<SUBMISSION>
<ACCESSION-NUMBER>0001140437-04-000253
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>6
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<FILING-DATE>20040813
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<CONFORMED-NAME>BLUEFLY INC
<CIK>0001030896
<ASSIGNED-SIC>5961
<IRS-NUMBER>133612110
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
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<ACT>34
<FILE-NUMBER>001-14498
<FILM-NUMBER>04971727
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<BUSINESS-ADDRESS>
<STREET1>42 WEST 39TH ST
<CITY>NEW YORK
<STATE>NY
<ZIP>10018
<PHONE>2129448000
</BUSINESS-ADDRESS>
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<STREET1>42 WEST 39TH ST
<CITY>NEW YORK
<STATE>NY
<ZIP>10018
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<FORMER-CONFORMED-NAME>PIVOT RULES INC
<DATE-CHANGED>19970305
</FORMER-COMPANY>
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<TYPE>10-Q
<SEQUENCE>1
<FILENAME>bf4084910q.txt
<DESCRIPTION>FORM 10Q
<TEXT>

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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

        For the quarterly period ended June 30, 2004

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

        For the transition period from ______ to ______

                        Commission File Number: 001-14498

                                   ----------

                                  BLUEFLY, INC.
             (Exact name of registrant as specified in its charter)

                Delaware                                13-3612110
     (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

      42 West 39th Street, New York, NY                      10018
     (Address of principal executive offices)              (Zip Code)

                    Issuer's telephone number: (212) 944-8000

                                   ----------

Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.  Yes [X]   No [ ]

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

As of August 11, 2004, the issuer had outstanding 14,640,301 shares of Common
Stock, $.01 par value.

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

<PAGE>

                                  BLUEFLY, INC.
                                TABLE OF CONTENTS

                                                                         PAGE
                                                                         ----
Part I.  Financial Information

Item 1.  Financial Statements

         Consolidated Condensed Balance Sheets as of June 30, 2004
            and December 31, 2003 (unaudited)                              3

         Consolidated Condensed Statements of Operations for the six
            months ended June 30, 2004 and 2003 (unaudited)                4

         Consolidated Condensed Statements of Operations for the three
            months ended June 30, 2004 and 2003 (unaudited)                5

         Consolidated Condensed Statements of Cash Flows for the six
            months ended June 30, 2004 and 2003 (unaudited)                6

         Notes to Consolidated Condensed Financial Statements              7

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk       18

Item 4.  Controls and Disclosures                                         18

Part II. Other Information                                                19

Item 1.  Legal Proceedings                                                19

Item 6.  Exhibits and Reports on Form 8-K                                 19

Signature                                                                 21

<PAGE>

Part I - FINANCIAL INFORMATION
Item 1. - Financial Statements

                                  BLUEFLY, INC.
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            JUNE 30,      DECEMBER 31,
                                                                              2004            2003
                                                                         -------------    -------------
<S>                                                                      <C>              <C>
                                     ASSETS
Current assets
  Cash and cash equivalents                                              $   9,102,000    $   7,721,000
  Restricted cash                                                            1,250,000               --
  Inventories, net                                                           9,651,000       11,340,000
  Accounts receivable, net of allowance for doubtful accounts                1,258,000        1,157,000
  Prepaid expenses                                                             288,000          253,000
  Other current assets                                                         342,000          453,000
                                                                         -------------    -------------
        Total current assets                                                21,891,000       20,924,000

Property and equipment, net                                                  1,527,000        1,659,000

Other assets                                                                   406,000          415,000
                                                                         -------------    -------------
        Total assets                                                     $  23,824,000    $  22,998,000
                                                                         =============    =============
                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable                                                       $   2,328,000    $   3,122,000
  Accrued expenses and other current liabilities                             2,700,000        3,869,000
  Deferred revenue                                                           1,593,000        1,252,000
  Notes payable to related party shareholders, includes interest
   payable of $443,000 in 2004 and $34,000 in 2003                           4,625,000          216,000
                                                                         -------------    -------------
        Total current liabilities                                           11,246,000        8,459,000

Note payable to related party shareholders                                          --        4,000,000
Long-term interest payable to related party shareholders                            --          159,000
Long-term capital lease liability                                                   --          101,000
                                                                         -------------    -------------
        Total liabilities                                                   11,246,000       12,719,000
                                                                         -------------    -------------
Commitments and contingencies

Shareholders' equity
  Series A Preferred stock - $.01 par value; 500,000 shares
   authorized, 460,000 issued and outstanding (liquidation preference:
   $9.2 million plus accrued dividends of $4.5 million and $4.0
   million as of  June 30, 2004 and December 31, 2003, respectively)             5,000            5,000
  Series B Preferred stock - $.01 par value; 9,000,000 shares
   authorized, 8,889,414 shares issued and outstanding  (liquidation
   preference: $30 million plus accrued dividends of $6.2 million and
   $5.2 million as of June 30, 2004 and December 31, 2003,
   respectively)                                                                89,000           89,000
  Series C Preferred stock - $.01 par value; 3,500 shares authorized
   and 1,000 shares issued and outstanding  (liquidation preference:
   $1 million plus accrued dividends of $145,000 and $102,000 as of
   June 30, 2004 and December 31, 2003, respectively)                               --               --
  Series D Preferred stock - $.01 par value; 7,150 shares authorized,
   7,136.548 issued and outstanding (liquidation preference: $7.1
   million plus accrued dividends of $1.1 million and $678,000 as of
   June 30, 2004 and December 31, 2003, respectively)                               --               --
  Series E Preferred stock - $.01 par value; 1,000 shares authorized,
   issued and outstanding (liquidation preference: $1.0 million plus
   accrued dividends of $135,000 and $74,000 as of June 30, 2004 and
   December 31, 2003, respectively)                                                 --               --
  Common stock - $.01 par value; 92,000,000 shares authorized and
   14,592,388 and 12,894,166 shares issued and outstanding as of June
   30, 2004 and December 31, 2003, respectively                                146,000          129,000
  Additional paid-in capital                                               106,512,000      102,392,000
  Accumulated deficit                                                      (94,174,000)     (92,336,000)
                                                                         -------------    -------------
        Total shareholders' equity                                          12,578,000       10,279,000
                                                                         -------------    -------------
        Total liabilities and shareholders' equity                       $  23,824,000    $  22,998,000
                                                                         =============    =============
</TABLE>

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

                                        3
<PAGE>

                                  BLUEFLY, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     SIX MONTHS ENDED
                                                                         JUNE 30,
                                                              ------------------------------
                                                                   2004             2003
                                                              -------------    -------------
<S>                                                           <C>              <C>
Net sales                                                     $  20,609,000    $  15,725,000
Cost of sales                                                    13,020,000       11,553,000
                                                              -------------    -------------
  Gross profit                                                    7,589,000        4,172,000

Selling, marketing and fulfillment expenses                       6,659,000        5,394,000
General and administrative expenses                               3,153,000        2,609,000
                                                              -------------    -------------
  Total operating expenses                                        9,812,000        8,003,000

Operating loss                                                   (2,223,000)      (3,831,000)

Interest and other income                                           785,000           22,000
Interest expense                                                   (400,000)        (154,000)
                                                              -------------    -------------
Net loss                                                      $  (1,838,000)   $  (3,963,000)

Deemed dividend related to beneficial conversion feature on
 Series C Preferred Stock                                                --         (225,000)

Preferred stock dividends                                        (2,086,000)      (1,483,000)
                                                              -------------    -------------

Net loss available to common shareholders                     $  (3,924,000)   $  (5,671,000)
                                                              =============    =============

Basic and diluted loss per common share                       $       (0.27)   $       (0.52)
                                                              =============    =============
Weighted average common shares outstanding
 (basic and diluted)                                             14,445,034       11,003,596
                                                              =============    =============
</TABLE>

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

                                        4
<PAGE>

                                  BLUEFLY, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                    THREE MONTHS ENDED
                                                         JUNE 30,
                                              ------------------------------
                                                   2004             2003
                                              -------------    -------------
Net sales                                     $   9,495,000    $   7,468,000
Cost of sales                                     5,688,000        5,153,000
                                              -------------    -------------
  Gross profit                                    3,807,000        2,315,000
Selling, marketing and fulfillment expenses       3,210,000        2,982,000
General and administrative expenses               1,394,000        1,406,000
                                              -------------    -------------
  Total operating expenses                        4,604,000        4,388,000

Operating loss                                     (797,000)      (2,073,000)
Interest and other income                           329,000           16,000
Interest expense                                   (240,000)         (66,000)
                                              -------------    -------------
Net loss                                      $    (708,000)   $  (2,123,000)
Preferred stock dividends                        (1,062,000)        (845,000)
                                              -------------    -------------
Net loss available to common shareholders     $  (1,770,000)   $  (2,968,000)
                                              =============    =============
Basic and diluted loss per common share       $       (0.12)   $       (0.27)
                                              =============    =============
Weighted average common shares outstanding
 (basic and diluted)                             14,575,345       11,024,568
                                              =============    =============

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

                                        5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                            SIX MONTHS ENDED
                                                                                 JUNE 30,
                                                                     -------------------------------
                                                                          2004             2003
                                                                     --------------   --------------
<S>                                                                  <C>              <C>
Cash flows from operating activities
  Net loss                                                           $   (1,838,000)  $   (3,963,000)
  Adjustments to reconcile net loss to net cash used in operating
   activities:
    Depreciation and amortization                                           740,000        1,031,000
    Non-cash expense related to warrants issued to supplier                  95,000               --
    Provisions for returns                                                 (997,000)        (533,000)
    Allowance for doubtful accounts                                          98,000           88,000
    Write-down of inventory                                                 200,000          220,000
    Change in value of warrants                                            (564,000)              --
    Stock option expense                                                      2,000               --
    Changes in operating assets and liabilities:
       (Increase) decrease in
         Inventories                                                      1,394,000         (707,000)
         Accounts receivable                                               (199,000)        (370,000)
         Prepaid expenses                                                   (35,000)         103,000
         Other current assets                                               111,000          (37,000)
       Increase (decrease) in
         Accounts payable                                                  (794,000)         341,000
         Accrued expenses and other current liabilities                    (121,000)        (515,000)
         Interest payable to related party                                  250,000           10,000
         Deferred revenue                                                  341 000           131,000
                                                                     --------------   --------------
  Net cash used in operating activities                                  (1,317,000)      (4,201,000)
                                                                     --------------   --------------
Cash flows from investing activities
  Cash collateral in connection with Rosenthal Pledge Agreement          (1,250,000)              --
  Purchase of property and equipment                                       (599,000)        (262,000)
                                                                     --------------   --------------
Net cash used in investing activities                                    (1,849,000)        (262,000)
                                                                     --------------   --------------
Cash flows from financing activities
  Net proceeds from January 2004 Financing                                4,577,000               --
  Net proceeds from exercise of stock options                               122,000               --
  Proceeds from sale of Series D Preferred Stock                                 --        2,000,000
  Proceeds from issuance of Notes Payable (January 2003 Financing)               --        1,000,000
  Proceeds from sale of Series E Preferred Stock                                 --        1,000,000
  Payments of capital lease obligation                                     (152,000)       (116,000)
                                                                     --------------   --------------
Net cash provided by financing activities                                 4,547,000        3,884,000
                                                                     --------------   --------------
Net increase in cash and cash equivalents                                 1,381,000         (579,000)
Cash and cash equivalents - beginning of period                           7,721,000        1,749,000
                                                                     --------------   --------------
Cash and cash equivalents - end of period                            $    9,102,000   $    1,170,000
                                                                     ==============   ==============
Supplemental schedule of non-cash investing and financing
 activities:
  Exchange of note for equity                                                    --   $    2,027,000
                                                                     ==============   ==============
  Conversion of debt to equity                                                   --   $    1,009,000
                                                                     ==============   ==============
  Deemed dividend related to beneficial conversion feature on
   Series C Preferred Stock                                                      --   $      225,000
                                                                     ==============   ==============
  Warrants issued to related party shareholders                                  --   $       43,000
                                                                     ==============   ==============
  Interest paid                                                      $       84,000   $       43,000
                                                                     ==============   ==============
</TABLE>

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

                                        6
<PAGE>

                                  BLUEFLY, INC.
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

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 footnote
disclosures 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/A for
the year ended December 31, 2003.

The Company has sustained net losses and negative cash flows from operations
since the formation of Bluefly.com. The Company's ability to meet its
obligations in the ordinary course of business is dependent on its ability to
establish profitable operations and/or raise additional financing through public
or private debt or equity financing, or other sources to fund operations. The
Company believes that its current funds, together with working capital, will be
sufficient to enable it to meet its planned expenditures through at least
December 31, 2004. 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, and/or the Company does not achieve its operating plan, future
operations will need to be modified, scaled back or discontinued.

NOTE 2 - THE COMPANY

The Company is a leading Internet retailer that sells over 350 brands of
designer apparel, accessories and home products at discounts up to 75% off
retail value. The Company's Web store ("Bluefly.com" or Web Site") was launched
in September 1998.

NOTE 3 - JANUARY 2004 FINANCING

On January 12, 2004, the Company completed a private placement pursuant to which
it raised $5,000,000. Under the terms of the deal, the Company issued 1,543,209
shares of Common Stock at $3.24 per share, which was 90% of the trailing
five-day average of the Company's volume-weighted stock price as of December 29,
2003, the date that a preliminary agreement was reached as to the pricing of the
deal. The Company also issued to the new investors warrants to purchase 385,801
shares of Common Stock at any time during the next five years at an exercise
price equal to $3.96 per share. After professional fees and finders fees paid to
brokers, the net proceeds from the transaction were approximately $4,577,000.

In accordance with EITF 00-19, the Company accounted for the warrants issued in
January 2004 at fair market value and classified the warrants as a liability
because the Company may be required to make cash payments to the investors who
purchased the warrants in the event that the registration statement covering the
offer and sale of the shares underlying the warrants were to no longer be
effective. The Company used the Black-Scholes option pricing method (assumption:
volatility 147%, risk free rate 3.76%, two year expected life and zero dividend
yield) to calculate the value of the warrants. At January 12, 2004, the date of
the transaction (the "Transaction Date"), the warrants had a value of
$1,096,000. The value of the warrants was marked to market in each subsequent
reporting period as a derivative gain or loss until June 17, 2004 (the "End
Date"), at which time EITF 00-19 called for the warrants to be re-classified as
equity because the maximum potential cash amount payable to the investors had
decreased to the point where it was no longer considered significant.

During the period beginning on the Transaction Date and ending on the End Date,
the value of the warrants decreased from $1,096,000 to $532,000, and,
accordingly the Company recognized $564,000 and $303,000 of other income for the
six months and the three months ended June 30, 2004, respectively.

In January 2004, the Company also extended the maturity dates on the Convertible
Promissory Notes issued to affiliates of Soros Private Equity Partners, LLC that
collectively own a majority of its capital stock (collectively, "Soros") in July
and October 2003 (the "Notes"). The maturity dates of the Notes, which were
originally January and April 2004, respectively, were

                                       7
<PAGE>

                                  BLUEFLY, INC.
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

each extended to March 1, 2005. In February 2004, the maturity date of the Notes
was further extended to May 1, 2005.

NOTE 4 - FINANCING AGREEMENT

The Company has a Financing Agreement (the "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 or letters of credit in favor of suppliers or
factors or purchases of payables owed to the Company's suppliers (the "Loan
Facility").

The Financing Agreement was amended in April 2004 to: (i) extend the term until
March 30, 2005; (ii) substitute $1.25 million of cash collateral pledged by the
Company for the $2.0 million standby letter of credit previously provided by
Soros as collateral security for the Company's obligations under the Loan
Facility; (iii) decrease the maximum amount available under the Loan Facility
from $4.5 million to $4.0 million; (iv) increase the tangible net worth
requirement to $7.0 million; (v) increase the working capital requirement to
$6.0 million; and (vi) increase the minimum cash balance that the Company is
required to maintain to $750,000 (exclusive of the $1.25 million in cash
collateral). The cash collateral is included on the balance sheet as "Restricted
Cash" and represents monies deposited in a segregated account that has been
pledged to Rosenthal as collateral for the facility.

As of June 30, 2004, the maximum availability under the Loan Facility was
approximately $3.5 million of which approximately $1.8 million was committed,
leaving approximately $1.7 million available against 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:

<TABLE>
<CAPTION>
          Security                 June 30, 2004       Exercise Prices      June 30, 2003      Exercise Prices
          --------------------   -----------------    -----------------   -----------------   -----------------
          <S>                           <C>            <C>                       <C>          <C>
          Options                        9,179,152     $ 0.69-$ 16.60             9,592,912   $ 0.69 - $ 16.60

          Warrants                       1,704,945      $ 0.78-$ 9.08             1,119,144    $ 0.78 - $ 9.08
          Preferred Stock               43,323,430*                              43,323,430*
          Convertible Notes                     --**                                     --
</TABLE>

     * Excludes dividends on preferred stock, which are payable in cash or
     common stock, at the Company's option, upon conversion, redemption or
     liquidation.
     ** Excludes debt issued in connection with the July 2003 financing and
     October 2003 financing, which is currently not convertible into Common
     Stock.

NOTE 6 -  STOCK BASED COMPENSATION

The Company applies Statement of Financial Accounting Standards No. ("SFAS") No.
148 "Accounting for Stock Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123," SFAS No. 123 "Accounting for Stock Based
Compensation," and FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation"

                                        8
<PAGE>

                                  BLUEFLY, INC.
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

in accounting for its stock based compensation plan. In accordance with SFAS No.
123, the Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations for expense recognition. In the fiscal quarter ended June 30,
2004, compensation expense of $2,000 was recorded in connection with certain
options issued below market value to the Company's President in accordance with
the terms of her employment agreement. Except for these options, no compensation
expense has been recorded in fiscal quarters ended June 30, 2004 and June 30,
2003 in connection with stock option grants to employees, because the exercise
price of employee stock options equals or exceeds the market price of the
underlying stock on the date of grant. Had compensation expense for the Plan
been determined consistent with the provisions of SFAS No. 123, the effect on
the Company's basic and diluted net loss per share would have been as follows:

<TABLE>
<CAPTION>
                                             For the Six Months Ended       For the Three Months Ended
                                           -----------------------------   -----------------------------
                                           June 30, 2004   June 30, 2003   June 30, 2004   June 30, 2003
                                           -------------   -------------   -------------   -------------
<S>                                        <C>             <C>             <C>             <C>
Net loss, as reported                      $  (1,838,000)  $  (3,963,000)  $    (708,000)  $  (2,123,000)

Add: Stock-based employee compensation
 expense included in reported net income           2,000              --           2,000              --
Deduct: total stock-based employee
 compensation expense determined under
 fair value based method for all awards       (1,234,000)     (2,100,000)       (492,000)       (958,000)

Pro forma, net loss                           (3,070,000)     (6,063,000)     (1,198,000)     (3,081,000)

Loss Per Share:
    Basic and diluted, as reported         $       (0.27)  $       (0.52)  $       (0.12)  $       (0.27)
    Basic and diluted, pro forma           $       (0.36)  $       (0.71)  $       (0.16)  $       (0.36)
</TABLE>

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts, as additional stock option awards are anticipated
in future years.

NOTE 7 - OTHER INCOME

In June 2002, the Company entered into an agreement with a third party investor
pursuant to which the investor committed to purchase approximately $7 million of
Common Stock and warrants from the Company. The investor breached the contract
by failing to consummate the investment, although it did provide the Company
with $169,000 as a good faith deposit. In October 2002, the Company filed an
action against the investor based on its failure to consummate the investment,
and in December 2003, the court entered judgment in the Company's favor against
the third party investor in the amount of $3,793,688. In the first quarter of
2004, following the expiration of all applicable appeal periods, the Company
recognized the good faith deposit of $169,000 as other income, as a partial
recognition of litigation settlement. Based on the information currently
available to it regarding the investor's finances, the Company does not believe
that it will be successful in collecting a material amount of additional funds
as a result of the damages award.

In addition, as discussed in Note 3 above, the Company recognized $564,000 of
other income for the six months ended June 30, 2004 to adjust a liability
associated with warrants issued by the Company to its fair value as of June 17,
2004 (at which point the liability was reclassified as equity in accordance with
EITF 00-19 and described in Note 3).

NOTE 8 - RECLASSIFICATIONS

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

                                        9
<PAGE>

                                  BLUEFLY, INC.
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  JUNE 30, 2004

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

OVERVIEW

Bluefly, Inc., a Delaware corporation, is a leading Internet retailer that sells
over 350 brands of designer apparel, accessories and home products at discounts
up to 75% off retail value. Bluefly.com, our Web site, was launched in September
1998.

Our net sales increased approximately 27% to $9,495,000 for the quarter ended
June 30, 2004 from $7,468,000 for the second quarter ended June 30, 2003.

Our gross margin increased to 40.1% in the second quarter of 2004 from 31.0% in
the second quarter of 2003. The 40.1% gross margin in the second quarter of 2004
represents the highest quarterly gross margin level we have ever achieved. While
we believe that our gross margins in 2004 will be significantly better than they
were in 2003, they may not consistently meet this record level. Indeed, our
gross margin is dependent upon a number of factors, including our ability to
forecast demand and fashion trends accurately, and, accordingly, there can be no
assurance that we will meet any particular margin level.

Our customer acquisition costs decreased to $10.81 per customer in the second
quarter of 2004, from $15.16 per customer in the second quarter of 2003. On
average, the positive contribution to overhead that we generate from a
customer's first purchase exceeds our current customer acquisition costs by a
significant margin. Accordingly, we believe that it may be prudent to be more
aggressive in acquiring customers (even though it may increase our customer
acquisition costs in 2004 and beyond) in order to acquire larger numbers of
customers with profitable ordering patterns.

Our reserve for returns and credit card chargebacks increased to 39.6% in the
second quarter of 2004 from 37.7% in the second quarter of 2003. On the whole,
our reserve for returns and credit card chargebacks has risen for the past three
years, from 32% in 2001, to 36% in 2002 to 37% in 2003 as a result of increasing
return rates. The increase in return rates has primarily been driven by shifts
in our merchandise mix. However, we believe that the increase in return rates is
more than offset by higher gross margins and average order sizes that have been
generated by this shift in merchandise mix. While we are testing initiatives to
reduce our return rates, we believe that the overall shift in merchandise mix
has been beneficial to the overall gross profit realized per order. Accordingly,
we do not expect return rates to decrease significantly in the near term, and
they may in fact, increase.

From time to time, a portion of our inventory consists of out-of-season
merchandise that we either purchased with the intention of holding for the
appropriate season or were unable to sell in a prior season and have determined
to hold for the next selling season, subject (in some cases) to appropriate
mark-downs.

At June 30, 2004, we had an accumulated deficit of $94,174,000, of which
approximately $29,000,000 was the result of non-cash beneficial conversion
charges incurred in connection with the reduction of the conversion price of the
Company's Preferred Stock. The net losses and 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 for the near future.
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.

CRITICAL ACCOUNTING POLICIES

Management Estimates

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

                                       10
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

periods. The most significant estimates and assumptions relate to the adequacy
of the allowances for sales returns, the recoverability of inventories and
deferred tax valuation allowances. Actual amounts could differ significantly
from these estimates.

Revenue Recognition

We recognize revenue in accordance with Staff Accounting Bulletin ("SAB") No.
101 "Revenue Recognition in the Financial Statements" as amended. Gross sales
consists primarily of revenue from product sales and shipping and handling
charges and is net of promotional discounts. Net sales represent gross sales,
less provisions for returns, credit card chargebacks, and adjustments for
uncollected sales taxes. Revenue is recognized when all the following criteria
are met:

     .    A customer executes an order via our website.

     .    The product price and the shipping and handling fee have been
          determined.

     .    Credit card authorization has occurred and collection is reasonably
          assured.

     .    The product has been shipped and received by the customer.

Shipping and handling billed to customers are classified as revenue in
accordance with Financial Accounting Standards Board ("FASB") Task Force's
Emerging Issues Task Force ("EITF") No. 00-10, "Accounting for Shipping and
Handling Fees and Costs" ("EITF No. 00-10").

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. We perform credit card
authorizations and check the verification of our customers prior to shipment of
merchandise. However, our future return and bad debt rates could differ from
historical patterns, and, to the extent that these rates increase significantly,
it could have a material adverse effect on our business, prospects, cash flows,
financial condition and results of operations.

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 in
some instances use markdowns below cost to clear merchandise. Markdowns below
cost 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.

Deferred Tax Valuation Allowance

We recognize deferred income tax assets and liabilities on the differences
between the financial statement and tax bases of assets and liabilities using
enacted statutory rates in effect for the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
realized in income in the period that included the enactment date. We have
assessed the future taxable income and 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 assets, an adjustment to the
deferred tax valuation allowance would increase income in the period such
determination is made.

RESULTS OF OPERATIONS

For The Six Months Ended June 30, 2004 Compared To The Six Months Ended June 30,
2003

                                       11
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

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

<TABLE>
<CAPTION>
                                                      2004                    2003                    2002
                                              ---------------------   ---------------------   ---------------------
                                                          As a % of               As a % of               As a % of
                                                          Net Sales               Net Sales               Net Sales
                                                          ---------               ---------               ---------
<S>                                           <C>             <C>     <C>             <C>     <C>             <C>
Net sales                                     $  20,609       100.0%  $  15,725       100.0%  $  14,445       100.0%
Cost of sales                                    13,020        63.2%     11,553        73.5%      9,538        66.0%
                                              ---------               ---------               ---------
         Gross profit                             7,589        36.8%      4,172        26.5%      4,907        34.0%

Selling, marketing and fulfillment expenses       6,659        32.3%      5,394        34.3%      5,095        35.3%
General and administrative expenses               3,153        15.3%      2,609        16.6%      2,269        15.7%
                                              ---------               ---------               ---------
         Total operating expenses                 9,812        47.6%      8,003        50.9%      7,364        51.0%

Operating loss                                   (2,223)      (10.8)%    (3,831)      (24.4)%    (2,457)      (17.0)%
Interest (expense) and other income                 385         1.9%       (132)       (0.8)%      (127)       (0.9)%
                                              ---------               ---------               ---------
         Net loss                                (1,838)       (8.9)%    (3,963)      (25.2)%    (2,584)      (17.9)%
</TABLE>

We also measure and evaluate ourselves against certain other key operational
metrics. The following table sets forth our actual results based on these other
metrics for the six months ended June 30th, as indicated below:

<TABLE>
<CAPTION>
                                                                             2004          2003          2002
                                                                          ----------    ----------    ----------
<S>                                                                       <C>           <C>           <C>
Average Order Size (including shipping & handling)                        $   188.61    $   171.62    $   161.70
Average Order Size Per New Customer (including shipping & handling)       $   166.67    $   158.53    $   146.69
Average Order Size Per Repeat Customer (including shipping & handling)    $   200.16    $   178.76    $   169.67

New Customers Added during the Period                                         58,813        49,612        45,930
Revenue from Repeat Customers as a % of total Revenue                             70%           67%           69%
Customer Acquisition Costs                                                $    10.76    $     9.77    $    12.85
</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.

Net sales: Gross sales (which includes sales of product and shipping revenue)
for the six months ended June 30, 2004 increased by over 33% to $33,369,000,
from $25,038,000 for the six months ended June 30, 2003. For the six months
ended June 30, 2004, we recorded a provision for returns and credit card
chargebacks and other discounts of $12,760,000, or approximately 38.2% of gross
sales. For the six months ended June 30, 2003, the provision for returns and
credit card chargebacks and other discounts was $9,313,000, or approximately
37.2% of gross sales. The increase in this provision as a percentage of gross
sales resulted from an increase in the return rate. The increase was primarily
caused by a shift in our merchandise mix towards certain product categories that
historically have generated higher return rates. However, we believe that this
increase in return rates has been more than offset by the higher gross margins
and average order sizes that have been generated by this shift in merchandise
mix.

After the necessary provisions for returns, credit card chargebacks and
adjustments for uncollected sales taxes, our net sales for the six months ended
June 30, 2004 were $20,609,000. This represents an increase of approximately 31%
compared to the six months ended June 30, 2003, in which net sales totaled
$15,725,000. The growth in net sales resulted from both the net revenue from new
customers acquired and an increase in average order size (approximately 10%
higher compared to the six months ended June 2003). For the six months ended
June 30, 2004 revenue from shipping and handling (which is included in net
sales) increased by almost 29% to $1,612,000 from $1,252,000 for the six months
ended June 30, 2003. Revenue as a whole increased at a slightly higher rate than
shipping and handling revenue because of the increase in average order size.

                                       12
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

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, 2004 totaled
$13,020,000, resulting in gross margin of approximately 36.8%. Cost of sales for
the six months ended June 30, 2003 totaled $11,553,000, resulting in gross
margin of 26.5%. Gross profit increased by approximately 82%, to $7,589,000 for
the six months ended June 30, 2004 compared to $4,172,000 for the six months
ended June 30, 2003. The growth in gross margin is primarily the result of
increased product margins. In addition, our gross margins were lower in 2003
than they had been historically because we decided to turn more of our
out-of-season merchandise, as well as inventory items that we were particularly
deep in, into cash that could be used to purchase new inventory, rather than
holding the inventory for the next season. Because we currently have
significantly more cash than we did during a large part of 2003, we do not
expect to face the same issues in 2004. In addition, our merchandise strategy is
now focused on offering the most current trends, which allows us to generate a
higher product margin while still providing significant value to our customers.

Selling, marketing and fulfillment expenses: Selling, marketing and fulfillment
expenses increased by approximately 23% for the first six months of 2004
compared to the first six months of 2003. Selling, marketing and fulfillment
expenses were comprised of the following:

                                                    Percentage
                  Six Months      Six Months        Difference
                     Ended           Ended           increase
                 June 30, 2004   June 30, 2003      (decrease)
                 -------------   -------------   ---------------
     Marketing   $   1,025,000   $     776,000        32.1%
     Operating       2,821,000       2,250,000        25.4%
     Technology      2,020,000       1,761,000        14.7%
     E-Commerce        793,000         607,000        30.6%
                 -------------   -------------
                 $   6,659,000   $   5,394,000        23.5%

As a percentage of net sales, our selling, marketing and fulfillment expenses
decreased slightly to 32.3% for the six months ended June 30, 2004 from 34.3%
for the six months ended June 30, 2003. The decrease in selling, marketing and
fulfillment expenses as a percentage of net sales resulted from economies of
scale, as some of the fixed costs involved in maintaining our Web site and
processing orders are allocated over a larger number of orders. Our goal is to
achieve greater economies of scale as our business grows, although there can be
no assurance that we will be successful in doing so.

Marketing expenses include expenses related to online and print advertising,
direct mail campaigns as well as staff related costs. Marketing expenses
increased by a higher percentage than revenue as a result of an 31% increase in
customer acquisition spending as well as an increase in salaries and related
expenses. Customer acquisition costs increased to $10.76 per customer for the
six months ended June 30, 2004, from $9.77 per customer for the six months ended
June 30, 2003 because we were more aggressive in our customer acquisition
efforts (acquiring over 18.5% more new customers in the six months ended June
30, 2004 than we acquired in the six months ended June 30, 2003). On average,
the positive contribution to overhead that we generate from a customer's
purchase exceeds our current customer acquisition costs by a significant margin.
Accordingly, we believe that it may be prudent to continue to be more aggressive
in acquiring customers (even thought it may increase our customer acquisition
costs in 2004 and beyond) in order to acquire larger numbers of customers with
profitable ordering patterns.

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 2004 by approximately 25% compared to the
first six months of 2003 as a result of variable costs associated with the
increased sales volume (e.g., picking and packing orders, processing returns and
credit card fees), as well as costs associated with our temporary clearance
store, which closed in March.

Technology expenses consist primarily of staff related costs, amortization of
capitalized costs and Web Site hosting. For the six months ended June 30, 2004
technology expenses increased by approximately 15% compared to the six months
ended June 30, 2003. This increase resulted from an increase in headcount and
salary related expenses, an increase in web hosting expense, and was offset by a
decrease in depreciation expense. We believe that our investment in the
technology department will continue to increase throughout the year, as we
intend to roll-out of new features that drive the performance of our business.

                                       13
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

E-Commerce expenses include expenses related to our photo studio, image
processing, and Web Site design. For the six months ended June 30, 2004, this
amount increased by approximately 31% as compared to the six months ended June
30, 2003, primarily due to an increase in salary related expenses as well as an
increase in expenses associated with outside research tools. We believe that our
increased investment in the e-commerce group played a key role in the growth of
our business during the first six months, and we intend to continue to invest in
this area throughout the year.

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, 2004 increased by approximately 21% to $3,153,000 as compared to
$2,609,000 for the six months ended June 30, 2003. The increase in general and
administrative expenses was the result of increased salary and benefit expenses
primarily related to the merchandising team, as well as an increase in public
company expenses, and were partially offset by a decrease in professional and
consulting fees.

As a percentage of net sales, general and administrative expenses for the first
six months of 2004 decreased slightly to approximately 15.3% from 16.6%.

Loss from operations: Operating loss decreased by 42% in the second six months
of 2004 to $2,223,000 from $3,831,000 in the first six months of 2003 as a
result of the increase in gross margin and revenue.

Interest and other income: Other income for the six months ended June 30, 2004
increased to $785,000 from $22,000 for the six months ended June 30, 2003. The
increase resulted from $564,000 recognized to adjust a liability associated with
warrants issued by us to their fair value as of June 17, 2004 (at which time the
warrants were re-classified as equity as described in Note 3 to our financial
statements), the $169,000 realized in connection with the judgment we received
in the Breider Moore litigation and an increase in interest income earned on our
cash balance.

Interest expense: Interest expense for the six months ended June 30, 2004
totaled $400,000, and related primarily to fees paid in connection with the Loan
Facility and interest expense on the Convertible Notes. For the six months ended
June 30, 2003, interest expense totaled $154,000, and related to fees paid in
connection with our Loan Facility as well as amortization of warrants issued in
connection with the January 2003 Financing.

For The Three Months Ended June 30, 2004 Compared To The Three Months Ended June
30, 2003

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

<TABLE>
<CAPTION>
                                                       2004                       2003                       2002
                                              ----------------------     ----------------------     ----------------------
                                                           As a % of                  As a % of                  As a % of
                                                           Net Sales                  Net Sales                  Net Sales
                                                           ---------                  ---------                  ---------
<S>                                           <C>              <C>       <C>              <C>       <C>              <C>
Net sales                                     $   9,495        100.0%    $   7,468        100.0%    $   6,799        100.0%
Cost of sales                                     5,688         59.9%        5,153         69.0%        4,392         64.6%
                                              ---------                  ---------                  ---------
         Gross profit                             3,807         40.1%        2,315         31.0%        2,407         35.4%

Selling, marketing and fulfillment expenses       3,210         33.8%        2,982         39.9%        2,659         39.1%
General and administrative expenses               1,394         14.7%        1,406         18.8%        1,207         17.8%
                                              ---------                  ---------                  ---------
         Total operating expenses                 4,604         48.5%        4,388         58.7%        3,866         56.9%

Operating loss                                     (797)        (8.4)%      (2,073)       (27.7)%      (1,459)       (21.5)%
Interest (expense) and other income, net             89          0.9%          (50)        (0.7)%         (60)        (0.9)%
                                              ---------                  ---------                  ---------
         Net loss                                  (708)        (7.5)%      (2,123)       (28.4)%      (1,519)       (22.4)%
</TABLE>

                                       14
<PAGE>
                                  BLUEFLY, INC.
                                  JUNE 30, 2004

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>
                                                                            2004        2003        2002
                                                                          ---------   ---------   ---------
<S>                                                                       <C>         <C>         <C>
Average Order Size (including shipping & handling)                        $  187.52   $  176.70   $  161.65
Average Order Size Per New Customer (including shipping & handling)       $  166.38   $  165.15   $  149.01
Average Order Size Per Repeat Customer  (including shipping & handling)   $  197.49   $  182.78   $  167.80

New Customers Added during the Period                                        25,478      22,581      21,057
Revenue from Repeat Customers as a % of total Revenue                            72%         68%         70%
Customer Acquisition Costs                                                $   10.81   $   15.16   $   16.92
</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.

Net sales: Gross sales (which includes sales of product and shipping revenue)
for the three months ended June 30, 2004 increased by over 31% to $15,719,000,
from $11,994,000 for the three months ended June 30, 2003. For the three months
ended June 30, 2004, we recorded a provision for returns and credit card
chargebacks and other discounts of $6,224,000, or approximately 39.6% of gross
sales. For the three months ended June 30, 2003, the provision for returns and
credit card chargebacks and other discounts was $4,526,000, or approximately
37.7% of gross sales. The increase in this provision as a percentage of gross
sales resulted from an increase in the return rate. The increase was primarily
caused by a shift in our merchandise mix towards certain product categories that
historically have generated higher return rates. However, we believe that this
increase in return rates has been more than offset by the higher gross margins
and average order sizes that have been generated by this shift in merchandise
mix.

After the necessary provisions for returns, credit card chargebacks and
adjustments for uncollected sales taxes, our net sales for the three months
ended June 30, 2004 were $9,495,000. This represents an increase of
approximately 27% compared to the three months ended June 30, 2003, in which net
sales totaled $7,468,000. The growth in net sales resulted from both an increase
in the net revenue from new customers and an increase in average order size
(approximately 6% higher compared to the second quarter of 2003). For the three
months ended June 30, 2004, revenue from shipping and handling (which is
included in net sales) increased by 23% to $774,000 from $629,000 for the
quarter ended June 30, 2003. Revenue as a whole increased at a slightly higher
rate than shipping and handling revenue because of the increase in average order
size.

Cost of sales: Cost of sales for the three months ended June 30, 2004 totaled
$5,688,000, resulting in gross margin of approximately 40.1%. Cost of sales for
the three months ended June 30, 2003 totaled $5,153,000, resulting in gross
margin of 31.0%. Gross profit increased by over 64%, to $3,807,000 for the three
months ended June 30, 2004 compared to $2,315,000 for the three months ended
June 30, 2003. The growth in gross margin is primarily the result of increased
product margins. In addition, our merchandise strategy is now focused on
offering the most current trends, which allows us to generate a higher product
margin while still providing significant value to our customers.

Selling, marketing and fulfillment expenses: Selling, marketing and fulfillment
expenses increased by approximately 7.6% for three months ended June 30, 2004
compared to the three months ended June 30, 2003. Selling, marketing and
fulfillment expenses were comprised of the following:

                  Three Months Ended  Three Months Ended  Percentage Difference
                    June 30, 2004       June 30, 2003      increase (decrease)
                  ------------------  ------------------  ---------------------
   Marketing       $        446,000    $        515,000                 (13.4)%
   Operating              1,320,000           1,115,000                  18.4%
   Technology             1,035,000           1,047,000                  (1.1)%
   E-Commerce               409,000             305,000                  34.1%
                   ----------------    ----------------
                   $      3,210,000    $      2,982,000                   7.6%

                                       15
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

As a percentage of net sales, our selling, marketing and fulfillment expenses
decreased to 33.8% for the three months ended June 30, 2004 from 39.9% in the
three months ended June 30, 2003. The decrease in selling, marketing and
fulfillment expenses as a percentage of net sales resulted from economies of
scale, as some of the fixed costs involved in maintaining our Web site and
processing orders are allocated over a larger number of orders. Our goal is to
achieve greater economies of scale as our business grows, although there can be
no assurance that we will be successful in doing so.

Marketing expenses include expenses related to online and print advertising,
direct mail campaigns as well as staff related costs. Marketing expenses
decreased due to lower customer acquisition costs in the quarter, due in part to
the fact that we did not do a direct mail campaign in the second quarter of
2004. Customer acquisition costs decreased to $10.81 per customer for the three
months ended June 30, 2004, from $15.16 per customer for the three months ended
June 30, 2003. On average, the positive contribution to overhead that we
generate from a customer's purchase exceeds our current customer acquisition
costs by a significant margin. Accordingly, we believe that it may be prudent to
be more aggressive in acquiring customers (even thought it may increase our
customer acquisition costs in 2004 and beyond) in order to acquire larger
numbers of customers with profitable ordering patterns.

Operating expenses include all costs related to inventory management,
fulfillment, customer service, and credit card processing. Operating expenses
increased for the three months ended June 30, 2004 by approximately 18% compared
to the three months ended June 30, 2003 as a result of variable costs associated
with the increased sales volume (e.g., picking and packing orders, processing
returns and credit card fees).

Technology expenses consist primarily of staff related costs, amortization of
capitalized costs and Web Site hosting. For the three months ended June 30,
2004, technology expenses decreased by approximately 1% compared to the three
months ended June 30, 2003. This decrease resulted from a decrease in
depreciation expense, as a number of the Company's technology assets are now
fully depreciated. The decrease in depreciation was offset by an increase in
headcount and salary related expenses, and an increase in web hosting expense.
We believe that our investment in the technology department will continue to
increase throughout the year, as we intend to roll-out new features that drive
the performance of our business.

E-Commerce expenses include expenses related to our photo studio, image
processing, and Web Site design. For the three months ended June 30, 2004, this
amount increased by approximately 34% as compared to the three months ended June
30, 2003, primarily due to an increase in salary related expenses as well as an
increase in expenses associated with outside research tools. We believe that our
increased investment in the e-commerce group played a key role in the growth of
our business during the second quarter, and we intend to continue to invest in
this area throughout the year.

General and administrative expenses: General and administrative expenses include
merchandising, finance and administrative salaries and related expenses,
insurance costs, accounting and legal fees, depreciation and other office
related expenses. General and administrative expenses for the three months ended
June 30, 2004 decreased slightly by approximately 0.9% to $1,394,000 as compared
to $1,406,000 for the three months ended June 30, 2003. The decrease in general
and administrative expenses was primarily the result of decreased professional
and consulting fees, offset by increased salary and benefit expenses related to
the merchandising team. We expect to continue to add to our merchandising team
throughout the year.

As a percentage of net sales, general and administrative expenses for the three
months ended June 30, 2004 decreased to approximately 14.7% from 18.8% for the
three months ended June 30, 2003.

Loss from operations: Operating loss decreased by approximately 61% for the
three months ended June 30, 2004 to $797,000 from $2,073,000 for the three
months ended June 30, 2003, primarily as a result of the increase in gross
margin and revenue.

Interest and other income: Other income for the three months ended June 30, 2004
increased to $329,000 from $16,000 for the three months ended June 30, 2003. The
increase resulted from $303,000 recognized to adjust a liability associated with
warrants issued by us to their fair value as of June 17, 2004 (at which time the
warrants were re-classified as equity as described in Note 3 to our financial
statements), and an increase in interest income earned on our cash balance.

                                       16
<PAGE>
                                  BLUEFLY, INC.
                                  JUNE 30, 2004

Interest expense: Interest expense for the three months ended June 30, 2004
totaled $240,000, and related primarily to fees paid in connection with the Loan
Facility and interest expense on the Convertible Notes. For the three months
ended June 30, 2003, interest expense totaled $66,000, and related to fees paid
in connection with our Loan Facility as well as amortization of warrants issued
in connection with the January 2003 Financing.

LIQUIDITY AND CAPITAL RESOURCES

General

At June 30, 2004, we had approximately $9.1 million of liquid assets, entirely
in the form of cash and cash equivalents, and working capital of approximately
$9.4 million (both amounts exclude the $1.25 million of restricted cash). In
addition, as of June 30, 2004, we had approximately $1.8 million of borrowings
committed under the Loan Facility, leaving approximately $1.7 million of
availability.

We fund our operations through cash on hand, operating cash flow, as well as the
proceeds of any equity or debt financing. Operating cash flow is affected by
gross revenue and product 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 is dependent, among other things, on the
Company having at least $7.0 million of tangible net worth, $6.0 million of
working capital and cash balances of at least $750,000 (exclusive of the $1.25
million cash collateral pledged to Rosenthal to secure our obligations under the
Loan Facility). 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.

We believe that our current funds, together with working capital, will be
sufficient to enable us to meet our planned expenditures through at least
December 31, 2004. We may seek additional equity or debt financing to maximize
the growth of our business or if anticipated operating results are not achieved.
If such financings are not available on terms acceptable to us, and/or we do not
achieve our operating plan, future operations will need to be modified, scaled
back or discontinued.

Loan Facility

Pursuant to the Loan Facility, 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 Rosenthal Financing Agreement was amended in April
2004 to: (i) extend the term until March 30, 2005; (ii) substitute $1.25 million
of cash collateral pledged by the Company for the $2.0 million standby letter of
credit previously provided by Soros as collateral security for the Company's
obligations under the Loan Facility; (iii) decrease the maximum amount available
under the Loan Facility from $4.5 million to $4.0 million; (iv) increase the
tangible net worth requirement to $7.0 million; (v) increase the working capital
requirement to $6.0 million; and (vi) increase the minimum cash balance that the
Company is required to maintain to $750,000 (exclusive of the $1.25 million in
cash collateral). Because we removed the requirement that Soros provide a
standby letter of credit to secure the Loan Facility, we are no longer subject
to an agreement with Soros that previously required us to issue additional
warrants to Soros with an exercise price equal to 75% of market price in the
event that Rosenthal were to draw on Soros' letter of credit.

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%. We pay an annual facility fee equal to 1.5% of the portion of the Loan
Facility that is provided on the basis of our inventory level. This formula
currently results in an annual facility fee of $33,750. We also pay Rosenthal
certain fees to open letters of credit and guarantees in an amount equal to a
certain percentage of the face amount of the letter of credit for each thirty
(30) days such letter of credit, or a portion thereof, remains open.

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 (including the $1.25 million of cash
collateral, which has been placed in a

                                       17
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

segregated, restricted account) upon an event of default and certain of our cash
accounts in the event that the total amount of funded debt loaned to us under
the Loan Facility exceeds 90% of the maximum amount available under the Loan
Facility for more than 10 days.

Under the terms of the Loan Facility, Soros has the right to purchase all of our
obligations from Rosenthal at any time during its term.

Commitments and Long Term Obligations

As of June 30, 2004, we had the following commitments and long term obligations:

<TABLE>
<CAPTION>
                                  2004          2005           2006         2007          2008       Thereafter       Total
                               -----------   -----------   -----------   -----------   -----------   -----------   -----------
<S>                            <C>             <C>           <C>             <C>           <C>           <C>       <C>
Marketing and Advertising      $    36,000            --            --            --            --            --   $    36,000
Operating Leases               $   229,000       461,000       468,000       480,000       441,000       475,000   $ 2,554,000
Capital Leases                 $   162,000       101,000            --            --            --            --   $   263,000
Employment Contracts           $   910,000     1,011,000       730,000        99,000            --            --   $ 2,750,000
Notes payable to shareholders  $   182,000     4,000,000            --            --            --            --   $ 4,182,000
                               -----------   -----------   -----------   -----------   -----------   -----------   -----------
   Grand total                 $ 1,519,000     5,573,000     1,198,000       579,000       441,000       475,000   $ 9,785,000
</TABLE>

We believe that in order to grow the business, we will need to make additional
marketing and advertising commitments in the future. In addition, we expect to
hire and train additional employees for the operations and development of our
business. However, our marketing budget and our ability to hire such employees
is subject to a number of factors, including our results of operations as well
as the amount of additional capital that we raise.

RECENT ACCOUNTING PRONOUNCEMENTS

In March, 2004, the Emerging Issues Task Force issued EITF 03-6, "Participating
Securities and the Two-Class Method under FASB Statement No. 128". This
statement provides additional guidance on the calculation and disclosure
requirements for earnings per share. The FASB concluded in EITF 03-6 that
companies with multiple classes of common stock or participating securities, as
defined by SFAS No. 128, calculate and disclose earnings per share based on the
two-class method. The adoption of this statement does not have an impact to the
Company's financial statement presentation as the Company is currently in a loss
position.

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.

ITEM 4.  CONTROLS AND DISCLOSURES

As of the end of the period covered by this Form 10-Q, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer along with our Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based
upon that evaluation, our Chief Executive Officer along with our Chief Financial
Officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information relating to us (including our
consolidated subsidiaries) required to be included in our periodic SEC filings.
There have been no changes in our internal control over financial reporting that
occurred during our most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This report may include statements that constitute "forward-looking" statements,
usually containing the words "believe", "project", "expect", or similar
expressions. These statements are made pursuant to the safe harbor provisions of
the Private Securities

                                       18
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

Litigation Reform Act of 1995. Forward-looking statements inherently involve
risks and uncertainties that could cause actual results to differ materially
from the forward-looking statements. The risks and uncertainties are detailed
from time to time in reports filed by us with the Securities and Exchange
Commission, including Forms 8-A, 8-K, 10-Q, and 10-K. These risks and
uncertainties include, but are not limited to, the following: our history of
losses and anticipated future losses; need for additional capital and potential
inability to raise such capital; the risk of default by us under the Rosenthal
financing agreement and the consequences that might arise from us having granted
a lien on substantially all of our assets under that agreement; potential
dilution arising from future equity financings, including potential dilution as
a result of the anti-dilution provisions contained in our Preferred Stock and
Convertible Notes; risks associated with Soros owning a majority of our stock;
the potential failure to forecast revenues and/or to make adjustments to our
operating plans necessary as a result of any failure to forecast accurately;
unexpected changes in fashion trends; cyclical variations in the apparel and
e-commerce markets; risks of litigation for sale of unauthentic or damaged goods
and litigation risks related to sales in foreign countries; the dependence on
third parties and certain relationships for certain services, including our
dependence on U.P.S. (and the risks of a mail slowdown due to terrorist
activity) and our dependence on our third-party web hosting and fulfillment
centers; online commerce security risks; risks related to brand owners' efforts
to limit our ability to purchase products indirectly; management of potential
growth; the competitive nature of our business and the potential for competitors
with greater resources to enter the business; the availability of merchandise;
the need to further establish brand name recognition; risks associated with our
ability to handle increased traffic and/or continued improvements to its Web
site; rising return rates; dependence upon executive personnel; the successful
hiring and retaining of new personnel; risks associated with expanding our
operations; risks associated with potential infringement of other's intellectual
property; the potential inability to protect our intellectual property;
government regulation and legal uncertainties; uncertainties relating to the
imposition of sales tax on Internet sales; and risks associated with the
agreements with Soros with respect to a change of control and the liquidation
preference of the Preferred Stock owned by Soros.

Part II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

       EXHIBIT NUMBER                        DESCRIPTION
       --------------  ---------------------------------------------------------
       10.64           CallTech  Master  Agreement for  Outsourcing  Contact
                       Center  Support,  dated as of August 5, 2004, by and
                       between the Registrant and CallTech Communications, LLC*

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

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

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

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

* Confidential treatment requested as to certain portions of this exhibit. Such
portions have been redacted.

(b)    Reports on Form 8-K:

Current Report on Form 8-K, filed on April 22, 2004, attaching the press release
announcing that the Company amended its credit

                                       19
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

facility with Rosenthal & Rosenthal, Inc.

Current Report on Form 8-K, filed on April 29, 2004, attaching the press release
announcing the Company's results of operations for the quarter ended June 30,
2004.

                                       20
<PAGE>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

                                   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
                                                   Chief Executive Officer

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

August 13, 2004

                                       21

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>2
<FILENAME>bf40849ex1064.txt
<DESCRIPTION>EXHIBIT 10.64
<TEXT>

                                                                  Exhibit 10.64

Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]," have been
separately filed with the Securities and Exchange Commission.

                                    CALLTECH
                              MASTER AGREEMENT FOR
                       OUTSOURCING CONTACT CENTER SUPPORT

                                    ARTICLE 1
                            PARTIES TO THE AGREEMENT

         Section 1.1       Parties to the Agreement

         THIS AGREEMENT, for contact center support outsourcing services,
effective as of August 5, 2004 ("Effective Date") is between Bluefly, Inc., a
corporation with offices located at 42 West 39th Street, New York, NY 10018
("BLUEFLY") and CallTech Communications, LLC ("CALLTECH"), with offices located
at 4335 Equity Drive, Columbus, Ohio 43228.

         Section 1.2       Priority

         This Agreement shall mean this agreement together with any Statement of
Work executed pursuant to this Agreement. In the event of a conflict between
this Agreement and a Statement of Work, the Statement of Work shall prevail.

                                    ARTICLE 2
                    SERVICES, HOURS OF OPERATION AND FACILITY

         Section 2.1       Description of Services and Hours of Operation

         CallTech will provide BLUEFLY services as detailed in the attached
Statement(s) of Work (the "Services"). From time to time during the Agreement,
BLUEFLY may request and CALLTECH may agree to provide Additional Services. Any
such Additional Services will be performed in accordance with the terms of this
Agreement and will be outlined in a Statement of Work, which will be attached
hereto and incorporated herein. Both BLUEFLY and CALLTECH must agree to and sign
the Statement of Work before any obligations are incurred by either party as to
the requested Additional Services. BLUEFLY will be entitled to make reasonable
changes to the Service Levels set forth in the Statement of Work, provided that
such changes shall not take effect for a reasonable period of time (not to
exceed 90 days) determined by CALLTECH to be necessary to implement such
changes.

         Section 2.2       Facility

         CALLTECH will utilize the CALLTECH Support facility located in Dublin,
Ohio ("Facility") for delivery of Services. The Facility will be equipped with
telephone systems, computer systems, and various CALLTECH support tools to be
used in the delivery of Services. CALLTECH shall bear all expenses of operating
the Facility, including all expenses for equipment and systems necessary to
connect to any telecommunications circuits or facilities utilized by BLUEFLY to
bring BLUEFLY traffic to the Facility.

<PAGE>

                                    ARTICLE 3
                                 SERVICE LEVELS

         Section 3.1       Definitions

         Actual Handling Time: Shall mean (i) in the case of an Inbound Call
         handled by a Customer Service Representative ("CSR"), the time that is
         measured from when the call is physically connected to the CSR until
         the call is physically terminated, plus any Wrap Time; (ii) in the case
         of an Outbound Call, the time that is measured from when the call is
         initiated until the call is physically terminated, plus any Wrap Time;
         (iii) in the case of an E-Mail Contact or Written Contact, the time
         spent actually preparing the Contact, plus any Wrap Time. The Actual
         Handling Time will be measured to the second with no rounding up to an
         incremental amount.

         Additional Services: Shall mean any Services not yet included in a
         Statement of Work at the time of the execution of this Agreement.
         Additional Services shall be subject to pricing specific to those
         services as outlined in the new Statement(s) of Work.

         Agent: An employee of CALLTECH trained to provide Services for BLUEFLY
         Statement(s) of Work.

         Automated Call: Shall mean an Inbound Call that is delivered to a
         CALLTECH electronic voice message or Interactive Voice Response Unit
         (IVR) for the means of providing Services as described in the attached
         Statement(s) of Work.

         Contact: Shall mean a support incident, defined as a single in-coming
         or outbound support request, via telephonic voice (a "Voice Contact"),
         fax or written (a "Written Contact") or electronic correspondence (an
         "E-mail Contact" or "Chat Contact") regarding any product or service.

         Launch: Shall mean the first day Services are provided under each SOW.
         Also referred to as Launch Date and Launch Day.

         Payroll Hour: Shall include all logged time, excluding Lunch.

         Statement of Work: Shall mean an article or attachment to this
         Agreement specifying the requirements of both parties in the provision
         of Services.

         Wrap Time: Shall mean the time following the actual customer call
         during which the CSR completes any required call completion
         information.

         Section 3.2       Escalation Procedure

         BLUEFLY recognizes that there may be instances where CALLTECH will not
be able to resolve the BLUEFLY Contact without BLUEFLY's assistance. Both
parties will mutually agree to an escalation procedure for resolving support
problems that require BLUEFLY technical personnel and/or any third party vendor
of BLUEFLY. BLUEFLY agrees to provide necessary and timely resources to CALLTECH
for resolving escalated problems in a timely manner and to communicate the
resolutions to CALLTECH in a timely manner.

                                       -2-
<PAGE>

Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]," have been
separately filed with the Securities and Exchange Commission.

                                    ARTICLE 4
                      CALL VOLUME FORECASTING AND STAFFING

         Section 4.1       Forecasting Requirements

         BLUEFLY will provide monthly and daily Contact forecasting information
to assist CALLTECH in its workforce and resource planning efforts. Such forecast
shall be provided by BLUEFLY to CALLTECH no later than the fifth day of each
month with data elements pertaining to the next calendar month; the forecast
shall include all available media schedules that are known to drive Contact
volume. The forecast shall detail Contact volumes for each Contact type and for
each Statement of Work. The forecast shall be a "rolling" forecast of
anticipated Contact volume by day for the following three (3) months, based on
business judgment and reasonable expectations. For the period from the Launch
Day to the end of the calendar month in which the three-month anniversary of the
Launch Day occurs (the "First Three Months"), staffing levels will be based upon
estimated Contact volumes mutually agreed upon by BLUEFLY and CALLTECH.

         Section 4.2       Staffing Levels

         Services priced on an hourly basis will have a minimum staffing level
of [***] Agents per Hour of Operation. Staffing levels will be determined by
CALLTECH, using industry standard staffing methodologies. Staffing levels will
be based upon the number of Agents required to meet Service Levels based on the
Contact volumes provided in the monthly forecasting information delivered by
BLUEFLY (or, during the First Three Months, the forecasting information agreed
to by BLUEFLY and CALLTECH) in accordance with Section 4.1. Staffing levels will
be detailed in a monthly staffing plan, showing the recommended number of Agents
to be staffed each hour of each day for the month. The monthly staffing plan
will be provided to BLUEFLY by CALLTECH no more than five (5) days after receipt
of the monthly forecast. BLUEFLY shall reserve the right to adjust the staffing
levels in the monthly staffing plan providing that adjustments that are not
communicated to CALLTECH within five (5) days of receipt of the monthly staffing
plan shall only be implemented to the extent that CALLTECH can do so without
incurring additional expenses as a result of unplanned increases or decreases in
staffing levels.. Should BLUEFLY request CALLTECH reduce the labor hours
recommended for the program for a month, CALLTECH will not be held accountable
to Service Level commitments that relate to speed of answer or abandonment for
the month after making the recommended staffing change.

         Staffing levels for Services priced on a per-minute basis will be
determined by CALLTECH, using industry standard staffing methodologies. Staffing
levels will be based upon the number of Agents required to meet Service Levels
based on the Contact volumes provided in the monthly forecasting information
delivered by BLUEFLY (or, during the First Three Months, the forecasting
information agreed to by BLUEFLY and CALLTECH) in accordance with Section 4.1.
In the event that CALLTECH reasonably believes, based upon the Contact volume
during the course of a month, that the total Actual Handling Time logged by its
Agents during the month will be less than [***]% of the Actual Handling Time
forecast by the latest monthly forecast delivered pursuant to Section 4.1 (the
"Forecasted Actual Handling Time"), it will inform BLUEFLY of such shortfall and
BLUEFLY will provide CALLTECH with work that will allow its Agents to log Actual
Handling Time equal to at least [***]% of the Forecasted Actual Handling Time.
Forecasted Actual Handling Time will be calculated based on the average Actual
Handling Time for Contacts handled for that particular month.

                                    ARTICLE 5
                     TOOLS, TELECOMMUNICATIONS AND TRAINING

         Section 5.1       Tools

         BLUEFLY agrees to provide CALLTECH with sufficient copies of Products
and related materials, including, but not limited to, scripts, copies of
software, documentation, licenses and Product information as

                                       -3-
<PAGE>

reasonably necessary to provide Services for the Products. These BLUEFLY tools
are listed in the Statement(s) of Work. CALLTECH acknowledges that its use of
such tools may be subject to the terms of license agreements required by BLUEFLY
or its third party suppliers, and CALLTECH agrees to abide by all the terms and
conditions of such licenses in connection with its use of such tools. Bluefly's
third party licensors (including, without limitation, Blue Martini and eShare)
shall be considered third party beneficiaries of CALLTECH's obligations to abide
by such licenses. BLUEFLY shall only be obligated to supply one copy of any
documentation or other such written materials relating to any such tools, and
CALLTECH may make such number of copies (and only such number of copies) of such
materials as are necessary for it to provide Services hereunder.

         Section 5.2       Telecommunications

         BLUEFLY assumes all expenses related to the sending of Contacts to
CALLTECH, including the costs for the provision of telecommunication lines and
the bearing of network costs associated with (i) routing Inbound Calls to the
Facility, and (ii) transporting outbound calls conducted in fulfillment of the
Services detailed in the Statement(s) of Work. CALLTECH is responsible for
properly equipping the Facility with the necessary hardware to receive and
handle Contacts. CALLTECH will implement the necessary processes and safeguards
to insure that the telecommunication lines provisioned for BLUEFLY's use are
used solely for the business purposes stated in the Statement(s) of Work and are
protected against unlawful use by outside entities. CALLTECH will implement the
necessary security measures to isolate any BLUEFLY information and applications
from the remainder of the CALLTECH environment.

         Section 5.2.1     Data Connectivity

         BLUEFLY assumes all expenses related to the transmission of data
between CALLTECH and BLUEFLY, including provision of required hardware (if any),
point-to-point circuitry, and the bearing of network costs associated with the
volume of Data Traffic. CALLTECH will provide its Agents with access to the
Internet.

         Section 5.3       Training

         BLUEFLY will provide one copy of necessary training materials to
CALLTECH on all versions and aspects of Products that are unique or specific to
BLUEFLY's services at no charge to CALLTECH. CALLTECH trainers at CALLTECH's
Facility will provide training for CALLTECH Agents, unless agreed upon
otherwise. Training will be delivered based on a schedule that is mutually
agreeable. One copy of any required software, technical notes and technical
documentation for all aspects of the Products which are unique or specific to
BLUEFLY's services and all updates, upgrades and revisions thereto required to
provide Service will be provided to CALLTECH by BLUEFLY at no charge to
CALLTECH. CALLTECH agrees to use said software and documentation for Service
purposes only. BLUEFLY will provide to CALLTECH one copy of all existing
materials currently used by BLUEFLY to train Agents to support the Products.
CALLTECH agrees to use said materials for training and support purposes for the
Services only. CALLTECH may make such number of copies (and only such number of
copies) of such materials as are necessary for it to provide training to its
Agents to provide Services hereunder. CALLTECH agrees to provide standard
CALLTECH support training to its employees at the facility, which shall include
(at a minimum) training on the standard types of underlying hardware, operating
system and application (e.g., browser) software required or typically used in
conjunction with the Products. BLUEFLY shall have the right to review and
approve the level of proficiency to which the Agents are to be trained by
CALLTECH to facilitate the performance of quality Services, which approval shall
not be unreasonably withheld. Except in an emergency and upon consultation with
BLUEFLY, CALLTECH shall not assign Agents to provide Services hereunder unless
they have received adequate training as approved by BLUEFLY.

         Section 5.4       Approval Rights

         BLUEFLY shall have the right to approve all Agents and supervisors
providing Services to Bluefly hereunder, as well as the program manager (such
approval not to be unreasonably withheld) and to provide incentives to any such
person in order to reward their performance of the Services. In the event that
BLUEFLY is dissatisfied with the performance of any such person and the parties
are unable to resolve such dissatisfaction to

                                       -4-
<PAGE>

Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]," have been
separately filed with the Securities and Exchange Commission.

BLUEFLY'S reasonable approval, CALLTECH will take steps to replace such person
on a timely basis. BLUEFLY'S initial program manager will be Chuck Riddle, and
CALLTECH agrees that, so long as Mr. Riddle remains employed by CALLTECH for
such time, Mr. Riddle shall not be removed from such position without BLUEFLY's
prior consent at any time prior to the first anniversary of the Launch Day.

                                    ARTICLE 6
                                FEES AND PAYMENT

         Section 6.1       Fees for Set-Up and Service

         CALLTECH agrees to perform the Services described in this agreement
based upon the pricing detailed on the attached Statement(s) of Work.

         Section 6.2       Payments

         CALLTECH will provide BLUEFLY with invoices on the sixteenth (16th) of
each month for the Services rendered from the first (1st) through the fifteenth
(15th) of that month and on the first (1st) of each month for the Services
rendered from the sixteenth (16th) through the end of the previous month.
BLUEFLY agrees to pay CALLTECH net thirty (30) days from receipt of invoices, in
US dollars. If BLUEFLY is delinquent in the payment of any invoice, BLUEFLY
shall be obligated to pay interest and/or late charges in a total amount not to
exceed one and one-half percent (1 1/2%) per month on the unpaid balance of any
undisputed portion of the invoice which is unpaid. In the event of a dispute
with regard to a portion of any invoice, the disputed portion may be withheld
until resolution of the dispute but any undisputed portion shall be paid as
provided herein.

         Section 6.3       Applicable Sales Taxes; Employee Benefits

         The fees payable under this Agreement shall not be construed to include
local, state or federal sales, use or other similar taxes or duties. Each party
is responsible for their own tax liabilities. CALLTECH shall be solely
responsible for the preparation and filing of its Agents' and other employees'
income tax forms and the payment of all of such persons' salaries, employee
benefits and other compensation.

                                    ARTICLE 7
                                TERM OF AGREEMENT

         Section 7.1       Term

         The initial term of this Agreement shall be 1 (one) year from the
Effective Date. This Agreement will automatically renew for successive one year
terms unless either party cancels this Agreement in writing 90 (ninety) days
prior to the end of the term (a "Notice of Cancellation"). In the event that
CALLTECH elects not to renew this Agreement on its then-current terms prior to
the third anniversary of the Effective Date by providing a Notice of
Cancellation, BLUEFLY shall have the option to renew the Agreement for an
additional one-year term at prices equal to [***] percent ([***]%) of the
then-current rates. BLUEFLY shall exercise such renewal option by providing
CALLTECH with written notice of such exercise within forty-five (45) days of
receipt of the Notice of Cancellation. If BLUEFLY elects not to renew this
Agreement, it is understood and agreed to by the parties that CALLTECH will
continue to provide services to BLUEFLY pursuant to the provisions of this
Agreement through the then-current term, unless otherwise agreed to by both
parties. Sections 6.2, 6.3, 8.1, 8.2 and 8.3, and Article 9, shall survive any
termination of this Agreement.

                                       -5-
<PAGE>

         Section 7.2       Conditions for Termination Based on Non-Performance

         BLUEFLY may terminate this Agreement without payment of any early
termination fee if CALLTECH (a) consistently fails to fulfill the Service Levels
detailed in the Statement(s) of Work or (b) otherwise commits a breach and does
not cure such breach within ten (10) days after written notice from BLUEFLY. Any
claimed default by BLUEFLY which cannot be resolved by negotiation between the
parties shall be referred to binding arbitration as provided elsewhere herein,
and CALLTECH shall not be entitled to terminate this Agreement or suspend
performance on account of any such breach pending outcome of the arbitration.

         Section 7.3       Termination for Convenience

         BLUEFLY may terminate this Agreement at any time without cause upon at
least ninety (90) days written notice to CALLTECH. In such event, BLUEFLY shall
pay an early termination fee to CALLTECH to compensate CALLTECH for all costs
and expenses actually and reasonably incurred by CALLTECH for personnel and
equipment engaged in providing Services to BLUEFLY at the time of termination
until such resources are either discharged or re-deployed by CALLTECH to
providing similar services for other parties (but in any event for a period not
to exceed 60 days after termination). CALLTECH will promptly and in good faith
attempt to re-deploy such resources as soon after termination as possible so as
to reduce the amount of such early termination fee payable by BLUEFLY to the
extent reasonably possible. In no event shall the total amount of such
termination fee exceed the amount billed to BLUEFLY for the Services provided in
the month immediately preceding the giving of the notice of termination by
BLUEFLY. In the event that Bluefly terminates this Agreement prior to the Launch
Day, the early termination fee shall in no event exceed the Set-Up Fee.

         Following the initial one-year term, either party may terminate this
Agreement at any time without cause upon at least one hundred and twenty (120)
days written notice to the other at no penalty.

         Section 7.4       Termination for Non-Payment

         In the event BLUEFLY has received written notice that it is 15 or more
calendar days delinquent in payment of an undisputed invoice, and BLUEFLY has
failed to cure such payment default within 10 calendar days, CALLTECH may
terminate this agreement 10 calendar days after receipt of such notification of
said delinquency by BLUEFLY if such delinquency has not been cured by such time.

                                    ARTICLE 8
                 INDEMNITY; LIABILITY AND DISCLAIMERS; INSURANCE

         Section 8.1       Indemnification by CALLTECH

         Subject to the limitations of liability provisions of this Agreement,
CALLTECH agrees to indemnify and save harmless BLUEFLY from any liabilities,
causes of action, lawsuits, penalties, claims or demands (including the costs,
expenses and reasonable attorneys' fees on account thereof) that may be made:
(1) by anyone for injuries of any kind, including but not limited to personal
injury, death, property damage and theft, resulting from CALLTECH's negligent or
willful acts or omissions or those of persons furnished by CALLTECH, its agents
or subcontractors; (2) resulting from use of CALLTECH's Services furnished
hereunder; (3) resulting from CALLTECH's failure to perform its obligations
hereunder; (4) as a result of CALLTECH'S violation of any federal, state or
local law, rule or regulation; or (5) by any employee or former employee of
CALLTECH or any of its agents or subcontractors for which the CALLTECH's, its
agents' or subcontractors' liability to such employee or former employee would
otherwise be subject to payments under the state Workers' Compensation or
similar laws, or federal, state or local employment laws. CALLTECH, at its own
expense, agrees to defend BLUEFLY, at BLUEFLY's request, against any such
liability, cause of action, lawsuit, penalty, claim, or demand. BLUEFLY agrees
to notify CALLTECH promptly of any written claims or demands against BLUEFLY for
which CALLTECH is responsible hereunder. The foregoing indemnity shall be in
addition to any other indemnity obligations of CALLTECH set forth in this
Agreement.

                                       -6-
<PAGE>

         Section 8.2       Indemnification by BLUEFLY

         Provided that CALLTECH cooperates with BLUEFLY, at BLUEFLY's expense,
in defending or settling such action, BLUEFLY agrees to indemnify and hold
CALLTECH harmless from any loss, liability, damages or costs based on the
operations of any Products or any infringement by the Products of any patent or
proprietary right of a third party. CALLTECH agrees to notify BLUEFLY promptly
of any written claims or demands against CALLTECH for which BLUEFLY is
responsible hereunder. BLUEFLY shall have no liability for, and CALLTECH shall
indemnify and hold BLUEFLY harmless from and against any claim based upon
CALLTECH's conduct, if such infringement, cause of action or other damage would
have been avoided but for that conduct

         Section 8.3       Warranty; Limitation of Liability

                  Except as provided in this Agreement, CALLTECH shall have no
liability to BLUEFLY with respect to the Services provided under this Agreement.
CALLTECH warrants to BLUEFLY that the Services furnished under this Agreement
will be furnished in a professional and workmanlike manner, in substantial
conformance with the terms and conditions set forth in this Agreement. The
limitations of this section shall not apply to: (i) any damage or loss to
BLUEFLY arising from any misappropriation of BLUEFLY's confidential information
in breach of this Agreement, or (ii) damages resulting from personal injury or
death or damage to tangible real or personal property caused by CALLTECH or
resulting from CALLTECH's negligence.

         Section 8.4       Insurance

         CALLTECH currently maintains at its sole cost and expense, worker's
compensation insurance as required by applicable law, general liability
insurance with limits of not less than $1,000,000 bodily injury per occurrence
(including death) and $500,000 property damage per occurrence. In addition,
CALLTECH currently maintains automobile liability insurance with a limit of not
less than $1,000,000 bodily injury (including death) per occurrence. CALLTECH
currently maintains Contractual Liability coverage to cover liability assumed
under this Agreement. At all times under this Agreement CALLTECH shall maintain
appropriate insurance coverages (at least equal to that set forth above) or that
which is required by law for a business of like kind. CALLTECH agrees that
BLUEFLY will not be responsible for workers compensation claims or workers
compensation losses incurred by CALLTECH employees.

                                    ARTICLE 9
                               GENERAL PROVISIONS

         Section 9.1       Confidentiality

         9.1.1.   CALLTECH will not, directly or indirectly, use, publish, or
disclose, or authorize anyone to use, publish or disclose to any person or
entity, without prior written consent of an executive officer of BLUEFLY, any
Confidential Information (as such term is defined herein) provided to CALLTECH
in connection with this Agreement, except as permitted by paragraph 9.1.2 below.
As used herein, "Confidential Information" means information which is
confidential and proprietary in nature including, but not limited to, computer
software and hardware, customer lists, customer telephone numbers, addresses and
other customer information, supplier lists, employee lists, identification of
services and product lines and geographical sales concentrations, identification
of key management personnel and other personnel and financial information.
CALLTECH will cause each Agent and supervisor providing Services under this
Agreement to sign a copy of BLUEFLY's standard form non-disclosure and
assignment of inventions agreement.

         9.1.2.   Confidential Information shall not include any information
which (i) at the time of disclosure to CALLTECH is generally available to and
known by the public (other than as a result of a disclosure made directly or
indirectly in violation of this Agreement), (ii) becomes publicly available in
the future (other that as a result of a disclosure made directly of indirectly
in violation of this Agreement), (iii) was available to CALLTECH or its
employees or agents on a nonconfidential basis from a source other than BLUEFLY
(provided that such source is not or was not bound to maintain the
confidentiality of such information), or (iv) has been independently acquired or

                                       -7-
<PAGE>

developed by CALLTECH without violating any of its obligations under this
Agreement. In the event that CALLTECH or any of its employees or agents become
legally compelled (by deposition, interrogatory, request of document, subpoena,
civil investigative demand or similar process) to disclose any of the
Confidential Information of BLUEFLY, CALLTECH or person from whom such
information is being sought shall provide BLUEFLY with prompt prior written
notice of such requirement so that it may seek a protective order or other
appropriate remedy and/or waive compliance with the terms of this letter. In the
event that such protective order or other remedy is not obtained, or BLUEFLY
waives compliance with the provisions hereof, the party required to provide such
information agrees to furnish only such portion of the Confidential Information,
which is legally required to be furnished.

         9.1.3.   CALLTECH agrees that the terms of this Section 9.1 are
reasonable and necessary to protect BLUEFLY's business interests and that
BLUEFLY would suffer irreparable harm from a violation of this Section 9.1.
Thus, in addition to any other rights or remedies, all of which shall be deemed
cumulative, BLUEFLY shall be entitled to obtain injunctive relief to enforce the
terms of this Section 9.1., and shall not be required to arbitrate any request
for such injunctive relief.

         Section 9.2       Intellectual Property

         9.2.1    CALLTECH agrees to disclose and furnish promptly to BLUEFLY
any and all technical information, computer or other apparatus programs,
inventions, specifications, drawings, records, documentation, works of
authorship or other creative works, ideas, knowledge or data, written, oral or
otherwise expressed, first made or created for and paid for by BLUEFLY under
this Agreement (hereinafter "Work Product"). The Work Product specifically
includes, without limitation, any scripts, lists of frequently asked questions
and responses thereto, etc., prepared and utilized by CALLTECH specifically in
connection with the provision of the Services to BLUEFLY.

         9.2.2    Subject to the provisions of this Section 9.2.2, CALLTECH
agrees to assign and does hereby assign to BLUEFLY all right, title and interest
in and to any Work Product. To the extent such Work Product qualifies as a "work
made for hire," it shall be deemed to be such. Notwithstanding the foregoing,
(i) CALLTECH retains for itself a perpetual, nonexclusive, royalty-free,
unrestricted right and license to any structure, architectures, ideas and
concepts subsisting in such Work Product, and (ii) CALLTECH shall be free to
independently develop software and other works similar to any works developed by
the performance of the Services under this Agreement, whether by other employees
of CALLTECH, in collaboration with third parties, or for other customers.

         9.2.3    CALLTECH agrees to take all reasonable steps, at BLUEFLY's
expense, to assist BLUEFLY in the perfection of the rights assigned hereunder.

         Section 9.3       Severability; Waiver

         If any of the provisions of this Agreement are declared to be invalid,
such provisions shall be severed from this Agreement and the surviving
provisions shall remain in full force and effect. No failure or delay by either
party in exercising any right, power or privilege hereunder will operate as a
waiver or preclude further exercise thereof.

         Section 9.4       Force Majeure; Disaster Recovery

         Each party shall be released from and shall have no liability for any
failure beyond its reasonable control, including, but not limited to, acts of
God, terrorist actions, labor troubles, strikes, lockouts, severe weather, delay
or default of utilities or communications companies or accidents.
Notwithstanding the forgoing, if as a result of a condition described in this
section CALLTECH fails to perform the services required of it hereunder for more
than 7 days, BLUEFLY shall have the right to immediately terminate this
Agreement without payment of any early termination fee.

                                       -8-
<PAGE>
         Section 9.5       Authorized Representatives

         CALLTECH shall designate and maintain at all times hereunder a project
manager to serve as a single point of contact for BLUEFLY to assist in the
resolution of all technical, operational and implementation-related matters.
CALLTECH shall endeavor not to change such project manager without BLUEFLY's
approval, and in any event shall notify BLUEFLY of any such changes. In
addition, each party shall, at all times, designate one representative who shall
be authorized to take any and all action and/or grant any approvals required in
the course of performance of this Agreement. Such representations shall be fully
authorized to act for and bind such party including the approval of amendments
to this Agreement. Until written notice to the contrary, the authorized
representatives of the parties are as follows:

For BLUEFLY:                                        For CALLTECH:

Patrick C. Barry                                    Kenton R. Bowen
Chief Operating Officer and                         President
 Chief Financial Officer
Bluefly, Inc.                                       CALLTECH Communications, LLC
42 West 39th Street                                 4335 Equity Drive
New York, NY   10018                                Columbus, Ohio 43228

         Section 9.6       Notices

         Any notices or other communications required or permitted under this
Agreement shall be in writing and shall be delivered in person or sent by
certified mail, return receipt requested, addressed as set forth below:

For BLUEFLY:                                        For CALLTECH:

Patrick C. Barry                                    Kenton R. Bowen
Chief Operating Officer and                         President
 Chief Financial Officer
Bluefly, Inc.                                       CALLTECH Communications, LLC
42 West 39th Street                                 4335 Equity Drive
New York, NY  10018                                 Columbus, Ohio 43228
Fax:  (212) 354-3400                                Fax:  (614) 461-5626

         Section 9.7       Representations

         Except as noted herein, no employee, agent or representative of either
party will have the authority to bind the other party to any representation,
oral or written, or any warranty concerning this Agreement, the Services or the
performance of the Services.

         Section 9.8       Records and Audits

         CALLTECH shall maintain complete and accurate records of all amounts
billable to and payments made by BLUEFLY under this Agreement in accordance with
generally accepted accounting practices. CALLTECH shall retain such records for
a period of three (3) years from the date of final payment for Services covered
by this Agreement. CALLTECH agrees to provide reasonable supporting
documentation concerning any disputed amount of invoice to BLUEFLY within thirty
(30) days after BLUEFLY provides written notification of the dispute to
CALLTECH.

                                       -9-
<PAGE>

         Section 9.9       Governing Law; Arbitration

         This Agreement shall be governed by the internal laws of the State of
Delaware, without regard to conflicts of law principles. Any disputes or
controversy, which this Agreement provides to be resolved by arbitration, shall
be settled by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Any arbitration initiated by CALLTECH
shall be held in New York, New York, and any arbitration initiated by BLUEFLY
shall be held in Columbus, Ohio.

         Section 9.10      Right of Access

         CALLTECH shall permit reasonable access for BLUEFLY to its facilities
in connection with work hereunder and no charges shall be made for such visits.
It is agreed that prior notification will be given to CALLTECH when BLUEFLY
desires access. In addition, BLUEFLY shall be provided with access to CALLTECH
systems at all times in order to monitor the handling of Contacts by CALLTECH
Agents.

         Section 9.11      Entire Agreement

         Each party acknowledges having read this Agreement and agrees to be
bound by its Terms. This Agreement and the Schedules attached hereto contain the
entire agreement between BLUEFLY and CALLTECH with respect to the Services
described herein and supersedes and cancels all previous and contemporaneous
written or oral agreements and any other communications relating to the subject
matter of this Agreement.

         Section 9.12      Third Party Beneficiaries

         Except as set forth in Section 5.1, each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto and the other persons
executing this Agreement.

         Section 9.13      Amendments

         This Agreement may not be changed orally, but only by agreement in
writing signed by the parties to be charged thereby.

         Section 9.14      No Joint Venture

         This Agreement does not constitute a joint venture or a partnership by
the parties, and each party is entering into this Agreement as a principal and
not as an agent of the other.

         Section 9.15      Counterparts

         This Agreement may be executed in several counterparts and all
counterparts so executed shall constitute one agreement binding on all the
parties hereto, notwithstanding that all the parties are not signatory to the
original or the same counterpart.

         Section 9.16      Assignability

         This Agreement, and the parties' rights and obligations hereunder, may
not be assigned by either party without the prior written consent of the other,
except in connection with a merger or a sale of all or substantially all of the
assets of the assigning party.

                                      -10-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have signed this Master
Agreement effective the date noted below:

Bluefly, Inc.                                       CALLTECH Communications, LLC

By:      /s/ Patrick C. Barry                       By:  /s/ Kenton R. Bowen
         ------------------------                        -----------------------

Name:    Patrick C. Barry                           Name:   Kenton R. Bowen

Title:   Chief Operating Officer and Chief          Title:  President
          Financial Officer

Date:  August 5, 2004                               Date:   August 5, 2004

                                      -11-
<PAGE>

                              STATEMENT OF WORK #1

THIS STATEMENT OF WORK NO. 1 TO CALLTECH MASTER AGREEMENT FOR OUTSOURCING CALL
CENTER SUPPORT is entered into as of [Date] by and between Bluefly, Inc. (herein
"BLUEFLY"), a Corporation with offices located at 42 West 39th Street, New York,
New York 10018, and CALLTECH COMMUNICATIONS, LLC, (herein "CALLTECH") with
offices located at 4335 Equity Drive, Columbus, OH 43228.

         WHEREAS, BLUEFLY and CALLTECH have entered into that certain CallTech
Master Agreement for Outsourcing Call Center Support effective as of August 5,
2004 (the "Master Agreement");

         WHEREAS, BLUEFLY and CALLTECH wish to include an additional Statement
of Work to that Master Agreement as set forth herein.

         NOW, THEREFORE, in consideration of the promises and terms contained in
the Master Agreement and herein below, the value and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:

Program Set-Up
Program set-up shall include procurement of hardware and software needed to
fulfill obligations as set forth in Section 2 of this agreement; programming and
configuration of said hardware and software; setting up furniture, hardware, and
wiring needed to fulfill obligations as set forth in Section 2 of the Master
Agreement, training CALLTECH's training staff; and recruiting for all program
staff positions.

                           Services/Hours of Operation

Services:        In order to accomplish BLUEFLY's purpose, CALLTECH will provide
                 BLUEFLY with the following services:

                 Inbound sales and customer service calls and emails. Outbound
                 calls as specified by Bluefly, such as courtesy notifications
                 or calls related to resolution of ordering issues.

Tools:           CallTech will utilize Bluefly's Blue Martini for order
                 management, eAssist for e-mail management, Cyber Source for
                 payment functions and will have access to the
                 warehousing/fulfillment system utilized by Bluefly's
                 fulfillment partner.

Reports:         Inbound metrics included in CallTech's standard report -

   .   Calls Offered
   .   Calls Answered
   .   Calls Abandoned
   .   Average Talk Time
   .   Average Wrap Time (After Call Work)
   .   Average Handling Time (Talk+Wrap)
   .   Average Speed of Answer
   .   Service Level
   .   Max Hold Time (longest wait in queue)
   .   Total Inbound Minutes

                 Outbound metrics included in CallTech's standard report -

   .   Calls Placed
   .   Average Preview Time (time spent previewing record before placing call)

<PAGE>

Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]," have been
separately filed with the Securities and Exchange Commission.

   .   Average Talk Time
   .   Average Wrap Time (After Call Work)
   .   Average Handling Time (Talk+Wrap)
   .   Dials Per Labor Hour

                 Email metrics -

   .   Pieces Received
   .   Pieces Answered
   .   Pieces Resolved
   .   Pieces Bounced
   .   Pieces Remaining
   .   Service Level

                 Chat metrics -

   .   Sessions Offered
   .   Sessions Answered
   .   Sessions Abandoned
   .   Average Session Time
   .   Average Speed of Answer
   .   Average Response Time (time between each question/answer during the
       sessions)
   .   Service Level

                 Labor Metrics -

   .   Sign-on Duration (total labor hours worked)
   .   Percent Available (percent of sign-on duration spent waiting for work)

Note:  Non-standard report metrics may be subject to a one-time set-up fee, or
       to a fee per-report-submission.



Quality Assurance:      Quality assurance monitoring will be performed by a
                        combination of CallTech supervisory and QA staff, at a
                        frequency no less than once per week for each agent,
                        with results to be recorded in the CallTech CCMS system.

Service Levels:         [***]% of calls will be answered in [***] or less

                        [***]% of emails will be responded to within [***] and
                        [***]% within [***]

Hours of Operation:     Monday through Friday, 8 a.m. to Midnight Eastern
                        Standard Time (EST); Saturday/Sunday 10 a.m. to 9 p.m.
                        EST; Major holidays, 10 a.m. to 6 p.m. EST. Hours of
                        operation will be extended for the period from November
                        15 through December 24. The actual hours of operation
                        for this timeframe will be defined by Bluefly no later
                        than October 15.

                                       F-2
<PAGE>

Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked "[***]," have been
separately filed with the Securities and Exchange Commission.

            Pricing for Services performed under Statement of Work #1

         Set-Up Fees to fulfill program Set-up

         $[***], due upon execution of this Statement of Work

         Cost for Services detailed in Schedule A:

         Cost per Agent Hour of Actual Handling Time:


                    Agent labor hours per
                            week                       Cost
                    ------------------------ ----------------------
                    <[***]                          $[***]/hour
                    ------------------------ ----------------------
                    [***]-[***]                     $[***]/hour
                    ------------------------ ----------------------
                    >[***]                          $[***]/hour

         Cost per Payroll Hour for Supervisors:    $[***]/hour

         [***] for Program Manager or other members of CALLTECH management

         [***] for standard reports set forth above.

         Cost per Minute Automated Call (IVR time) using CALLTECH system: $[***]
per minute IVR time

         Training cost: $[***] per agent training hour. CALLTECH agrees to train
                  the telephone representatives that are hired due to attrition
                  at no cost to BLUEFLY.

         Programming: $[***] per hour for post-implementation programming
         changes.

         Telecommunications: BLUEFLY is responsible for all telephone long
         distance, facilities (T1's, etc.) and transfer charges, as detailed in
         the Master Agreement Section 5.2.

         Long Distance: $[***]/ minute in the event call traffic is carried over
         telecommunications lines (trunks) provided by CALLTECH.

         Monthly minimum billing:  $[***] per full calendar month

                                       F-3
<PAGE>

IN WITNESS WHEREOF, the parties hereto have signed this STATEMENT OF WORK # 1,
effective the date noted below:

Bluefly, Inc.                                       CALLTECH Communications, LLC


By:      /s/ Patrick C. Barry                       By:  /s/ Kenton R. Bowen
         ------------------------                        -----------------------

Name:    Patrick C. Barry                           Name:   Kenton R. Bowen

Title:   Chief Operating Officer and Chief          Title:  President
          Financial Officer

Date:    August 5, 2004                               Date:   August 5, 2004

                                       F-4

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>3
<FILENAME>bf40849ex311.txt
<DESCRIPTION>EXHIBIT 31.1
<TEXT>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

                                                                    EXHIBIT 31.1

               CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A)

        I, E. Kenneth Seiff, certify that:

        1. I have reviewed this quarterly report on Form 10-Q of Bluefly, Inc;

        2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

        3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this quarterly report;

        4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

                a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

                b. [Paragraph omitted in accordance with SEC transition
instructions contained in SEC Release 34-47986];

                c. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and

                d. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting;

        5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):

                a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and

                b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
control over financial reporting.

Date:  August 13, 2004                                   /s/ E. Kenneth Seiff
                                                         -----------------------
                                                         E. Kenneth Seiff
                                                         Chief Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>4
<FILENAME>bf40849ex312.txt
<DESCRIPTION>EXHIBIT 31.2
<TEXT>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

                                                                    EXHIBIT 31.2

               CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A)

        I, Patrick C. Barry, certify that:

        1. I have reviewed this quarterly report on Form 10-Q of Bluefly, Inc;

        2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

        3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for the periods presented in this quarterly report;

        4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

                a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

                b. [Paragraph omitted in accordance with SEC transition
instructions contained in SEC Release 34-47986];

                c. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and

                d. disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting;

        5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):

                a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information; and

                b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
control over financial reporting.

Date:  August 13, 2004                                   /s/ Patrick C. Barry
                                                         -----------------------
                                                         Patrick C. Barry
                                                         Chief Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>5
<FILENAME>bf40849ex321.txt
<DESCRIPTION>EXHIBIT 32.1
<TEXT>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

                                                                    EXHIBIT 32.1

                            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, 2004, 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 13, 2004

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99
<SEQUENCE>6
<FILENAME>bf40849ex322.txt
<DESCRIPTION>EXHIBIT 32.2
<TEXT>

                                  BLUEFLY, INC.
                                  JUNE 30, 2004

                                                                    EXHIBIT 32.2

                            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, 2004, 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 13, 2004

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