rosenthal Financing Agreement, the face amount of the Soros Guarantee was
reduced from $2.5 to $1.5 million, Soros' obligation to issue at our request
another standby letter of credit for up to an additional $1.5 million was
terminated and Soros agreed to maintain the Soros Guarantee until August 15,
2003. In consideration for the issuance of the original Soros Guarantee, we
issued to Soros a warrant to purchase 100,000 shares of our Common Stock at an
exercise price equal to $0.88, exercisable at any time prior to September 15,
2011. In consideration for Soros' agreement to maintain the amended Soros
Guarantee until August 15, 2003, we issued to Soros a warrant to purchase 60,000
shares of our Common Stock at an exercise price equal to $1.66 per share (the 20
day trailing average of the closing sale price of our Common Stock on the date
of issuance), exercisable at any time prior to March 30, 2007.

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

Under the Rosenthal Financing Agreement, Soros has the right to purchase all of
our obligations from Rosenthal at any time during the term of the Rosenthal
Financing Agreement. With respect to such Buyout Option, Soros has the right to
request that Rosenthal make a draw under the Soros Guarantee as consideration to
Soros for the purchase of such obligations.

Standby Commitment

On March 27, 2002, we entered into the Standby Commitment Agreement with Soros.
Under the Soros Standby Agreement, Soros agreed to provide us with up to four
million dollars ($4,000,000) of additional financing on a standby basis at any
time prior to January 1, 2003. In exchange for this commitment, but not as a
substitute for additional consideration that Soros would receive if and when any
financing is made pursuant to the Soros Standby Agreement, we issued to Soros a
warrant to purchase 100,000 shares of our Common Stock at an exercise price of
$1.68 per share (the 20 day trailing average of the closing sale price of our
Common Stock on the date of issuance), exercisable at any time until March 27,
2007. In connection with the issuance of this warrant, Soros agreed that the
issuance of this warrant shall not trigger the anti-dilution provision contained
in Section 5.8.6 of our Certificate of Incorporation.

In June 2002, Soros invested $1.9 million in us, thereby reducing its standby
commitment to $2.1 million. Under the terms of the deal, we issued 1,186,573
shares of Common Stock at $1.57 per share, and warrants to purchase 296,644
shares of Common Stock at any time during the next five years at an exercise
price of $1.88 per warrant for a purchase price of $0.125 per warrant.

The June 2002 Soros investment was negotiated as part of an equity financing in
which third party investors would also participate. In particular, one third
party investor committed to invest $7 million on the same terms and conditions
as those that applied to Soros' investment. However, this third party investment
has not been consummated, and we do not know when or if


                                       17
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

it will be consummated. To date, the only funds that we have received from the
third party investor are a $140,000 good faith deposit, for which we have
agreed, for a limited period of time, not to pursue remedies against the third
party investor as a result of its failure to honor its investment commitment. We
believe that the third party investor's obligations to consummate the investment
are enforceable. However, in the event that the third party investor does not
honor its obligations, we will be forced to resort to litigation, which is
subject to inherent risks and uncertainties. Moreover, given the substantial
costs involved with litigation, there can be no assurance that the amount that
we would be able to collect with respect to any judgment rendered in connection
with such litigation would exceed the costs associated with obtaining such
judgment.

In connection with the June 2002 financing, we agreed to file a registration
statement with the Securities and Exchange Commission within 45 days of closing,
in order to register the Common Stock issued in the financing, as well as the
Common Stock underlying the warrants. However, given the failure to date of the
third party investors to consummate their investment, Soros has agreed with us
to delay the filing of such registration statement, although we expect that we
will be required to file such registration statement at some point in the
future.

As a result of the June 2002 financing, the conversion price of our Series B
Preferred Stock, almost all of which is held by Soros, automatically decreased
from $2.34 to $1.57. In accordance with EITF 00-27, this reduction in the
conversion price of the Company's Series B Preferred Stock resulted in the
Company recording a beneficial conversion feature in the approximate amount of
$10.2 million as part of its second quarter financial results. This non-cash
charge, which is analogous to a dividend, resulted in an adjustment to the
Company's computation of (Loss)/Earnings Per Share.

In August 2002, Soros invested an additional $2.1 million in us, thereby
reducing its standby commitment to zero. Under the terms of the deal, we issued
to Soros 2,100 shares of our newly-designated Series 2002 Convertible Preferred
Stock at a price of $1,000 per share. The Series 2002 Convertible Preferred
Stock has a liquidation preference of $1,000 per share and is convertible in
whole or in part, at the holder's option, into the type of equity securities
sold by us in any subsequent round of equity financing, at the same price, and
upon the same terms and conditions, as such securities are sold in such equity
financing. The Series 2002 Convertible Preferred Stock does not have any fixed
dividend rate, and does not provide the holders thereof with any voting rights,
other than with respect to transactions or actions that would adversely affect
the rights, preference, powers and privileges of the Series 2002 Convertible
Preferred Stock.

Commitments And Long Term Obligations

As of June 30, 2002, we had the following commitments and long term obligations:

<TABLE>
<CAPTION>
                                     2002            2003        2004        2005        2006      Thereafter        Total
<S>                                <C>            <C>           <C>         <C>         <C>         <C>           <C>
Marketing and Advertising          $  213,000            --          --          --          --            --     $  213,000
Operating Leases                   $  369,000       568,000     519,000     457,000     449,000     1,267,000     $3,629,000
Employment Contracts               $  499,000       495,000      28,000          --          --            --     $1,022,000
Capital Leases                     $   86,000       159,000     159,000      55,000          --            --     $  459,000
Note payable to shareholder        $       --            --          --     182,000          --            --     $  182,000
                                   ----------     ---------     -------     -------     -------     ---------     ----------
     Grand total                   $1,167,000     1,222,000     706,000     694,000     449,000     1,267,000     $5,505,000
</TABLE>

On March 12, 2002, we entered into a Software License and Service Agreement with
Blue Martini. In March 2002, with the assistance of consultants from Blue
Martini, we began the development of an upgraded version of our Web site based
on Blue Martini Software. Once launched, we expect that the new Web site will
provide us with better tools to create and manage on-site marketing promotions,
more robust analytical tools to measure the performance of on-site promotions,
greater site stability, and a more efficient platform from which to scale our
technology infrastructure should any future growth in our business dictate such
a need. All costs associated with the upgraded site have been and will be
accounted for in accordance with Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
We expect to launch the new Web site during the third quarter of 2002. Of
course, there can be no assurance that the new Web site will be launched when
scheduled, that there will not be start up problems associated with the launch
or that our expectations as to the benefits of the


                                       18
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

new Web site will prove to be correct or that they will have a positive effect
on our business.

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 are subject to a number of factors, including our results of
operations as well as the amount of additional capital that we raise.

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

Based on our current plans, we anticipate that the proceeds from the Rosenthal
Financing Agreement together with existing resources and cash generated from
operations, should be sufficient to satisfy our cash requirements through the
end of fiscal 2002. These plans anticipate that we will seek additional debt
and/or equity financing in order to maximize the growth of our business. There
can be no assurance that any additional financing or other sources of capital
will be available to us upon acceptable terms, or at all. The inability to
obtain additional financing would have a material adverse effect on our
business, prospects, financial condition and results of operations. Moreover, to
the extent that we determine that additional financing may not be available, we
may be required to alter our current growth plans in order to preserve capital
for use during 2003.

Recent Accounting Pronouncements

Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission (the "Commission"), requires all companies to
include a discussion of critical accounting policies or methods used in the
preparation of financial statements. Note 2 of the notes to the consolidated
financial statements includes a summary of the significant accounting policies
and methods used in the preparation of our consolidated financial statements.
For a brief discussion of the more significant accounting policies and methods
used by us, please see, "Significant Accounting Policies."

In addition, Financial Reporting Release No. 61 was recently released by the
Commission, and requires all companies to include a discussion addressing, among
other things, liquidity, off balance sheet arrangements, contractual obligations
and commercial commitments. For a discussion of these issues, please read
"Liquidity and Capital Resources."

In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment to FASB Statement No. 13, and Technical
Corrections" ("SFAS No. 145"). SFAS No. 145 eliminates the requirement (in SFAS
No. 4) that gains and losses from the extinguishments of debt be aggregated and
classified as extraordinary items, net of the related income tax. In addition,
SFAS No. 145 requires sales-lease back treatment for certain modifications of a
capital lease that result in the lease being classified as an operating lease.
The rescission of SFAS No. 4 is effective for fiscal years beginning after May
15, 2002, which for the Company would be December 31, 2003. Earlier application
is encouraged. Any gain or loss on extinguishment of debt that was previously
classified as an extraordinary item would be reclassified to other income
(expense). The remainder of the statement is generally effective for
transactions occurring after May 15, 2002. We do not expect that the adoption of
SFAS No. 145 will have a material impact on our financial condition, cash flows
and results of operations.

In October 2001, the FASB issued Statement No. 144 ("SFAS No. 144"), "Accounting
for the Impairment or Disposal of Long-Lived Assets." This statement supersedes
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" and certain provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events


                                       19
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

and Transactions," for the disposal of a segment of a business (as previously
defined in that Opinion). The provisions of SFAS No. 144 are effective for
fiscal years beginning after December 15, 2001. We do not anticipate that the
adoption of SFAS No. 144 will have a material impact on our consolidated
financial statements.

In June 2001, the FASB issued Statement No. 143 ("SFAS No. 143"), "Accounting
for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143 shall
be effective for financial statements issued for fiscal years beginning after
June 15, 2002. Earlier application is encouraged. Initial application of this
Statement shall be as of the beginning of an entity's fiscal year. We do not
anticipate that the adoption of SFAS No. 143 will have a material impact on our
consolidated financial statements.

In July 2001, the FASB issued Statement No. 142 ("SFAS No. 142"), "Goodwill and
Other Intangible Assets." Under SFAS No. 142, goodwill and indefinite lived
intangible assets will no longer be amortized, but rather will be tested for
impairment within six months of adoption and at least annually thereafter
effective for years beginning after December 15, 2001. In addition, the
amortization period of intangible assets with finite lives will no longer be
limited. We do not anticipate that the adoption of SFAS No. 142 will have a
material impact on our consolidated financial statements.

In June 2001, the FASB issued Statement No. 141 ("SFAS No. 141"),"Business
Combinations." SFAS No. 141 requires all business combinations initiated after
June 30, 2001 be accounted for under the purchase method. In addition, SFAS No.
141 establishes criteria for the recognition and measurement of intangible
assets separately from goodwill. SFAS No. 141 may require us to reclassify the
carrying amounts of certain intangible assets into or out of goodwill, based
upon certain criteria. We do not anticipate that the adoption of SFAS No. 141
will have a material impact on our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have assessed our vulnerability to certain market risks, including interest
rate risk associated with financial instruments included in cash and cash
equivalents and our notes payable. Due to the short-term nature of these
investments we have determined that the risks associated with interest rate
fluctuations related to these financial instruments do not pose a material risk
to us.

Special Note Regarding Forward Looking Statements

This report may include statements that constitute "forward-looking" statements,
usually containing the words "believe", "project", "expect", or similar
expressions. These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from the forward-looking statements. The risks and
uncertainties are detailed from time to time in reports filed by the company
with the Securities and Exchange Commission, including Forms 8-A, 8-K, 10-Q, and
10-K. These risks and uncertainties include, but are not limited to, the
following: the Company's limited working capital, need for additional capital
and potential inability to raise such capital; potential dilution arising from
future equity financings, including potential dilution as a result of the
anti-dilution provisions contained in the Company's Series B Preferred Stock;
the competitive nature of the business and the potential for competitors with
greater resources to enter such business; adverse trends in the retail apparel
market; the risk that recent favorable trends in sales, gross margin and reduced
sales marketing and fulfillment expenses will not continue; risks of litigation
for sale of unauthentic or damaged goods and litigation risks related to sales
in foreign countries; availability formulas under the Rosenthal credit facility
which limit the amount of funds available for borrowing; the Company's potential
inability to make repayments under the Rosenthal credit facility and the
possible shareholder dilution that could result if the Soros standby letter of
credit is drawn upon; the risk of default by the Company under the Rosenthal
financing agreement and the consequences that might arise from the Company
having granted a lien on substantially all of its assets under that agreement;
consumer acceptance of the Internet as a medium for purchasing apparel; recent
losses and anticipated future losses; the capital intensive nature of such
business (taking into account the need for advertising to promote such
business); the dependence on third parties and certain relationships for certain
services, including the Company's dependence on the United States Postal Service
and UPS (and


                                       20
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

the risk of a mail slowdown due to terrorist activity) and the Company's
dependence on third-party web hosting and fulfillment centers; the successful
hiring and retaining of personnel; the dependence on continued growth of online
commerce; rapid technological change; online commerce security risks; the
startup nature of the Internet business; governmental regulation and legal
uncertainties; management of potential growth; and unexpected changes in fashion
trends.

Part II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Changes in Securities and Use Of Proceeds

In June 2002, the Company sold 1,186,573 shares of Common Stock and warrants to
purchase 296,644 shares of Common Stock at an exercise price of $1.88 per share
to Soros for aggregate consideration of $1.9 million.

In August 2002, the Company sold 2,100 shares of its newly-designated Series
2002 Preferred Stock to Soros for aggregate consideration of $2.1 million. The
Series 2002 Preferred Stock has a liquidation preference of $1,000 per share and
is convertible in whole or in part, at the holder's option, into the type of
equity securities sold by us in any subsequent round of equity financing, at the
same price, and upon the same terms and conditions, as such securities are sold
in such equity financing.

The above-described sales were deemed to be exempt from registration under the
Securities Act of 1933, as amended (the "Act") in reliance on Section 4(2) of
the Act.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

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

      Exhibit Number                       Description
      --------------                       -----------

      3.3                 Certificate of Powers, Designations, Preferences and
                          Rights of Series 2002 Preferred Stock of the
                          Registrant

      10.39               Common Stock and Warrant Purchase Agreement, dated May
                          24, 2002, by and between the Registrant and the
                          investors listed on Schedule 1 thereto

      10.40               Series 2002 Preferred Stock Purchase Agreement, dated
                          August 12, 2002, by and between the Registrant and the
                          investors listed on Schedule 1 thereto


                                       21
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

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

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

(b)   Reports on Form 8-K:

The Company filed a report on Form 8-K, dated June 3, 2002 concerning an
additional investment made by affiliates of Soros Private Equity Partners LLC in
the Company.


                                       22
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

                                   SIGNATURES

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

                                                        BLUEFLY, INC.


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


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

August 12, 2002


                                       23

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.3
<SEQUENCE>3
<FILENAME>d51460_ex3-3.txt
<DESCRIPTION>CERTIFICATE OF INCORPORATION
<TEXT>

                                                                     EXHIBIT 3.3

                CERTIFICATE OF POWERS, DESIGNATIONS, PREFERENCES

                 AND RIGHTS OF SERIES 2002 CONVERTIBLE PREFERRED

                             STOCK OF BLUEFLY, INC.

      BLUEFLY, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Company"), DOES HEREBY CERTIFY
THAT:

            Pursuant to authority conferred upon the Board of Directors of the
Company (the "Board") by the Certificate of Incorporation of the Company (the
"Certificate of Incorporation"), and pursuant to the provisions of ss. 151 of
the Delaware General Corporation Law (the "DGCL"), the Board, at a meeting held
on August 9, 2002, duly adopted the following resolution providing for the
voting powers, designations, preferences and rights, and the qualifications,
limitations and restrictions, of the Series 2002 Convertible Preferred Stock.

            WHEREAS, the Certificate of Incorporation provides for two classes
of shares known as common stock, $0.01 par value per share (the "Common Stock"),
and preferred stock, $0.01 par value per share (the "Preferred Stock"); and

            WHEREAS, the Board is authorized by the Certificate of Incorporation
to provide for the issuance of the shares of Preferred Stock in one or more
series, and by filing a certificate pursuant to the DGCL, to establish from time
to time the number of shares to be included in any such series and to fix the
voting powers, designations, preferences and rights of the shares of any such
series, and the qualifications, limitations and restrictions thereof.

            NOW, THEREFORE, BE IT RESOLVED, that the Board deems it advisable
to, and hereby does, designate a Series 2002 Convertible Preferred Stock and
fixes and determines the voting powers, designations, preferences and rights,
and the qualifications, limitations and restrictions relating to the Series 2002
Convertible Preferred Stock as follows:

      1. Designation. There shall hereby be created and established a series of
Preferred Stock, and the shares of such series of Preferred Stock shall be
designated "Series 2002 Convertible Preferred Stock" (referred to herein as the
"Series 2002 Stock"). Capitalized terms used herein and not otherwise defined
shall have the meanings set forth in Section 11 below.

      2. Authorized Number. The number of shares constituting the Series 2002
Stock shall be 2,100.

<PAGE>

      3. Ranking. The Series 2002 Stock shall rank, as to rights upon a
liquidation, dissolution or winding up of the Company, on parity with the
Company's currently outstanding Series A Convertible Preferred Stock, $0.01 par
value per share (the "Series A Stock"), and the Company's currently outstanding
Series B Convertible Preferred Stock, $0.01 par value per share (the "Series B
Stock"), and senior and prior to the Common Stock and to all other classes or
series of stock issued by the Company, currently and in the future, except as
otherwise approved by the affirmative vote or consent of the holders of a
majority of the then-outstanding shares of Series 2002 Stock pursuant to Section
7 hereof. All equity securities of the Company to which the Series 2002 Stock
ranks prior, whether upon liquidation, dissolution, winding up or otherwise,
including the Common Stock, are collectively referred to herein as "Junior
Securities."

      4. Dividends. Dividends shall be payable with respect to shares of Series
2002 Stock only if, and to the extent, declared by the Board. The holders of
shares of Series 2002 Stock shall not be entitled to receive any dividends with
respect to such shares except in accordance with this Section 4.

      5. Conversion. Subject to the terms and conditions of this Section 5, the
holder of any share or shares of Series 2002 Stock shall have the right, at its
option, at any time and from time to time, upon the consummation of any
Subsequent Round of Financing to convert each such share (or fraction thereof)
of Series 2002 Stock into a number of fully paid and nonassessable Subsequent
Round Securities (with the most favorable terms received by any investor in such
Subsequent Round of Financing) equal to the quotient obtained by dividing the
Series 2002 Liquidation Preference by the lowest price per Subsequent Round
Security paid by any investor in such Subsequent Round of Financing. Written
notice of a Subsequent Round of Financing stating the date on which such
Subsequent Round of Financing is expected to become effective and describing the
terms and conditions of such Subsequent Round of Financing shall be delivered by
the Company to, and received by, the holders of shares of Series 2002 Stock not
less than 10 days prior to the consummation of such Subsequent Round of
Financing. The rights of conversion pursuant to this Section 5 shall be
exercised by the holder of shares of Series 2002 Stock by giving written notice,
which shall be received by the Company not less than five (5) days prior to the
consummation of such Subsequent Round of Financing that the holder elects to
convert a stated number of shares of Series 2002 Stock into Subsequent Round
Securities and by the surrender of a certificate or certificates for the shares
to be so converted to the Company at its principal office (or such other office
or agency of the Company as the Company may designate by notice in writing to
the holders of the Series 2002 Stock) at any time during its usual business
hours, together with a statement of the name or names (with address) in which
the certificate or certificates for Subsequent Round Securities shall be issued.
Promptly after the surrender of the certificate or certificates for shares of
Series 2002 Stock to be converted as set forth above, and upon consummation of
the Subsequent Round of Financing pursuant to which such shares of Series 2002
Stock are to be converted, the Company shall issue and deliver, or cause to be
issued or delivered, to the holders, registered in such name or names as such
holders may direct, a certificate or certificates for the number and type of
Subsequent Round Securities issuable upon


                                       2
<PAGE>

conversion of such shares of Series 2002 Stock. To the extent that, following
surrender of any certificate or certificates for shares of Series 2002 Stock to
be converted as set forth above, the Company determines not to proceed with the
Subsequent Round of Financing pursuant to which such shares of Series 2002 Stock
are to be converted, such certificates shall be returned immediately following
such determination to the holders thereof and the shares of Series 2002 Stock
represented by such certificates shall remain outstanding. No fractional
Subsequent Round Securities shall be issued upon conversion of the shares of
Series 2002 Stock. If any fractional Subsequent Round Security would, except for
the provisions of the immediately preceding sentence, be delivered upon such
conversion, the Company, in lieu of delivering such fractional Subsequent Round
Securities, shall pay to the holder surrendering the shares of Series 2002 Stock
for conversion an amount in cash equal to the current market price of such
fractional Subsequent Round Security as determined in good faith by the Board.
The issuance of certificates for Subsequent Round Securities upon conversion of
the shares of Series 2002 Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the holder of the shares of Series 2002 Stock which is being converted.

      6. Liquidation Rights. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company resulting in a distribution of assets
to the holders of any class or series of the Company's capital stock (each such
event, a "Series 2002 Liquidation"), each holder of shares of Series 2002 Stock
will be entitled to payment out of the assets of the Company available for
distribution of an amount per share in cash equal to the Series 2002 Liquidation
Preference, such amount to be paid on a pari passu basis and pro rata according
to their respective liquidation preferences with the amount distributable as
liquidation preferences to the holders of the Series A Stock and Series B Stock
and before any distribution is made on any Junior Securities, including, without
limitation, Common Stock of the Company. If, upon any Series 2002 Liquidation,
the assets to be distributed among the holders of shares of Series 2002 Stock
shall be insufficient to permit payment to the holders of shares of Series 2002
Stock of the full Series 2002 Liquidation Preference for each such share, then
all of the assets of the Company to be so distributed as liquidation preferences
to the holders of shares of Series A Stock, Series B Stock and Series 2002 Stock
shall be distributed among the holders of shares of Series A Stock, Series B
Stock and Series 2002 Stock ratably in proportion to the amounts that would be
payable to such holders if such assets were sufficient to permit payment in
full.

      7. Voting Rights; Amendment and Waiver. Except as otherwise expressly
provided herein or as required under the DGCL, the Series 2002 Stock shall be
non-voting. For so long as any shares of Series 2002 Stock are outstanding, the
Company shall not, without the prior approval of the holders of at least a
majority of the then-outstanding shares of Series 2002 Stock, given in writing
or at a meeting, consenting or voting (as the case may be) separately as a
series, (i) effect any transaction or other action that would adversely affect
the rights, preferences, powers and privileges of the Series 2002 Stock or (ii)
designate or issue any shares of capital stock of the Company, or any rights,
warrants or options exchangeable for or convertible into


                                       3
<PAGE>

capital stock of the Company, ranking pari passu with or senior to the Series
2002 Stock in the event of a liquidation, dissolution or winding up of the
Company. Notwithstanding any other provision hereof, the holders of at least a
majority of the then-outstanding shares of Series 2002 Stock shall have the
right and authority to waive any power, preference or right of the Series 2002
Stock by delivering to the Company a written waiver executed by such holders.

      8. Reservation of Subsequent Round Securities. The Company shall reserve
and keep available solely for issuance upon the conversion of shares of Series
2002 Stock, such number and type of Subsequent Round Securities as will from
time to time be sufficient to permit the conversion of all outstanding shares of
Series 2002 Stock for which a holder has elected to exercise its right pursuant
to Section 5 to convert such shares into such Subsequent Round Securities, and,
if applicable, shall take all action to increase the authorized number of
Subsequent Round Securities if at any time there shall be insufficient
authorized but unissued Subsequent Round Securities to permit such reservation
or to permit the conversion of all outstanding shares of Series 2002 Stock for
which a holder has elected to exercise its rights pursuant to Section 5 to
convert such shares into such Subsequent Round Securities. The Company covenants
that all Subsequent Round Securities which shall be so issued shall be duly
authorized, validly issued, fully paid and non-assessable by the Company and
free from any taxes, liens and charges with respect to the issue thereof. The
Company will take all such action as may be necessary to ensure that all such
Subsequent Round Securities may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securities exchange or
quotation system upon which the Common Stock may be listed.

      9. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.

      10. Severability of Provisions. If any voting powers, preferences and
rights of the Series 2002 Stock and qualifications, limitations and restrictions
thereof set forth herein (as this Certificate of Designations may be amended
from time to time) are invalid, unlawful or incapable of being enforced by
reason of any rule of law or public policy, all other voting powers, preferences
and rights of Series 2002 Stock and qualifications, limitations and restrictions
thereof set forth herein (as so amended) which can be given effect without the
invalid, unlawful or unenforceable voting powers, preferences and rights of
Series 2002 Stock and qualifications, limitations and restrictions thereof
shall, nevertheless, remain in full force and effect, and no voting powers,
preferences and rights of Series 2002 Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any other
such voting powers, preferences and rights of Series 2002 Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.

      11. Certain Definitions. The following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice


                                       4
<PAGE>

versa), unless the context otherwise requires:

      "Series 2002 Liquidation Preference" means an amount per share equal to
$1,000, as adjusted to reflect stock splits, stock dividends, combinations and
other similar occurrences.

      "Subsequent Round of Financing" means the offer and sale for cash by the
Company of its equity securities.

      "Subsequent Round Securities" means the equity securities sold in the
Subsequent Round of Financing; provided that, to the extent that two or more
types or classes of equity securities are sold as a unit in the Subsequent Round
of Financing, "Subsequent Round Securities" shall mean a unit consisting of the
same types or classes of equity securities, in the same proportion, as the units
sold in the Subsequent Round of Financing.

      12. Exclusion of Other Rights. Except as may otherwise be required by law,
shares of Series 2002 Stock shall not have any voting powers, designations,
preferences and rights, other than those specifically set forth herein (as may
be amended from time to time) and in the Certificate of Incorporation.

      13. Registered Holders. A holder of Series 2002 Stock registered on the
Company's stock transfer books as the owner of shares of Series 2002 Stock shall
be treated as the owner of such shares for all purposes. All notices and all
payments required to be mailed to a holder of shares of Series 2002 Stock shall
be mailed to such holder's registered address on the Company's stock transfer
books, and all dividend and redemption payments to a holder of shares of Series
2002 Stock made hereunder shall be deemed to be paid in compliance hereof on the
date such payments are deposited into the mail addressed to such holder at his
registered address on the Company's stock transfer books.

                  [Remainder of page intentionally left blank]


                                       5
<PAGE>

      IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designations this 8th day of August, 2002.

                                               BLUEFLY, INC.


                                               By: /s/ E. Kenneth Seiff
                                                   -----------------------------
                                               Name: E. Kenneth Seiff
                                               Title: Chief Executive Officer


                                       6

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.39
<SEQUENCE>4
<FILENAME>d51460_ex10-39.txt
<DESCRIPTION>COMMON STOCK AND WARRANT PURCHASE AGREEMENT
<TEXT>
                                                                   EXHIBIT 10.39

                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

      THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT, dated as of May 24, 2002
(this "Agreement"), is entered into by and between BLUEFLY, INC., a Delaware
corporation (the "Company"), and the investors listed on Schedule 1 hereto
(each, an "Investor" and, collectively, the "Investors").

                                    RECITALS

      WHEREAS, the Investors desire to purchase from the Company, and the
Company desires to issue and sell to the Investors, 5,620,609 shares (the
"Shares") of common stock, par value $.01 per share (the "Common Stock"), of the
Company and warrants in the form attached hereto as Exhibit A (the "Warrants"),
exercisable to purchase up to an aggregate of 1,405,153 shares of Common Stock
at an exercise price of $1.88 per share of Common Stock, on the terms and
subject to the conditions contained herein.

                                    AGREEMENT

            NOW, THEREFORE, in consideration for the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:

                                   ARTICLE I
              PURCHASE AND SALE OF THE COMMON STOCK AND THE WARRANT

      SECTION 1.1 Purchase and Sale of the Common Stock. Subject to the terms
and conditions hereof, the Company hereby issues and sells to the Investors, and
each Investors hereby purchases from the Company, the number of Shares set for
opposite such Investor's name in Schedule 1, for a purchase price of $1.57 per
share, resulting in an aggregate purchase price for all Shares sold pursuant to
the terms hereof of $8,824,355.87.

      SECTION 1.2 Purchase and Sale of the Warrant. Subject to the terms and
conditions hereof, the Company hereby issues and sells to the Investors, and
each Investor hereby purchases from the Company, the number of Warrants set
forth opposite such Investor's name in Schedule 1, for a purchase price of
$0.125 per Warrant, resulting in an aggregate purchase price for all Warrants
sold pursuant to the terms hereof of $175,644.13.

<PAGE>

                                   ARTICLE II
            REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY

      The Company represents and warrants to, and agrees with, the Investors as
follows:

      SECTION 2.1 Organization, etc. The Company has been duly formed, is
validly existing as a corporation in good standing under the laws of the State
of Delaware, and is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified could reasonably be
expected to have a material adverse effect on the assets, liabilities, condition
(financial or other), business or results of operations of the Company (a
"Material Adverse Effect"). The Company has the requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as presently conducted and to enter into, execute, deliver and perform all of
its duties and obligations under this Agreement and to consummate the
transactions contemplated hereby.

      SECTION 2.2 Authorization. The execution, delivery and performance of this
Agreement and the issuance of the Shares, the Warrants and the shares of Common
Stock issuable upon exercise of the Warrants (the "Warrant Shares") have been
duly authorized by all necessary corporate action on the part of the Company.

      SECTION 2.3 Validity; Enforceability. This Agreement has been duly
executed and delivered by the Company, and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by, or subject to,
any bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and subject to general principles
of equity.

      SECTION 2.4 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 40,000,000 shares of Common Stock and
25,000,000 shares of preferred stock, $0.01 par value per share, of which
500,000 shares have been designated Series A Convertible Preferred Stock and
9,000,000 shares have been designated Series B Convertible Preferred Stock.
Without giving effect to the transactions contemplated by this Agreement, the
issued and outstanding capital stock of the Company consists of (i) 9,205,331
shares of Common Stock, (ii) 500,000 shares of Series A Convertible Preferred
Stock and (iii) 8,910,782 shares of Series B Convertible Preferred Stock. All
such shares of the Company have been duly authorized and are fully paid and
non-assessable. Except as set forth on Schedule 2.4 hereto or as otherwise
contemplated by this Agreement, there are no outstanding options, warrants or
other equity securities that are convertible into, or exercisable for, shares of
the Company's capital stock.

      SECTION 2.5 Governmental Consents. The execution and delivery by the
Company of this Agreement and the performance by the Company of the transactions
contemplated hereby, do not and will not require the Company to effectuate or
obtain any registration with, consent or approval of, or notice to any federal,
state or other governmental authority or regulatory body, other than (i)


                                       2
<PAGE>

periodic and other filings under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), (ii) the listing of the Shares and the Warrant Shares with
the Nasdaq SmallCap Market and The Boston Stock Exchange and (iii) as otherwise
required to comply with the obligations of the Company under Section 4.1 hereof.
The parties hereto agree and acknowledge that, in making the representations and
warranties in the foregoing sentence of this Section 2.5, the Company is relying
on the representations and warranties made by the Investors in Section 3.4.

      SECTION 2.6 No Violation. The execution and delivery of this Agreement and
the performance by the Company of the transactions contemplated hereby will not
(i) conflict with or result in a breach of any provision of the articles of
incorporation or by-laws of the Company, (ii) result in a default or breach of,
or, except for the approval of the holders of the Company's Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock, require any consent,
approval, authorization or permit of, or filing or notification to, any person,
company or entity under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, loan, factoring arrangement, license, agreement,
lease or other instrument or obligation to which the Company is a party or by
which the Company or any of its assets may be bound or (iii) violate any law,
judgment, order, writ, injunction, decree, statute, rule or regulation of any
court, administrative agency, bureau, board, commission, office, authority,
department or other governmental entity applicable to the Company, except, in
the case of clause (ii) or (iii) above, any such event that could not reasonably
be expected to have a Material Adverse Effect or materially impair the
transactions contemplated hereby.

      SECTION 2.7 Issuances of Securities. The Shares and the Warrants have been
validly issued, and, upon payment therefor, will be fully paid and
non-assessable. Upon the exercise of the Warrants in accordance with the terms
thereof, the Warrant Shares will be validly issued, fully paid and
non-assessable. The offering, issuance, sale and delivery of the Shares and the
Warrants as contemplated by this Agreement are exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"Securities Act"), are being made in compliance with all applicable federal and
(except for any violation or non-compliance that could not reasonably be
expected to have a Material Adverse Effect) state laws and regulations
concerning the offer, issuance and sale of securities, and are not being issued
in violation of any preemptive or other rights of any stockholder of the
Company. The parties hereto agree and acknowledge that, in making the
representations and warranties in the foregoing sentence of this Section 2.7,
the Company is relying on the representations and warranties made by the
Investors in Section 3.4.

      SECTION 2.8 Absence of Certain Developments. Since December 31, 2001,
there has not been any: (i) material adverse change in the condition, financial
or otherwise, of the Company or in the assets, liabilities, properties or
business of the Company; (ii) declaration, setting aside or payment of any
dividend or other distribution with respect to, or any direct or indirect
redemption or acquisition of, any capital stock of the Company; (iii) waiver of
any valuable right of the Company or cancellation of any material debt or claim
held by the Company; (iv) material loss,


                                       3
<PAGE>

destruction or damage to any property of the Company, whether or not insured;
(v) acquisition or disposition of any material assets (or any contract or
arrangement therefor) or any other material transaction by the Company otherwise
than for fair value in the ordinary course of business consistent with past
practice; or (vi) other agreement or understanding, whether in writing or
otherwise, for the Company to take any action of the type specified in clauses
(i) through (v).

      SECTION 2.9 Commission Filings. The Company has filed all required forms,
reports and other documents with the Securities and Exchange Commission (the
"Commission") for periods from and after January 1, 2001 (collectively, the
"Commission Filings"), each of which has complied in all material respects with
all applicable requirements of the Securities Act and/or the Exchange Act (as
applicable). The Company has heretofore made available to the Investors all of
the Commission Filings, including the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 and the Company's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2002. As of their respective dates, the
Commission Filings did not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading. The
audited financial statements and unaudited interim financial statements of the
Company included or incorporated by reference in such Commission Filings have
been prepared in accordance with GAAP (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Form 10-Q),
complied as of their respective dates in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, and fairly present, in all material respects,
the financial position of the Company as of the dates thereof and the results of
operations for the periods then ended (subject, in the case of any unaudited
interim financial statements, to the absence of footnotes required by GAAP and
normal year-end adjustments).

      SECTION 2.10 Brokers. Except for Enable Capital LLC ("Enable"), neither
the Company, nor any of its officers, directors or employees, has employed any
broker or finder, or (except for compensation due to Enable, for which the
Company will be solely responsible) incurred any liability for any brokerage
fees, commissions, finder's or other similar fees or expenses in connection with
the transactions contemplated hereby.

                                  ARTICLE III
           REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE INVESTORS

      Each Investor represents and warrants to, and agrees with, the Company,
severally but not jointly, as follows:

      SECTION 3.1 Organization, etc. Such Investor has been duly formed and is
validly existing and in good standing under the laws of its jurisdiction of
organization. Such Investor has the requisite organizational power and authority
to enter into, execute, deliver and perform all of its


                                       4
<PAGE>

duties and obligations under this Agreement and to consummate the transactions
contemplated hereby.

      SECTION 3.2 Authority. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary organizational or other
action on the part of such Investor.

      SECTION 3.3 Validity; Enforceability. This Agreement has been duly
executed and delivered by such Investor, and constitutes the legal, valid and
binding obligation of such Investor, enforceable against such Investor in
accordance with its terms, except as such enforceability may be limited by, or
subject to, any bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity.

      SECTION 3.4 Investment Representations.

            (a) Such Investor acknowledges that the offer and sale of the Shares
and the Warrants to such Investor have not been registered under the Securities
Act, or the securities laws of any state or regulatory body and are being
offered and sold in reliance upon exemptions from the registration requirements
of the Securities Act and such laws and may not be transferred or resold without
registration under such laws unless an exemption is available. The Shares, the
Warrants, and any certificate for the Warrant Shares will be imprinted with a
legend in substantially the following form:

            "THE OFFER AND SALE OF THE SECURITIES REPRESENTED BY THIS
            CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
            1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND SUCH
            SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
            HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A
            REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
            EFFECTIVE UNDER SUCH ACT AND UNDER ANY APPLICABLE STATE SECURITIES
            LAWS UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
            THE COMPANY, AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
            ACT AND STATE SECURITIES LAWS IS AVAILABLE."

            (b) Such Investor is acquiring the Shares, the Warrants and Warrant
Shares for investment and not with a view to the resale or distribution thereof
and is acquiring such securities for its own account.

            (c) Such Investor is an "accredited investor" (as that term is
defined in Rule 501 of Regulation D promulgated under the Securities Act), is
sophisticated in financial matters and is familiar with the business of the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
Such Investor has


                                       5
<PAGE>

had the opportunity to investigate on its own the Company's business, management
and financial affairs and has had the opportunity to review the Company's
operations and facilities and to ask questions and obtain whatever other
information concerning the Company as such Investor has deemed relevant in
making its investment decision.

            (d) Such Investor is in compliance with the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001. Neither such Investor, nor any of its principal
owners, partners, members, directors or officers is included on: (i) the Office
of Foreign Assets Control list of foreign nations, organizations and individuals
subject to economic and trade sanctions, based on U.S. foreign policy and
national security goals; (ii) Executive Order 13224, which sets forth a list of
individuals and groups with whom U.S. persons are prohibited from doing business
because such persons have been identified as terrorists or persons who support
terrorism or (iii) any other watch list issued by any governmental authority,
including the Commission.

            (e) No representations or warranties have been made to such Investor
by the Company or any director, officer, employee, agent or affiliate of the
Company, other than the representations and warranties of the Company set forth
herein, and the decision of such Investor to purchase the Shares and the Warrant
is based on the information contained herein, the Commission Filings and such
Investor's own independent investigation of the Company.

      SECTION 3.5 Governmental Consents. The execution and delivery by such
Investor of this Agreement and the performance by such Investor of the
transactions contemplated hereby, do not and will not require such Investor to
effectuate or obtain any registration with, consent or approval of, or notice to
any federal state or other governmental authority or regulatory body, except for
the filing with the Commission of a Schedule 13D under the Exchange Act with
respect to the acquisition by such Investor of the Shares and the Warrants.

      SECTION 3.6 No Violation. The execution and delivery of this Agreement and
the performance by such Investor of the transactions contemplated hereby, will
not (i) conflict with or result in a breach of any provision of the articles of
incorporation, by-laws or similar organizational documents of such Investor or
(ii) violate any law, judgment, order, writ, injunction, decree, statute, rule
or regulation of any court, administrative agency, bureau, board, commission,
office, authority, department or other governmental entity applicable to such
Investor, except any such violation that could not reasonably be expected to
materially impair the transactions contemplated hereby.

      SECTION 3.7 Brokers. Neither such Investor, nor any of its officers,
directors or employees, has employed any broker or finder, or incurred any
liability for any brokerage fees, commissions, finder's or other similar fees or
expenses in connection with the transactions contemplated hereby.


                                       6
<PAGE>

                                   ARTICLE IV
                                    COVENANTS

      SECTION 4.1 Registration Rights.

            (a) The Company shall: (i) prepare and file with the Commission a
registration statement under the Securities Act (as the same may be amended or
supplemented from time to time, the "Registration Statement") with respect to
the offer and sale by the Investors of the Shares and the Warrant Shares within
forty-five (45) days of the date hereof; and (ii) use commercially reasonable
efforts to cause the Registration Statement to be declared effective by the
Commission within ninety (90) days of the date of Closing. The Company shall use
commercially reasonable efforts to maintain the effectiveness of such
Registration Statement until the earliest to occur of the following: (i) all of
the Shares and the Warrant Shares have been disposed of by the Investors
pursuant to the Registration Statement or otherwise transferred (or in the case
of the Warrant Shares, all of the Warrants pursuant to which such Warrant Shares
are issuable have expired); or (ii) the Shares and the Warrant Shares can be
resold pursuant to subsection (k) of Rule 144, promulgated under the Securities
Act, or any similar provisions then in effect.

            (b) The Investors will furnish to the Company in writing all
information reasonably requested by the Company for use in connection with the
preparation of the Registration Statement and obtaining the effectiveness
thereof. Each Investor hereby represents and warrants, severally but not
jointly, that all such information furnished by it shall be true, accurate and
complete.

            (c) If at any time or from time to time after the date of
effectiveness of the Registration Statement, the Company notifies the Investors
in writing of the existence of a Potential Material Event (as defined below), no
Investor shall offer or sell any of the Shares or Warrant Shares, or engage in
any other transaction involving or relating to the Shares or Warrant Shares,
from the time of the giving of notice with respect to a Potential Material Event
until such Investor receives written notice from the Company that such Potential
Material Event either has been disclosed to the public or no longer constitutes
a Potential Material Event. As used herein, "Potential Material Event" means any
of the following: (i) the possession by the Company of material information not
ripe for disclosure in a registration statement, which shall be evidenced by
determinations in good faith by the Board of Directors of the Company that
disclosure of such information in the registration statement would be
detrimental to the business and affairs of the Company; or (ii) any material
engagement or activity by the Company which would, in the good faith
determination of the Board of Directors of the Company, be adversely affected by
disclosure in a registration statement at such time, which determination shall
be accompanied by a good faith determination by the Board of Directors of the
Company that the registration statement would be materially misleading absent
the inclusion of such information.


                                       7
<PAGE>

            (d) To the extent not inconsistent with applicable law, each
Investor agrees that, in connection with any registered public offering of the
Company's equity securities, it will not effect any public sale or distribution
of any of the Shares or the Warrant Shares, including a sale pursuant to Rule
144 under the Securities Act, during the 10 days prior to, and during the 90
days beginning on, the effective date of the Company's registration statement
(except as part of such registration) with respect to such registered public
offering, if and to the extent reasonably requested by the Company in writing in
the case of a non-underwritten public offering or to the extent reasonably
requested by the underwriter in the case of an underwritten public offering.

            (e) All registration and filing fees, fees and expenses of
compliance with securities laws, printing expenses and all independent certified
public accountants fees and expenses of counsel to the Company and other persons
retained by the Company will be borne by the Company. The Company shall have no
obligation to pay any fees or expenses of brokers, underwriters, counsel or
others retained by any of the Investors in connection with the sale, or
potential sale, of the Shares or Warrant Shares.

            (f) The Company agrees to indemnify, to the fullest extent permitted
by law, the Investors and their respective officers, directors, partners,
employees, advisors and agents against any and all Loss (as hereinafter defined)
arising out of or based upon any untrue, or alleged untrue, statement of a
material fact contained in the Registration Statement or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except (i) insofar as the same are caused by or contained in any information
furnished by an Investor pursuant to clause (b) or (ii) insofar as the same are
caused by a failure by an Investor to deliver an updated prospectus that has
been filed with the Commission and made available to such Investor or its
representatives for delivery to a purchaser. Each Investor agrees to indemnify,
to the fullest extent permitted by law, the Company, the other Investors and
their respective officers, directors, partners, employees, advisors and agents
against any and all Loss arising out of or based upon any untrue, or alleged
untrue statement of a material fact contained in the Registration Statement or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading (i) insofar as the same are caused by or contained in any
information furnished by indemnifying Investor pursuant to clause (b) or (ii)
insofar as the same are caused by a failure by the indemnifying Investor to
deliver an updated prospectus that has been filed with the Commission and made
available to such Investor or its representatives for delivery to a purchaser.
Any indemnity obligation arising under this Section 4.1 shall be governed by the
provisions of Section 5.3.

      SECTION 4.2 Board of Directors. For so long as Breider Moore & Co., LLC
("Breider Moore") continues to own, beneficially and of record, at least five
percent (5%) of the outstanding shares of voting stock of the Company, the
Company will use commercially reasonable efforts to nominate a representative of
Breider Moore to the Company's Board of Directors and to recommend that the
Company's stockholders vote in favor of the election of such representative to


                                       8
<PAGE>

the Company's Board of Directors; provided that Breider Moore and the Company
shall mutually agree as to the identity of such representative. In connection
with the foregoing, Breider Moore represents and warrants that, within the
preceding five years, none of the following has occurred with respect to it or
any of its principal owners, partners, members, directors or officers: (i) a
petition under the Federal bankruptcy laws or any state insolvency law was filed
by or against, or a receiver, fiscal agent or similar officer was appointed by a
court for the business or property of such person or entity, or any partnership
in which such person or entity was a general partner at or within two years
before the time of such filing, or any corporation or business association of
which such person was an executive officer at or within two years before the
time of such filing; (ii) such person or entity was convicted in a criminal
proceeding or is a named subject of a pending criminal proceeding (excluding
traffic violations and other minor offenses); (iii) such person or entity was
the subject of any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining he, she or it from, or otherwise limiting, the following
activities: (A) acting as a futures commission merchant, introducing broker,
commodity trading advisor, commodity pool operator, floor broker, leverage
transaction merchant, any other person regulated by the Commodity Futures
Trading Commission, or an associated person of any of the foregoing, or as an
investment adviser, underwriter, broker or dealer in securities, or as an
affiliated person, director or employee of any investment company, bank, savings
and loan association or insurance company, or engaging in or continuing any
conduct or practice in connection with such activity, (B) engaging in any type
of business practice or (C) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of Federal or State securities laws or Federal commodities laws; (iv)
such person or entity was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described in clause (iii)(A), or to be
associated with persons engaged in any such activity; (v) such person or entity
was found by a court of competent jurisdiction in a civil action or by the
Commission to have violated any Federal or State securities law, and the
judgment in such civil action or finding by the Commission has not been
subsequently reversed, suspended or vacated; and (vi) such person or entity was
found by a court of competent jurisdiction in a civil action or by the Commodity
Futures Trading Commission to have violated any Federal commodities law, and the
judgment in such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or vacated.

                                   ARTICLE V
                            SURVIVAL; INDEMNIFICATION

      SECTION 5.1 Survival. The representations and warranties contained in
Articles II and III hereof shall survive until the first anniversary of the date
hereof.

            (a) Indemnification. Each party (including its officers, directors,
employees, affiliates, agents, successors and assigns (each an "Indemnified
Party")) shall be indemnified and


                                       9
<PAGE>

held harmless by the other parties hereto (each an "Indemnifying Party") for any
and all liabilities, losses, damages, claims, costs and expenses, interest,
awards, judgments and penalties (including, without limitation, reasonable
attorneys' fees and expenses) actually suffered or incurred by them (hereinafter
a "Loss"), arising out of or resulting from the breach of any representation or
warranty made by an Indemnifying Party contained in this Agreement.
Notwithstanding the foregoing, the aggregate liability of any Investor under
this Article V shall in no event exceed fifty percent (50%) of the purchase
price paid by such Investor for the Shares and Warrants purchased by it and the
aggregate liability of the Company under this Article V shall in no event exceed
fifty percent (50%) of the purchase price paid by the Investors for the Shares
and the Warrants, except that the Company's liability for a violation of any of
the representations and warranties contained in the first two sentences of
Section 2.7 may exceed such limitation, but shall in no event exceed one hundred
percent (100%) of the purchase price paid by the Investors for the Shares and
the Warrants.

      SECTION 5.2 Indemnification Procedure. The obligations and liabilities of
the Indemnifying Party under this Article V with respect to Losses arising from
claims of any third party which are subject to the indemnification provided for
in this Article V ("Third Party Claims") shall be governed by and contingent
upon the following additional terms and conditions: if an Indemnified Party
shall receive notice of any Third Party Claim, the Indemnified Party shall give
the Indemnifying Party notice of such Third Party Claim promptly after the
receipt by the Indemnified Party of such notice (which notice shall include the
amount of the Loss, if known, and method of computation thereof, and containing
a reference to the provisions of this Agreement in respect of which such right
of indemnification is claimed or arises); provided, however, that the failure to
provide such notice shall not release the Indemnifying Party from any of its
obligations under this Article V except to the extent the Indemnifying Party is
materially prejudiced by such failure and shall not relieve the Indemnifying
Party from any other obligation or Liability that it may have to any Indemnified
Party otherwise than under this Article V. Upon written notice to the
Indemnified Party within five (5) days of the receipt of such notice, the
Indemnifying Party shall be entitled to assume and control the defense of such
Third Party Claim at its or his expense and through counsel of its or his choice
(which counsel shall be reasonably satisfactory to the Indemnified Party);
provided, however, that, if there exists or is reasonably likely to exist a
conflict of interest that would make it inappropriate in the reasonable judgment
of the Indemnified Party for the same counsel to represent both the Indemnified
Party and the Indemnifying Party, then the Indemnified Party shall be entitled
to retain its or his own counsel in each jurisdiction for which the Indemnified
Party reasonably determines counsel is required, at the expense of the
Indemnifying Party. In the event the Indemnifying Party exercises the right to
undertake any such defense against any such Third Party Claim as provided above,
the Indemnified Party shall cooperate with the Indemnifying Party in such
defense and make available to such Indemnifying Party, at the Indemnifying
Party's expense, all witnesses, pertinent records, materials and information in
the Indemnified Party's possession or under the Indemnified Party's control
relating thereto as is reasonably required by the Indemnifying Party. Similarly,
in the event the Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Indemnifying Party shall
cooperate with the Indemnified Party in such defense and make available to the


                                       10
<PAGE>

Indemnified Party, at the Indemnifying Party's expense, all such witnesses
(including himself), records, materials and information in the Indemnifying
Party's possession or under the Indemnifying Party's control relating thereto as
is reasonably required by the Indemnified Party. No such Third Party Claim may
be settled by the Indemnifying Party on behalf of the Indemnified Party without
the prior written consent of the Indemnified Party (which consent shall not be
unreasonably withheld); provided, however, in the event that the Indemnified
Party does not consent to any such settlement that would provide it with a full
release from indemnified Loss and would not require it to take, or refrain from
taking, any action, the Indemnifying Party's liability for indemnification shall
not exceed the amount of such proposed settlement. The Indemnified Party will
refrain from any act or omission that is inconsistent with the position taken by
the Indemnifying Party in the defense of a Third Party Claim unless the
Indemnified Party determines that such act or omission is reasonably necessary
to protect its own interest.

                                   ARTICLE VI
                                  MISCELLANEOUS

      SECTION 6.1 Expenses. The Company shall reimburse Breider Moore for up to
$10,000 of reasonable legal expenses incurred in connection with the negotiation
of this Agreement, subject to the receipt of appropriate supporting
documentation. Except as provided above, all costs and expenses, including,
without limitation, fees and disbursements of counsel, incurred in connection
with the negotiation, execution and delivery of this Agreement and its related
documents shall be paid by the party incurring such costs and expenses, whether
or not the Closing shall have occurred.

      SECTION 6.2 Publicity. Except as may be required by applicable law or the
rules of any securities exchange or market on which securities of the Company
are traded, no party hereto shall issue a press release or public announcement
or otherwise make any disclosure concerning this Agreement and the transactions
contemplated hereby, without prior approval of the others; provided, however,
that nothing in this Agreement shall restrict the Company or any Investor from
disclosing such information (a) that is already publicly available, (b) that may
be required or appropriate in response to any summons or subpoena (provided that
the disclosing party will use commercially reasonable efforts to notify the
other parties in advance of such disclosure under this clause (b) so as to
permit the non-disclosing parties to seek a protective order or otherwise
contest such disclosure, and the disclosing party will use commercially
reasonable efforts to cooperate, at the expense of the non-disclosing parties,
in pursuing any such protective order) or (c) in connection with any litigation
involving disputes as to the parties' respective rights and obligations
hereunder.

      SECTION 6.3 Entire Agreement. This Agreement and any other agreement or
instrument to be delivered expressly pursuant to the terms hereof constitute the
entire Agreement between the parties hereto with respect to the subject matter
hereof and supersede all previous negotiations, commitments and writings with
respect to such subject matter.


                                       11
<PAGE>

      SECTION 6.4 Assignments; Parties in Interest. Neither this Agreement nor
any of the rights, interests or obligations hereunder may be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing herein, express or
implied, is intended to or shall confer upon any person not a party hereto any
right, benefit or remedy of any nature whatsoever under or by reason hereof,
except as otherwise provided herein.

      SECTION 6.5 Amendments. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, the parties
against whom such amendment or modification is sought to be enforced.

      SECTION 6.6 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.

      SECTION 6.7 Notices and Addresses. Any notice, demand, request, waiver, or
other communication under this Agreement shall be in writing and shall be deemed
to have been duly given on the date of service, if personally served or sent by
facsimile; on the business day after notice is delivered to a courier or mailed
by express mail, if sent by courier delivery service or express mail for next
day delivery; and on the fifth business day after mailing, if mailed to the
party to whom notice is to be given, by first class mail, registered, return
receipt requested, postage prepaid and addressed as follows:

To Company:       Bluefly, Inc.
                  42 West 39th Street, 9th Floor
                  New York, New York 10018
                  Fax:  (212) 354-3400
                  Attn: Jonathan B. Morris

                  With a copy to:

                  Swidler Berlin Shereff Friedman, LLP
                  405 Lexington Avenue
                  New York, New York 10174
                  Fax:  (212) 891-9598
                  Attn: Richard A. Goldberg, Esq.

To the Investors: To the address set forth on Schedule 1.


                                       12
<PAGE>

      SECTION 6.8 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.

      SECTION 6.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to conflicts of law principles.

      SECTION 6.10 Counterparts; Facsimile Signatures. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart. This Agreement
may be executed by facsimile, and a facsimile signature shall have the same
force and effect as an original signature on this Agreement.

                            [Signature page follows]


                                       13
<PAGE>

      IN WITNESS WHEREOF, this Agreement has been duly executed on the date
first set forth above.

                                           BLUEFLY, INC.

                                           By: /s/ E. Kenneth Seiff
                                               ---------------------------------
                                               Name: E. Kenneth Seiff
                                               Title: Chief Executive Officer


                                           BREIDER MOORE & CO., LLC

                                           By: /s/ W. Joseph Breider
                                               ---------------------------------
                                               Name: W. Joseph Breider
                                               Title: Managing Director


                                           QUANTUM INDUSTRIAL PARTNERS LDC

                                           By: /s/ Jodye M. Anzalotta
                                               ---------------------------------
                                               Name: Jodye M. Anzalotta
                                               Title: Attorney-in-fact


                                           SFM DOMESTIC INVESTMENTS LLC

                                           By: /s/ Jodye M. Anzalotta
                                               ---------------------------------
                                               Name: Jodye M. Anzalotta
                                               Title: Attorney-in-fact


                                           Enable Growth Partners, L.P.

                                           By: /s/ Mitch Levine
                                               ---------------------------------
                                               Name: Mitch Levine
                                               Title: General Partner


                                       14
<PAGE>

                                   SCHEDULE 1

                   INVESTORS AND SHARE AND WARRANT ALLOCATIONS

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                           Purchase Price                   Purchase        Aggregate
                                          Shares           for              Warrants        Price for       Purchase
Name and Address of Investor              Purchased        Shares           Purchased       Warrants        Price
----------------------------              ---------        --------------   ---------       ---------       ---------
------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>              <C>             <C>             <C>
Breider Moore & Co., LLC                  4,371,585        $6,863,388       1,092,896       $136,612        $7,000,000
One Embarcadero Center
Suite 4100
San Francisco, California 94111
Facsimile: (415) 981-9211
Attention: Joe Breider

with a copy to:

Thomas C. McNally III
455 Market Street
19th Floor
San Francisco, California 94105
Facsimile: (415) 882-3232
------------------------------------------------------------------------------------------------------------------------
Quantum Industrial Partners LDC           1,148,998        $1,803,926.75    287,250         $35,906.25      $1,839,833
Kaya Flamboyan 9
Willemstad
Curacao
Netherlands-Antilles

with a copy to:

Soros Fund Management LLC
888 Seventh Avenue
New York, New York 10106
Facsimile: (212) 582-9688
Attn: Richard Holahan, Esq.
------------------------------------------------------------------------------------------------------------------------
SFM Domestic Investments LLC              37,575           $58,992.75       9,394           $1,174.25       $60,167
c/o Soros Fund Management LLC
888 Seventh Avenue
New York, New York 10106
Facsimile: (212) 582-9688
Attn: Richard Holahan, Esq.
------------------------------------------------------------------------------------------------------------------------
Enable Growth Partners, L.P.              62,451           $98,048.37       15,613          $1,951.63       $100,000
One Sansome Street, Suite 2900
San Francisco, California 94104
Facsimile: (415) 265-4794
Attn: Mitch Levine
------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       15
<PAGE>

                                  SCHEDULE 2.4

                                 CAPITALIZATION

      As of the date hereof, but without giving effect to the transactions
contemplated by this Agreement, the following equity securities are outstanding
and convertible into, or exercisable for shares of Common Stock:

      1.    500,000 shares of Series A Convertible Preferred Stock (the "Series
            A Stock") are issued and outstanding. The Series A Stock is
            convertible into 4,273,504 shares of Common Stock.

      2.    8,910,782 shares of Series B Convertible Preferred Stock (the
            "Series B Stock") are issued and outstanding. The Series B Stock is
            convertible into 8,910,782 shares of Common Stock.

      3.    Warrants to purchase an aggregate of 1,022,500 shares of Common
            Stock are issued and outstanding.

      4.    Options issued to purchase 4,367,703 shares of Common Stock are
            issued and outstanding under the Company's 1997 Stock Option Plan,
            as amended, and 2000 Stock Option Plan, as amended.


                                       16
<PAGE>

                                                                   EXHIBIT 10.39
                                                                       EXHIBIT A

THE OFFER AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND
MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER SUCH
ACT OR LAWS AND NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER
FEDERAL OR STATE REGULATORY AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF
THESE SECURITIES.

                                                                   WARRANT NO. 1

                                     WARRANT

                       TO PURCHASE SHARES OF COMMON STOCK

                                       OF

                                  BLUEFLY, INC.

            THIS IS TO CERTIFY THAT [_________________] [INSERT NAME OF
INVESTOR], or its registered assigns (the "Holder"), is the owner of the right
to subscribe for and to purchase from BLUEFLY, INC., a Delaware corporation (the
"Company"), [_________] [25% OF THE NUMBER OF SHARES OF COMMON STOCK PURCHASED]
(the "Number Issuable"), fully paid, duly authorized and non-assessable shares
of Common Stock at a price per share equal to $1.88, (the "Exercise Price"), at
any time, in whole or in part, on or after May 28, 2002 (the "Effective Date")
through 5:00 PM New York City time, on May 28, 2007 (the "Expiration Date") all
on the terms and subject to the conditions hereinafter set forth (the
"Warrants").

            The Number Issuable and the Exercise Price are subject to further
adjustment from time to time pursuant to the provisions of Section 2 of this
Warrant Certificate.

            Capitalized terms used herein but not otherwise defined shall have
the meanings given to them in Section 12 hereof.

<PAGE>

            Section 1. Exercise of Warrants.

                  (a) Subject to the last paragraph of this Section 1, the
Warrants evidenced hereby may be exercised, in whole or in part, by the Holder
hereof at any time or from time to time, on or after the Effective Date and on
or prior to the Expiration Date upon delivery to the Company at the principal
executive office of the Company in the United States of America, of (A) this
Warrant Certificate, (B) a written notice stating that such Holder elects to
exercise the Warrants evidenced hereby in accordance with the provisions of this
Section 1 and specifying the number of Warrants being exercised and the name or
names in which the Holder wishes the certificate or certificates for shares of
Common Stock to be issued and (C) payment of the Exercise Price for such
Warrants, which shall be payable by (x) cash, or (y) certified or official bank
check payable to the order of the Company. The documentation and consideration,
if any, delivered in accordance with subsections (A), (B) and (C) are
collectively referred to herein as the "Warrant Exercise Documentation."

                  (b) As promptly as practicable, and in any event within five
(5) Business Days after receipt of the Warrant Exercise Documentation, the
Company shall deliver or cause to be delivered (A) certificates representing the
number of validly issued, fully paid and nonassessable shares of Common Stock
specified in the Warrant Exercise Documentation, (B) if applicable, cash in lieu
of any fraction of a share, as hereinafter provided, and (C) if less than the
full number of Warrants evidenced hereby are being exercised, a new Warrant
Certificate or Certificates, of like tenor, for the number of Warrants evidenced
by this Warrant Certificate, less the number of Warrants then being exercised.
Such exercise shall be deemed to have been made at the close of business on the
date of delivery of the Warrant Exercise Documentation so that the Person
entitled to receive shares of Common Stock upon such exercise shall be treated
for all purposes as having become the record holder of such shares of Common
Stock at such time.

                  (c) The Company shall pay all expenses incurred by it in
connection with taxes and other governmental charges (other than income taxes of
the Holder) that may be imposed in respect of, the issue or delivery of any
shares of Common Stock issuable upon the exercise of the Warrants evidenced
hereby. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issue of any
certificate for shares of Common Stock, as the case may be, in any name other
than that of the registered holder of the Warrant evidenced hereby.

                  (d) In connection with the exercise of any Warrants evidenced
hereby, no fractions of shares of Common Stock shall be issued, but in lieu
thereof the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to such fractional interest multiplied by the Market
Price for one share of Common Stock on the Business Day which immediately
precedes the day of exercise. If more than one (1) such Warrant shall be
exercised by the holder thereof at the same time, the number of full shares of
Common Stock issuable on such exercise shall be computed on the basis of the
total number of Warrants so exercised.


                                       2
<PAGE>

            Section 2. Certain Adjustments.

                  (a) The number of shares of Common Stock purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
as follows:

                        (i) Stock Dividends, Subdivision, Combination or
Reclassification of Common Stock. If at any time after the date of the issuance
of this Warrant the Company shall (i) pay a dividend on Common Stock in shares
of its Capital Stock, (ii) combine its outstanding shares of Common Stock into a
smaller number of shares, (iii) subdivide its outstanding shares of Common Stock
as the case may be, or (iv) issue by reclassification of its shares of Common
Stock any shares of Capital Stock of the Company, then, on the record date for
such dividend or the effective date of such subdivision or split-up, combination
or reclassification, as the case may be, the number and kind of shares to be
delivered upon exercise of this Warrant will be adjusted so that the Holder will
be entitled to receive the number and kind of shares of Capital Stock that such
Holder would have owned or been entitled to receive upon or by reason of such
event had this Warrant been exercised immediately prior thereto, and the
Exercise Price will be adjusted as provided below in paragraph 2(a)(v).

                        (ii) Extraordinary Distributions. If at any time after
the date of issuance of this Warrant, the Company shall distribute to all
holders of Common Stock (including any such distribution made in connection with
a consolidation or merger in which the Company is the continuing or surviving
corporation and Common Stock is not changed or exchanged) cash, evidences of
indebtedness, securities or other assets (excluding (A) ordinary course cash
dividends to the extent such dividends do not exceed the Company's retained
earnings and (B) dividends payable in shares of Capital Stock for which
adjustment is made under Section 2(a)(i), or rights, options or warrants to
subscribe for or purchase securities of the Company), then in each such case the
number of shares of Common Stock to be delivered to such Holder upon exercise of
this Warrant shall be increased so that the Holder thereafter shall be entitled
to receive the number of shares of Common Stock determined by multiplying the
number of shares such Holder would have been entitled to receive immediately
before such record date by a fraction, the denominator of which shall be the
Exercise Price on such record date minus the then fair market value (as
reasonably determined by the Board of Directors of the Company in good faith) of
the portion of the cash, evidences of indebted-ness, securities or other assets
so distributed or of such rights or warrants applicable to one share of the
Common Stock (provided that such denominator shall in no event be less than
$.01) and the numerator of which shall be the Exercise Price.

                        (iii) Reorganization, etc. If at any time after the date
of issuance of this Warrant any consolidation of the Company with or merger of
the Company with or into any other Person (other than a merger or consolidation
in which the Company is the surviving or continuing corporation and which does
not result in any reclassification of, or change (other than a change in par
value or from par value to no par value or from no par value to par value, or as
a result of a subdivision or combination) in, outstanding shares of Common
Stock) or any sale, lease


                                       3
<PAGE>

or other transfer of all or substantially all of the assets of the Company to
any other person (each, a "Reorganization Event"), shall be effected in such a
way that the holders of the Common Stock shall be entitled to receive cash,
stock, other securities or assets (whether such cash, stock, other securities or
assets are issued or distributed by the Company or another Person) with respect
to or in exchange for the Common Stock, then, upon exercise of this Warrant, the
Holder shall thereafter have the right to receive only the kind and amount of
cash, stock, other securities or assets receivable upon such Reorganization
Event by a holder of the number of shares of the Common Stock that such holder
would have been entitled to receive upon exercise of this Warrant had this
Warrant been exercised immediately before such Reorganization Event, subject to
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 2(a). The Company shall not enter into
any of the transactions referred to in this Section 2(a)(iii) unless effective
provision shall be made so as to give effect to the provisions set forth in this
Section 2(a)(iii).

                        (iv) Carryover. Notwithstanding any other provision of
this Section 2(a), no adjustment shall be made to the number of shares of either
Common Stock to be delivered to the Holder (or to the Exercise Price) if such
adjustment represents less than 2% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to 2% or more of the number of
shares to be so delivered.

                        (v) Exercise Price Adjustment. Whenever the Number
Issuable upon the exercise of the Warrant is adjusted as provided pursuant to
this Section 2(a), the Exercise Price per share payable upon the exercise of
this Warrant shall be adjusted by multiplying such Exercise Price immediately
prior to such adjustment by a fraction, of which the numerator shall be the
Number Issuable upon the exercise of the Warrant immediately prior to such
adjustment, and of which the denominator shall be the Number Issuable
immediately thereafter; provided, however, that the Exercise Price for each
Share of the Common Stock shall in no event be less than the par value of a
share of such Common Stock.

                        (vi) Notice of Adjustment. Whenever the Number Issuable
or the Exercise Price is adjusted as herein provided, the Company shall promptly
mail by first class mail, postage prepaid, to the Holder, notice of such
adjustment or adjustments setting forth the Number Issuable and the Exercise
Price after such adjustment, setting forth a brief statement of the facts
requiring such adjustment and setting forth the computation by which such
adjustment was made.

            Section 3. No Redemption. The Company shall not have any right to
redeem any of the Warrants evidenced hereby.

            Section 4. Notice of Certain Events. In case at any time or from
time to time (i) the Company shall declare any dividend or any other
distribution to all holders of Common Stock, (ii)


                                       4
<PAGE>

the Company shall authorize the granting to the holders of Common Stock of
rights or warrants to subscribe for or purchase any additional shares of stock
of any class or any other right, (iii) the Company shall authorize the issuance
or sale of any other shares or rights which would result in an adjustment to the
Number Issuable pursuant to Section 2(a)(i), (ii) or (iii), (iv) there shall be
any capital reorganization or reclassification of Common Stock of the Company or
consolidation or merger of the Company with or into another Person, or any sale
or other disposition of all or substantially all the assets of the Company or
(v) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then, in any one or more of such cases the Company
shall mail to the Holder at such Holder's address as it appears on the transfer
books of the Company, as promptly as practicable but in any event at least 10
days prior to the date on which the transactions contemplated in Section
2(a)(i), (ii) or (iii) a notice stating (a) the date on which a record is to be
taken for the purpose of such dividend, distribution, rights or warrants or, if
a record is not to be taken, the date as of which the holders of record of
either Common Stock to be entitled to such dividend, distribution, rights or
warrants are to be determined or (b) the date on which such reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective. Such notice also shall specify the date as of
which it is expected that the holders of record of the Common Stock shall be
entitled to exchange the Common Stock for shares of stock or other securities or
property or cash deliverable upon such reorganization, reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up.

            Section 5. Certain Covenants. The Company covenants and agrees that
all shares of Capital Stock of the Company that may be issued upon the exercise
of the Warrants evidenced hereby will be duly authorized, validly issued and
fully paid and nonassessable. The Company shall at all times reserve and keep
available for issuance upon the exercise of the Warrants, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the exercise of all outstanding Warrants, and shall take
all action required to increase the authorized number of shares of Common Stock
if at any time there shall be insufficient authorized but unissued shares of
Common Stock to permit such reservation or to permit the exercise of all
outstanding Warrants.

            Section 6. Registered Holder. The persons in whose names this
Warrant Certificate is registered shall be deemed the owner hereof and of the
Warrants evidenced hereby for all purposes. The registered Holder of this
Warrant Certificate, in their capacity as such, shall not be entitled to any
rights whatsoever as a stockholder of the Company, except as herein provided.

            Section 7. Transfer of Warrants. Any transfer of the rights
represented by this Warrant Certificate shall be effected by the surrender of
this Warrant Certificate, along with the form of assignment attached hereto,
properly completed and executed by the registered Holder hereof, at the
principal executive office of the Company in the United States of America,
together with an appropriate investment letter and opinion of counsel, if deemed
reasonably necessary by counsel to the Company, to assure compliance with
applicable securities laws. Thereupon, the Company shall issue in the name or
names specified by the registered Holder hereof and, in the


                                       5
<PAGE>

event of a partial transfer, in the name of the registered Holder hereof, a new
Warrant Certificate or Certificates evidencing the right to purchase such number
of shares of Common Stock as shall be equal to the number of shares of Common
Stock then purchasable hereunder.

            Section 8. Denominations. The Company covenants that it will, at its
expense, promptly upon surrender of this Warrant Certificate at the principal
executive office of the Company in the United States of America, execute and
deliver to the registered Holder hereof a new Warrant Certificate or
Certificates in denominations specified by such Holder for an aggregate number
of Warrants equal to the number of Warrants evidenced by this Warrant
Certificate.

            Section 9. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant Certificate of like tenor for a number of Warrants equal to
the number of Warrants evidenced by this Warrant Certificate.

            Section 10. Governing Law. THIS WARRANT CERTIFICATE SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL
BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD
TO CONFLICTS OF LAW PRINCIPLES.

            Section 11. Rights Inure to Registered Holder. The Warrants
evidenced by this Warrant Certificate will inure to the benefit of and be
binding upon the registered Holder thereof and the Company and their respective
successors and permitted assigns. Nothing in this Warrant Certificate shall be
construed to give to any Person other than the Company and the registered Holder
thereof any legal or equitable right, remedy or claim under this Warrant
Certificate, and this Warrant Certificate shall be for the sole and exclusive
benefit of the Company and such registered Holder. Nothing in this Warrant
Certificate shall be construed to give the registered Holder hereof any rights
as a Holder of shares of either Common Stock until such time, if any, as the
Warrants evidenced by this Warrant Certificate are exercised in accordance with
the provisions hereof.

            Section 12. Definitions. For the purposes of this Warrant
Certificate, the following terms shall have the meanings indicated below:

            "Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the City of New York, New York are authorized
or required by law or executive order to close.


                                       6
<PAGE>

            "Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock (or equivalent ownership interests in a Person not a corporation)
whether now outstanding or hereafter issued, including, without limitation, any
rights, warrants or options to purchase such Person's capital stock.

            "Common Stock" shall mean the common stock, par value $.01 per
share, of the Company.

            "Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) if the Common Stock is listed on a national securities
exchange, the Closing Price per share of Common Stock on such date published in
The Wall Street Journal (National Edition) or, if no such closing price on such
date is published in The Wall Street Journal (National Edition), the average of
the closing bid and asked prices on such date, as officially reported on the
principal national securities exchange on which the Common Stock is then listed
or admitted to trading; (b) if the Common Stock is not then listed or admitted
to trading on any national securities exchange, but is designated as a national
market system security, the last trading price of the Common Stock on such date;
(c) if there shall have been no trading on such date or if the Common Stock is
not so designated, the average of the reported closing bid and asked price of
the Common Stock, on such date as shown by NASDAQ and reported by any member
firm of the NYSE selected by the Company; or (d) if none of (a), (b) or (c) is
applicable, a market price per share determined in good faith by the Board of
Directors of the Company, which shall be deemed to be "Fair Market Value" unless
holders of at least 15% of Common Stock issued or issuable upon exercise of the
Warrants request that the Company obtain an opinion of a nationally recognized
investment banking firm chosen by the Company (who shall bear the expense) and
reasonably acceptable to such requesting holders of the Warrants, in which event
the Fair Market Value shall be as determined by such investment banking firm.

            "NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotations System.

            "NYSE" shall mean the New York Stock Exchange, Inc.

            "Person" shall mean any individual, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.

            Section 13. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, courier
services or personal delivery, (a) if to the Holder of a Warrant, at such
Holder's last known address appearing on the books of the Company; and (b) if to
the Company, at its principal executive office in the United States, or such
other address as shall have been furnished to the party given or making such
notice, demand or other communication. All


                                       7
<PAGE>

such notices and communications shall be deemed to have been duly given: (i)
when delivered by hand, if personally delivered; (ii) when delivered to a
courier if delivered by commercial overnight courier service; and (iii) five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed.

                           [Signature page to follow.]


                                       8
<PAGE>

            IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed as of this 24th day of May, 2002.

                                         BLUEFLY, INC.


                                         By: /s/ E. Kenneth Seiff
                                            ------------------------------
                                            Name:  E. Kenneth Seiff
                                            Title: Chief Executive Officer


                                       9
<PAGE>

                            [Form of Assignment Form]

                  [To be executed upon assignment of Warrants]

            The undersigned hereby assigns and transfers this Warrant
Certificate to ___________________ whose Social Security Number or Tax ID Number
is _________________ and whose record address is
_____________________________________, and irrevocably appoints ________________
as agent to transfer this security on the books of the Company. Such agent may
substitute another to act for such agent.

                                                  Signature:

                                                  ______________________________
                                                  Signature Guarantee:

                                                  ______________________________

Date: ___________________________


                                       10

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.40
<SEQUENCE>5
<FILENAME>d51460_ex10-40.txt
<DESCRIPTION>SERIES 2002 PREFERRED STOCK PURCHASE AGREEMENT
<TEXT>

                                                                   EXHIBIT 10.40

                 SERIES 2002 PREFERRED STOCK PURCHASE AGREEMENT

      THIS SERIES 2002 PREFERRED STOCK PURCHASE AGREEMENT, dated as of August
12, 2002 (this "Agreement"), is entered into by and between BLUEFLY, INC., a
Delaware corporation (the "Company"), and the investors listed on Schedule 1
hereto (each, an "Investor" and, collectively, the "Investors").

                                    RECITALS

      WHEREAS, the Investors desire to purchase from the Company, and the
Company desires to issue and sell to the Investors, Two Thousand One Hundred
(2,100) shares (the "Shares") of Series 2002 Convertible Preferred Stock, par
value $.01 per share (the "Series 2002 Preferred Stock"), of the Company on the
terms, and subject to the conditions, contained herein.

                                    AGREEMENT

      NOW, THEREFORE, in consideration for the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:

                                   ARTICLE I
                PURCHASE AND SALE OF SERIES 2002 PREFERRED STOCK

      Subject to the terms and conditions hereof, the Company hereby issues and
sells to the Investors, and each Investor hereby purchases from the Company, the
number of Shares set for opposite such Investor's name in Schedule 1, for a
purchase price of One Thousand Dollars ($1,000) per share, resulting in an
aggregate purchase price for all Shares sold pursuant to the terms hereof of Two
Million One Hundred Thousand Dollars ($2,100,000).

                                   ARTICLE II
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

      The Company represents and warrants to the Investors as follows:

      SECTION 2.1 Organization, etc. The Company and its Subsidiary (as defined
in Section 2.4(b)) have each been duly formed, and are each validly existing as
a corporation in good standing under the laws of their respective States of
incorporation, and are each qualified to do business as a foreign corporation in
each jurisdiction in which the failure to be so qualified could reasonably be
expected to have a material adverse effect on the assets, liabilities, condition
(financial or other), business or results of operations of the Company and its
Subsidiary taken as a whole (a "Material Adverse Effect"). The Company and its
Subsidiary each have the requisite corporate power and authority to own, lease
and operate their respective properties and to conduct their respective

<PAGE>

businesses as presently conducted. The Company has the requisite corporate power
and authority to enter into, execute, deliver and perform all of its duties and
obligations under this Agreement and to consummate the transactions contemplated
hereby.

      SECTION 2.2 Authorization. The execution, delivery and performance of this
Agreement and the issuance of the Shares have been duly authorized by all
necessary corporate action on the part of the Company, including, without
limitation, the due authorization by the affirmative votes of a majority of the
disinterested directors of the Company's Board of Directors.

      SECTION 2.3 Validity; Enforceability. This Agreement has been duly
executed and delivered by the Company, and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by, or subject to,
any bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and subject to general principles
of equity.

      SECTION 2.4 Capitalization.

            (a) As of the date hereof, the authorized capital stock of the
Company consists of 40,000,000 shares of common stock, $0.01 par value per share
(the "Common Stock"), and 25,000,000 shares of preferred stock, $0.01 par value
per share, of which 500,000 shares have been designated Series A Convertible
Preferred Stock, 9,000,000 shares have been designated Series B Convertible
Preferred Stock and 2,000 shares have been designated Series 2002 Preferred
Stock. Without giving effect to the transactions contemplated by this Agreement,
the issued and outstanding capital stock of the Company consists of (i)
10,391,904 shares of Common Stock, (ii) 500,000 shares of Series A Convertible
Preferred Stock and (iii) 8,910,782 shares of Series B Convertible Preferred
Stock. All such shares of the Company have been duly authorized and are fully
paid and non-assessable. Except as set forth on Schedule 2.4 hereto or as
otherwise contemplated by this Agreement, there are no outstanding options,
warrants or other equity securities that are convertible into, or exercisable
for, shares of the Company's capital stock.

            (b) The only Subsidiary of the Company is Clothesline Corporation.
The Company owns all of the issued and outstanding capital stock of its
Subsidiary, free and clear of all liens and encumbrances. All of such shares of
capital stock are duly authorized, validly issued, fully paid and
non-assessable, and were issued in compliance with the registration and
qualification requirements of all applicable federal, state and foreign
securities laws. There are no options, warrants, conversion privileges,
subscription or purchase rights or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued, unauthorized or
treasury shares of capital stock or other securities of, or any proprietary
interest in, the Company's Subsidiary, and there is no outstanding security of
any kind convertible into or exchangeable for such shares or proprietary
interest. "Subsidiary" means, with respect to the Company, a corporation or
other entity of which 50% or more of the voting power of the outstanding voting
equity securities or 50% or more of the outstanding economic equity interest is
held, directly or indirectly, by the Company.


                                       2
<PAGE>

      SECTION 2.5 Governmental Consents. The execution and delivery by the
Company of this Agreement, and the performance by the Company of the
transactions contemplated hereby, do not and will not require the Company to
effectuate or obtain any registration with, consent or approval of, or notice to
any federal, state or other governmental authority or regulatory body, other
than periodic and other filings under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The parties hereto agree and acknowledge that, in
making the representations and warranties in the foregoing sentence of this
Section 2.5, the Company is relying on the representations and warranties made
by the Investors in Section 3.4.

      SECTION 2.6 No Violation. The execution and delivery of this Agreement and
the performance by the Company of the transactions contemplated hereby will not
(i) conflict with or result in a breach of any provision of the articles of
incorporation or by-laws of the Company, (ii) result in a default or breach of,
or, except for the approval of the holders of the Company's Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock, require any consent,
approval, authorization or permit of, or filing or notification to, any person,
company or entity under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, loan, factoring arrangement, license, agreement,
lease or other instrument or obligation to which the Company or its Subsidiary
is a party or by which the Company or its Subsidiary or any of their respective
assets may be bound or (iii) violate any law, judgment, order, writ, injunction,
decree, statute, rule or regulation of any court, administrative agency, bureau,
board, commission, office, authority, department or other governmental entity
applicable to the Company or its Subsidiary, except, in the case of clause (ii)
or (iii) above, any such event that could not reasonably be expected to have a
Material Adverse Effect or materially impair the transactions contemplated
hereby.

      SECTION 2.7 Issuances of Securities. The Shares have been validly issued,
and, upon payment therefor, will be fully paid and non-assessable. The offering,
issuance, sale and delivery of the Shares as contemplated by this Agreement are
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (the "Securities Act"), are being made in
compliance with all applicable federal and (except for any violation or
non-compliance that could not reasonably be expected to have a Material Adverse
Effect) state laws and regulations concerning the offer, issuance and sale of
securities, and are not being issued in violation of any preemptive or other
rights of any stockholder of the Company. The parties hereto agree and
acknowledge that, in making the representations and warranties in the foregoing
sentence of this Section 2.7, the Company is relying on the representations and
warranties made by the Investors in Section 3.4.

      SECTION 2.8 Absence of Certain Developments. Since December 31, 2001,
there has not been any: (i) material adverse change in the condition, financial
or otherwise, of the Company and its Subsidiary (taken as a whole) or in the
assets, liabilities, properties or business of the Company and its Subsidiary
(taken as a whole); (ii) declaration, setting aside or payment of any dividend
or other distribution with respect to, or any direct or indirect redemption or
acquisition of, any capital stock of the Company; (iii) waiver of any valuable
right of the Company or its Subsidiary or cancellation of any material debt or
claim held by the Company or its Subsidiary; (iv) material loss,


                                       3
<PAGE>

destruction or damage to any property of the Company or its Subsidiary, whether
or not insured; (v) acquisition or disposition of any material assets (or any
contract or arrangement therefor) or any other material transaction by the
Company or its Subsidiary otherwise than for fair value in the ordinary course
of business consistent with past practice; or (vi) other agreement or
understanding, whether in writing or otherwise, for the Company or its
Subsidiary to take any action of the type, or any action that would result in an
event of the type, specified in clauses (i) through (v).

      SECTION 2.9 Commission Filings.

            (a) The Company has filed all required forms, reports and other
documents with the Securities and Exchange Commission (the "Commission") for
periods from and after January 1, 2001 (collectively, the "Commission Filings"),
each of which has complied in all material respects with all applicable
requirements of the Securities Act and/or the Exchange Act (as applicable). The
Company has heretofore made available to the Investors all of the Commission
Filings, including the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 and the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2002. As of their respective dates, the
Commission Filings did not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements of the Company included or incorporated by reference in
such Commission Filings have been prepared in accordance with generally accepted
accounting principles, consistently applied ("GAAP") (except as may be indicated
in the notes thereto or, in the case of the unaudited consolidated statements,
as permitted by Form 10-Q), complied as of their respective dates in all
material respects with applicable accounting requirements and the published
rules and regulations of the Commission with respect thereto, and fairly
present, in all material respects, the consolidated financial position of the
Company and its Subsidiary as of the dates thereof and the results of operations
for the periods then ended (subject, in the case of any unaudited consolidated
interim financial statements, to the absence of footnotes required by GAAP and
normal year-end adjustments).

            (b) The Company shall file as promptly as practicable with the
Commission its Quarterly Report on Form 10-Q for the quarterly period ended June
30, 2002 (the "June 2002 10-Q"), substantially in the form previously presented
to the Investors. The June 2002 10-Q shall comply in all material respects with
all applicable requirements of the Securities Act and/or the Exchange Act (as
applicable). As of its date of filing, the June 2002 10-Q shall not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading. The unaudited consolidated interim financial
statements of the Company included or incorporated by reference in the June 2002
10-Q shall have been prepared in accordance with GAAP (except as may be
indicated in the notes thereto or as permitted by Form 10-Q), shall comply as of
their respective dates in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, and shall fairly present, in all material respects, the
consolidated financial position of the Company and its Subsidiary as of the
dates thereof and the


                                       4
<PAGE>

results of operations for the periods then ended (subject to the absence of
footnotes required by GAAP and normal year-end adjustments).

      SECTION 2.10 Brokers. Neither the Company, nor any of its officers,
directors or employees, has employed any broker or finder, or incurred any
liability for any brokerage fees, commissions, finder's or other similar fees or
expenses in connection with the transactions contemplated hereby.

                                  ARTICLE III
                 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS

      Each Investor represents and warrants to the Company, severally but not
jointly, as follows:

      SECTION 3.1 Organization, etc. Such Investor has been duly formed and is
validly existing and in good standing under the laws of its jurisdiction of
organization. Such Investor has the requisite organizational power and authority
to enter into, execute, deliver and perform all of its duties and obligations
under this Agreement and to consummate the transactions contemplated hereby.

      SECTION 3.2 Authority. The execution, delivery and performance of this
Agreement have been duly authorized by all necessary organizational or other
action on the part of such Investor.

      SECTION 3.3 Validity; Enforceability. This Agreement has been duly
executed and delivered by such Investor, and constitutes the legal, valid and
binding obligation of such Investor, enforceable against such Investor in
accordance with its terms, except as such enforceability may be limited by, or
subject to, any bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditors' rights generally and subject to
general principles of equity.

      SECTION 3.4 Investment Representations.

            (a) Such Investor acknowledges that the offer and sale of the Shares
to such Investor have not been registered under the Securities Act, or the
securities laws of any state or regulatory body, are being offered and sold in
reliance upon exemptions from the registration requirements of the Securities
Act and such laws and may not be transferred or resold without registration
under such laws unless an exemption is available. The certificates representing
the Shares will be imprinted with a legend in substantially the following form:

            "THE OFFER AND SALE OF THE SECURITIES REPRESENTED BY THIS
            CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
            1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND SUCH
            SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
            HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A
            REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
            EFFECTIVE UNDER SUCH ACT AND UNDER ANY


                                       5
<PAGE>

            APPLICABLE STATE SECURITIES LAWS UNLESS, IN THE OPINION OF COUNSEL
            REASONABLY SATISFACTORY TO THE COMPANY, AN EXEMPTION FROM THE
            REGISTRATION REQUIREMENTS OF SUCH ACT AND STATE SECURITIES LAWS IS
            AVAILABLE."

            (b) Such Investor is acquiring the Shares for investment, and not
with a view to the resale or distribution thereof, and is acquiring such
securities for its own account.

            (c) Such Investor is an "accredited investor" (as that term is
defined in Rule 501 of Regulation D promulgated under the Securities Act), is
sophisticated in financial matters and is familiar with the business of the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
Such Investor has had the opportunity to investigate on its own the Company's
business, management and financial affairs and has had the opportunity to review
the Company's operations and facilities and to ask questions and obtain whatever
other information concerning the Company as such Investor has deemed relevant in
making its investment decision.

            (d) Such Investor is in compliance with the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001. Neither such Investor, nor any of its principal
owners, partners, members, directors or officers is included on: (i) the Office
of Foreign Assets Control list of foreign nations, organizations and individuals
subject to economic and trade sanctions, based on U.S. foreign policy and
national security goals; (ii) Executive Order 13224, which sets forth a list of
individuals and groups with whom U.S. persons are prohibited from doing business
because such persons have been identified as terrorists or persons who support
terrorism or (iii) any other watch list issued by any governmental authority,
including the Commission.

            (e) No representations or warranties have been made to such Investor
by the Company or any director, officer, employee, agent or affiliate of the
Company, other than the representations and warranties of the Company set forth
herein, and the decision of such Investor to purchase the Shares is based on the
information contained herein, the Commission Filings and such Investor's own
independent investigation of the Company.

      SECTION 3.5 Governmental Consents. The execution and delivery by such
Investor of this Agreement, and the performance by such Investor of the
transactions contemplated hereby, do not and will not require such Investor to
effectuate or obtain any registration with, consent or approval of, or notice to
any federal state or other governmental authority or regulatory body, except for
the filing with the Commission of an amendment to such Investor's Schedule 13D
under the Exchange Act with respect to its acquisition of the Shares.

      SECTION 3.6 No Violation. The execution and delivery of this Agreement and
the performance by such Investor of the transactions contemplated hereby, will
not (i) conflict with or result in a breach of any provision of the articles of
incorporation, by-laws or similar organizational


                                       6
<PAGE>

documents of such Investor or (ii) violate any law, judgment, order, writ,
injunction, decree, statute, rule or regulation of any court, administrative
agency, bureau, board, commission, office, authority, department or other
governmental entity applicable to such Investor, except, in the case of clause
(ii) above, any such violation that could not reasonably be expected to
materially impair the transactions contemplated hereby.

      SECTION 3.7 Brokers. Neither such Investor, nor any of its officers,
directors or employees, has employed any broker or finder, or incurred any
liability for any brokerage fees, commissions, finder's or other similar fees or
expenses in connection with the transactions contemplated hereby.

                                   ARTICLE IV
                            SURVIVAL; INDEMNIFICATION

      SECTION 4.1 Survival. The representations and warranties contained in
Articles II and III hereof shall survive until the first anniversary of the date
hereof.

      SECTION 4.2 Indemnification. Each party (including its officers,
directors, employees, affiliates, agents, successors and assigns (each an
"Indemnified Party")) shall be indemnified and held harmless by the other
parties hereto (each an "Indemnifying Party") for any and all liabilities,
losses, damages, claims, costs and expenses, interest, awards, judgments and
penalties (including, without limitation, reasonable attorneys' fees and
expenses) actually suffered or incurred by them (collectively, "Losses"),
arising out of or resulting from the breach of any representation or warranty
made by an Indemnifying Party contained in this Agreement. Notwithstanding the
foregoing, the aggregate liability of any Investor under this Article IV shall
in no event exceed fifty percent (50%) of the purchase price paid by such
Investor for the Shares purchased by it and the aggregate liability of the
Company under this Article IV shall in no event exceed fifty percent (50%) of
the purchase price paid by the Investors for the Shares, except that the
Company's liability for a violation of any of the representations and warranties
contained in the first two sentences of Section 2.7 may exceed such limitation,
but shall in no event exceed one hundred percent (100%) of the purchase price
paid by the Investors for the Shares.

      SECTION 4.3 Indemnification Procedure. The obligations and liabilities of
the Indemnifying Party under this Article IV with respect to Losses arising from
claims of any third party that are subject to the indemnification provided for
in this Article IV ("Third Party Claims") shall be governed by and contingent
upon the following additional terms and conditions: if an Indemnified Party
shall receive notice of any Third Party Claim, the Indemnified Party shall give
the Indemnifying Party notice of such Third Party Claim promptly after the
receipt by the Indemnified Party of such notice (which notice shall include the
amount of the Loss, if known, and method of computation thereof, and containing
a reference to the provisions of this Agreement in respect of which such right
of indemnification is claimed or arises); provided, however, that the failure to
provide such notice shall not release the Indemnifying Party from any of its
obligations under this Article IV except to the extent the Indemnifying Party is
materially prejudiced by such


                                       7
<PAGE>

failure and shall not relieve the Indemnifying Party from any other obligation
or liability that it may have to any Indemnified Party otherwise than under this
Article IV. Upon written notice to the Indemnified Party within five (5) days of
the receipt of such notice, the Indemnifying Party shall be entitled to assume
and control the defense of such Third Party Claim at its or his expense and
through counsel of its or his choice (which counsel shall be reasonably
satisfactory to the Indemnified Party); provided, however, that, if there exists
or is reasonably likely to exist a conflict of interest that would make it
inappropriate in the reasonable judgment of counsel to the Indemnified Party for
the same counsel to represent both the Indemnified Party and the Indemnifying
Party, then the Indemnified Party shall be entitled to retain its or his own
counsel in each jurisdiction for which the Indemnified Party reasonably
determines counsel is required, at the expense of the Indemnifying Party. In the
event the Indemnifying Party exercises the right to undertake any such defense
against any such Third Party Claim as provided above, the Indemnified Party
shall cooperate with the Indemnifying Party in such defense and make available
to such Indemnifying Party, at the Indemnifying Party's expense, all witnesses,
pertinent records, materials and information in the Indemnified Party's
possession or under the Indemnified Party's control relating thereto as is
reasonably required by the Indemnifying Party. Similarly, in the event the
Indemnified Party is, directly or indirectly, conducting the defense against any
such Third Party Claim, the Indemnifying Party shall cooperate with the
Indemnified Party in such defense and make available to the Indemnified Party,
at the Indemnifying Party's expense, all such witnesses (including himself),
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as is reasonably
required by the Indemnified Party. No such Third Party Claim may be settled by
the Indemnifying Party on behalf of the Indemnified Party without the prior
written consent of the Indemnified Party (which consent shall not be
unreasonably withheld); provided, however, in the event that the Indemnified
Party does not consent to any such settlement that would provide it with a full
release from indemnified Loss and would not require it to take, or refrain from
taking, any action, the Indemnifying Party's liability for indemnification shall
not exceed the amount of such proposed settlement. The Indemnified Party will
refrain from any act or omission that is inconsistent with the position taken by
the Indemnifying Party in the defense of a Third Party Claim unless the
Indemnified Party determines that such act or omission is reasonably necessary
to protect its own interest.

                                   ARTICLE V
                                  MISCELLANEOUS

      SECTION 5.1 Change of Control Provision. For so long as any of the Shares
are owned by the Investors or their affiliates, the Company will not agree to,
or take any action to approve or otherwise facilitate any, merger or
consolidation or Change of Control (including granting approvals required under
applicable anti-takeover statutes), unless provision has been made for the
holders of the Shares to receive from the acquiror or any other person or entity
(other than the Company) as a result of and in connection with the transaction
an amount in cash equal to the aggregate liquidation preference for the Shares
held by them, as set forth in the Certificate of Powers, Designations,
Preferences and Rights of the Series 2002 Preferred Stock. The parties hereto
agree that irreparable damage would occur in the event that the provisions of
this Section 5.1


                                       8
<PAGE>

were not performed in accordance with their terms and the Investors shall be
entitled to specific performance of the terms of this Section 5.1 in addition to
any other remedies at law or in equity. For purposes of this Section 5.1: a
"Change of Control" shall mean any of the following (i) any person or "group"
(within the meaning of Section 13(d)(3) of the Exchange Act) becoming the
beneficial owner, directly or indirectly, of outstanding shares of Capital Stock
of the Company entitling such Person or Persons to exercise 50% or more of the
total votes entitled to be cast at a regular or special meeting, or by action by
written consent, of the shareholders of the Company in the election of directors
(the term "beneficial owner" shall be determined in accordance with Rule 13d-3
of the Exchange Act), (ii) a majority of the Board of Directors of the Company
shall consist of Persons other than Continuing Directors, (iii) a
recapitalization, reorganization, merger, consolidation or similar transaction,
in each case with respect to which all or substantially all the Persons who are
the respective beneficial owners, directly or indirectly, of the outstanding
shares of Capital Stock of the Company immediately prior to such
recapitalization, reorganization, merger, consolidation or similar transaction,
will own less than 50% of the combined voting power of the then outstanding
shares of Capital Stock of the Company resulting from such recapitalization,
reorganization, merger, consolidation or similar transaction, (iv) the sale or
other disposition of all or substantially all the assets of the Company in one
transaction or in a series of related transactions, (v) any transaction occurs
(other than one described in (iv) or (v))), the result of which is that the
Common Stock is not required to be registered under Section 12 of the Exchange
Act and in which the holders of Common Stock of the Company do not receive
common stock of the Person surviving such transaction which is required to be
registered under Section 12 of the Exchange Act, or (vi) immediately after any
merger, consolidation, recapitalization or similar transaction, a "group"
(within the meaning of Section 13(d)(3) of the Exchange Act), other than a group
that includes the Investors and/or their affiliates, shall be the beneficial
owners, directly or indirectly, of outstanding shares of Capital Stock of the
Company (or any Person surviving such transaction) entitling them collectively
to exercise 50% or more of the total voting power of shares of Capital Stock of
the Company (or the surviving Person in such transaction) and in connection with
or as a result of such transaction, the Company (or such surviving Person) shall
have incurred or issued additional indebtedness such that the total indebtedness
so incurred or issued equals at least 50% of the consideration payable in such
transaction; "Capital Stock" shall mean, with respect to the Company, any and
all shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, the Company's capital stock;
and "Person" shall mean any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity;
and "Continuing Directors" shall mean any member of the Board of Directors on
the date hereof and any other member of the Board of Directors who shall be
recommended or elected to succeed or become a Continuing Director by a majority
of the Continuing Directors who are then members of the Board of Directors.

      SECTION 5.2 Publicity. Except as may be required by applicable law or the
rules of any securities exchange or market on which securities of the Company
are traded, no party hereto shall issue a press release or public announcement
or otherwise make any disclosure concerning this


                                       9
<PAGE>

Agreement and the transactions contemplated hereby, without prior approval of
the others; provided, however, that nothing in this Agreement shall restrict the
Company or any Investor from disclosing such information (a) that is already
publicly available, (b) that may be required or appropriate in response to any
summons or subpoena (provided that the disclosing party will use commercially
reasonable efforts to notify the other parties in advance of such disclosure
under this clause (b) so as to permit the non-disclosing parties to seek a
protective order or otherwise contest such disclosure, and the disclosing party
will use commercially reasonable efforts to cooperate, at the expense of the
non-disclosing parties, in pursuing any such protective order) or (c) in
connection with any litigation involving disputes as to the parties' respective
rights and obligations hereunder.

      SECTION 5.3 Entire Agreement. This Agreement and any other agreement or
instrument to be delivered expressly pursuant to the terms hereof constitute the
entire Agreement between the parties hereto with respect to the subject matter
hereof and supersede all previous negotiations, commitments and writings with
respect to such subject matter.

      SECTION 5.4 Assignments; Parties in Interest. Neither this Agreement nor
any of the rights, interests or obligations hereunder may be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing herein, express or
implied, is intended to or shall confer upon any person not a party hereto any
right, benefit or remedy of any nature whatsoever under or by reason hereof,
except as otherwise provided herein.

      SECTION 5.5 Amendments. This Agreement may not be amended or modified
except by an instrument in writing signed by, or on behalf of, the parties
against whom such amendment or modification is sought to be enforced.

      SECTION 5.6 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.

      SECTION 5.7 Notices and Addresses. Any notice, demand, request, waiver, or
other communication under this Agreement shall be in writing and shall be deemed
to have been duly given on the date of service, if personally served or sent by
facsimile; on the business day after notice is delivered to a courier or mailed
by express mail, if sent by courier delivery service or express mail for next
day delivery; and on the fifth business day after mailing, if mailed to the
party to whom notice is to be given, by first class mail, registered, return
receipt requested, postage prepaid and addressed as follows:

To Company:        Bluefly, Inc.
                   42 West 39th Street, 9th Floor
                   New York, New York 10018


                                       10
<PAGE>

                   Fax:  (212) 840-1903
                   Attn: Jonathan B. Morris

                   With a copy to:

                   Swidler Berlin Shereff Friedman, LLP
                   405 Lexington Avenue
                   New York, New York 10174
                   Fax:  (212) 891-9598
                   Attn: Richard A. Goldberg, Esq.

To the Investors:  To the address set forth on Schedule 1.

      SECTION 5.8 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will continue in
full force and effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.

      SECTION 5.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to conflicts of law principles. The parties agree that the federal and
state courts located in New York, New York shall have exclusive jurisdiction
over any dispute involving this Agreement or the transactions contemplated
hereby, and each party hereby irrevocably submits to the jurisdiction of, and
waives any objection to the laying of venue in, such courts.

      SECTION 5.10 Counterparts; Facsimile Signatures. This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when one or more counterparts have
been signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart. This Agreement
may be executed by facsimile, and a facsimile signature shall have the same
force and effect as an original signature on this Agreement.

      SECTION 5.11 Expenses. The Company shall reimburse the Investors for their
reasonable legal fees and expenses incurred in connection with the negotiation
of this Agreement and the transactions contemplated hereby. Except as provided
above, all costs and expenses, including, without limitation, fees and
disbursements of counsel, incurred in connection with the negotiation, execution
and delivery of this Agreement and its related documents shall be paid by the
party incurring such costs and expenses, whether or not the closing shall have
occurred.


                                       11
<PAGE>

            IN WITNESS WHEREOF, this Agreement has been duly executed on the
date first set forth above.

                                           BLUEFLY, INC.

                                           By: /s/ E. Kenneth Seiff
                                               ---------------------------------
                                               Name: E. Kenneth Seiff
                                               Title: Chief Executive Officer


                                           QUANTUM INDUSTRIAL PARTNERS LDC

                                           By: /s/ Rick Holahan
                                               ---------------------------------
                                               Name: Rick Holahan
                                               Title: Attorney-in-fact


                                           SFM DOMESTIC INVESTMENTS LLC

                                           By: /s/ Rick Holahan
                                               ---------------------------------
                                               Name: Rick Holahan
                                               Title: Attorney-in-fact


                                       12
<PAGE>

                                   SCHEDULE 1

                         INVESTORS AND SHARE ALLOCATIONS

--------------------------------------------------------------------------------
                                                             Aggregate Purchase
Name and Address of Investor             Shares Purchased    Price
----------------------------             ----------------    ------------------
--------------------------------------------------------------------------------
Quantum Industrial Partners LDC          2,033.43            $2,033,430
Kaya Flamboyan 9
Villemstad
Curacao
Netherlands-Antilles

with a copy to:

Soros Fund Management LLC
888 Fifth Avenue
New York, New York 10106
Facsimile: (212) 664-0544
Attn: Richard Holahan, Esq.
--------------------------------------------------------------------------------
SFM Domestic Investments LLC             66.57               $   66,570
c/o Soros Fund Management LLC
888 Fifth Avenue
New York, New York 10106
Facsimile:  (212) 664-0544
Attn:  Richard Holahan, Esq.
--------------------------------------------------------------------------------
                                TOTAL    2,100               $2,100,000
--------------------------------------------------------------------------------


                                       13
<PAGE>

                                  SCHEDULE 2.4

                                 CAPITALIZATION

      As of the date hereof, but without giving effect to the transactions
contemplated by this Agreement, the following equity securities are outstanding
and convertible into, or exercisable for shares of Common Stock:

      1.    500,000 shares of Series A Convertible Preferred Stock (the "Series
            A Stock") are issued and outstanding. The Series A Stock is
            convertible into 4,273,504 shares of Common Stock.

      2.    8,910,782 shares of Series B Convertible Preferred Stock (the
            "Series B Stock") are issued and outstanding. The Series B Stock is
            convertible into 13,281,038 shares of Common Stock.

      3.    Warrants to purchase an aggregate of 1,069,144 shares of Common
            Stock are issued and outstanding.

      4.    Options issued to purchase 3,935,912 shares of Common Stock are
            issued and outstanding under the Company's 1997 Stock Option Plan,
            as amended, and 2000 Stock Option Plan, as amended.


                                       14

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>6
<FILENAME>d51460_ex99-1.txt
<DESCRIPTION>CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
<TEXT>
                                  BLUEFLY, INC.
                                  JUNE 30, 2002

                                                                    Exhibit 99.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report of Bluefly, Inc. (the "Company")
on Form 10-Q for the period ending June 30, 2002, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, E. Kenneth Seiff,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

      1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

      2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


/s/ E. Kenneth Seiff

E. Kenneth Seiff
Chief Executive Officer
August 12, 2002


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>7
<FILENAME>d51460_ex99-2.txt
<DESCRIPTION>CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
<TEXT>

                                  BLUEFLY, INC.
                                  JUNE 30, 2002

                                                                    Exhibit 99.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Quarterly Report of Bluefly, Inc. (the "Company")
on Form 10-Q for the period ending June 30, 2002, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Patrick C. Barry,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:

      1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

      2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.


/s/ Patrick C. Barry

Patrick C. Barry
Chief Financial Officer
August 12, 2002


</TEXT>
</DOCUMENT>
</SUBMISSION>
