<PAGE>   1
                       DOCUMENTS INCORPORATED BY REFERENCE
================================================================================


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED MAY 29, 1999
                         COMMISSION FILE NUMBER 0-15017
                                 _______________

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

                 DELAWARE                                95-3746316
      (State or other jurisdiction of                 (I.R.S. Employer
       Incorporation or organization)                Identification No.)

       2914 MONTOPOLIS DRIVE, SUITE 200                    78741
               AUSTIN, TEXAS                             (Zip Code)
(Address of principal executive offices)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (512) 369-1400

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                               TITLE OF EACH CLASS
                               -------------------
                                  COMMON STOCK
                                    WARRANTS

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. [ ]

     Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     As of August 31, 1999, the aggregate market value of the voting stock, held
by nonaffiliates of the issuer, was $20,879,925 based upon an average price of
$4.125 multiplied by 5,061,800 shares of common stock outstanding on such date
held by nonaffiliates.

    As of August 31, 1999, the issuer had a total of 5,061,800 shares of common
stock outstanding.

        APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS.

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a
court. Yes. [X] No. [ ]

                       DOCUMENTS INCORPORATED BY REFERENCE
Part III.

     Samuels Jewelers, Inc. Proxy Statement relating to its 1999 Annual Meeting
of Shareholders, to be filed with the SEC within 120 days of May 29, 1999.

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



<PAGE>   2



                                     PART I


ITEM 1. BUSINESS

THE COMPANY

    Samuels Jewelers, Inc. ("Samuels" or the "Company"), was created in August
1998 for the purpose of acquiring the assets of Barry's Jewelers, Inc.
("Barry's" or "Predecessor") as part of Barry's Plan of Reorganization (the
"Plan"), which was confirmed by the U. S. Bankruptcy Court on September 16,
1998, and consummated on October 2, 1998 (the "Reorganization"). Samuels is
incorporated in Delaware and was initially funded by $15 million of new equity
provided by the former bondholders of Barry's, who also consented to the
conversion of $50 million of Barry's bonds they held into equity of Samuels
Jewelers, Inc.

Barry's Background

    Barry's previously had filed a voluntary petition for relief under chapter
11 of the United States Bankruptcy Code on February 26, 1992, for the purpose of
implementing a pre-negotiated plan of reorganization (the "Old Plan"). The Court
confirmed the Old Plan and Barry's consummated the reorganization under that
plan in June of 1992.

    When Barry's emerged under the Old Plan, it had approximately $103 million
in debt and approximately $16 million in equity. Ultimately, Barry's sales and
operating results failed to meet expectations, which thereby exacerbated Barry's
leverage situation. Then in June 1996, Barry's announced that it had overstated
Fiscal 1995 earnings by $1.5 million or 44.1% and that it had incurred a loss of
approximately $2 million in Fiscal 1996. These developments caused defaults on
Barry's two revolving credit facilities, one of which was accelerated and the
other renegotiated.

    Shortly thereafter, a newly reconstituted board of directors began a search
for a new management team. During the spring of 1997, a new management team was
selected with an established background in the retail jewelry industry. This
background included experience with national retail jewelers in merchandising,
marketing, operations and training, systems installations and management,
financial management and reporting, as well as restructuring expertise.

     After its appointment, the new management team identified additional
problems with Barry's financial and operational situation, including the
following situations: (a) Barry's was significantly over-leveraged; (b) Barry's
had a substantial number of stores that consistently operated at a net loss and
needed to be closed; (c) Barry's information systems were not year 2000
compliant, not integrated, not adequately supported by the vendors and generally
were ineffective; (d) Barry's had no continuity in management (it had, for
example, four Chief Executive Officers in the two years prior to the appointment
of the new management team); (e) Barry's had higher than normal inventory
shrinkage due to inadequate systems and poor inventory management and controls;
(f) Barry's operated with a below-industry-average inventory both in quality and
quantity, which limited not only the depth and breadth of selection in its
stores but also the value perception to customers; (g) Barry's had poor accounts
receivable management policies, and poor credit granting standards and had
failed to implement proper incentives to collect past due accounts; (h) Barry's
cost of collection of its accounts receivable was far in excess of acceptable
business practice levels; and (i) Barry's headquarters space was too large for
its needs and the lease for such space was significantly above market.

    The new management team embarked on the development and implementation of a
business plan designed to address these issues and to restore Barry's to
profitability. Originally, Barry's hoped to implement its new business plan
without having to commence bankruptcy proceedings, but after discussions with
various constituencies it was determined that Barry's would have to commence
chapter 11 reorganization proceedings in order to provide it with the time,
flexibility and stability needed to formulate and fully implement the new
business plan and otherwise to reorganize its financial and operations affairs.

    With the cooperation of these constituencies, the new management team
successfully instituted its new merchandising and marketing strategy in time for
the 1997 Christmas selling season. Concurrently, the new management team began
developing the infrastructure necessary to allow the company to grow and go
forward profitably. In the spring of 1998, management presented a plan that
readily received approval from the various constituencies. This plan included
approvals for using resources to obtain all new information technology that
would be necessary to efficiently operate the business and for the aggressive,
but successful, effort of







                                       2
<PAGE>   3

relocating the home office from southern California to central Texas. These
substantial efforts were commenced throughout and substantially concluded in
1998.

Emergence from Chapter 11 Reorganization

    Barry's filed the Plan with the bankruptcy court on April 30, 1998 and the
bankruptcy court confirmed the Plan, with certain modifications, on September
16, 1998. The Reorganization described under the Plan was consummated on October
2, 1998. The plan provided for the following:

o    payment in full of certain administrative claims, tax claims, bank secured
     claims and other allowed secured claims;

o    distribution of 2.5 million shares of the Company's common stock to Barry's
     bondholders in exchange for their allowed claims;

o    distribution of 2.25 million shares of the Company's common stock in
     exchange for $15 million in a new equity cash infusion;

o    distribution of 250,000 restricted shares of the Company's common stock to
     certain members of the new management team;

o    payment of allowed claims of general unsecured creditors at a rate of $0.15
     for each dollar of their allowed claims;

o    issuance of 263,158 warrants to purchase the Company's common stock to
     stockholders in exchange for their shares of Barry's common stock; and

o    merger of Barry's into Samuels Jewelers, Inc.

    In addition, Foothill Capital Corporation agreed to provide the Company with
a new fully secured line of credit of up to $50,000,000. On October 2, 1998, the
Company drew down approximately $32 million from this line of credit. These
borrowings along with the $15 million new cash equity infusion were used to pay
off Barry's previous line of credit balance with Bank Boston.

Samuels Jewelers

    The new company's name, "Samuels Jewelers," comes from a chain of stores
operated by the Predecessor in the San Francisco Bay area. The chain was founded
in 1891 and it has a rich tradition of outstanding customer service and of
providing an excellent selection of fine jewelry.

    The Company operates a chain of specialty retail jewelry stores generally
located in regional shopping malls. Our stores offer fine jewelry items in a
wide range of styles and prices, with a principal emphasis on diamond and
gemstone jewelry. As of August 13, 1999, the Company operated 123 retail jewelry
stores, principally in California, Texas, Colorado, Utah, Arizona, Idaho,
Montana, Indiana and North Carolina. As measured by the number of retail
locations, the Company is one of the larger specialty retailers of fine jewelry
in the country. The Company's corporate office is located at 2914 Montopolis
Drive, Suite 200, Austin, Texas 78741, and its telephone number is (512)
369-1400.

    The Company's new stock is traded on the Nasdaq OTC Bulletin Board under the
symbol "SMJW".

    Today, Samuels is a new company with new shareholders and a new board of
directors that is managed by a new management team, all the way down to and, in
many cases, including store manager level. The Company targets more affluent and
less credit dependent customers through a sophisticated marketing program that
focuses on offering quality merchandise at a fair price. The Company has
relocated its headquarters from southern California to central Texas, placing
the Company in more cost-effective facilities in a more geographically strategic
location for carrying on its operations, with new staff dedicated to providing
customer service. Samuels manages the business, including merchandising and
distribution functions, through new cost-effective operating systems that use
current technology that is fully year 2000 compliant. The Company has
consolidated the number of trade names under which it operates from over 14 to 6
and it plans to be operating all stores under the Samuels name within the next
two to three years. The Company has introduced a new store prototype that is
customer friendly, inviting and attracts the target customer, as well as the
various mall developers. Subsequent to year end, the Company outsourced the
credit function to an independent credit expert in Alliance Data Services
("ADS") and has embarked upon an aggressive plan of expansion with the
infrastructure capable of generating significant economies of size. As of August
31, 1999 the Company had opened 5 new stores and had binding commitments to open











                                       3
<PAGE>   4

approximately 17 stores in Fiscal 2000 and the Company is in various stages of
negotiating for several more stores. See "Notes to Financial Statements - Note
11 Subsequent Events Sale of Credit Portfolio to Alliance Data Systems and
Acquisition of Silverman's and New Store Commitments".

    The only remnants of Barry's are 106 locations of the over 200 leasehold
interests that Barry's occupied a few years ago. Most of the leases for these
locations have been renegotiated and many of the stores have been renamed and
remodeled. The rest will be renamed and remodeled in the coming few years.

    The financial statements contained within this report are for Samuels
Jewelers, Inc. after October 2, 1998. Nevertheless, the Company is providing the
information with regard to Barry's as of and prior to that time under its
obligation, as set forth in the Securities and Exchange Act regulations, to
describe the general development of the business and to report selected
financial data for the Company, including its predecessor-in-interest. Thus, as
used herein, the Company, refers to Samuels for period after October 2, 1998 and
to Barry's for periods through October 2, 1998.

    Upon emergence from Chapter 11 proceedings and with regard to the second
quarter of Fiscal 1999 and fiscal periods thereafter, the Company adopted the
fresh start reporting requirements of AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
In accordance with the fresh start reporting requirements, the reorganization
value of the Company has been allocated to the Company's assets in conformity
with the procedures specified by the Accounting Principles Board ("APB") Opinion
16, Business Combinations. In addition the accumulated deficit of the Company
was eliminated and its capital structure was revalued in accordance with the
Reorganization. The Company has recorded the effects of the Reorganization and
Fresh-Start Reporting as of October 2, 1998. The adjustment to eliminate the
Company's accumulated deficit totaled $77.6 million of which $11.6 million was
forgiveness of debt and the remaining $66.0 million was for Fresh-Start
adjustments.

    The results of operations and cash flows for the four months ended October
2, 1998 include operations prior to the Company's emergence from Chapter 11
proceedings and the effects of Fresh-Start Reporting. The results of operations
and cash flows for the eight months ended May 29, 1999 include operations
subsequent to the Company's emergence from Chapter 11 proceedings and reflect
the effects of Fresh-Start Reporting. As a result, the net income for the eight
months ended May 29, 1999 is not comparable with prior periods and the net
income for the fiscal year ended May 29, 1999 is divided into Successor Company
(the "Successor Company") and Predecessor Company (the "Predecessor Company")
periods and it is also not comparable with net income from prior fiscal year
periods. In addition, the balance sheet as of May 29, 1999 is not comparable to
prior periods for the reasons discussed above.

    The reorganized value of the Company's common equity of $47.1 million was
determined by the Company, with the assistance of financial advisors, by
reliance on the Discounted Cash Flow method using the weighted average cost of
capital. The reorganized value of the Company has been allocated to specific
assets categories pursuant to Fresh-Start Reporting. The Company's
Reorganization Value in Excess of Amounts Allocated to Identifiable Assets
reflects the difference in the Company's stock valuation and the Company's net
assets. The Company is amortizing the Reorganization Value in Excess of Amounts
Allocated to Identifiable Assets over ten years.

    The Company changed its fiscal year end during 1998 from May 31 to the
Saturday closest to May 31. The Company's fiscal years ended May 29, 1999
("Fiscal 1999") and May 30, 1998 ("Fiscal 1998") may be referred to herein as
such.

STRATEGY

    The Company's operating strategy is to provide exceptional values on fine
jewelry to its retail jewelry consumer. This is accomplished by partnering with
vendors to develop new products and expand assortments based on customer demand
and perceived value and then by communicating this value message through
targeted marketing programs. To enhance sales, the Company makes credit
financing available to qualified customers through a private label credit card
program and through various secondary credit sources. The Company's sales
capabilities are supported by a trained and knowledgeable sales staff, an
automated, centralized credit and collection system and a centralized
distribution system to replenish merchandise.

MERCHANDISE STRATEGY AND MIX

    Strong vendor partnering has enabled management to leverage a large portion
of the Company's inventory through consignment arrangements, resulting in
dominant assortments of quality jewelry. A talented team of merchandise buyers
with expertise in jewelry manufacturing has been assembled to allow the Company
to not only buy a product, but also to also focus on developing product




                                       4
<PAGE>   5


solutions that meet specific competitive opportunities created by consumer
demand. As a result, the Company's stores offer exceptional selection and
excellent values that enhance its ability to offer a better value to the
customer and, thereby, capture a larger market share.

    The Company has repositioned its merchandise assortments to appeal to the
mainstream jewelry consumer. Improved price points, updated styling and an
expanded selection in high volume product categories such as bridal, diamond
fashion and gold have been the primary focus of the new merchandising strategy.

INVENTORY PURCHASING

    Buyers based in the Company's corporate offices purchase most of the stores'
merchandise. Each store's inventory is replenished weekly or more often during
peak selling seasons. Management believes that centralized merchandise
purchasing provides the Company with quality controls and price advantages.

    Three vendors collectively have accounted for 31%, 27%, and 25% of
merchandise purchases by the Company during Fiscal 1999, 1998 and 1997,
respectively. Management believes that the Company's relationship with these
three vendors, as well as its other vendors, is good. These vendors, and all
vendors key to the Company's new merchandising strategy, have agreed to
consignment agreements with Samuels.

SUPPLY AND PRICE FLUCTUATIONS

    The world supply and price of diamonds are influenced considerably by the
Central Selling Organization ("CSO"), which is the marketing arm of DeBeers
Consolidated Mines, Ltd. ("DeBeers"), a South African company. Through the CSO,
over the past several years, DeBeers has supplied approximately 80% of the world
demand for rough diamonds, selling to gem cutters and polishers at controlled
prices.

    The continued availability of diamonds to the Company's suppliers is
dependent, to a material degree, upon the political and economic situation in
South Africa. While several other countries, including Australia, the
Commonwealth of Independent States, Zaire, Angola, Tanzania and Sierra Leone are
suppliers of diamonds, the Company cannot predict with any certainty the effect
on the overall supply or price of diamonds in the event of an interruption of
supplies from South Africa, the CSO or DeBeers.

    The Company is subject to other supply risks, including fluctuations in the
price of precious gems and metals. The Company presently does not engage in any
hedging activity with respect to possible fluctuations in the price of these
items. If such fluctuations should be unusually large or rapid and result in
prolonged higher or lower prices, there is no assurance that the necessary
retail price adjustments will be made quickly enough to prevent the Company from
being adversely affected.

TRADE NAMES

    As of August 31, 1999, the Company operated 122 stores under the following
trade names: "Samuels", "Schubach", "Hatfield", "Harts", "Mission",
"Silverman's" and "Samuels Diamonds". See "Notes to Financial Statements - Note
11 Subsequent Events Acquisition of Silverman's and New Store Commitments." The
Company intends to change the names under which all of its stores operate to
"Samuels Jewelers" or "Samuels Diamonds" over the next two to three years.

STORE PERFORMANCE

    The following table sets forth selected data with respect to the Company's
operations for the last five fiscal years:

<TABLE>
<CAPTION>

                                                      1999       1998       1997       1996       1995
                                                     ------     ------     ------     ------     ------

<S>                                                  <C>        <C>        <C>        <C>        <C>
Number of stores at beginning of year ............      117        130        161        162        144
   Acquired during the year ......................        5         --         --         --         15
   Opened during the year ........................        2         --         17          7          8
   Closed during the year(1) .....................       (8)       (13)       (48)        (8)        (5)
                                                     ------     ------     ------     ------     ------
           Total at year end .....................      116        117        130        161        162
                                                     ======     ======     ======     ======     ======

Percentage increase (decrease) in sales of .......      2.0%       9.2%     (10.0)%      2.2%      11.0%
   Comparable stores(2)
 Average sales per comparable store (in
   Thousands)(2) .................................   $  968     $  951     $  709     $  905     $  871
</TABLE>




                                       5
<PAGE>   6

----------

(1)  The 48 stores closed during Fiscal 1997 are composed of 33 stores closed on
     or about May 11, 1997, as part of the Company's Chapter 11 Petition filing;
     11 stores closed in connection with the restructuring, announced in January
     1997, and 4 other stores closed during the year.

(2)  Comparable stores are stores that were open for all of the current and
     preceding year.

CREDIT PROGRAM

    The Company's credit policy is intended to complement its overall sales
strategy. The principal objective is the extension of credit to those customers
who will produce the most reasonable rate of return. The Company also offers
credit insurance to its customers. This insurance program, underwritten by a
major insurance company, generally provides coverage for life, disability,
unemployment and loss of property.

    Charges, net of down payments, under the Company's credit program accounted
for approximately 49.5% of Fiscal 1999 sales and 54.3% of Fiscal 1998 sales. The
decline in credit sales mix is attributable to management's policy of tightening
credit-granting standards offset by a merchandising and marketing strategy
designed to attract a more affluent customer. Payment periods for the credit
sales generally range from 24 to 36 months. Customers may also purchase jewelry
for cash and by using major national credit cards.

    On July 20, 1999, the Company entered agreements with ADS to sell its
existing credit card accounts and to provide a third party credit card program
for the benefit of the Company's customers. The transactions set out in the
agreements were effected on August 30, 1999. See "Notes to Financial Statements
- Note 11 Subsequent Events Sale of Credit Portfolio to Alliance Data Systems".
The Company does not expect a significant change in the credit policies offered
to its customers under the agreement with ADS.

SEASONALITY

    Sales during the Christmas season, which includes the period from the day
following Thanksgiving Day to December 31, generally account for approximately
25% of the Company's annual net sales and all or nearly all of its annual
earnings. The success of the Company is heavily dependent each year on its
Christmas selling season, which in turn depends on many factors beyond the
Company's control, including the general business environment and competition in
the industry. The Company had net sales of $30.2 million during the Christmas
1998 selling season.

    The Company also relies heavily on sales during other annual holidays and
special events. Although the Company's success on an annual basis does not
depend as heavily on the sales during these times as it does during the
Christmas season, unusually slow sales activity during these times will have an
impact on any projections for the Company's annual net sales.

COMPETITION

    The retail jewelry industry is highly competitive. It is estimated that
there are approximately 35,000 retail jewelry stores in the United States, most
of which are independently operated and not part of a major chain. Numerous
companies, including publicly and privately held independent stores and small
chains, department stores, catalog showrooms, direct mail suppliers, and TV
shopping networks, provide competition on a national and regional basis. The
malls and shopping centers where many of the Company's stores are located
typically contain several other national chain or independent jewelry stores, as
well as one or more jewelry departments located in the "anchor" department
stores. Certain of the Company's competitors are substantially larger than the
Company and have greater financial resources.

    Management believes that the primary elements of competition in the retail
jewelry business are quality of personnel, level of customer service, value of
merchandise offered, store location and design and credit terms. Management
believes that the Company's predecessor was unable to compete successfully in
prior years because of its failed merchandising programs, poor credit
underwriting practices, cash flow constraints, excessive collection costs, poor
inventory controls, executive turnover, restrictive financing arrangements,
ineffective investment in technology and the resultant excessive administrative
costs. In addition, the Company believes that, as the jewelry retailing industry
consolidates, the ability to compete effectively may become increasingly
dependent on volume purchasing capability, regional market focus, superior
management information systems, and the ability to provide customer service
through trained and knowledgeable sales staffs. Additionally, the competitive
environment is often affected by factors beyond a particular retailer's control,
such as shifts in consumer preferences, economic conditions, population and
traffic patterns.


                                       6
<PAGE>   7

YEAR 2000 COMPLIANCE

    Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field without considering the
impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000 and beyond.

    The Company relies on its computer system, applications and devices in
operating and monitoring all major aspects of its business, including financial
systems (such as general ledger, accounts payable and payroll modules), customer
services, infrastructure, embedded computer chips, networks, telecommunications
equipment and end products.

    The Company has obtained a new integrated management information system that
includes a system processor and operating system, applications software, point
of sale hardware and additional microcomputers. The year 2000 issue was
addressed during the planning process, and all new system technology is believed
to be year 2000 compliant.

    Through May 1999, the Company had spent approximately $3.5 million, with
$1.2 million of this amount for new hardware and $2.3 million for new software
on all projects to insure the Company meets all requirements to be year 2000
compliant. All of the internal operating systems the Company currently uses are
believed to be year 2000 compliant.

    The Company also relies, directly and indirectly, on external systems of
business enterprises such as suppliers, creditors and financial organizations,
and of government entities, for accurate exchange of data. The Company has
received assurances from most of the parties with which it interacts that their
systems are currently year 2000 compliant or will be year 2000 compliant by
December 31, 1999. We have no assurances that their representations are correct,
and although the year 2000 issue may not materially affect the Company's
internal systems, it possibly could be affected through disruptions in the
operations of the parties with which it interacts.

    Therefore, despite the Company's efforts to address the year 2000 impact on
its internal systems and business operations, there can be no assurance that
such impact will not result in a material disruption of its business or have a
material adverse effect on its business, financial condition, or results of
operations.

EMPLOYEES

    At May 29, 1999, the Company had approximately 1,200 full-time and part-time
employees. Unions represented approximately 26 employees, or 2.2% of the
Company's employees, at such date. On December 31, 1998, the Company modified
and extended its existing union contract covering these employees, which expires
on January 31, 2000. The Company believes it provides working conditions and
wages that compare favorably with those offered by other retailers in the
industry and that its employee relations are good. The Company has not
experienced material labor unrest, disruption of operations or strikes.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

    The statements included in this annual report regarding future financial
performance and results of operations and other statements that are not
historical facts are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Statements to the effect that the Company or its management
"anticipates," "believes," "estimates," "expects," "intends," "plans,"
"predicts," or "projects" a particular result or course of events, or that such
result or course of events "may" or "should" occur, and similar expressions, are
also intended to identify forward-looking statements. Such statements are
subject to numerous risks, uncertainties and assumptions, including but not
limited to, the risk of losses and cash flow constraints despite the Company's
efforts to improve operations. Should these risks or uncertainties materialize,
or should the underlying assumptions prove incorrect, actual results may vary
materially from those indicated.

ITEM 2. PROPERTIES

    The Company leases all of its retail stores. The stores range in size from
approximately 428 square feet to 3,690 square feet. The leases generally have an
initial term of five to fifteen years and are scheduled to expire at various
dates through 2010. Currently, leases at 7 stores have expired and these stores
are being occupied on a month-to-month basis. Some of the leases contain renewal
options for periods ranging from five to ten years on substantially the same
terms and conditions as the initial lease. Under most of the store leases, the
Company is required to pay taxes, insurance, and its pro rata share of common
area and maintenance expenses. The leases also usually require the Company to
pay the greater of a specified minimum rent or a contingent rent based on a
percentage of sales as set forth in the respective lease.




                                       7
<PAGE>   8

    During April 1999, the Company entered into separate purchase agreements for
the purchase of the leasehold interests, and properties related thereto, of five
stores from Hart's Diamond Jewelers. The five stores are located in Colorado.


      The Company leases its headquarters in Austin, Texas. The lease for its
headquarters contains the following substantive terms: (a) approximately 24,000
square feet, with rent of $0.47 per square foot per month on a triple net basis;
and (b) a term of five years, with an option to renew for one additional five
year term at the average monthly net rental rate charged for comparable
premises. The Company also leases space in Irwindale, California, for its credit
center. Consistent with the company's outsourcing of its credit operations to
ADS, the Company has notified the landlord that it will terminate the lease on
the Irwindale facility in October 1999 in accordance with an early termination
provision of that lease.

    As of August 31, 1999, the Company was operating 123 retail stores in the
following states:

<TABLE>
<CAPTION>

                                  NUMBER OF
           STATE                   STORES
------------------------------   ------------

<S>                              <C>
California ...................             31
Texas ........................             31
Colorado .....................             10
Utah .........................              8
Arizona ......................              5
Idaho ........................              5
Montana ......................              5
Indiana ......................              4
North Carolina ...............              4
Others .......................             20
                                 ------------
TOTAL ........................            123
                                 ============
</TABLE>

    The Company owns substantially all of the equipment used in its retail
stores and corporate headquarters.

ITEM 3. LEGAL PROCEEDINGS

    The Company is involved from time to time in legal proceedings of a
character normally incident to its business. The Company believes that its
potential liability in any such pending or threatened proceedings, either
individually or in the aggregate, will not have a material effect on the
financial condition or results of operations of the Company.

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

      No matters were submitted to a vote of security holders of the Company
during the quarter ended May 29, 1999.


                                       8
<PAGE>   9


EXECUTIVE OFFICERS

    The following individuals currently serve as the Company's executive
officers. Officers are elected by the board of directors each to serve until
their successor is elected and qualified, or until their earlier resignation or
removal from office or death.

Executive Officers

<TABLE>
<CAPTION>

                    Name                         Age                     Position
                    ----                         ---                     --------

<S>                                              <C>    <C>
Randy N. McCullough                              47     President, Chief Executive Officer and Director

E. Peter Healey                                  46     Executive  Vice  President,  Chief  Financial  Officer,   Secretary,
                                                        Treasurer and Director

Bill R. Edgel                                    33     Senior Vice President - Merchandising and Marketing

Chad Haggar                                      35     Senior Vice President - Operations

Paul W. Hart                                     41     Senior Vice President - Management Information Systems

Robert J. Herman                                 38     Vice President, Controller and Assistant Secretary
</TABLE>

    Set forth below is biographical information for each executive officer.

    Randy N. McCullough, 47, has been a Director of the Company since September
22, 1998. Mr. McCullough has been the Company's President and Chief Executive
Officer since its inception on August 20, 1998 and previously served in that
capacity for the Predecessor Company since March 31, 1998. Mr. McCullough served
as the Predecessor Company's Executive Vice President and Chief Operating
Officer from January to March 1998. Mr. McCullough joined the Predecessor
Company in April 1997 and was its Senior Vice President-Merchandise from April
1997 to March 1998. Prior to joining the Predecessor Company, Mr. McCullough
served as President of Silverman's Factory Jewelers from 1991 to March 1997.
Prior to that time, Mr. McCullough was a senior manager with a leading national
retail jewelry chain for over 18 years.

    E. Peter Healey, 46, has been a Director of the Company since September 22,
1998. Mr. Healey has served as the Company's Executive Vice President, Chief
Financial Officer, Secretary and Treasurer since its inception on August 20,
1998 and previously served in that capacity for the Predecessor Company since
February 1997. From 1994 to 1996, Mr. Healey was the Vice President, Chief
Financial Officer, Secretary and Treasurer of MS Financial, Inc. From 1985 to
1993, Mr. Healey was with Zale Corporation, serving as Vice President and
Treasurer from 1987 to 1993.

    Bill R. Edgel, 33, has been the Company's Senior Vice President -
Merchandising and Marketing since October 2, 1998 and previously served the
Predecessor Company as Vice President of Marketing since February 1997. Prior to
joining the Predecessor Company, Mr. Edgel served as Director of Credit
Marketing of Macy's West, a division of Federated Department Stores, from 1996
to 1997. From 1995 to 1996, Mr. Edgel served as Director of Marketing for
Merksamer Jewelers, Inc. from 1993 to 1995.

    Chad C. Haggar, 35, has been the Company's Senior Vice President -
Operations since October 2, 1998 and previously served as Vice President -
Operations for the Predecessor Company since February 1997. Prior to joining the
Predecessor Company, Mr. Haggar served as Director of Stores of Fred Meyer, Inc.
from 1996 to 1997. From 1987 to 1996, Mr. Haggar served as Regional Manager of
Merksamer Jewelers, Inc. Prior to 1987 Mr. Haggar served in various management
positions, with leading jewelry chains, for over six years.

    Paul W. Hart, 41, has been the Company's Senior Vice President - Management
Information Systems since October 2, 1998 and previously served in that capacity
for the Predecessor Company since August 1997. Prior to joining the Predecessor
Company, Mr. Hart served as Vice President - Management Information Systems of
MS Financial, Inc. From 1974 to 1995, Mr. Hart was employed by Zale Corporation,
serving as Director of Credit Systems from 1994 to 1995, and as its Manager of
Business Systems Planning and Support from 1988 to 1994.

    Robert J. Herman, 38, has been the Company's Vice President, Controller and
Assistant Secretary since October 2, 1998 and previously served in that capacity
for the Predecessor Company since February 2, 1998. Prior to joining Barry's,
Mr. Herman served as the Controller for Datamark, Inc. from 1997 to February
1998. From 1994 to 1997, Mr. Herman served as the Controller for Silverman's
Factory Jewelers. From 1987 to 1994, Mr. Herman was employed by Sunbelt Nursery
Group, Inc., serving as its Controller from 1991 to 1994.



                                       9
<PAGE>   10



                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

    The Company's common stock, par value $.001 per share ("Common Stock"),
began trading after the effective date of the Reorganization under the symbol
"SMJW". Less than one year of trading history of the Common Stock is available.
A graphical comparison of its predecessor's Common Stock against the market and
the predecessor's industry prior to the effective date is available in Barry's
1998 Form 10-K/A.

    The Company's warrants are traded under the symbol "SMJWW".

    The following table sets forth the high and low, per share closing prices of
the Company's new Common Stock since October 2, 1998.

<TABLE>
<CAPTION>

                               High         Low
                            ----------   ----------

<S>                         <C>          <C>
Second quarter ..........   $    5.000   $    3.875
Third quarter ...........   $    6.500   $    4.375
Fourth quarter ..........   $    4.750   $    3.500
</TABLE>

HOLDERS

    Management believes that as of May 29, 1999 there are approximately 650
beneficial owners of its Common Stock.

DIVIDENDS

    Under the Company's current working capital facility, with certain lenders
party thereto and Foothill Capital Corporation as agent and a lender, the
Company is prohibited from paying dividends. See "Notes to Financial Statements
- Note 6 Notes Payable."

    The Company did not pay any dividends during Fiscal 1999 and intends to
retain its earnings to provide funds for reinvestment in the Company's business,
and therefore, does not anticipate declaring or paying cash dividends in the
foreseeable future. Payment of dividends is subject to the then existing
business conditions and the business results, cash requirements and financial
condition of the Company, and will be at the discretion of the Company's Board
of Directors.


                                       10
<PAGE>   11

ITEM 6. SELECTED FINANCIAL DATA

    The following tables set forth selected financial data of the Company and
the Predecessor Company, as of and for each of the four fiscal years ended May
1998 and for the four months ended October 2, 1998 and the eight months ended
May 29, 1999. The data should be read in conjunction with the financial
statements, related notes and other financial information included herein.

                             SELECTED FINANCIAL DATA
                    (IN THOUSANDS, EXCEPT FOR PER SHARE DATA)


<TABLE>
<CAPTION>

                                            Successor     Predecessor
                                           Eight Months   Four Months
                                               Ended         Ended               Predecessor For the Fiscal Years Ended May
                                              May 29,      October 2,    --------------------------------------------------------
                                               1999          1998            1998           1997          1996            1995
                                           ------------   -----------    -----------    -----------    -----------    -----------

<S>                                        <C>            <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
  Net Sales ............................   $    81,043    $    27,494    $   113,873    $   130,446    $   140,145    $   136,055
  Finance and credit insurance fees ....         6,517          3,397         11,316         13,900         16,008         15,681
                                           -----------    -----------    -----------    -----------    -----------    -----------
                                                87,560         30,831        125,189        144,346        156,153        151,736
                                           -----------    -----------    -----------    -----------    -----------    -----------
  Operating (loss) income(1) ...........           128         (2,672)        (4,009)       (29,741)         8,651         11,670
                                           -----------    -----------    -----------    -----------    -----------    -----------
  Interest expense, net ................         2,202          2,367          7,025         12,745         11,146          9,764
  Reorganization items(2) ..............           400        (61,605)        11,134          2,322             --             --
  Provision for income taxes ...........            --             --             --            284            288             --
                                           -----------    -----------    -----------    -----------    -----------    -----------
  (Loss) income before extraordinary
     item ..............................        (2,474)        56,566        (22,168)       (45,092)        (2,783)         1,906
  Extraordinary item(3) ................            --         11,545             --           (876)            --             --
                                           -----------    -----------    -----------    -----------    -----------    -----------
  Net (loss) income ....................   $    (2,474)   $    68,111    $   (22,168)   $   (45,968)   $    (2,783)   $     1,906
                                           ===========    ===========    ===========    ===========    ===========    ===========
Basic and Diluted Per Share
  Data:(4)
  (Loss) income before extraordinary
     item ..............................   $     (0.49)   $     11.31    $     (5.50)   $    (11.25)   $     (0.70)   $      0.48
                                           ===========    ===========    ===========    ===========    ===========    ===========
  Extraordinary item(3) ................   $        --    $      2.31    $        --    $     (0.22)   $        --    $        --
                                           ===========    ===========    ===========    ===========    ===========    ===========
  Net (loss) income ....................   $     (0.49)   $     13.62    $     (5.50)   $    (11.47)   $     (0.70)   $      0.48
                                           ===========    ===========    ===========    ===========    ===========    ===========
  Weighted average number of common
    shares outstanding .................         5,002          5,002          4,029          4,007          3,978          3,969
                                           ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>


<TABLE>
<CAPTION>

                              SUCCESSOR                           PREDECESSOR
                                1999           1998           1997           1996            1995
                            ------------   ------------   ------------   ------------   ------------
BALANCE SHEET DATA:

<S>                         <C>            <C>            <C>            <C>            <C>
Current assets ..........   $     80,445   $     95,939   $    105,390   $    127,075   $    127,208
Working capital .........          9,091         77,155         99,482        117,819        109,873
Total assets ............        115,209        110,732        123,483        145,875        144,959
Total debt(5) ...........         45,893        126,812        130,271        103,579         92,368
</TABLE>

----------

(1) Operating (loss) income for the fiscal year ended May 31, 1997, includes
    $1,336 of restructuring expenses primarily related to severance and costs
    associated with 11 stores closed during the fiscal year. Operating (loss)
    income for the fiscal year ended May 31, 1997, includes $3,947 for
    impairment loss, and $3,033 for inventory valuation.

(2) Reorganization costs for the eight months ended May 29, 1999, include a
    Fresh-start reporting income adjustment of $66,042. Other amounts consist
    primarily of professional fees and other costs directly related to the
    Company's Reorganization. See "Notes to Financial Statements - Note 10
    Reorganization Costs."

(3) The year ended May 31, 1997 includes an extraordinary loss of $876 or $0.22
    per share, incurred in connection with the early extinguishment of the
    Company's Securitization Facility. The four months ended October 2, 1998
    included an extraordinary gain of $11,545 or $2.31 per share incurred in
    connection with the forgiveness of debt as a part of the Company's
    Reorganization.

(4) Net income (loss) per share and weighted average number of common shares
    outstanding for the Predecessor Company are not comparable to the Successor
    Company due to the Reorganization and implementation of Fresh Start
    Reporting.

(5) As of May 30, 1998 and May 31, 1997, total debt includes liabilities subject
    to compromise under reorganization proceedings.


                                       11
<PAGE>   12



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

    With respect to Management's Discussion and Analysis of Financial
Conditional and Results of Operations, see "Item 1 Cautionary Notice Regarding
Forward Looking Statements."

The Twelve Month Period Ended May 29, 1999 ("Fiscal 1999")(combining both the
predecessor and successor companies) Compared With Fiscal Year Ended May 31,
1998 ("Fiscal 1998")

STORE ACTIVITY

    The following table sets forth selected data with respect to the Company's
operations for the last two fiscal years:

<TABLE>
<CAPTION>

                                                     1999        1998
                                                   -------     -------

<S>                                                <C>          <C>

Number of stores at beginning of year ..........       117         130
  Acquired during the year .....................         5          --
  Opened during the year .......................         2          --
  Closed during the year .......................        (8)        (13)
                                                   -------     -------
          Total at year end ....................       116         117
                                                   =======     =======

Percentage increase (decrease) in sales of .....       2.0%        9.2%
  Comparable stores
Average sales per comparable store (in
  Thousands) ...................................   $   968     $   951
</TABLE>

    Of the eight stores closed during Fiscal 1999, five were closed during the
second quarter, prior to the Christmas selling season, two immediately
thereafter and the final store during the third quarter. The Company also opened
two new stores during the second quarter. The five stores acquired by the
Company all began operation during the last two months of the fiscal year. Of
the thirteen store closed during Fiscal 1998, two were closed during the first
quarter, prior to the Christmas selling season, three late in the third quarter
and eight in the fourth quarter.

    The activity reflected above resulted in 5,932 and 6,576 equivalent store
weeks for Fiscal 1999 and 1998, respectively.

RESULTS OF OPERATIONS

    Net sales for Fiscal 1999, were $108.5 million as compared to $113.9 million
for the previous year. This decrease of $5.4 million, or 4.7%, resulted
primarily from a 9.8% decrease in equivalent store weeks from Fiscal 1998 to
Fiscal 1999 offset by a 5.7% increase in equivalent store week average volume.
Sales at comparable stores, those open for all of the current and proceeding
year, increased by 2.0% from $103.5 million to $105.5 million. This increase of
2.0% in average comparable store volumes was a result of a continuation of the
upgrading of merchandise offered and marketing efforts to appeal to a better
customer and drive sales during traditionally slow periods, partially offset by
the temporary negative impact of the company's remodeling and name change
program during the second and third quarters. Throughout the fiscal year the
Company has continued to upgrade the quality of its merchandise as well as
offering an expanded assortment of higher ticket price merchandise. The Company
has also continued to refine its marketing efforts, targeting a more mature,
financially sound customer, with more discretionary spending ability. The
Company also held special promotional events to drive additional sales during
the traditionally slower periods of the year. During the current year comparable
store sales were negatively impacted in the second quarter as the Company began
a major remodeling and name change campaign that resulted in the temporary
closure or relocation of approximately 18 stores. These remodels and name
changes were completed early in the third quarter and these 18 stores showed
average sales increases during the third quarter which more than offset the
impact in the second quarter. The increase was offset somewhat by reduced credit
sales (representing 49.5% of sales in the current year as compared to 54.3% in
the prior year) which resulted from continued changes in credit underwriting
criteria and marketing efforts designed to lessen the Company's reliance on
credit sales, reduce charge offs and build a portfolio consisting of more
creditworthy customers.

    Finance and credit insurance fees decreased from $11.3 million in Fiscal
1998 to $9.9 million in Fiscal 1999. This decrease of $1.4 million, or 12.4%,
was primarily due to the decrease in average outstanding customer receivables
resulting from the closing of almost 70 stores over the last 3 years, changes in
credit underwriting criteria, and lower reliance on credit to generate sales,
somewhat offset by an increase in average account balance as a result of
marketing efforts to appeal to a more affluent customer who buys higher priced
merchandise.




                                       12
<PAGE>   13

    Cost of goods sold, buying and occupancy expenses were 65.7% of sales in
Fiscal 1999 compared to 66.4% of sales in Fiscal 1998. Excluding amortization of
the Company's reorganization value in excess of amounts allocated to
identifiable assets of $1.2 million cost of goods sold, buying and occupancy
expenses this year was 64.6% of sales. The reduction in cost of goods sold,
buying and occupancy expenses resulted primarily from improved merchandise
margins and savings in occupancy expense due to the closing of relatively high
rent stores and the relocation and downsizing of the Company's headquarters.

    Selling, general and administrative expenses were $44.2 million, a decrease
of $2.8 million, or 6.0% from the prior year. Selling, general and
administrative expenses decreased as a percentage of net sales to 40.7% in
Fiscal 1999 from 41.3% in Fiscal 1998. This improvement resulted from sales
efficiencies as well as some improvements in the efficiency of the structure of
the company but was offset somewhat by some fixed expenses being spread over a
smaller sales base.

    The provision for doubtful accounts was $5.5 million for Fiscal 1999. This
was a decrease of $1.1 million, or 16.7% from $6.6 million for Fiscal 1998. The
provision was approximately 10.2% and 10.6%, of net credit sales for Fiscal 1999
and Fiscal 1998, respectively. The decrease in the provision was primarily due
to closed stores, which had generated less creditworthy customer receivables, as
well as the reduction in the percentage of credit sales to total sales from the
continuing effects of changes in credit underwriting and marketing efforts to
reduce reliance on credit to effect sales by targeting a more creditworthy
customer.

    Net interest expense was $4.6 million for Fiscal 1999, a decrease of $2.4
million, or 34.3% from $7.0 million for Fiscal 1998. The decrease was due
partially to interest associated with the Company's Senior Secured Notes, which
was accrued during Fiscal 1998 but was not accrued during Fiscal 1999 (in
accordance with SOP 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code") because such interest was not allowed under the
Company's Plan of Reorganization. Upon completion of the Reorganization the
amounts outstanding under the respective revolving lines of credit were reduced
by an average of over $10 million. The Company also entered into a new financing
agreement on October 2, 1998, which resulted in reduced amounts outstanding as
well as a lower rate of interest on amounts outstanding after October 2, 1998.

    Reorganization costs consist primarily of professional fees directly related
to the Chapter 11 filing and the grant of stock to management as part of the
Reorganization, offset by interest earned on accumulated cash during the
pendency of the Chapter 11 filing.

TAX LOSS CARRYFORWARDS

    During 1999, the Company's net operating losses were reduced by
approximately $49 million as a result of debt discharge income. Pursuant to IRC
382 (1)(5), the Company's NOL's were further reduced by $27 million. At May 29,
1999, the Company had a net operating loss carryforward for federal income tax
purposes of $36 million. The remaining carryforward is not subject to any annual
limitation on its use. In the event of more than a 50% change in ownership of
the Company prior to October 2, 2000, the annual limitation on the use of the
losses will be zero. These losses begin to expire in 2012. In addition, the
Company has AMT credit carryforwards of $109. These credits do not expire. The
Company maintains a valuation allowance against the net deferred tax assets,
which in Management's opinion reflects the net deferred tax asset that is more
likely than not to be realized.

Fiscal Year Ended May 30, 1998 ("Fiscal 1998") Compared With Fiscal Year Ended
May 31, 1997 ("Fiscal 1997")

    Net sales for Fiscal 1998 were $113.9 million, a decrease of $16.5 million,
or 12.7%, from net sales of $130.4 million for Fiscal 1997. This decrease
resulted primarily from the closure of 13 stores in Fiscal 1998 and 33 stores in
May 1997 offset by an increase in comparable store sales (those open in both the
current and preceding year). Comparable store sales increased by $8.6 million,
or 9.2% from Fiscal 1997 to Fiscal 1998. This increase resulted from improved
merchandise offerings and improved marketing but was offset by the reduction of
credit sales caused by changes in credit granting standards.

    Finance and credit insurance fees decreased from $13.9 million in Fiscal
1997 to $11.3 million in Fiscal 1998. This decrease of $2.6 million, or 18.7%,
was primarily due to the decrease in average outstanding customer receivables
resulting from store closures, changes in credit underwriting criteria, and
lower reliance on credit to generate sales.

    Cost of goods sold, buying and occupancy expenses were 66.4% of sales in
Fiscal 1998 compared to 71.3% of sales in Fiscal 1997. The increase in gross
margin resulted from the sale of fresher merchandise purchased during Fiscal
1998 under the new merchandising strategy, (which allowed for a reduction in
competitive discounting) and a reduction in the inventory shrink percentage. In
connection with the change in merchandising strategy developed by the Company's
new management team, an inventory valuation reserve of $3.0






                                       13
<PAGE>   14


million was established as of May 31, 1997. The inventory valuation reserve was
$2.2 million at May 30, 1998. The reduction of the inventory valuation reserve
is the result of sales of merchandise below cost to reposition the Company's
merchandise selection.

    Selling, general and administrative expenses were $47.0 million, a decrease
of $10.0 million, or 17.5% from the prior year, primarily due to decreases in
advertising expenses, professional services, shipping expenses, credit
department expenses, payroll expense and other store related expenses. Selling,
general and administrative expenses decreased as a percentage of net sales to
41.3% in Fiscal 1998 from 43.7% in Fiscal 1997. The decrease as a percentage of
net sales is attributable primarily to the decrease in marketing expense and
efficiencies in the Company's credit department.

    The provision for doubtful accounts was $6.6 million, a decrease of $12.2
million from the prior year. The provision for doubtful accounts was
approximately 5.8% and 14.4% of net sales for Fiscal 1998 and 1997,
respectively. The decrease is primarily due to improvement in the performance of
the Company's credit portfolio and changes in credit underwriting criteria.
Additionally, in May 1997, the Company closed 33 stores. These store closures
required an increase in the provision for doubtful accounts for Fiscal 1997.

    Interest expense was $7.0 million, a decrease of $5.7 million from the prior
year. As indicated in the Plan, the Senior Secured Notes will be exchanged for
common stock in the new reorganized company. Accordingly, and in accordance with
SOP 90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy
Code" interest expense of $6.0 million on these notes was not recorded because
management believes that it is unlikely that such interest will be paid and
because the accrued interest on the Senior Secured Notes will not become an
allowed claim.

    The Company recorded $11.1 million of reorganization costs in Fiscal 1998.
The reorganization costs primarily include professional fees, losses on the
disposal of property and equipment related to 13 store closures and the closure
of the Company's former headquarters in Monrovia, California, adjustments to
pre-petition unsecured liabilities, provision for lease rejection claims and
employee costs related to the Chapter 11 filing. The above expenses are offset
by interest earned on accumulated cash resulting from the Chapter 11 filing.

                               FINANCIAL CONDITION

CREDIT PROGRAM

    The Company offers its merchandise sales on credit terms to qualified
customers. The Company's credit policies establish monthly payments such that
the payment of the credit balance will occur, generally, over a period ranging
from 24 to 36 months. The Company's customer receivables are revolving charge
accounts. The Company currently collects (and has historically collected)
approximately 10% of its customer receivable balances each month. Sales under
the Company's credit program accounted for approximately 49.5% of Fiscal 1999
sales, net of down payments compared to 54.3% for Fiscal 1998. As of May 29,
1999 and May 30, 1998, the aggregate customer receivables balances were $50.2
million and $55.2 million, respectively. Aggregate credit collections during the
fiscal year ended May 29, 1999 were $62.3 million.

    See "Note 11 Subsequent Events - Sale of Credit Portfolio to Alliance Data
Systems."

INVENTORY

    At May 29, 1999, owned inventory was approximately $32.7 million, an
increase of approximately $5.7 million (net of a Fresh-start reporting
adjustment of $5.1 million) from May 30, 1998. This increase is a result of the
Company implementing a new merchandise assortment plan, designed to target a
more mature, financially sound customer, with more discretionary spending
ability. The Company has recently implemented programs to liquidate additional
aged merchandise that it feels no longer fits its assortment.

                         LIQUIDITY AND CAPITAL RESOURCES

GENERAL

    Upon emergence from Chapter 11 bankruptcy proceedings the DIP Financing
Agreement with Bank Boston was paid off, see "Financing Transactions." In
addition, settlement of claims was commenced and new common stock and warrants
were issued, see "Item 1.
Business - The Company."

    The Company's operations require working capital to fund the purchase of
inventory, carry its accounts receivable, make lease payments, and the funding
of normal operating expenses. The seasonality of the Company's business requires
a significant build-up of inventory for the Christmas holiday selling period.
These seasonal inventory needs generally must be funded during the late summer





                                       14
<PAGE>   15

and fall months because of the necessary lead-time to obtain additional
inventory. Additionally, the heavy holiday selling period leads to a seasonal
build-up of customer receivables that must be funded during the winter and
spring months. See "Notes to Financial Statements - Note 11 Subsequent Events
Sale of Credit Portfolio to Alliance Data Systems.

    The Company enters into consignment inventory agreements with its key
vendors in the ordinary course of business. During Fiscal 1999, consignment
inventory on hand ranged from $30 to $38 million. These amounts are excluded
from the merchandise inventory balance in the financial statements.

    The Company reported cash flows used in operating activities of
approximately $11.1 million for Fiscal 1999, as compared to cash flows provided
by operating activities of $15.1 million for Fiscal 1998 and $8.3 million for
Fiscal 1997. Cash used in operating activities for Fiscal 1999 resulted
primarily from a $10.7 million increase in inventories (an increase of
approximately $5.6 million net of a Fresh-Start Reporting adjustment of $5.1
million) (see "Inventory"), offset by an increase of $3.1 million in trade
accounts payable.

    In addition, the Company requires working capital to fund capital
expenditures. Capital expenditures for Fiscal 1999, 1998 and 1997, were $9.1
million, $3.0 million, and $7.2 million, respectively. Expenditures in Fiscal
1999 were made primarily in connection with computer equipment associated with
the Company's new merchandise and financial systems, leasehold improvements
associated with remodeling of nineteen stores, the build out of the Company's
new headquarters, the opening of two new stores and the acquisition of five
stores.

    The Company made net repayments of $12.0 million under its revolving credit
facility including $11.4 million upon emergence from bankruptcy proceedings, and
received $15.0 million for the issuance of new stock.

FINANCING TRANSACTIONS

    To replace the DIP Financing agreement and to provide for longer term
financing on October 2, 1998, the Company entered into a three year, $50.0
million financing agreement with Foothill Capital Corporation as a lender and as
agent for a lender group (the "Lenders"). The lenders will make revolving
advances to the Company in amounts determined based on percentages of eligible
accounts receivable and inventory. The annual rate of interest will be, at the
Company's option, (i) 2.25% per annum over the Eurodollar rate or (ii) 0.5% per
annum over the bank's prime rate, provided, however, that in no event will the
applicable interest rate on any advance be less than 7% per annum. Interest
charges are payable monthly. Upon the occurrence and during the continuation of
any event of default under the financing agreement, all obligations will bear
interest at a per annum rate equal to three percentage points above the
otherwise applicable interest rate. As collateral for any and all obligations to
the lenders under the financing agreement, the Company granted a first priority
perfected security interest in and to substantially all of its owned or
thereafter acquired assets, both tangible and intangible. The financing
agreement contains quarterly covenants which include its meeting a minimum level
of tangible net worth and prohibits the payment of dividends. The Company
entered into Amendment Number One to the Loan and Security Agreement with the
Lenders on April 15, 1999. The amendments under this Amendment Number One
adjusted some of the covenants required of the Company under this financing
agreement.

    As of May 29, 1999, the Company had direct borrowings of $45.9 million
outstanding with additional credit available of approximately $4.1 million. As
of May 29, 1999, the Company was in compliance with all terms of the financing
agreement. See "Notes to Financial Statements - Note 11 Subsequent Events
Amendment of Financing Agreement with Foothill."

INFLATION

    The impact of inflation on the cost of merchandise (including gems and
metals), labor, occupancy and other operating costs can affect the Company's
results. For example, most of the Company's leases require the Company to pay
rent, taxes, maintenance, insurance, repairs and utility costs, all of which are
subject to inflationary pressures. To the extent permitted by competition, in
general the Company passes increased costs to the customer by increasing sales
prices over time.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

    The Company is exposed to market risk in the form of interest rate risk. At
May 29, 1999, the Company had $45.9 million outstanding under its revolving line
of credit. This revolving line is priced with a variable rate based on LIBOR or
a base rate, plus, in each case an applicable margin. See "Note 6 Notes
Payable". An increase or decrease in interest rates would affect the interest
costs




                                       15
<PAGE>   16


relating this revolving line of credit. The Company has no interest rate swaps
or other hedging facilities relating to its revolving line of credit.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    The Financial Statements and Financial Statement Schedule of the Company and
the report of independent auditors are listed at Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    None.


                                       16
<PAGE>   17


                                    PART III

ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, ETC.

    The information contained in the Company's definitive Proxy Statement
relating to its 1999 Annual Meeting of Shareholders, which will be filed with
the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934 within 120 days of May 29, 1999, with respect to
Directors of the Registrant (Item 10), Executive Compensation (Item 11),
Security Ownership of Certain Beneficial Owners and Management (Item 12), and
Certain Relationships and Related Transactions (Item 13), are incorporated
herein by reference in response to such items of Form 10-K. The information
required by Item 10 with respect to executive officers is included in Part 4
under the caption "Executive Officers."

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements, Financial Statement Schedules and Exhibits

1. FINANCIAL STATEMENTS

    The following are included herein under Item 8:

    Financial Statements, Financial Statement Schedules and Exhibits

    Independent Auditors' Report -- Deloitte & Touche LLP

    Balance Sheets for the Successor Company as of May 29, 1999 and the
       Predecessor Company as of May 30, 1998

    Statements of Operations for the Successor Company for the eight months
       ended May 29, 1999, and the Predecessor Company for the four month Period
       ended October 2, 1998 and the years ended May 30, 1998 and May 31, 1997

    Statements of Stockholders' Equity (Deficiency) for the three years ended
       May 29, 1999

    Statements of Cash Flows for the Successor Company for the eight months
       ended May 29, 1999 and the Predecessor Company for the four months ended
       October 2, 1998 and the years ended May 30, 1998 and May 31, 1997

    Notes to Financial Statements

2. FINANCIAL STATEMENT SCHEDULES:

II. Valuation and Qualifying Accounts

    All other schedules are omitted because they are not applicable or the
required information is included in the Financial Statements or notes thereto.



                                       17
<PAGE>   18


3. EXHIBITS

    Exhibit No.             Exhibit

       2.1           Order Confirming Original Disclosure Statement and Plan of
                     Reorganization, Dated April 30, 1998, Proposed by Barry's
                     Jewelers, Inc., as modified, dated September 16, 1998 (with
                     Plan attached).(1)

       2.2           Certificate of Ownership and Merger of Barry's Jewelers,
                     Inc. with and into Samuels Jewelers, Inc. dated October 2,
                     1998.(1)

       3.1           Certificate of Incorporation of Samuels Jewelers, Inc.(1)

       3.2           Bylaws of Samuels Jewelers, Inc.(1)

       4.1           Warrant Agreement dated as of October 2, 1998 between the
                     Company and Norwest Bank Minnesota, N.A., as Warrant
                     Agent.(1)

       4.2           Registration Rights Agreement dated as of October 2, 1998
                     among the Company, The Galileo Fund, L.P., B III Capital
                     Partners, L.P., DDJ Overseas Corporation, Paine Webber High
                     Income Fund, Managed High Yield Fund Inc., All-American
                     Term Trust Inc. and Paine Webber Offshore Funds PLC, The
                     High Income Fund.(1)

       10.1(a)       Loan and Security Agreement dated October 2, 1998, between
                     the Company and Foothill Capital Corporation, as agent for
                     certain lenders party thereto.(2)

       10.1(b)       Amendment Number One to Loan and Security Agreement entered
                     into as of April 15, 1999, among the Company, Foothill
                     Capital Corporation and the financial institutions listed
                     on the signature pages thereto.(3)

       10.1(c)       Amendment Number Two to Loan and Security Agreement entered
                     into as of August 30, 1999, among the Company, Foothill
                     Capital Corporation and the financial institutions listed
                     on the signature pages thereto, (3)

       10.2          Employment Agreement, dated as of October 2, 1998 between
                     the Company and Randy N. McCullough.(1)

       10.3          Employment Agreement, dated as of October 2, 1998 between
                     the Company and E. Peter Healey.(1)

       10.4          Employment Agreement, dated as of October 2, 1998 between
                     the Company and Chad C. Haggar.(1)

       10.5          Employment Agreement, dated as of October 2, 1998 between
                     the Company and Bill R. Edgel.(1)

       10.6          Employment Agreement, dated as of October 2, 1998 between
                     the Company and Paul Hart.(1)

       10.7          Private Label Credit Card Agreement between World Financial
                     Network National Bank and the Company dated as of July 27,
                     1999.(3)

       10.8          Purchase and Sale Agreement between World Financial Network
                     National Bank and the Company dated as of July 27, 1999.(3)

       23.1          Consent of Independent Auditors.(3)

       27.1          Financial Data Schedule.(3)

       99.1          Press Release dated October 5, 1998.(1)


---------------

(1)  Incorporated by reference to the Company's Current Report on Form 8-K filed
     October 6, 1998.

(2)  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarter ended August 29, 1998.

(3)  Filed herewith.



                                       18
<PAGE>   19


                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                             Samuels Jewelers, Inc.

September 13, 1999                           By: /s/ RANDY N. MCCULLOUGH
                                                 ------------------------------
                                                     Randy N. McCullough
                                                     President and Chief
                                                      Executive Officer

September 13, 1999                           By: /s/ E. PETER HEALEY
                                                 ------------------------------
                                                     E. Peter Healey
                                                  Executive Vice President
                                                 and Chief Financial Officer
                                                (Principal Financial Officer)

September 13, 1999                           By: /s/ ROBERT J. HERMAN
                                                 ------------------------------
                                                     Robert J. Herman
                                                 Vice President and Controller
                                                 (Principal Accounting Officer)

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated:

<TABLE>
<CAPTION>

           SIGNATURE                     TITLE                   DATE
           ---------                     -----                   ----


<S>                                     <C>               <C>
/s/ DAVID BARR                          Director          September 13, 1999
----------------------------------
David Barr


/s/ DAVID J. BREAZZANO                  Director          September 13, 1999
----------------------------------
David J. Breazzano


/s/ DAVID H. EISENBERG                  Director          September 13, 1999
----------------------------------
David H. Eisenberg


/s/ E. PETER HEALEY                     Director          September 13, 1999
----------------------------------
E. Peter Healey


/s/ WENDY LANDON                        Director          September 13, 1999
----------------------------------
Wendy Landon


/s/ RANDY N. MCCULLOUGH                 Director          September 13, 1999
----------------------------------
Randy N. McCullough


/s/ JERRY WINSTON                       Director          September 13, 1999
----------------------------------
Jerry Winston
</TABLE>


                                       19
<PAGE>   20

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Samuels Jewelers, Inc.
Austin, Texas


We have audited the accompanying balance sheets of Samuel's Jewelers, Inc. as of
May 29, 1999 (Successor Company balance sheet) and May 30, 1998 (Predecessor
Company balance sheet), and the related statements of operations, shareholders'
equity (deficiency) and cash flows for the eight months ended May 29, 1999
(Successor Company operations), the four months ended October 2, 1998, and the
years ended May 30, 1998 and May 31, 1997, (Predecessor Company operations).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the financial statements, on September 16, 1998, the
Bankruptcy Court entered an order confirming the plan of reorganization which
became effective after the close of business on October 2, 1998. Accordingly,
the accompanying financial statements have been prepared in conformity with
AICPA Statement of Position 90-7, "Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code," for the Successor Company as a new
entity with assets, liabilities, and a capital structure having carrying values
not comparable with prior periods as described in Note 1.

In our opinion, the Successor Company financial statements present fairly, in
all material respects, the financial position of Samuel's Jewelers, Inc. as of
May 29, 1999, and the results of its operations and its cash flows for the eight
months ended May 29, 1999 in conformity with generally accepted accounting
principles. Further, in our opinion, the Predecessor Company financial
statements referred to above present fairly, in all material respects, the
financial position of the Predecessor Company as of May 30, 1998, and the
results of its operations and its cash flows for the four months ended October
2, 1998 and the years ended May 30, 1998 and May 31, 1997 in conformity with
generally accepted accounting principles.




Dallas, Texas
September 10, 1999


                                       20
<PAGE>   21



                             SAMUELS JEWELERS, INC.
                                 BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)



                             ASSETS (Notes 1 and 6)


<TABLE>
<CAPTION>

                                                                                    Successor      Predecessor
                                                                                      May 29,        May 30,
                                                                                       1999            1998
                                                                                   ------------    ------------

<S>                                                                                <C>             <C>
Current assets:
   Cash and cash equivalents ...................................................   $      1,456    $     19,301
   Customer receivables, net of allowances for doubtful accounts of
        $5,120 (1999) and $7,099 (1998) ........................................         45,098          48,076
   Merchandise inventories (Notes 3 and 8) .....................................         32,684          26,993
   Prepaid expenses and other current assets ...................................          1,207           1,569
                                                                                   ------------    ------------
Total current assets ...........................................................         80,445          95,939
                                                                                   ------------    ------------
Property and equipment: (Note 2)
   Leasehold improvements, furniture and fixtures ..............................         15,396          17,824
   Computers and equipment .....................................................          4,334           5,724
                                                                                   ------------    ------------
                                                                                         19,730          23,548
   Less: accumulated depreciation and amortization .............................          2,109          10,250
                                                                                   ------------    ------------
   Net property and equipment ..................................................         17,621          13,298
Other assets ...................................................................            631           1,495
Reorganization value in excess of amounts allocated to identifiable assets,
   Net .........................................................................         16,512              --
                                                                                   ------------    ------------
Total assets ...................................................................   $    115,209    $    110,732
                                                                                   ============    ============

                LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
                                (Notes 1 and 6)

Current liabilities:
   Notes payable (Note 6) ......................................................   $     45,893    $         --
   Accounts payable - trade ....................................................         12,157           9,086
   Other accrued liabilities (Note 4) ..........................................         13,304           9,698
                                                                                   ------------    ------------
Total current liabilities ......................................................         71,354          18,784
Liabilities subject to compromise under reorganization proceedings
  (Note 5) .....................................................................             --         126,812
                                                                                   ------------    ------------
Commitments and contingencies (Note 8)
Shareholders' equity (deficiency): (Notes 1 and 9)
   Common stock, no par value; authorized 8,000,000 shares; issued and
      outstanding, 4,029,372 shares at May 30, 1998 ............................             --          33,247
   Common stock, $.001 par value; authorized 20,000,000 shares; issued
      and  outstanding, 5,001,800 shares at May 29, 1999 .......................              5              --
   Additional paid in capital ..................................................         48,346              --
   Deferred compensation .......................................................         (1,251)             --
   Notes receivable ............................................................           (771)             --
   Accumulated deficit .........................................................         (2,474)        (68,111)
                                                                                   ------------    ------------
Total shareholders' equity (deficiency) ........................................         43,855         (34,864)
                                                                                   ------------    ------------
Total liabilities and shareholders' equity (deficiency) ........................   $    115,209    $    110,732
                                                                                   ============    ============
</TABLE>


                       See Notes to Financial Statements.


                                       21
<PAGE>   22


                             SAMUELS JEWELERS, INC.
                            STATEMENTS OF OPERATIONS
            (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>

                                                                   Successor      Predecessor
                                                                  Eight Months    Four Months            Predecessor
                                                                    Ended           Ended            For the Years Ended
                                                                    May 29,       October 2,        May 30,         May 31,
                                                                     1999            1998            1998            1997
                                                                 ------------    ------------    ------------    ------------

<S>                                                              <C>             <C>             <C>             <C>
Net sales ....................................................   $     81,043    $     27,494    $    113,873    $    130,446
Finance and credit insurance fees ............................          6,517           3,397          11,316          13,900
                                                                 ------------    ------------    ------------    ------------
                                                                       87,560          30,891         125,189         144,346
                                                                 ------------    ------------    ------------    ------------
Costs and expenses:
   Cost of goods sold, buying and occupancy ..................         52,198          19,091          75,567          93,002
   Selling, general and administrative expenses ..............         31,217          12,980          47,045          57,036
   Provision for doubtful accounts ...........................          4,017           1,492           6,586          18,766
   Impairment loss (Note 2) ..................................             --              --              --           3,947
   Restructuring expenses (Note 1) ...........................             --              --              --           1,336
                                                                 ------------    ------------    ------------    ------------
                                                                       87,432          33,563         129,198         174,087
                                                                 ------------    ------------    ------------    ------------
Operating (loss) income ......................................            128          (2,672)         (4,009)        (29,741)
Interest expense, net (excludes $5,989 of interest expense
   in Fiscal 1998 on Senior Secured Notes, Note 6) ...........          2,202           2,367           7,025          12,745
                                                                 ------------    ------------    ------------    ------------
Loss before reorganization items, income taxes, and
   extraordinary item ........................................         (2,074)         (5,039)        (11,034)        (42,486)
Reorganization items
   Fresh-start adjustments (Note 1) ..........................             --         (66,042)             --              --
   Reorganization costs (Note 10) ............................            400           4,437          11,134           2,322
                                                                 ------------    ------------    ------------    ------------

Earnings (loss) before income taxes and extraordinary
   item ......................................................         (2,474)         56,566         (22,168)        (44,808)
Income taxes (Note 7) ........................................             --              --              --             284
                                                                 ------------    ------------    ------------    ------------
Earnings (loss) before extraordinary item ....................         (2,474)         56,566         (22,168)        (45,092)
Extraordinary item (Note 1) ..................................             --          11,545              --            (876)
                                                                 ------------    ------------    ------------    ------------
Net earnings (loss) ..........................................   $     (2,474)   $     68,111    $    (22,168)   $    (45,968)
                                                                 ============    ============    ============    ============

Basic and Diluted Per share data:
   Earnings (loss) before extraordinary item .................   $      (0.49)          11.31    $      (5.50)         (11.25)
   Extraordinary item (Note 1) ...............................   $         --            2.31    $         --           (0.22)
                                                                 ------------    ------------    ------------    ------------
   Net earnings (loss) .......................................   $      (0.49)   $      13.62    $      (5.50)   $     (11.47)
                                                                 ============    ============    ============    ============
   Weighted-average number of common shares
     outstanding .............................................          5,002           5,002           4,029           4,007
                                                                 ============    ============    ============    ============
</TABLE>


                       See Notes to Financial Statements.



                                       22
<PAGE>   23

                             SAMUELS JEWELERS, INC.
                STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
                       (DOLLARS AND SHARES IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                         Predecessor                 Successor
                                                                         Common Stock               Common Stock
                                                                  ------------------------    -----------------------
                                                                    Shares        Amount        Shares        Amount
                                                                  ----------    ----------    ----------   ----------

<S>                                                               <C>           <C>           <C>           <C>
Balance at May 31, 1996 .......................................        3,999    $   33,196
Net loss for the year .........................................
Shares issued pursuant to employment contracts (Note 9) .......           20            37
Shares  issued  pursuant to employee stock purchase Plan
(Note 9) ......................................................           10            14

Balance at May 31, 1997 .......................................        4,029        33,247
Net loss for the year .........................................
Balance at May 30, 1998 .......................................        4,029        33,247
Net income for the four months ended October 2, 1998 ..........
Fresh-start reporting adjustment ..............................       (4,029)      (33,247)
Exchange of senior secured notes for stock ....................                                    2,500   $        2
Shares issued pursuant to plan of reorganization ..............                                    2,502            3
Deferred compensation (Note 9) ................................
Notes receivable (Note 9) .....................................
Net loss for the eight months ended May 29, 1999 ..............
                                                                  ----------    ----------    ----------   ----------
Balance at May 29, 1999 .......................................           --    $       --         5,002   $        5
                                                                  ==========    ==========    ==========   ==========


<CAPTION>


                                                                                                           Retained
                                                                 Additional      Deferred      Notes       Earnings
                                                              Paid in Capital  Compensation  Receivable   (Deficit)        Total
                                                              ---------------  ------------  ----------   ----------    ----------


<S>                                                          <C>               <C>           <C>          <C>           <C>
Balance at May 31, 1996 ....................................                                               $       25    $   33,221
Net loss for the year ......................................                                                  (45,968)      (45,968)
Shares issued pursuant to employment contracts (Note 9) ....                                                                     37
Shares  issued  pursuant to employee  stock  purchase  Plan
(Note 9) ...................................................                                                                     14

                                                               --------------- ------------   ----------   ----------    ----------
Balance at May 31, 1997 ....................................                                                  (45,943)      (12,696)
Net loss for the year ......................................                                                  (22,168)      (22,168)

                                                               --------------- ------------   ----------   ----------    ----------
Balance at May 30, 1998 ....................................                                                  (68,111)      (34,864)
Net income for the four months ended October 2, 1998 .......                                                   68,111        68,111
Fresh-start reporting adjustment ...........................                                                                (33,247)
Exchange of senior secured notes for stock .................   $        32,086                                               32,088
Shares issued pursuant to plan of reorganization ...........            16,260                                               16,263
Deferred compensation (Note 9) .............................                   $     (1,251)                             $   (1,251)
Notes receivable (Note 9) ..................................                                  $     (771)                      (771)
Net loss for the eight months ended May 29, 1999 ...........                                                   (2,474)       (2,474)
                                                               --------------- ------------   ----------   ----------    ----------
Balance at May 29, 1999 ....................................   $        48,346 $     (1,251)  $     (771)  $   (2,474)   $   43,855
                                                               =============== ============   ==========   ==========    ==========
</TABLE>





                       See Notes to Financial Statements.


                                       23
<PAGE>   24



                             SAMUELS JEWELERS, INC.
                            STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                    Successor Co.    Predecessor Co.
                                                                    Eight Months       Four Months            Predecessor Co.
                                                                       Ended              Ended             For the Years Ended
                                                                       May 29,          October 2,         May 30,       May 31,
                                                                        1999               1998             1998          1997
                                                                   ---------------    ---------------    ----------    ----------

<S>                                                                <C>                <C>                <C>           <C>
Cash Flows from Operating Activities:
  Net loss .....................................................   $        (2,474)   $        68,111    $  (22,168)   $  (45,968)
  Adjustments to reconcile net loss to net cash provided by
     (used in) operating activities:
     Fresh-start adjustments ...................................                --            (66,042)
     Extraordinary item - gain on forgiveness of debt ..........                --            (11,545)           --            --
     Depreciation and amortization .............................             3,292              1,341         4,166         4,992
     Impairment of long-lived assets ...........................                --                 --            --         3,947
     Extraordinary loss ........................................                --                 --            --           876
     Compensation on issuance of common stock ..................                --                 --            --            37
     Provision for doubtful accounts ...........................             4,017              1,492         6,586        18,766
     Inventory valuation allowance .............................                --                 --          (815)        3,033
     Loss on sale or abandonment of property and equipment .....               315                 --         2,132           311
     Deferred income taxes .....................................                --                 --            --            50
     Management stock grant ....................................                --                417            --            --
  Changes in assets and liabilities:
     Customer receivables ......................................            (5,183)             2,652          (110)       (4,598)
     Merchandise inventories ...................................            (6,155)            (4,592)        9,700        10,152
     Prepaid expenses and other current assets .................              (190)               552           573          (111)
     Other assets ..............................................              (148)               (21)         (141)       (2,385)
     Restructuring and reorganization costs ....................                --                 --         3,090         2,752
     Accounts payable-- trade ..................................              (545)             3,616         8,865         6,728
     Other accrued liabilities .................................            (1,936)             1,921         3,182         9,681
                                                                   ---------------    ---------------    ----------    ----------
          Net cash provided by (used in) operating
            activities .........................................            (9,007)            (2,098)       15,060         8,263
                                                                   ---------------    ---------------    ----------    ----------
Cash Flows from Investing Activities:
  Purchase of property and equipment ...........................            (6,478)            (2,641)       (3,081)       (7,158)
  Proceeds from sale of assets .................................               100                 --            --            74
                                                                   ---------------    ---------------    ----------    ----------
          Net cash used in investing activities ................            (6,378)            (2,641)       (3,081)       (7,084)
                                                                   ---------------    ---------------    ----------    ----------
Cash Flows from Financing Activities:
  Net borrowing (repayments) under revolving credit
     facility ..................................................              (565)           (11,397)           --        49,666
  Issuance of common stock .....................................            15,012                 --            --            --
  Notes receivable .............................................              (771)                --            --            --
  Net (repayments) borrowings under securitization
     facility ..................................................                --                 --            --       (45,119)
  Proceeds from employee stock purchase plan ...................                --                 --            --            14
  Principal payments on long-term debt .........................                --                 --            --          (183)
                                                                   ---------------    ---------------    ----------    ----------
          Net cash provided by financing activities ............            13,676            (11,397)           --         4,378
                                                                   ---------------    ---------------    ----------    ----------
Net increase in cash and cash equivalents ......................            (1,709)           (16,136)       11,979         5,557
Cash and cash equivalents at beginning of year .................             3,165             19,301         7,322         1,765
                                                                   ---------------    ---------------    ----------    ----------
Cash and cash equivalents at end of year .......................   $         1,456    $         3,165    $   19,301    $    7,322
                                                                   ===============    ===============    ==========    ==========
Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:
     Interest ..................................................   $         1,958    $         2,060    $    5,760    $    8,364
     Income taxes ..............................................   $            --    $            --    $       --    $       30
Noncash investing and financing activities:
  Merchandise inventory returned in exchange for pre-petition ..   $            --    $            --    $    5,496    $       --
     liabilities (Notes 1 and 5)
  Exchange of Senior Notes for Common Stock (Note 1)  ..........   $        32,088    $            --    $       --    $       --
  Deferred compensation (Notes 1 and 9) ........................   $        (1,251)   $            --    $       --    $       --
</TABLE>



                       See Notes to Financial Statements.


                                       24
<PAGE>   25


                             SAMUELS JEWELERS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE EIGHT MONTH PERIOD ENDED MAY 29, 1999,
                  THE FOUR MONTH PERIOD ENDED OCTOBER 2, 1998,
                       THE FISCAL YEAR ENDED MAY 30 1998,
                     AND THE FISCAL YEAR ENDED MAY 31, 1997
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. REORGANIZATION AND BASIS OF PRESENTATION

REORGANIZATION

Samuels

    Samuels Jewelers, Inc. ("Samuels" or the "Company"), was created in August,
1998 for the purpose of acquiring the assets of Barry's Jewelers, Inc.
("Barry's") as part of Barry's Plan of Reorganization (the "Plan") which was
confirmed by the U.S Bankruptcy Court on September 16, 1998, and consummated on
October 2, 1998 (the "Reorganization"). Samuels is incorporated in Delaware and
was initially funded by $15 million of new equity provided by the former
bondholders of Barry's who also consented to the conversion of their $50 million
of Barry's bonds into equity of Samuels Jewelers, Inc.

    On May 11, 1997, (the "Petition Date"), Barry's filed a voluntary petition
for reorganization under Chapter 11 in the United States Bankruptcy Court for
the Central District of California, Los Angeles Division (the "Bankruptcy
Court"). After the Petition Date, Barry's continued in possession of its
properties and, as Debtor-in-Possession, was authorized to operate and manage
its businesses and enter into all transactions (including obtaining services,
inventories, and supplies) that it could have entered into in the ordinary
course of business without approval of the Bankruptcy Court.

    On September 16, 1998, the Bankruptcy court entered an order (the
"Confirmation Order") confirming Barry's Original Disclosure Statement and Plan
of Reorganization dated April 30, 1998, as Modified (as so modified and
confirmed, the "Plan"). A copy of the Plan and the Confirmation Order are
attached as Exhibits to Barry's Current Report on Form 8-K dated September 16,
1998. Please refer to such documents for more information.

    Upon emergence from Chapter 11 proceedings and with regard to the second
quarter of Fiscal 1999 and fiscal periods thereafter, the Company adopted the
fresh start reporting requirements of AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
during the second quarter of Fiscal 1999. In accordance with the fresh start
reporting requirements, the reorganization value of the Company has been
allocated to the Company's assets in conformity with the procedures specified by
the Accounting Principles Board Opinion 16, Business Combinations. In addition
the accumulated deficit of the Company was eliminated and its capital structure
was revalued in accordance with the Plan. The Company has recorded the effects
of the Plan and Fresh-Start Reporting as of October 2, 1998. The adjustment to
eliminate the Company's accumulated deficit totaled $77.6 million of which $11.6
million was forgiveness of debt and the remaining $66.0 million was Fresh-Start
adjustments.

    Under the plan, the Company issued 5,001,800 shares of the reorganized
company stock. Of those shares 2,500,000 shares were issued to holders of
Allowed Class 2 and Class 5 claims (secured and unsecured Claims of
Bondholders), an additional 2,251,800 were sold to holders of Allowed Class 2
and Class 5 claims, and 250,000 shares were granted to executive officers of the
reorganized company. Under the plan, the Company issued 263,158 Reorganized
Company Warrants to the holders of Allowed Class 9 claims (claims of former
holders of common stock of Barry's Jewelers, Inc.) which are exercisable at
rates outlined in the Company's Plan of Reorganization.

    The plan also provided for the payment of certain administrative claims,
including tax claims, bank secured claims, and other allowed claims. Holders of
Class 6 general unsecured claims are receiving payment at a rate of $.15 for
each dollar of their allowed claims.

    On October 2, 1998, as part of its plan of reorganization, Barry's was
merged into Samuels.

    The financial statements contained within this report are for Samuels
Jewelers, Inc. after October 2, 1999. Nevertheless, the Company is providing the
information with regard to Barry's Jewelers, Inc. as of and prior to that time
under its obligation, as set forth in the Securities and Exchange Act
regulations. Thus, as used herein, the Company, refers to Samuels for period
after October 2, 1998 and to Barry's for periods through October 2, 1998.




                                       25
<PAGE>   26

BASIS OF PRESENTATION

    The results of operations and cash flows for the four months ended October
2, 1998 and for the years ended May 30, 1998 and May 31, 1997, include
operations prior to the Company's emergence from Chapter 11 proceedings
(referred to as "Predecessor Company") and the effects of Fresh-Start Reporting.
The results of operations and cash flows for the eight months ended May 29, 1999
include operations subsequent to the Company's emergence from Chapter 11
proceedings (referred to as "Successor Company")and reflect the effects of
Fresh-Start Reporting. As a result, the net income for the eight months ended
May 29, 1999 is not comparable with prior periods and the net income for the
year-to-date period ended May 29, 1999 is divided into Successor Company and
Predecessor Company and is also not comparable with prior periods. In addition,
the balance sheet as of May 29, 1999 is not comparable to prior periods for the
reasons discussed above.

    The reorganized value of the Company's common equity of $47.1 million was
determined by the Company, with the assistance of financial advisors, by
reliance on the Discounted Cash Flow method using the weighted average cost of
capital. The reorganized value of the Company has been allocated to specific
asset categories pursuant to Fresh-Start Reporting. Reorganization Value in
Excess of Amounts Allocated to Identifiable Assets reflects the difference in
the Company's stock valuation and the Company's net assets. The Company is
amortizing the Reorganization Value in Excess of Amounts Allocated to
Identifiable Assets over ten years.

    The adoption of the Fresh-start reporting requirements had the following
effect on the Company's unaudited Condensed Balance Sheet dated October 2, 1999:


<TABLE>
<CAPTION>

                                                                          Pre-          Debt       Exchange
                                                                      Confirmation    Discharge    of Stock
                                                                      ------------    ---------    --------
                                                     ASSETS
Current assets:
<S>                                                                   <C>             <C>          <C>
   Cash and cash equivalents ......................................   $     14,562    $ (11,397)   $      --
   Customer receivables, net ......................................         43,932           --           --
   Merchandise inventories ........................................         31,585           --           --
   Prepaid expenses and other current assets ......................          1,017           --           --
                                                                      ------------    ---------    ---------
Total current assets ..............................................         91,096      (11,397)          --

Net property and equipment ........................................         14,905           --           --
Other assets ......................................................          1,209         (718)          --
Reorganization value in excess of amounts allocated to
identifiable assets, net ..........................................             --           --           --
                                                                      ------------    ---------    ---------
Total assets ......................................................   $    107,210    $ (12,115)   $      --
                                                                      ============    =========    =========

                              LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
   Accounts payable - trade .......................................   $     12,702    $      --    $      --
   Other accrued liabilities ......................................         11,932        3,308           --
                                                                      ------------    ---------    ---------
Total current liabilities .........................................         24,634        3,308           --

Liabilities subject to compromise under reorganization
proceedings .......................................................        126,499      (73,426)     (53,073)
Long-term debt ....................................................             --       46,458           --
Shareholders' equity (deficiency):
   Common stock, no par value; authorized 8,000,000 shares;
      Issued and outstanding, 4,029,372 shares at May 30, 1998 ....         33,247           --      (33,247)
   Common stock, $.001 par value; authorized 20,000,000
      Shares; issued and outstanding, 5,001,800 shares at May
      29, 1999 ....................................................             --           --            2
   Additional paid in capital .....................................            417           --       86,318
   Accumulated deficit ............................................        (77,587)      11,545           --
                                                                      ------------    ---------    ---------
Total shareholders' equity (deficiency) ...........................        (43,923)      11,545       53,073
                                                                      ------------    ---------    ---------
Total liabilities and shareholders' deficiency ....................   $    107,210    $ (12,115)   $      --
                                                                      ============    =========    =========

<CAPTION>
                                                                                    Additional
                                                                     Fresh-Start  Capitalization    Adjusted
                                                                     -----------  --------------   ---------

<S>                                                                   <C>          <C>             <C>
Current assets:
   Cash and cash equivalents ......................................   $      --    $         --    $   3,165
   Customer receivables, net ......................................          --              --       43,932
   Merchandise inventories ........................................      (5,056)             --       26,529
   Prepaid expenses and other current assets ......................          --              --        1,017
                                                                      ---------    ------------    ---------
Total current assets ..............................................      (5,056)             --       74,643

Net property and equipment ........................................      (1,238)             --       13,667
Other assets ......................................................          --              --          491
Reorganization value in excess of amounts allocated to
identifiable assets, net ..........................................      17,687              --       17,687
                                                                      ---------    ------------    ---------
Total assets ......................................................   $  11,393    $         --    $ 106,488
                                                                      =========    ============    =========

Liabilities and Shareholders' Equity (Deficiency)
Current liabilities:
   Accounts payable - trade .......................................   $      --    $         --    $  12,702
   Other accrued liabilities ......................................          --              --       15,240
                                                                      ---------    ------------    ---------
Total current liabilities .........................................          --              --       27,942

Liabilities subject to compromise under reorganization
proceedings .......................................................          --              --           --
Long-term debt ....................................................          --         (15,012)      31,446
Shareholders' equity (deficiency):
   Common stock, no par value; authorized 8,000,000 shares;
      Issued and outstanding, 4,029,372 shares at May 30, 1998 ....          --              --           --
   Common stock, $.001 par value; authorized 20,000,000
      Shares; issued and outstanding, 5,001,800 shares at May
      29, 1999 ....................................................          --               3            5
   Additional paid in capital .....................................     (54,649)         15,009       47,095
   Accumulated deficit ............................................      66,042              --           --
                                                                      ---------    ------------    ---------
Total shareholders' equity (deficiency) ...........................      11,393          15,012       47,100
                                                                      ---------    ------------    ---------
Total liabilities and shareholders' deficiency ....................   $  11,393    $         --    $ 106,488
                                                                      =========    ============    =========
</TABLE>




                                       26
<PAGE>   27


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Fiscal Year. The Company changed its fiscal year end during 1998 from May 31
to the Saturday closest to May 31. The Company's fiscal years ended May 29, 1999
("Fiscal 1999"), May 30, 1998 ("Fiscal 1998") and May 31, 1997 ("Fiscal 1997"),
may be referred to herein as such.

    Cash and Cash Equivalents. The Company considers all highly liquid
investments with an original maturity at date of purchase of three months or
less to be cash equivalents.

    Customer Receivables. The Company offers its merchandise on credit terms to
qualified customers. The Company's policy is to attempt to obtain a cash down
payment on all credit sales, with remaining monthly payments established such
that the payment of the credit balance will occur, generally, over a period
ranging from 24 to 36 months. In accordance with industry practice, customer
receivables are included in current assets in the Company's balance sheet. The
Company routinely assesses the collectibility of its customer receivables. See
"Note 11 Subsequent Events - Sale of Credit Portfolio to Alliance Data Systems."

    Merchandise Inventories. Merchandise inventories, substantially all of which
represent finished goods, are stated at the lower of cost or market. Cost is
determined using the average cost method.

    Property and Equipment. Property and equipment in existence at October 2,
1998 were stated at fair values as of that date pursuant to fresh start
reporting adopted in connection with the Reorganization. Additions since October
2, 1998 are stated at cost.

    Depreciation and amortization of leasehold improvements, furniture and
fixtures, computers and equipment are computed by the straight-line method over
the lesser of related lease terms or the estimated useful lives of such assets
as set forth in the following table:

<TABLE>
<CAPTION>

                                  USEFUL LIVES
                                    IN YEARS
                                  ------------
<S>                                 <C>

Leasehold improvements ............   10-15
Furniture and fixtures ............    5-10
Computers and equipment ...........       5
</TABLE>


    Impairment of Long-lived Assets. Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to Be Disposed of," requires an entity to review long-lived
assets for impairment and recognize a loss if expected future cash flows are
less than the carrying amount of the assets; such losses are measured as the
difference between the carrying value and the estimated fair value of the
assets. The estimated fair value is determined based on expected future cash
flows. The Company adopted this standard in Fiscal 1997 and recognized an
impairment loss of approximately $3.9 million. This impairment loss is comprised
of leasehold improvements and fixtures at 37 closed stores, as well as computer
equipment and software related to the Company's plan to replace its merchandise
management and point-of-sale systems.

    Deferred Debt Issuance. Deferred debt issuance costs are reported on the
Company's balance sheet as other assets and are being amortized on a
straight-line basis over the terms of the related financing agreements.

    Revenue Recognition. The Company recognizes revenue upon delivery of
merchandise to the customer and either the receipt of a cash payment or approval
of a credit agreement.

    Reorganization Costs. Expenditures directly related to the Chapter 11 filing
are classified as reorganization costs and are expensed as incurred. See "Note
10 Reorganization costs."

    Income Taxes. Income taxes are computed using the liability method. The
provision for income taxes includes income taxes payable for the current period
and the deferred income tax consequences of transactions that have been
recognized in the Company's financial statements or income tax returns. The
carrying value of deferred income tax assets is determined based on an
evaluation of whether the realization of such assets is more likely than not.
Temporary differences result primarily from accrued liabilities, valuation
allowances, depreciation and amortization, and state franchise taxes. The
valuation allowance is reviewed periodically to determine the amount of deferred
tax asset considered realizable.

    (Loss) per Share. The Company computes earnings per share in accordance with
SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires the Company to present
basic and diluted earnings per share on the face of the income statement. Basic
earnings per

                                       27



<PAGE>   28


share are computed by dividing net income by the weighted average number of
common shares outstanding. Diluted earnings per share are computed by dividing
net income by the sum of the weighted average number of common shares
outstanding for the period plus the assumed exercise of all dilutive securities.
However, in the case of a loss per share, dilutive securities outstanding would
be antidilutive and would, therefore, be excluded from the computation of
diluted earnings per share. The weighted-average number of shares used to
calculate basic earnings per share was 5,001,800 for Fiscal 1999. Diluted
earnings per share were the same as basic earnings per share.

    Accounting for Stock-based Compensation. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS No. 123")
requires compensation expense equal to the fair value of an option grant to be
estimated using accepted option-pricing formulas when an option is granted. The
compensation may either be charged to the statement of operations or set forth
as pro forma information in the footnotes to the financial statements, depending
on the method elected by the Company upon adoption of the standard. During
Fiscal 1997, the Company adopted the disclosure requirements of SFAS No. 123 and
elected to continue using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," for stock option expense recognition and has disclosed the proforma
effects of SFAS No. 123. See "Note 9 Shareholders' Equity (Deficiency)."

    Disclosure about Segments of an Enterprise and Related Information.
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" ("SFAS No. 131") became effective for
years beginning after December 15, 1997. The Company is not engaged in multiple
businesses or geographic segments requiring separate disclosure under SFAS No.
131.

    Use of 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.

    Fair Market Value of Financial Instruments. The carrying amounts of notes
payable and trade accounts payable approximate fair value because of the short
maturity of these financial instruments.

    Reclassifications. Certain previously reported amounts were reclassified to
conform to current year presentations.

3. INVENTORY VALUATION

    In connection with the implementation of fresh-start reporting, the Company
increased its inventory valuation reserve to $7,274 at October 2, 1998 in order
to adjust the carrying value of its inventory to its net realizable value. The
inventory valuation reserve was $5,336 at May 29, 1999 and $2,218 at May 30,
1998. The reduction in the inventory valuation reserve is the result of sales of
aged merchandise below normal margin levels.

4. OTHER ACCRUED LIABILITIES

    Other accrued liabilities consist of the following as of the fiscal years
ended May:

<TABLE>
<CAPTION>

                                       Successor   Predecessor
                                         1999         1998
                                      ----------   ----------

<S>                                   <C>          <C>
Accrued wages and benefits ........   $    2,472   $    3,450
Accrued bankruptcy claims .........        2,071           --
Accrued professional fees .........        1,922        1,766
Sales tax .........................          694          686
Layaway and customer refunds ......          414          489
Accrued interest ..................          254          790
Other accrued expenses ............        5,477        2,517
                                      ----------   ----------
                                      $   13,304   $    9,698
                                      ==========   ==========
</TABLE>


                                       28
<PAGE>   29

5. LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS

    Liabilities subject to compromise under reorganization proceedings consists
of the following as of the fiscal years ended May:

<TABLE>
<CAPTION>

                                                                         Successor    Predecessor
                                                                            1999        1998
                                                                         ----------   -----------
<S>                                                                      <C>          <C>
Secured liabilities:
  Borrowings outstanding under Revolving Credit Agreement (Note ..  ..   $       --   $   57,855
     6)
  Senior Secured Notes (includes interest payable of $3,073
     Accrued through Petition Date) (Note 6) .........................                    53,073
  Other notes payable and capital lease obligations ..................           --           88
                                                                         ----------   ----------
                                                                                 --      111,016
                                                                         ----------   ----------
Unsecured liabilities:
  Trade accounts payable .............................................                     4,870
  Other accrued expenses (includes restructuring and
     Reorganization expenses) ........................................           --       10,926
                                                                         ----------   ----------
                                                                                 --       15,796
                                                                         ----------   ----------
                                                                         $       --   $  126,812
                                                                         ==========   ==========
</TABLE>

    In accordance with the Plan, these liabilities subject to compromise were
resolved on the Effective Date.

6. NOTES PAYABLE

    On October 2, 1998, the Company entered into a three year, $50.0 million
financing agreement with Foothill Capital Corporation as a lender and as agent
for a lender group (the "Lenders"). The lenders will make revolving advances to
the Company in amounts determined based on percentages of eligible accounts
receivable and inventory. The annual rate of interest will be, at the Company's
option, (i) 2.25% per annum over the Eurodollar rate or (ii) 0.5% per annum over
the bank's prime rate, provided, however, that in no event will the applicable
interest rate on any advance be less than 7% per annum. Interest charges are
payable monthly. Upon the occurrence and during the continuation of any event of
default under the financing agreement, all obligations will bear interest at a
per annum rate equal to three percentage points above the otherwise applicable
interest rate. As collateral for any and all obligations to the lenders under
the financing agreement, the Company granted a first priority perfected security
interest in and to substantially all of its owned or thereafter acquired assets,
both tangible and intangible. The financing agreement contains quarterly
covenants which include its meeting a minimum level of tangible net worth and
prohibits the payment of dividends. See "Note 11 Subsequent Events - Amendment
to Financing Agreement with Foothill."

    At May 29, 1999 the Company had direct borrowings of $45.9 million
outstanding under the revolving line of credit, all of which was classified as
current, with an interest rate of 8.25% on $2.9 million, 7.25% on 18.0 million
and 7.24% on $25.0 million. The weighted average interest rate for the eight
months ended May 29, 1999 was 7.56%. At May 29, 1999 the Company had additional
credit available of approximately $4.1 million.

7. INCOME TAXES

    During 1999, the Company's net operating losses were reduced by
approximately $49 million as a result of debt discharge income. Pursuant to IRC
382 (1)(5), the Company's NOL's were further reduced by $27 million. At May 29,
1999, the Company had a net operating loss carryforward for federal income tax
purposes of $36 million. The remaining carryforward is not subject to any annual
limitation on its use. In the event of more than a 50% change in ownership of
the Company prior to October 2, 2000, the annual limitation on the use of the
losses will be zero. These losses begin to expire in 2012. In addition, the
Company has AMT credit carryforwards of $109. These credits do not expire. The
Company maintains a valuation allowance against the net deferred tax assets,
which in Management's opinion reflects the net deferred tax asset that is more
likely than not to be realized.



                                       29
<PAGE>   30

    The provision for income taxes includes the following:

<TABLE>
<CAPTION>
                               SUCCESSOR   PREDECESSOR
                             FOR THE EIGHT FOR THE FOUR      PREDECESSOR
                             MONTHS ENDED  MONTHS ENDED  FOR THE FISCAL YEARS
                                MAY 29,     OCTOBER 2,        ENDED MAY
                                 1999         1998         1998        1997
                             ------------- ------------  --------    --------
<S>                          <C>           <C>           <C>         <C>
       Current:
         Federal ........        $ --         $ --         $ --        $204
         State ..........          --           --           --          30
                                 ----         ----         ----        ----
                                   --           --           --         234
       Deferred:
         Federal ........          --           --           --          50
         State ..........          --           --           --          --
                                 ----         ----         ----        ----
                                   --           --           --          50
                                 ----         ----         ----        ----
                                 $ --         $ --         $ --        $284
                                 ====         ====         ====        ====
</TABLE>

    The Company's effective tax rate differs from the statutory federal income
tax rate as follows:

<TABLE>
<CAPTION>
                             SUCCESSOR   PREDECESSOR
                           FOR THE EIGHT FOR THE FOUR         PREDECESSOR
                           MONTHS ENDED  MONTHS ENDED     FOR THE FISCAL YEARS
                              MAY 29,     OCTOBER 2,           ENDED MAY
                               1999         1998           1998          1997
                           ------------- ------------    --------      --------
<S>                        <C>           <C>             <C>           <C>
Statutory rate ........        (35.0)%       (35.0)%       (35.0)%       (35.0)%
Surtax benefit ........         1.0           1.0           1.0           1.0
Valuation allowance ...        34.0          34.0          34.0          35.4
Other .................          --            --            --          (0.8)
                               ----          ----          ----          ----
                                0.0%          0.0%          0.0%          0.6%
                               ====          ====          ====          ====
</TABLE>

    Significant components of the Company's deferred income taxes are as
follows:

<TABLE>
<CAPTION>
                                                SUCCESSOR       PREDECESSOR
                                                 MAY 29,          MAY 30,
                                                  1999             1998
                                                ---------       -----------
<S>                                             <C>             <C>
      Current tax assets:
        Reserve for bad debts ..............    $  2,233         $  3,081
        Inventory ..........................         705              584
        Vacation accrual ...................         358              341
        State Franchise taxes ..............         991           (1,018)
        Restructuring reserve ..............       3,053            3,617
        Other ..............................          (8)              --
                                                --------         --------
                                                   7,332            6,605
                                                ========         ========
      Noncurrent tax assets:
        State franchise taxes ..............        (818)          (1,218)
        Property and equipment .............      (1,138)          (1,237)
        Net operating loss carryforwards ...       2,558           40,368
        Other ..............................       2,159            1,006
                                                --------         --------
                                                   2,761           38,919
                                                --------         --------
      Total deferred tax assets ............      10,093           45,524
      Valuation allowance ..................      (9,982)         (45,452)
                                                --------         --------
      Net deferred tax assets ..............    $    111         $     72
                                                ========         ========
</TABLE>

8. COMMITMENTS AND CONTINGENCIES

    The Company leases store and office facilities and certain equipment used in
its regular operations under operating leases, which expire at various dates
through 2010. The store leases provide for additional rentals based upon sales
and for payment of taxes, insurance and certain other expenses. Rent expense
charged to operations is as follows for the fiscal years ended May:


<TABLE>
<CAPTION>
                              SUCCESSOR    PREDECESSOR
                            FOR THE EIGHT  FOR THE FOUR          PREDECESSOR
                            MONTHS ENDED   MONTHS ENDED      FOR THE FISCAL YEARS
                              MAY 29,       OCTOBER 2,            ENDED MAY
                                1999           1998           1998           1997
                            -------------  ------------     -------        -------
<S>                         <C>            <C>              <C>            <C>
Minimum rentals ......        $ 5,078        $ 2,620        $ 9,373        $11,616
Contingent rentals ...          1,218            536          2,216          2,706
                              -------        -------        -------        -------
                              $ 6,296        $ 3,156        $11,589        $14,322
                              =======        =======        =======        =======
</TABLE>


                                       30
<PAGE>   31

    Included in the above table is rent expense paid to officers/shareholders
related to certain stores and the office facility of $0, $683 and $649,
respectively for the fiscal years ended May 1999, 1998 and 1997.

    Minimum rental commitments for all remaining noncancelable leases in effect
as of May 29, 1999 are as follows for the fiscal years ended May:

<TABLE>
<S>                                         <C>
                       2000.............    $  7,034
                       2001.............       6,391
                       2002.............       5,842
                       2003.............       5,516
                       2004.............       4,882
                       Thereafter.......      13,835
                                            --------
                                            $ 43,500
                                            ========
</TABLE>

    The Company enters into consignment inventory agreements with its key
vendors in the ordinary course of business. During Fiscal 1999, consignment
inventory on hand ranged from $30 to $38 million. These amounts are excluded
from the merchandise inventory balance on the accompanying balance sheet.
Consignment inventory was approximately $30.1 million and $32.0 at May 29, 1999
and May 30, 1998, respectively.

    The Company is from time to time involved in routine litigation incidental
to the conduct of its business. Based upon discussions with legal counsel,
management believes that its litigation currently pending, other than its
Chapter 11 proceedings previously discussed, will not have a material adverse
effect on the Company's financial position or results of operations.

9. SHAREHOLDERS' EQUITY (DEFICIENCY)

    Stock Option Plans. In 1998 the Company adopted a stock option plan for
certain of its officers and key employees. The number of shares of common stock
that can be purchased pursuant to this plan cannot exceed 500,000 and must be
granted prior to October 2, 2008. The exercise price for options granted under
this plan may not be less than the fair market value of the Company's common
stock at the date of grant. These options become exercisable over a four year
period and vest at 25% per year. At May 29, 1999, the Company had 231,200
options outstanding with an exercise price of $6.67 per share.

    In 1998 the Company also adopted a stock option plan for its non-employee
directors. The number of shares of common stock that can be purchased pursuant
to this plan cannot exceed 250,000 and must be granted prior to September 30,
2008. The exercise price for options granted under this plan may not be less
than the fair market value of the Company's common stock at the date of grant.
These options become exercisable over a four year period and vest at 25% per
year. At May 29, 1999, the Company had 25,000 options outstanding with an
exercise price of $6.67 per share.


    Stock options for all plans are summarized as follows:

<TABLE>
<CAPTION>
                                                       Weighted Average
                                             1999       Exercise Price
                                           -------     ----------------
<S>                                        <C>         <C>
       Options outstanding at the
         beginning of the year.........         --              --
       Granted.........................    256,200         $  6.67
                                           -------         -------
       Options outstanding at the
         end of the year...............    256,200         $  6.67
                                           =======         =======
</TABLE>

    The estimated fair value of options granted was $3.15 per share during
Fiscal 1999. The fair value of each stock option grant was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate 4.8%, no dividend yield, expected lives of
7.23 years and expected volatility of 35%. The Company applies the provisions of
APB Opinion 25 and related interpretations in accounting for its employee
benefit plans. Accordingly no compensation expense has been recognized for its
stock option plans. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date for the awards under
those plans consistent with the method prescribed by SFAS No. 123, The Company's
proforma net loss would have been $3.0 million for the eight month period ended
May 29, 1999. Proforma net loss per share would have been $(.60) for the eight
month period ended May 29, 1999.


                                       31
<PAGE>   32

    Warrants. At May 29, 1999 the Company had 263,158 warrants outstanding which
were issued to shareholders of Barry's Jewelers, Inc as a part of the Company's
Reorganization. The warrants are exercisable over a five year period with strike
prices ranging from $19.69 to $24.00 per share. The Company has an option that,
upon the occurrence of certain transactions, allows the Company to call the
warrants at a price equal to the greater of $.20 or the net exercise value
(i.e., the difference between the fully diluted market price of the common stock
and the strike price of the warrant.)

    401(k) Retirement Plan. Barry's Board of Directors adopted a qualified
401(k) retirement plan effective June 1, 1995. Substantially all full-time
employees of the Company, age 21 and older, are eligible to participate in the
Company's 401(k) plan beginning the first day of the month following the date of
employment. Employees may elect to contribute 1% to 15% of their compensation,
subject to certain IRS limitations. Effective June 1, 1999, the plan was
amended, changing its name to Samuels 401(k) Plan, changing the plan record
keeper, changing the eligibility period to the first day of the month following
the date of employment, and changing the plan year to a calendar year. Employer
matching contributions are determined annually by a Board of Directors
resolution. The Board of Directors agreed to match contributions for calendar
year 1999 at $.50 per dollar of contribution up to a 6% deferral rate. No
employer matching contributions were granted prior to that time. Participants
are partially vested in employer matching contributions after two years and
fully vested after five years of employment with the Company.

    Employee Incentive Stock Grant. On October 2, 1998, the Company issued
250,000 restricted shares of common stock to certain key executives as part of
their employment agreements provided for in the Plan of Reorganization. These
grants vest 25% per year, commencing on the grant date and each of the first
three anniversaries thereof. At May 29, 1999, 62,500 shares were fully vested.
As a result of these grants, the company recognized deferred compensation
expense in the amount of $0.4 million for Fiscal 1999. The deferred compensation
expense is being amortized over the remaining three-year vesting period.

    Notes Receivable. As part of the employment agreements for certain key
executives, the company issued notes in the amount of $936 (and agreed to issue
more notes as shares vest) to help defray the tax expense of the above stock
grants. These notes bear interest at the applicable federal short-term rate and
are payable in quarterly installments over the three year vesting schedule. If
however, the executive is employed on the quarterly due date, a bonus in the
amount of the principal then due is then payable. The Company recognized
deferred compensation expense in the full amount of the notes issued. The
notes receivable will be charged to income as compensation expense over
three-years.

10. REORGANIZATION COSTS

    Reorganization costs consisted of the following:

<TABLE>
<CAPTION>
                                                                       SUCCESSOR      PREDECESSOR
                                                                     FOR THE EIGHT    FOR THE FOUR             PREDECESSOR
                                                                      MONTHS ENDED    MONTHS ENDED         FOR THE FISCAL YEARS
                                                                         MAY 29,       OCTOBER 2,               ENDED MAY
                                                                          1999            1998             1998             1997
                                                                     -------------    ------------       --------         --------
<S>                                                                  <C>              <C>                <C>              <C>
Professional fees ..............................................        $     --        $  3,196         $  5,662         $    462
Loss on disposal of property and equipment (related to store
  closures and the Company's former headquarters)...............              --             379            2,448               --
Adjustments to pre-petition unsecured liabilities ..............              --              --            1,440               --
Provision for lease rejection claims ...........................              --              81            1,127            1,860
Employee costs related to the Chapter 11 filing ................             400             239              696               --
Other ..........................................................              --             926              586               --
Interest  earned  on  accumulated  cash  resulting  from
Chapter 11 Filing ..............................................              --            (384)            (825)              --
                                                                        --------        --------         --------         --------
Total ..........................................................        $    400        $  4,437         $ 11,134         $  2,322
                                                                        ========        ========         ========         ========
</TABLE>

    Cash paid (net of interest income) for reorganization costs during the eight
months ended May 29,1999, the four months ended October 2, 1998, and the years
ended May 1998 and 1997 amounted to $2.5 million, $2.3 million, $3.6 million and
$1.2 million, respectively. Retainers paid to professionals are included in
prepaid and other current assets in the accompanying 1997 balance sheet.

11. SUBSEQUENT EVENTS

    Sale of Credit Portfolio to Alliance Data Systems. On July 20, 1999, the
Company entered agreements with Alliance Data Systems ("ADS") to sell its
existing credit card accounts and to provide a third party credit card program
for the benefit of the Company's customers. The transactions set out in the
agreements were effected on August 30, 1999. The Company does not expect a
significant change in its credit policies under the agreement with ADS. On
closing the sale to ADS, the company sold its approximately $46.8 million,
Accounts Receivable to World Financial Network National Bank ("WFN") at face
value, less a hold back reserve of


                                       32
<PAGE>   33

approximately $9.4 million. The net proceeds of approximately $37.4 million were
used to reduce the balances outstanding under the company's financing agreement
with the Lenders.

    Amendment to financing agreement with Foothill. Concurrent with the sale of
the credit facility with ADS, the financing agreement was amended to allow,
among other things, for the sale to WFN and a reduction of the total commitment
under the financing agreement with the Lenders from $50.0 million to $40.0
million.

    Acquisition of Silverman's and New Store Commitments. On July 20, 1999
Samuels entered into a purchase agreement with Silverman's to acquire lease
rights and fixtures for seventeen Silverman's stores. The purchase price for
these assets was 60,000 shares of the Company's Common Stock, the delivery of
which is contingent upon the delivery of the assets to the Company. The company
will not assume any of Silverman's liabilities and will be acquiring none of
Silverman's other assets as part of the purchase agreement. Acquisition of the
lease rights is subject to landlord approval, and where landlord approval cannot
be received, the purchase price will be reduced based upon an agreed upon
allocation. The 60,000 shares have been issued and are registered under the
Company's shelf registration on Form S-1, declared effective by the SEC on June
9, 1999, but they are currently held in trust pursuant to an escrow agreement
and are to be released to the seller upon the successful assignment of the lease
rights to the Company. The actual number of leases assigned may not be
determinable until as late as December 1, 1999. To the extent certain lease
rights are not assigned, the shares allocated to those leases will be returned
to the Company. As of August 31, 1999, five leases have been assumed that will
require the issuance of 16,500 shares. Two lease assignments with a total of
4,600 shares allocated have already been abandoned. The other ten lease
assignments are still under negotiation.

    The Silverman's acquisition represents the Company's departure from a mall
only retail jewelry environment. Only one of the former Silverman's stores is
located in a mall. The others are either located in power centers or are
stand-alone stores. The Company plans to rename the non-mall stores Samuels
Diamonds. The mall store will be renamed Samuels Jewelers.

    As of August 31, 1999, in addition to the Silverman's store acquisition, the
company has opened two new stores and entered into leases for twelve additional
new stores which will be opened prior to the 1999 Christmas retail selling
season. Five of these stores will be in three new markets and the rest are in
existing markets. Additionally, the company is in various stages of negotiations
for several other leases on new locations.


                                       33
<PAGE>   34

                                   SCHEDULE II

                             SAMUELS JEWELERS, INC.


                         VALUATION & QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                              BALANCE AT       CHARGE TO                       BALANCE AT
                                              BEGINNING        COSTS AND      DEDUCTIONS/        END OF
                                              OF PERIOD        EXPENSES         OTHER            PERIOD
                                              ----------       ---------      -----------      ----------
<S>                                           <C>              <C>            <C>              <C>
YEAR END 1999:
  Allowance for doubtful accounts .....        $  7,099        $  5,509        $ (7,488)        $  5,120
  Inventory valuation allowance (1) ...        $  2,218        $  5,056        $ (1,938)        $  5,336
YEAR END 1998:
  Allowance for doubtful accounts .....        $ 10,300        $  6,586        $ (9,787)        $  7,099
  Inventory valuation allowance .......        $  3,033        $               $   (815)        $  2,218
YEAR END 1997:
  Allowance for doubtful accounts .....        $ 10,930        $ 18,766        $(19,396)        $ 10,300
  Inventory valuation allowance .......        $     --        $  3,033        $     --         $  3,033
YEAR END 1996:
  Allowance for doubtful accounts .....        $ 11,662        $ 11,839        $(12,571)        $ 10,930
</TABLE>


(1) The inventory valuation allowance was adjusted by $5,056 as of October 2,
    1998, as a part of the Company's adoption of the fresh-start reporting
    requirements of Statement of Position 90-7. See "Note 1 Reorganization and
    Basis of Presentation."


                                       34
<PAGE>   35

                                INDEX TO EXHIBITS


<TABLE>
<CAPTION>
      Exhibit No.                          Exhibit
      -----------                          -------
<S>               <C>
         2.1      Order Confirming Original Disclosure Statement and Plan of
                  Reorganization, Dated April 30, 1998, Proposed by Barry's
                  Jewelers, Inc., as modified, dated September 16, 1998 (with
                  Plan attached).(1)

         2.2      Certificate of Ownership and Merger of Barry's Jewelers, Inc.
                  with and into Samuels Jewelers, Inc. dated October 2, 1998.(1)

         3.1      Certificate of Incorporation of Samuels Jewelers, Inc.(1)

         3.2      Bylaws of Samuels Jewelers, Inc.(1)

         4.1      Warrant Agreement dated as of October 2, 1998 between the
                  Company and Norwest Bank Minnesota, N.A., as Warrant Agent.(1)

         4.2      Registration Rights Agreement dated as of October 2, 1998
                  among the Company, The Galileo Fund, L.P., B III Capital
                  Partners, L.P., DDJ Overseas Corporation, Paine Webber High
                  Income Fund, Managed High Yield Fund Inc., All-American Term
                  Trust Inc. and Paine Webber Offshore Funds PLC, The High
                  Income Fund.(1)

         10.1(a)  Loan and Security Agreement dated October 2, 1998, between the
                  Company and Foothill Capital Corporation, as agent for certain
                  lenders party thereto.(2)

         10.1(b)  Amendment Number One to Loan and Security Agreement entered
                  into as of April 15, 1999, among the Company, Foothill Capital
                  Corporation and the financial institutions listed on the
                  signature pages thereto.(3)

         10.1(c)  Amendment Number Two to Loan and Security Agreement entered
                  into as of August 30, 1999, among the Company, Foothill
                  Capital Corporation and the financial institutions listed on
                  the signature pages thereto, (3)

         10.2     Employment Agreement, dated as of October 2, 1998 between the
                  Company and Randy N. McCullough.(1)

         10.3     Employment Agreement, dated as of October 2, 1998 between the
                  Company and E. Peter Healey.(1)

         10.4     Employment Agreement, dated as of October 2, 1998 between the
                  Company and Chad C. Haggar.(1)

         10.5     Employment Agreement, dated as of October 2, 1998 between the
                  Company and Bill R. Edgel.(1)

         10.6     Employment Agreement, dated as of October 2, 1998 between the
                  Company and Paul Hart.(1)

         10.7     Private Label Credit Card Agreement between World Financial
                  Network National Bank and the Company dated as of July 27,
                  1999.(3)

         10.8     Purchase and Sale Agreement between World Financial Network
                  National Bank and the Company dated as of July 27, 1999.(3)

         23.1     Consent of Independent Auditors.(3)

         27.1     Financial Data Schedule.(3)

         99.1     Press Release dated October 5, 1998.(1)
</TABLE>


---------------

(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
    October 6, 1998.

(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
    the quarter ended August 29, 1998.

(3) Filed herewith.