<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 JUNE 2, 2001
                         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 [ ]

Indicate by check mark 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. [ ]

As of August 28, 2001, the aggregate market value of the voting stock, held by
nonaffiliates of the issuer, was $909,436 based upon an average price of $0.60
multiplied by 1,515,726 shares of common stock outstanding on such date held by
nonaffiliates.

     As of August 28, 2001, the issuer had a total of 7,909,185 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 2001 Annual Meeting
of Shareholders, to be filed with the SEC within 120 days of June 2, 2001.

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

<PAGE>   2

                                     PART I


ITEM 1. BUSINESS


THE COMPANY

     Samuels Jewelers, Inc. (the "Company" or "Samuels") operates a national
chain of specialty retail jewelry stores located in regional shopping malls,
power centers, strip centers and stand-alone stores. The Company sells fine
jewelry items in a wide range of styles and prices, with a principal emphasis on
diamond and gemstone jewelry. As of August 28, 2001, the Company operated 164
retail jewelry stores in 23 states. The Company also sells jewelry online at
Samuels.cc, SamuelsJewelers.com and JewelryLine.com. The Company currently
operates stores under the following four trade names: "Samuels", "C&H Rauch",
"Schubach" and "Samuels Diamonds". Measured by the number of retail locations,
Samuels is the seventh largest specialty retailer of fine jewelry in the
country.

     The Company takes its name, "Samuels Jewelers", from a chain of stores
operated by its corporate predecessor, Barry's Jewelers, Inc. (the
"Predecessor"), in the San Francisco Bay area. The Samuels chain, founded in
1891, blends a rich tradition of providing an excellent selection of fine
jewelry with outstanding customer service. Since 1998, the Company has
consolidated the number of trade names under which it operates from fourteen to
four and it intends to operate all stores under either the "Samuels" or "Samuels
Diamonds" name within the next few years.

     Although it evoked tradition in selecting its operating trade name, the
Company progressively seeks new and efficient ways to operate its business. The
Company targets a more affluent and less credit-dependent consumer through a
sophisticated marketing program that focuses on offering quality merchandise at
a fair price. The Company uses a store prototype that is customer friendly,
inviting and attracts the Company's target customer, as well as the various mall
developers. The Company manages the business, including merchandising and
distribution functions, through operating systems that use current technology.
In Fiscal 2000, the Company began to offer online jewelry shopping to complement
the operations of its physical store locations.

The Company is incorporated under the laws of Delaware. Its corporate office is
located at 2914 Montopolis Drive, Suite 200, Austin, Texas 78741, and its
telephone number is (512) 369-1400.


HISTORY

     The Company was created in August 1998 for the purpose of acquiring the
assets of the Predecessor as part of its Plan of Reorganization (the "Plan"),
which was confirmed by the bankruptcy court on September 16, 1998 and was
consummated on October 2, 1998 (the "Reorganization").

     As part of the restructuring, the newly reconstituted board of directors of
the Predecessor recruited a new management team. After its appointment, the new
management team identified several problems with the Predecessor's financial and
operational situation, primarily that the Predecessor was significantly
over-leveraged, was to operating a number of unprofitable store locations and
was incurring significant write-offs of its receivables due to targeting a less
affluent, more credit-dependent customer. The new management team embarked on
the development and implementation of a business plan designed to address these
issues and to restore the Predecessor to profitability. Originally, the
Predecessor hoped to implement its new business plan without having to commence
bankruptcy proceedings, but after discussions with various constituencies it was
determined that the Predecessor 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 operational affairs.

     With the cooperation of these constituencies, the new management team began
to institute a 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. In the spring of
1998, management presented a plan that readily received approval from the
various constituencies. The 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 and successful effort of relocating
the home office from southern California to central Texas. These efforts were
commenced throughout and substantially concluded in 1998.

     Under the Reorganization, the Company was funded by $15 million of new
equity provided by bondholders of the Predecessor, who also consented to the
conversion of $50 million of bonds they held in the Predecessor into equity of
the Company. Specifically, the Plan provided for the following in connection
with the Reorganization:

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


                                       2
<PAGE>   3

o    distribution of 2,500,000 shares of the Company's common stock to the
     Predecessor's bondholders in exchange for their allowed claims;

o    distribution of 2,250,000 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 up to 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 million. Upon consummation
of the Reorganization 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 the balance of the
Predecessor's previous line of credit with BankBoston.

     The Company's balance sheet and financial statements have been impacted by
the Reorganization and the adoptions made by the Company in connection with the
Reorganization as described in "Notes to Financial Statements--1. Reorganization
and Basis of Presentation."

     As part of the Reorganization, the Company changed the fiscal year end used
by its Predecessor from May 31 to the Saturday closest to May 31. The Company's
fiscal years ended June 2, 2001 ("Fiscal 2001"), June 3, 2000 ("Fiscal 2000")
and May 29, 1999 ("Fiscal 1999") may be referred to herein as such.

     The primary remnants of the Predecessor's operations are 95 locations of
the more than 200 leasehold interest that the Predecessor occupied. Most of the
leases for these locations have been renegotiated and many of the stores have
been renamed and remodeled. The Company has consolidated the number of trade
names under which it operates from fourteen to four, only two of which belonged
to the Predecessor. The Company plans to rename the remaining stores in the
coming few years.

     In August 1999, the Company outsourced its credit operations to an
independent credit expert, Alliance Data Services, through its wholly owned
subsidiary World Financial Network National Bank ("WFN"). The Company sold its
existing credit card accounts to WFN and agreed to have WFN provide a
third-party credit card program for the benefit of the Company's customers. Upon
closing the sale of the existing credit card accounts, the Company sold its
approximately $46.8 million outstanding accounts receivable to WFN at face
value, less a holdback reserve of approximately $9.4 million. The Company used
the net proceeds of approximately $37.4 million to reduce the balances
outstanding under its secured line of credit with Foothill Capital Corporation
and the Company then reduced the total commitment under the secured line of
credit from $50 million to $40 million.

     During Fiscal 2000, the Company opened several new stores, either by
negotiating new leases or acquiring leases through the acquisition of other
retail jewelry operations. The Company opened 17 new stores during Fiscal Year
2000 by negotiating new leases. The Company's acquisition of other retail
jewelry operations included the following:

o    Henry Silverman Jewelers, Inc.--On July 27, 1999, the Company entered into
     a purchase agreement with Henry Silverman Jewelers, Inc. ("Silverman's") to
     acquire its trade names, customer lists, fixtures and the lease rights for
     14 Silverman's stores. The Company's purchase price for these assets was
     54,600 shares of its common stock, then valued at approximately $0.3
     million. The Company did not assume any of Silverman's liabilities or
     acquire any of Silverman's remaining assets. The shares of common stock
     were issued and registered under the Company's shelf registration statement
     on Form S-1, declared effective by the SEC on June 9, 1999. The Company
     also issued 2,500 shares of its common stock to an individual as a finder's
     fee as part of the transaction. The Company currently operates 11 of these
     stores in five states under the name "Samuels Diamonds". See "Notes to
     Financial Statements--2. Accounting for Acquisitions."

o    C & H Rauch, Inc.--In November 1999, the Company acquired substantially all
     of the assets of C & H Rauch, Inc. ("Rauch") through the purchase of all of
     the outstanding stock of Rauch. The Company's net purchase price for this
     acquisition was approximately $20.0 million, consisting of $2.0 million in
     cash, notes payable in the amount of $6.0 million and approximately $12.0
     million in liabilities assumed. The Company's acquisition of Rauch added 40
     new stores, including operations in the states of Kentucky, Ohio, Indiana,
     West Virginia and Virginia. Upon completion of the acquisition, Rauch was
     merged with and into the Company. Currently, the Company continues to
     operate 27 of these stores, 24 under the "C&H Rauch" nameplate and 3 stores
     as "Samuels". See "Notes to Financial Statements--2. Accounting for
     Acquisitions."


                                       3
<PAGE>   4

o    Musselman Jewelers--Pursuant to an asset purchase agreement that was
     entered into in December 1999, the Company acquired from Wilkerson &
     Associates substantially all of its interests in and rights to 14 Musselman
     Jewelers stores ("Musselman"), including trade names, customer lists,
     fixtures and the lease rights related to such stores. The Company's
     purchase price for these assets was 60,000 shares of its common stock, then
     valued at approximately $0.5 million. Under the terms of the asset purchase
     agreement, Wilkerson & Associates has the right to put back the shares to
     the Company at $11.45 per share, on the second anniversary of the date of
     closing. The liability, for this put option, is included in other accrued
     liabilities. The Company did not assume any of Musselman's liabilities and
     did not acquire any of Musselman's other assets as part of the acquisition.
     The 60,000 shares of the Company's common stock were registered under the
     Company's shelf registration statement on Form S-1, as amended by
     Post-Effective Amendment No. 1 on Form S-4 to Form S-1 Registration
     Statement. The Company currently operates three of these stores all as
     "Samuels" under Musselman's prior lease agreements. See "Notes to Financial
     Statements--2. Accounting for Acquisitions."

     The Company also began online jewelry shopping operations during Fiscal
2000. In March 2000, the Company acquired the online operations and assets of
JewelryLine.com, Inc. ("JewelryLine"), including the registered domain names,
related to JewelryLine's operation of an online Internet site for the sale of
jewelry and related items. The Company's purchase price for the JewelryLine
assets was 35,000 shares of the Company's common stock, then valued at
approximately $0.3 million, that were registered pursuant to the Company's shelf
registration statement on Form S-1, as amended by Post-Effective Amendment No. 1
on Form S-4 to Form S-1 Registration Statement. The Company did not assume any
of JewelryLine's liabilities as part of the transaction. See "Notes to Financial
Statements--2. Accounting for Acquisitions." The Company also registered
Samuels.cc and Samuels Jewelers.com web site locations and began offering
merchandise at such locations, along with JewelryLine.com, on April 17, 2000.


FISCAL YEAR 2001 DEVELOPMENTS

     In June and July 2000, the Company completed the sale of 2,795,940 shares
of its common stock, par value $.001 per share, to several purchasers pursuant
to a private offering by the Company. The purchasers of such common stock
included funds controlled by DDJ Capital Management, LLC, certain vendors of the
Company and directors and officers of the Company. The Company sold the shares
at a price of $5.25 per share for an aggregate purchase price of approximately
$14.7 million. The Company conducted the private offering and sold the 2,795,940
shares under an exemption from registration of such shares under the Securities
Act of 1933, as amended (the "Securities Act"), provided in Section 4(2) of the
Securities Act and pursuant to Rule 506 under Regulation D under the Securities
Act.

     During Fiscal 2001, as part of its repositioning strategy the Company
closed 38 under-performing stores. As a result of these closures the Company
recorded approximately $2.4 million in expenses including the loss on disposal
of assets and payments made to landlords for lease terminations. Amounts
associated with these closures are included in goodwill, reorganization value
and closed store write-down expenses for the year ended June 2, 2001.

     As a result of its cash losses and in order to meet its liquidity needs,
the Company entered into a loan agreement and junior security agreement on April
30, 2001, with lenders represented by DDJ Capital Management, LLC acting as
their agent, in order to address the Company's liquidity needs. The agreement
provides up to $15 million for working capital needs based on percentages of
eligible inventory and the level of borrowings outstanding under the Company's
senior revolving credit facility and also includes the lending of an additional
$14.3 million arising out of the discounted purchase of a portion of the
Company's accounts payable. Interest is payable monthly. The interest rate on
borrowings under this agreement is 20% per annum through October 31, 2001 and
then increases by .25% per month until the expiration of the agreement in June
2002. Upon the occurrence and during the continuance of any event of default,
interest shall accrue at a per annum rate that is 2% above the otherwise
applicable rate. Under terms of the junior security agreement, the Company
granted a security interest in and to substantially all owned or thereafter
acquired assets, both tangible and intangible, as collateral for amounts
borrowed under the loan agreement. The security provided by the Company is
subordinated to the secured liens the Company provides to the lenders under its
senior revolving credit facility per the terms of the junior security agreement
and a separate intercreditor and subordination agreement that was entered into
by and between the lenders of such revolving credit facility and the lenders of
the new loan agreement.

     The Company evaluated its goodwill associated with the purchase of C&H
Rauch and its reorganization value in excess of amounts allocated to
identifiable assets, and determined that their value had been impaired.
Consequently, the company wrote-off the total net book value of these intangible
assets in the amount of $17.1 million in the fourth quarter of Fiscal 2001.

     The Company also reviewed the expected future cash flows from property and
equipment associated with its retail stores. As a result of recent trends, the
Company recognized a loss of $3.3 million during the fourth quarter of Fiscal
2001 for the impairment of assets at certain stores.


                                       4
<PAGE>   5

STRATEGY

     The Company's operating strategy is to provide exceptional value on fine
jewelry to the 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 also supported by a trained and knowledgeable sales staff and a
centralized distribution system to replenish merchandise.


MERCHANDISE STRATEGY

     Utilizing an experienced team of merchants with both buying and
manufacturing expertise, the Company has been able to develop merchandise
assortments that provide exceptional quality at competitive prices. This focus
on providing products with clear, competitive features allows differentiation by
offering a better value to the consumer. The Company has also positioned its
merchandise assortments to appeal to a mainstream jewelry consumer with
competitive price points, modern styling and expanded selection in high volume
product categories.


INVENTORY MANAGEMENT

     Inventory is purchased and distributed centrally through the home office in
Austin, Texas. Store inventory is replenished weekly, or more often during peak
selling seasons, and stock is balanced regularly to improve turnover. Management
believes that centralized merchandise purchasing and distribution allows the
Company to better ensure the quality of offerings and take advantage of volume
pricing discounts.

     The three largest volume vendors collectively have accounted for an
aggregate of 43%, 45% and 31% of merchandise purchases by the Company during
Fiscal 2001, 2000 and 1999, respectively. Management believes that the Company's
relationship with its vendors is good.


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. Recent changes in the DeBeers corporate culture and their control on
market pricing may impact the Company's costs in the future. To date there have
been no material effects resulting from these changes.

     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 June 2, 2001, the Company operated 164 stores in 23 states under the
following trade names: "Samuels", "C&H Rauch", "Schubach" and "Samuels
Diamonds". The Company intends to have all of its stores operating under
"Samuels Jewelers" or "Samuels Diamonds" within the next one to two years. The
Company also owns and operates the following sites on the World Wide Web:
Samuels.cc, SamuelsJewelers.com and JewelryLine.com.


                                       5
<PAGE>   6

STORE PERFORMANCE

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

<Table>
<Caption>
                                                                   2001          2000          1999          1998          1997
                                                                 -------       -------       -------       -------       -------
<S>                                                              <C>           <C>           <C>           <C>           <C>
Number of stores at beginning of year ......................         198           116           117           130           161
  Acquired during the year .................................          --            68             5            --            --
  Opened during the year ...................................           4            17             2            --            17
  Closed during the year(1) ................................         (38)           (3)           (8)          (13)          (48)
                                                                 -------       -------       -------       -------       -------
          Total at year end ................................         164           198           116           117           130
                                                                 =======       =======       =======       =======       =======

Percentage increase (decrease) in sales of
  comparable stores(2) .....................................       (10.1)%         4.8%          2.0%          9.2%        (10.0)%
Average sales per comparable store (in
  thousands)(2) ............................................     $   925       $ 1,036       $   968       $   951       $   709
Private label credit sales mix(3) ..........................        33.3%         32.7%         49.5%         54.3%         65.2%
Equivalent store weeks .....................................       9,713         8,586         5,934         6,571         8,657
Equivalent weekly average store sales (in thousands) .......     $  15.2       $  18.3       $  18.3       $  17.3       $  15.1
</Table>

----------

     (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. Fiscal 2000's 53-week percentage sales increase is
          calculated by adding an extra week to Fiscal 1999's comparable store
          sales. Fiscal 2001's percentage sales increase is calculated by
          subtracting the extra week from Fiscal 2000's comparable store sales.

     (3)  Private label credit sales mix represents the percentage of total
          sales made on the Company's private label credit card including sales
          on the accounts provided by WFN after the Company outsourced its
          credit operations in Fiscal 2000.


CREDIT PROGRAM

     On August 30, 1999 the Company sold its then existing credit card accounts
to WFN pursuant to an agreement that called for the Company to transfer its
approximately $46.8 million outstanding accounts receivable to WFN at face
value, less a holdback reserve of approximately $9.4 million to be held by WFN,
thus finalizing the efforts commenced in 1997 by the new management team to
shift its focus from being a credit jeweler to a mainstream jeweler targeting a
more affluent, less credit-dependent customer base. The third-party credit
program generally requires WFN to calculate monthly the total amount of
receivables outstanding and then retain or pay out, as applicable, an amount
such that the holdback reserve is maintained at a constant percentage of
receivables outstanding. The holdback reserve is intended to protect WFN against
charged-off accounts and will be returned to the Company at the end of the
program. Effective May 2001 WFN reduced the holdback reserve from 20% to 16.5%
of the portfolio balance. The Company has recorded the holdback reserve net of a
valuation allowance that reflects management's estimate of losses based on past
performance. The third-party credit card program has an initial term of five
years, but provides the parties the option to extend the agreement beyond such
initial term unless the parties otherwise agree.

     Charges, net of down payments, under the Company's credit program accounted
for approximately 33.3% of Fiscal 2001 sales and 32.7% of Fiscal 2000 sales.
Payment periods for credit sales on the Company's private label credit card
generally range from 24 to 36 months. Customers may also purchase jewelry for
cash, personal check or by using major national credit cards.


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 $42.4 million during the Christmas
2000 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.


                                       6
<PAGE>   7

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's 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. 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.


INFORMATION SYSTEMS

     The Company relies on its computer systems, 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, networks, telecommunications equipment and end
products.


EMPLOYEES

     At June 2, 2001, the Company had approximately 1,024 full-time and
part-time employees. Unions represented approximately 24 employees, or 2.3% of
the Company's employees, at such date. On February 1, 2000, the Company extended
until January 31, 2003, its existing union contract covering these employees on
substantially the same terms. 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 store locations. The stores range in
size from approximately 577 square feet to 3,690 square feet. The Company's
leases for its retail store locations generally have an initial term of five to
ten years and are generally scheduled to expire at various dates through 2011.
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 leases, the Company is required to pay taxes, insurance, and its pro
rata share of common area and maintenance expenses. The leases also often
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. Currently, leases for 7 stores have expired and the Company is occupying
these stores on a month-to-month basis. The Company expects to close some of
these stores in the next few months and is negotiating renewal agreements on the
remaining leases. See "Notes to Financial Statements--7. Commitments and
Contingencies" for information on the Company's minimum rental commitments on
remaining noncancelable leases.

     The Company leases its headquarters in Austin, Texas. The lease for its
headquarters is for approximately 24,000 square feet at a rent of $0.47 per
square foot per month on a triple net basis, the lease for the Company's
headquarters expire on May 31, 2003 but also contains an option to renew for one
additional five-year term at the average monthly net rental rate charged for
comparable


                                       7
<PAGE>   8

premises. The Company previously leased space in Irwindale, California, for its
credit center. Consistent with the Company's outsourcing of its credit
operations to WFN, the Company terminated the lease on the Irwindale facility in
October 1999 in accordance with an early termination provision of that lease.

     As of August 28, 2001, the Company was operating 164 retail stores in 23
states:


<Table>
<Caption>
                                    NUMBER OF
STATE                                STORES
-----                               ---------
<S>                                 <C>
Texas ........................         38
California ...................         31
Kentucky .....................         17
Colorado .....................         12
Arizona ......................          8
Indiana ......................          6
Utah .........................          6
Ohio .........................          5
Idaho ........................          5
Montana ......................          5
New Mexico ...................          5
Others .......................         26
                                      ---
TOTAL ........................        164
                                      ===
</Table>

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


ITEM 3. LEGAL PROCEEDINGS

     On August 16, 2001, Harry S. Cohen and Steven D. Singleton, the former
owners of all of the issued and outstanding stock of C & H Rauch, Inc., filed a
foreclosure action against the Company in the Kentucky Circuit Court of Fayette
County, Kentucky seeking the payment of $2,475,000 pursuant to a promissory note
for payment in January 2001 that was executed and delivered to them by the
Company as part of the purchase price paid by the Company in the acquisition of
C & H Rauch, Inc. The Company intends to defend the suit vigorously based upon
its belief that any payment under such note is subject to rights that it
negotiated as part of such note and the other transaction documents for such
acquisition.

     In addition to the foregoing, 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 June 2, 2001.


                                       8
<PAGE>   9

EXECUTIVE OFFICERS

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



<Table>
<Caption>
         NAME                     AGE    POSITION
         ----                     ---    --------
<S>                               <C>    <C>
         Randy N. McCullough      49     President, Chief Executive Officer and Director
         Chad C. Haggar           37     Senior Vice President - Operations
         Paul W. Hart             43     Senior Vice President - Management Information Systems
         Robert J. Herman         40     Vice President - Finance and Assistant Secretary
</Table>

     Set forth below is biographical information for each executive officer.

     Randy N. McCullough, 49, 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 from March 31, 1998. Mr. McCullough served as the
Predecessor's Executive Vice President and Chief Operating Officer from January
to March 1998. Mr. McCullough joined the Predecessor in April 1997 and was its
Senior Vice President-Merchandise from April 1997 to March 1998. Prior to
joining the Predecessor, 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.

     Chad C. Haggar, 37, has been the Company's Senior Vice President-Operations
since October 2, 1998 and previously served as Vice President-Operations for the
Predecessor since February 1997. Prior to joining the Predecessor, 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. For over
six years prior to 1987, Mr. Haggar served in various management positions with
leading jewelry chains.

     Paul W. Hart, 43, has been the Company's Senior Vice President-Management
Information Systems since October 2, 1998 and previously served in that capacity
for the Predecessor from August 1997. Prior to joining the Predecessor, Mr. Hart
served as Vice President-Management Information Systems of MS Financial, Inc.
from 1996 to 1997. 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, 40, has been the Company's Vice President, Finance and
Assistant Secretary since November 7, 2000. Mr Herman previously served as Vice
President, Controller for the Predecessor Company beginning February 2, 1998.
Prior to joining Barry's, Mr. Herman served as the Controller for Datamark, Inc.
from 1997 to 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 on the Nasdaq OTC Bulletin Board after the effective date of the
Reorganization under the symbol "SMJW".

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

     The following table sets forth the range of the high and low per share
close prices of the Company's Common Stock, as quoted on the Nasdaq OTC Bulletin
Board, for the last two fiscal years. These close prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.

<Table>
<Caption>
                                                      FISCAL YEARS ENDED
                                      ------------------------------------------------
                                          JUNE 2, 2001                 JUNE 3, 2000
                                      --------------------        --------------------
                                       High          Low           High          Low
                                      ------        ------        ------        ------
<S>                                   <C>           <C>           <C>           <C>
First quarter ................        $5.250        $4.000        $4.875        $4.125
Second quarter ...............        $5.500        $2.125        $6.000        $4.125
Third quarter ................        $2.125        $1.563        $8.125        $5.000
Fourth quarter ...............        $1.750        $0.600        $7.875        $5.000
</Table>

HOLDERS

     Management believes that there were approximately 550 beneficial owners of
its Common Stock as of June 2, 2001.


PRIVATE OFFERING

     In June and July 2000, the Company completed the sale of 2,795,940 shares
of its common stock, par value $.001 per share, to several purchasers pursuant
to a private offering by the Company. The purchasers of such common stock
included funds controlled by DDJ Capital Management, LLC, certain vendors of the
Company and directors and officers of the Company. The Company sold the shares
at a price of $5.25 per share for an aggregate purchase price of approximately
$14.7 million. The Company conducted the private offering and sold the 2,795,940
shares under an exemption from registration of such shares under the Securities
Act of 1933, as amended (the "Securities Act"), provided in Section 4(2) of the
Securities Act and pursuant to Rule 506 under Regulation D under the Securities
Act.

     The proceeds from this private offering were used for the general working
capital needs of the Company.


DIVIDENDS

     Under both the Company's senior revolving credit facility and its loan
agreement with lenders represented by DDJ Capital Management, LLC acting as
their agent, the Company is prohibited from paying dividends. See "Notes to
Financial Statements - Note 5. Notes Payable." The Company did not pay any
dividends during Fiscal 2001 and intends to retain its 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, to the extent permitted under the
senior revolving credit facility and its other loan agreement, 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, as of and for each of the two fiscal years ended May 1998 and
for the four months ended October 2, 1998 and the eight months ended June 3,
2000, 53-week fiscal year ended June 3, 2000 and the fiscal year ended June 2,
2001. 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 per share data)

<Table>
<Caption>
                                              Successor       Successor      Successor     Predecessor
                                                Fiscal         Fiscal          Eight          Four
                                                 Year           Year           Months        Months
                                                ended          ended           ended         ended          Predecessor for the
                                                June 2,        June 3,         May 29,      October 2,    Fiscal Years Ended May 31,
                                                 2001           2000            1999           1998           1998          1997
                                              ----------      ---------      ----------    ------------   ----------      ----------
<S>                                           <C>             <C>            <C>           <C>            <C>             <C>
STATEMENT OF OPERATIONS DATA:
  Net sales ..............................     $ 148,044      $ 157,527      $  81,043      $  27,494      $ 113,873      $ 130,446
  Finance and credit insurance fees ......            --          2,639          6,517          3,397         11,316         13,900
                                               ---------      ---------      ---------      ---------      ---------      ---------
                                                 148,044        160,166         87,560         30,891        125,189        144,346
                                               ---------      ---------      ---------      ---------      ---------      ---------
  Operating (loss) income(1) .............       (43,302)        (4,402)           128         (2,672)        (4,009)       (29,741)
                                               ---------      ---------      ---------      ---------      ---------      ---------
  Interest expense, net ..................         2,730          2,834          2,202          2,367          7,025         12,745
  Reorganization items(2) ................            --             --            400        (61,605)        11,134          2,322
  Provision for income taxes .............            --             11             --             --             --            284
                                               ---------      ---------      ---------      ---------      ---------      ---------
  (Loss) income before extraordinary
     item ................................       (46,032)        (7,247)        (2,474)        56,566        (22,168)       (45,092)
  Extraordinary item(3) ..................            --             --             --         11,545             --           (876)
                                               ---------      ---------      ---------      ---------      ---------      ---------
  Net earnings (loss) ....................     $ (46,032)     $  (7,247)     $  (2,474)     $  68,111      $ (22,168)     $ (45,968)
                                               =========      =========      =========      =========      =========      =========
Basic and Diluted Per Share
  Data:(4)
  Earnings (loss) before extraordinary
     item ................................     $   (5.92)     $   (1.43)     $   (0.49)     $   11.31      $   (5.50)     $  (11.25)
                                               =========      =========      =========      =========      =========      =========
  Extraordinary item(3) ..................     $      --      $      --      $      --      $    2.31      $      --      $   (0.22)
                                               =========      =========      =========      =========      =========      =========
  Net earnings (loss) ....................     $   (5.92)     $   (1.43)     $   (0.49)     $   13.62      $   (5.50)     $  (11.47)
                                               =========      =========      =========      =========      =========      =========
Weighted average number of
     common shares outstanding ...........         7,773          5,081          5,002          5,002          4,029          4,007
                                               =========      =========      =========      =========      =========      =========
</Table>


<Table>
<Caption>
                                                SUCCESSOR                           PREDECESSOR
                                   --------------------------------------     -----------------------
                                     2001          2000           1999          1998          1997
                                   ---------     ---------      ---------     ---------     ---------
<S>                                <C>           <C>            <C>           <C>           <C>
BALANCE SHEET DATA:
Current assets ...............     $  56,565     $  73,023      $  80,445     $  95,939     $ 105,390
Working capital ..............         6,082       (10,424)         9,091        77,155        99,482
Total assets .................        78,958       121,803        115,209       110,732       123,483
Total debt(5) ................        41,168        26,658         45,893       126,812       130,271
</Table>

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


(1)  Operating loss for the fiscal year ended June 2, 2001, includes $24,089 for
     impairment of goodwill, reorganization value and store assets, and store
     closing write-offs. See "Notes to Financial Statements--10. Impairment,
     asset disposal and other expenses." Operating loss 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, $3,947 for impairment loss, and $3,033 for inventory valuation
     reserve.

(2)  Reorganization items for the four months ended October 2, 1998, include a
     Fresh-Start reporting income adjustment of $66,042. Other amounts consist
     primarily of professional fees and other costs directly related to the
     Reorganization. See "Notes to Financial Statements--9. 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
     Predecessor'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 Reorganization.

(4)  Net earnings (loss) per share and weighted average number of common shares
     outstanding for the Predecessor are not comparable to the Successor 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" and see "Notes to Financial Statements--1.
Reorganization and Basis of Presentation."

     52-Week Fiscal Year Ended June 2, 2001 ("Fiscal 2001") Compared With the
53-Week Fiscal Year Ended June 3, 2000 ("Fiscal 2000").


STORE ACTIVITY

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

<Table>
<Caption>
                                                                   2001          2000
                                                                 -------       -------
<S>                                                              <C>           <C>
Number of stores at beginning of year ......................         198           116
  Acquired during the year .................................          --            68
  Opened during the year ...................................           4            17
  Closed during the year ...................................         (38)           (3)
                                                                 -------       -------
          Total at year end ................................         164           198
                                                                 =======       =======

Percentage increase (decrease) in sales of
  comparable stores ........................................       (10.1)%         4.8%
Average sales per comparable store (in
  thousands) ...............................................     $   925       $ 1,036
Private label credit sales mix .............................        33.3%         32.7%
Equivalent store weeks .....................................       9,713         8,586
Equivalent weekly average store sales (in thousands) .......     $  15.2       $  18.3
</Table>

     During Fiscal 2001, 4 stores were opened with 2 additions in each of the
first and second quarters. Of the 38 stores closed during Fiscal 2001, 2 were
closed during the first quarter and 1 was closed during the second quarter. In
the third quarter, 1 store was closed prior to Christmas and 28 were closed
during the remainder of the quarter. There were 6 closures during the fourth
quarter. Of the 68 stores acquired during Fiscal 2000, 6 were acquired in the
first quarter, 48 in the second quarter and 14 in the third quarter. Of the 3
stores closed during Fiscal 2000, 1 was closed during the first quarter and 2
were closed in the fourth quarter. The Company also opened 2 new stores during
Fiscal 2000's first quarter, 10 during the second quarter, 3 during the third
quarter and 2 during the fourth quarter.


RESULTS OF OPERATIONS

     Net sales for Fiscal 2001 were $148.0 million as compared to $157.5 million
for Fiscal 2000. This decrease of $9.5 million, or 6.0%, was primarily a result
of the general economic slow down, which began during late 2000 and continued
through the third and fourth quarters of our fiscal year including the important
Christmas selling season. Sales at comparable stores, those open for all of the
current and preceding year, decreased by 10.1%, from $105.0 million (after
adjusting to exclude the extra week included in Fiscal 2000) to $94.4 million,
again reflecting the overall softness in consumer spending. Equivalent weekly
store sales decreased from $18.3 in Fiscal 2000 to $15.2 in Fiscal 2001. This
decrease of 16.9% resulted primarily from the weaker economic conditions
experienced in the current year and the lower store volumes of the stores
acquired during Fiscal 2000. Sales made on the Company's private label credit
card were 33.3% of sales in the current year as compared to 32.7% in the prior
year.

     The Company, since the outsourcing of its credit card operations to WFN in
August 1999, no longer receives revenue from finance and credit insurance fees.
See "Notes to Financial Statements--2. Accounts Receivable."

     Cost of goods sold, buying and occupancy expenses were $100.6 million, or
68.0% of sales, in Fiscal 2001 compared to $95.1 million in Fiscal 2000, or
60.4% of sales. The increase in cost of goods sold, buying and occupancy
expenses as a percentage of sales resulted primarily from competitive
discounting during the general economic retail slow down, relatively fixed
buying and occupancy costs being spread over less total sales as well as a
charge of $1.6 million for estimated payments due to vendors (resulting from the
settlement of consigned inventory).

     Selling, general and administrative expenses in Fiscal 2001 were $52.8
million, a decrease of $4.9 million, or 8.5%, versus $57.7 million in Fiscal
2000. The decrease in selling, general and administrative expenses is primarily
attributable to cost saving initiatives implemented by management offset
partially by the increase in fixed expenses resulting from the increase in the
number of equivalent


                                       12
<PAGE>   13

store weeks during Fiscal 2001. Selling, general and administrative expenses
decreased as a percentage of net sales to 35.7% in Fiscal 2001 from 36.6% in
Fiscal 2000. This decrease, as a percentage of sales, resulted from the
previously mentioned cost savings initiatives offset partially by lower average
sales per store, resulting from the general economic slow down and the lower
volume stores acquired in Fiscal 2000.

     The provision for doubtful accounts was $6.0 million in Fiscal 2001. This
was an increase of $.9 million, or 17.6%, from $5.1 million for Fiscal 2000.
This increase resulted primarily from an adjustment made by management for
estimated future write-offs to more closely reflect current trends.

     Depreciation and amortization was $7.8 million in Fiscal 2001 compared to
$6.7 million in the prior year. This increase of $1.1 million, or 16.4%, is
primarily due to the increase in the Company's number of equivalent stores and a
full year of amortization of goodwill related to the C&H Rauch acquisition.

     Goodwill, reorganization value and closed store write-down included charges
related to the closure of stores, the write-off of goodwill, reorganization
value and additional costs associated with the purchase of C&H Rauch. During
Fiscal 2001, as part of its repositioning strategy the Company closed 38
under-performing stores. As a result of these closures the Company recorded
approximately $2.4 million in expenses including the loss on disposal of assets
and payments made to landlords for lease terminations. The Company also
evaluated its goodwill associated with the purchase of C&H Rauch and its
reorganization value in excess of amounts allocated to identifiable assets, and
determined that their value had been impaired. Consequently, the company
wrote-off the total net book value of these intangible assets in the amount of
$17.1 million in the fourth quarter of Fiscal 2001. The Company also reviewed
the expected future cash flows from property and equipment associated with its
retail stores. As a result of recent trends, the Company recognized a loss of
$3.3 million during the fourth quarter of Fiscal 2001 for the impairment of
assets at certain stores. The Company recorded a charge of $1.1 million for
costs associated with the purchase of C & H Rauch.

     Net interest expense was $2.7 million in Fiscal 2001, a decrease of $.1
million, or 3.6%, from $2.8 million in Fiscal 2000.


TAX LOSS CARRYFORWARDS

     During Fiscal 2001, the Company's net operating losses (NOLs) increased by
approximately $ 22.0 million. During Fiscal 2000, the Company's NOLs increased
by approximately $10.0 million. As of June 2, 2001, the Company had NOL
carryforwards for federal income tax purposes of approximately $101.0 million.
Approximately $40.0 million of this NOL carryforward is related to losses
incurred subsequent to October 2, 1998, which may be used in their entirety to
offset future taxable income. The remaining carryforward, from prior to October
2, 1998, is subject to an annual limitation on its use of approximately $1.7
million. These losses begin to expire in 2012. In addition, the Company has
alternative minimum tax credit carryforwards of $109. These credits do not
expire. The Company maintains a full 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.



53-Week Fiscal Year Ended June 3, 2000 ("Fiscal 2000") Compared With the 52-Week
Period Ended May 29, 1999 ("Fiscal 1999") (combining both the Predecessor and
Successor companies).

     Net sales for Fiscal 2000 were $157.5 million as compared to $108.5 million
for Fiscal 1999. This increase of $49.0 million, or 45.2%, resulted primarily
from the acquisition of 68 stores, the opening of 17 new stores and the extra
week in the Fiscal 2000 calendar. In addition, sales at comparable stores, those
open for all of the current and preceding year, increased by 4.9% from $104.8
million to $109.9 million. Equivalent weekly store sales remained relatively
flat at $18.3 in both Fiscal 1999 and Fiscal 2000 primarily because the stores
acquired in Fiscal 2000 have a lower sales volume, on average, than the existing
Samuels stores. The increase in sales overcame a significant reduction in the
percentage of sales made on the Company's private label credit card, down to
32.7% of sales in the current year as compared to 49.5% in the prior year,
resulting primarily from the outsourcing of the credit operations and marketing
efforts targeting a less credit-dependent consumer. The outsourcing of the
Company's credit card operations at the end of the first quarter of Fiscal 2000
culminated the efforts commenced in Fiscal 1997 to reduce the Company's reliance
on less creditworthy customers. Throughout Fiscal 2000 the Company continued to
upgrade the quality of its merchandise as well as to offer an expanded
assortment of higher ticket-price merchandise. The Company continued to refine
its marketing efforts, targeting a more mature and affluent consumer with more
discretionary spending ability.

     Finance and credit insurance fees decreased from $9.9 million in Fiscal
1999 to $2.6 million in Fiscal 2000. This decrease of $7.3 million, or 73.7%,
was primarily due to the sale of the existing credit card accounts to WFN as of
August 30, 1999. After this sale the Company stopped recording the provision for
doubtful accounts and began recording a valuation allowance against the holdback
reserve held by WFN. See "Notes to Financial Statements--2. Accounts
Receivable."


                                       13
<PAGE>   14

     Cost of goods sold, buying and occupancy expenses were $95.1 million, or
60.4% of sales, in Fiscal 2000 compared to $66.7 million in Fiscal 1999, or
61.5% of sales. The reduction in cost of goods sold, buying and occupancy
expenses as a percentage of sales resulted primarily from fixed expenses spread
over a larger sales base offset by a slightly lower merchandise margin which is
primarily due to a lower markup on the increased mix of higher priced items.

     Selling, general and administrative expenses in Fiscal 2000 were $57.7
million, an increase of $13.5 million, or 30.5%, from Fiscal 1999's $44.2
million. The increase in selling, general and administrative expenses is
primarily attributable to the increase in the number of stores. Selling, general
and administrative expenses decreased as a percentage of net sales to 36.6% in
Fiscal 2000 from 40.7% in Fiscal 1999. This improvement resulted from sales
efficiencies and due to expenses being spread over a larger sales base, offset
by $0.6 million of expenses related to the operation of Rauch's home office from
November 1999 until its closure in January 2000 and by $0.4 million amortization
of management stock granted upon the consummation of the Reorganization. The
stock grant is amortized over the 4-year vesting period and the portion that
vested in Fiscal 1999 was charged to Restructure expense.

     The provision for doubtful accounts was $5.1 million in Fiscal 2000. This
was a decrease of $.4 million, or 7.3%, from $5.5 million for Fiscal 1999.

     Depreciation and amortization was $6.7 million in Fiscal 2000 compared to
$4.6 million in the prior year. This increase of $2.1 million, or 45.7%, was
primarily due to the increase in the Company's store base and a full year of
amortization of reorganization value in excess of amounts allocated to
identifiable assets of $1.8 million compared to $1.2 million in Fiscal 1999. The
current period also contained amortization of goodwill related to the Rauch
acquisition of $0.3 million.

     Net interest expense was $2.8 million in Fiscal 2000, a decrease of $1.8
million, or 39.1%, from $4.6 million in Fiscal 1999. The decrease was primarily
due to using the proceeds from the sale of the Company's credit card accounts on
August 30, 1999 to reduce the amount outstanding under the line of credit, which
is partially offset by increases in borrowings to fund acquisitions and
increases in the base rate during the current period.



                         LIQUIDITY AND CAPITAL RESOURCES

GENERAL

     The Company's operations require working capital for funding the purchase
of inventory, making lease payments and 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 and fall months for the
necessary lead-time to obtain the additional inventory.

Set forth below is certain summary information with respect to the Company's
operations for the most recent eight fiscal quarters. (amounts in thousands
except per share data)

<Table>
<Caption>
                                                            FISCAL 2001
                                                     FOR THE THREE MONTHS ENDED
                                         June 2,      March 3,    December 2,    September 2,
                                          2001          2001          2000          2000
                                        --------      --------    -----------    ------------
<S>                                     <C>           <C>         <C>            <C>
Net Sales .........................     $ 26,773      $ 57,359      $ 34,381      $ 29,531
Gross margin ......................        7,748        21,955         8,545         9,194
Net earnings (loss) ...............      (30,874)        2,001       (10,948)       (6,211)
Earnings (loss) per share:
   Basic and diluted ..............     $  (3.87)     $   0.25      $  (1.37)     $  (0.86)
</Table>


<Table>
<Caption>
                                                          FISCAL 2000
                                                  FOR THE THREE MONTHS ENDED
                                         June 3,    February 26,  November 27,   August 28,
                                          2000          2000          1999          1999
                                        --------    ------------  ------------   ----------
<S>                                     <C>         <C>           <C>            <C>
Net Sales .........................     $ 36,624      $ 73,302      $ 26,470      $ 21,131
Gross margin ......................       14,519        31,287         9,577         7,045
Net earnings (loss) ...............       (8,075)        8,651        (4,519)       (3,304)
Earnings (loss) per share:
   Basic ..........................     $  (1.57)     $   1.70      $  (0.89)     $   (.66)
   Diluted ........................     $  (1.57)     $   1.68      $  (0.89)     $   (.66)
</Table>


                                       14
<PAGE>   15

     The Company reported cash flows used in operating activities of
approximately $10.5 million for Fiscal 2001, as compared to cash flows provided
by operating activities of $42.8 million for Fiscal 2000 and cash flows used of
$10.9 million for Fiscal 1999. Cash used in operating activities for Fiscal 2001
resulted primarily from the Company's net operating loss. Cash provided in
operating activities in Fiscal 2000 resulted primarily from the $33.9 million
decrease in customer receivables due to the sale of the credit card accounts and
an increase of $21.4 million in trade accounts payable, which was partially
offset by an $18.4 million increase in inventory.

     As of June 2, 2001, owned inventory was $47.7 million, a decrease of $13.5
million from June 3, 2000. This decrease is primarily due to the reduction in
the total number of stores open at the end of Fiscal 2001 as compared to Fiscal
2000. The Company enters into consignment inventory agreements with its key
vendors in the ordinary course of business. During Fiscal 2001, consignment
inventory on hand ranged from $27.9 to $44.5 million. This increase was
primarily due to the increase in the number of stores. Consignment inventory is
excluded from the merchandise inventory balance in the financial statements.

     In addition, the Company requires working capital to fund capital
expenditures. Capital expenditures for Fiscal 2001, 2000 and 1999 were $2.6
million, $14.8 million and $9.1 million, respectively. Expenditures in Fiscal
2001 were made primarily in connection with leasehold improvements associated
with 4 new stores and remodeling and refurbishing of 12 stores.

     The Company concluded a private placement of its common stock in July 2000
(see "Notes to Financial Statements - 8. Stockholders' Equity") and entered into
a new loan agreement in April 2001, (see "Notes to Financial Statements - 5.
Notes Payable") for the purpose of addressing working capital needs. As a
result, at June 2, 2001 the Company's net working capital was $6.1 million.

     In Fiscal 2001, the Company made net repayments of $8.6 million under its
senior revolving credit facility. No repayments were made on the Company's other
secured indebtedness.


FINANCING TRANSACTIONS

     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 are committed to make revolving
advances to the Company in amounts determined based on a percentage of eligible
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,
Amendment Number Two on August 30, 1999, Amendment Number Three on November 24,
1999, Amendment Number Four on January 25, 2000, and Amendment Number Five on
June 2, 2000. These amendments allowed for the sale of the credit card
portfolio, the acquisition of stores and adjusted some of the covenants required
of the Company under this financing agreement. On April 30, 2001, the Company
entered into Amendment Number Six which allowed for a new loan agreement between
the Company and lenders represented by DDJ Capital Management, LLC and adjusted
some of the financial covenants required of the Company.

     As of June 2, 2001, the Company had direct borrowings of $16.0 million
outstanding with additional credit available of approximately $1.7 million under
the terms of the agreement. As of June 2, 2001, the Company was in compliance
with all terms of the financing agreement. The agreement expires on October 2,
2001.

     As a result of its cash losses and in order to meet its liquidity needs,
the Company entered into a loan agreement and junior security agreement on April
30, 2001, with lenders represented by DDJ Capital Management, LLC acting as
their agent, in order to address the Company's liquidity needs. The agreement
provides up to $15 million for working capital needs based on percentages of
eligible inventory and the level of borrowings outstanding under the revolving
line of credit and also includes the lending of $14.3 million arising out of the
purchase of a portion of the Company's accounts payable. Interest is payable
monthly. The interest rate on borrowings under this agreement is 20% per annum
through October 31, 2001 and then increases by .25% per month until the
expiration of the agreement in June 2002. Upon the occurrence and during the
continuance of any event of default, interest shall accrue at a per annum rate
that is 2% above the otherwise applicable rate. Under terms of the junior
security agreement, the Company granted a security interest in and to
substantially all owned or thereafter acquired assets, both tangible and
intangible, as collateral for amounts borrowed under the loan agreement. The
security provided by the Company is subordinated to the secured liens the
Company provides to the lenders under its revolving credit facility per the
terms of the junior security agreement and a separate


                                       15
<PAGE>   16

intercreditor and subordination agreement that was entered into by and between
the lenders of the revolving credit facility and the lenders of the new loan
agreement.

     As of June 2, 2001 the Company had direct borrowings of $22.8 million
outstanding under the loan agreement with the lenders represented by DDJ Capital
Management, LLC acting as their agent with an interest rate of 20.0%. At June 2,
2001 the Company had additional credit available under the line of approximately
$6.5 million.

     The Company completed a private placement of its common stock in July 2000
for the purpose of generating funds to address its working capital needs. This
private placement raised approximately $13.1 million in operating funds.

     In conjunction with the Company's acquisition of Rauch, the Company issued
three promissory notes due and payable for $2.0 million each in January 2000,
2001 and 2002, respectively. The first promissory note, due January 2000, has
been paid. The two remaining notes have a stated interest rate of 7% per annum
with interest due and payable beginning January 15, 2000 and on each successive
six-month anniversary thereafter until the notes are paid in full. The Company
has not paid the January 2001 installment. See "Notes to Financial Statements 5.
Notes Payable and 11. Subsequent Event". Samuels may offset its payment
obligations under these notes to the extent and in the event any liabilities
arise that were not accounted for and not disclosed in the unaudited balance
sheet of Rauch as of October 31, 1999. Accordingly, the Company has offset the
amounts due under such notes by $1.8 million, which represents the amount the
Company believes was not accounted for and not disclosed as of October 31, 1999.
Upon the occurrence and during the continuation of an event of default under the
notes, Samuels' payment obligations may bear interest at a per annum rate of
15%.

     The Company's current senior revolving line of credit expires on October 2,
2001. Management is currently in negotiations to obtain financing to replace
this line of credit. However, as of August 28, 2001 the Company has not obtained
such financing. Management's plan, to continue as a going concern, consists of
obtaining sufficient financing from alternative sources to replace the Company's
current credit agreement and improve its profitability by reviewing and
improving store operating margins, overhead expenditures and unprofitable
stores. Management believes that these improvements, coupled with new financing,
will be sufficient to meet the Company's operating needs. However, there is no
assurance that alternative financing will be available in the future, and if
available, at terms and conditions agreeable to the Company. Should the Company
be unable to obtain alternative financing the Company may be unable to continue
as a going concern for a reasonable period of time.


CREDIT PROGRAM

     On August 30, 1999 the Company sold its then existing credit card accounts
to WFN pursuant to an agreement that called for the Company to transfer its
approximately $46.8 million outstanding accounts receivable to WFN at face
value, less a holdback reserve of approximately $9.4 million to be held by WFN,
thus finalizing the efforts commenced in 1997 by the new management team to
shift its focus from being a credit jeweler to a mainstream jeweler targeting a
more affluent customer base. The third-party credit program generally requires
WFN to calculate monthly the total amount of receivables outstanding and then
retain or pay out, as applicable, an amount such that the holdback reserve is
maintained at a constant percentage of receivables outstanding. The holdback
reserve is intended to protect WFN against charged-off accounts and will be
returned to the Company at the end of the program. The Company has recorded the
holdback reserve net of a valuation allowance that reflects management's
estimate of losses based on past performance. Under the agreement WFN otherwise
pays the Company the proceeds for sales on the credit accounts promptly after
the sale. The third-party credit card program has an initial term of five years,
but provides the parties the option to extend the agreement beyond such initial
term unless the parties otherwise agree. The Company used the net proceeds of
approximately $37.4 million from the sale of its then existing credit card
accounts at August 30, 1999 to reduce the balance then outstanding under
Samuels' financing agreement with the Lenders.

     Since the sale, WFN has offered credit to Samuels' customers. Sales on the
Company's private label credit cards accounted for approximately 33.3% of Fiscal
2001 sales compared to 32.7% for Fiscal 2000. As of June 3, 2000 the Company no
longer has customer receivables. As of May 29, 1999 and May 30, 1998, the
aggregate customer receivables balances were $50.2 million and $55.2 million,
respectively. See "Notes to Financial Statements--2. Accounts Receivable".


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.


                                       16
<PAGE>   17

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000. Therefore, the Company
adopted SFAS No. 133 for the fiscal year beginning June 3, 2001. The adoption of
SFAS No. 133 did not impact the Company's financial condition or results of
operations.

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (SFAS 141), Business Combinations. This
standard eliminates the pooling method of accounting for business combinations
initiated after June 30, 2001. In addition, SFAS 141 addresses the accounting
for intangible assets and goodwill acquired in a business combination. This
portion of SFAS 141 is effective for business combinations completed after June
30, 2001. The Company does not expect SFAS 141 to have a material effect on the
Company's financial position or results of operations.

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Intangible
Assets, which revises the accounting for purchased goodwill and intangible
assets. Under SFAS 142, goodwill and intangible assets with indefinite lives
will no longer be amortized, but will be tested for impairment annually and also
in the event of an impairment indicator. The amortization provisions of SFAS 142
apply to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001,
companies are required to adopt the pronouncement in their fiscal year beginning
after December 15, 2001. Management believes that the adoption of SFAS 142 will
not have a material impact on the Company's financial position or results of
operations.


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

     The Company is exposed to market risk in the form of interest rate changes
that may adversely affect its financial position, results of operations and cash
flows. At June 2, 2001, the Company had $16.0 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
"Notes to Financial Statements - 5. Notes Payable". An increase or decrease in
interest rates would affect the interest costs relating to 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 in Item 14.


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

     None.


                                       17
<PAGE>   18

                                    PART III



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

     The Company incorporates herein by reference the information concerning
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), that is contained in
the Company's definitive Proxy Statement relating to its 2001 Annual Meeting of
Stockholders. The information required by Item 10 with respect to executive
officers is included in Item 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 pursuant to Item 8:

<Table>
<Caption>
                                                                                                  Page
                                                                                                  ----
<S>                                                                                               <C>
     Independent Auditors' Report -- Deloitte & Touche LLP                                          22

     Balance Sheets for the Successor Company as of June 2, 2001 and June 3, 2000                   23

     Statements of Operations for the Successor Company for the fiscal years
     ended June 2, 2001, June 3, 2000 and the eight months ended May 29, 1999,
     and the Predecessor Company for the four months ended October 2, 1998.                         24

     Statements of Stockholders' Equity (Deficiency) for the Successor Company
     for the fiscal years ended June 2, 2001, June 3, 2000 and the eight months
     ended May 29, 1999, and the Predecessor Company for the four months ended
     October 2, 1998.                                                                               25

     Statements of Cash Flows for the Successor Company for the fiscal years
     ended June 2, 2001, June 3, 2000 and the eight months ended May 29, 1999,
     and the Predecessor Company for the four months ended October 2, 1998.                         26

     Notes to Financial Statements                                                                  27
</Table>

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.


                                       18
<PAGE>   19

3. 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)

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

         3.2      Bylaws of Samuels Jewelers, Inc.(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)

         10.1(d)  Amendment Number Three to Loan and Security Agreement entered
                  into as of November 24, 1999, among the Company, Foothill
                  Capital Corporation and the financial institutions listed on
                  the signature pages thereto.(4)

         10.1(e)  Amendment Number Four to Loan and Security Agreement entered
                  into as of January 25, 2000, among the Company, Foothill
                  Capital Corporation and the financial institutions listed on
                  the signature pages thereto.(5)

         10.1(f)  Amendment Number Five to Loan and Security Agreement entered
                  into as of June 2, 2000, among the Company, Foothill Capital
                  Corporation and the financial institutions listed on the
                  signature pages thereto.(6)

         10.1(g)  Amendment Number Six to Loan and Security Agreement entered
                  into as of April 30, 2001, among the Company, Foothill Capital
                  Corporation and the financial institutions listed on the
                  signature pages thereto.(10)

         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)

         10.9     Registration Rights Agreement dated as of June 21, 2000, by
                  and among the Company, Weil, Gotshal & Manges LLP, B III
                  Capital Partners, L.P. and B III-A Capital Partners, L.P.(6)

         10.10    Form of Investment Agreement for private placement in June
                  2000 of common stock with investors (excluding officers of
                  Samuels Jewelers, Inc.)(6)

         10.11    Form of Samuels Jewelers, Inc. Stock Purchase Agreement for
                  private placement in July 2000 of common stock with officers
                  of Samuels Jewelers, Inc.(6)

         10.12    Samuels Jewelers, Inc. Deferred Compensation Plan.(6)

         10.13    Samuels Jewelers, Inc. 1998 Stock Option Plan.(8)

         10.14    Samuels Jewelers, Inc. 1998 Stock Option Plan for Non-Employee
                  Directors.(9)

         10.15    Loan Agreement, dated as of April 30, 2001, among Samuels
                  Jewelers, Inc., the lenders party thereto and DDJ Capital
                  Management, LLC, as agent for the lenders.(10)

         10.16    Junior Security Agreement, dated as of April 30, 2001, among
                  Samuels Jewelers, Inc., lenders party thereto and DDJ Capital
                  Management, LLC, as agent for the lenders.(10)

         10.17    Intercreditor and Subordination Agreement, dated as of April
                  30, 2001, among Foothill Capital Corporation, LaSalle Business
                  Credit, Inc., Sunrock Capital Corp. and DDJ Capital
                  Management, LLC, as acknowledged by Samuels Jewelers, Inc.(10)

         23.1     Consent of Independent Auditors.(7)
</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.


                                       19
<PAGE>   20

(3)      Incorporated by reference to the Company's Annual Report on Form 10-K
         for the year ended May 29, 1999.

(4)      Incorporated by reference to the Company's Quarterly Report on Form
         10-Q for the quarter ended November 27, 1999.

(5)      Incorporated by reference to the Company's Quarterly Report on Form
         10-Q for the quarter ended February 26, 2000.

(6)      Incorporated by reference to the Company's Annual Report on Form 10-K
         for the year ended June 3, 2000

(7)      Filed herewith.

(8)      Incorporated by reference to Annex A of the Company's Proxy Statement
         on Schedule 14A dated October 21, 1998.

(9)      Incorporated by reference to Annex B of the Company's Proxy Statement
         on Schedule 14A dated October 21, 1998.

(10)     Incorporated by reference to the Company's Current Report on Form 8-K
         filed July 19, 2001.

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

         (b) Reports on Form 8-K

             None.


                                       20
<PAGE>   21

                                   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.


August 31, 2001                         By: /s/ RANDY N. MCCULLOUGH
                                           -------------------------------------
                                              Randy N. McCullough
                                              President and Chief
                                              Executive Officer

August 31, 2001                         By: /s/ ROBERT J. HERMAN
                                           -------------------------------------
                                              Robert J. Herman
                                              Vice President-Finance
                                              (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 B. BARR                      Director                August 31, 2001
---------------------------------
David B. Barr



/s/ DAVID J. BREAZZANO                 Director                August 31, 2001
---------------------------------
David J. Breazzano



/s/ DAVID H. EISENBERG                 Director                August 31, 2001
---------------------------------
David H. Eisenberg


/s/ WENDY T. LANDON                    Director                August 31, 2001
---------------------------------
Wendy T. Landon


/s/ RANDY N. MCCULLOUGH                Director                August 31, 2001
---------------------------------
Randy N. McCullough


/s/ JERRY WINSTON                      Director                August 31, 2001
---------------------------------
Jerry Winston
</Table>


                                       21
<PAGE>   22

                          INDEPENDENT AUDITORS' REPORT


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

We have audited the accompanying balance sheets of Samuels Jewelers, Inc. as of
June 2, 2001 and June 3, 2000 (Successor Company balance sheets), and the
related statements of operations, stockholders' equity (deficiency) and cash
flows for the years then ended, the eight months ended May 29, 1999 (Successor
Company operations), and the four months ended October 2, 1998 (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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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
June 2, 2001, and June 3, 2000, and the results of its operations and its cash
flows for the years then ended, and the eight months ended May 29, 1999, in
conformity with accounting principles generally accepted in the United States of
America. Further, in our opinion, the Predecessor Company financial statements
present fairly, in all material respects, the results of its operations and its
cash flows for the four months ended October 2, 1998, in conformity with
accounting principles generally accepted in the United States of America.

The accompanying financial statements for the year ended June 2, 2001 have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has $16 million
outstanding at June 2, 2001 under a revolving line of credit scheduled to expire
on October 2, 2001, and is experiencing difficulty in generating sufficient cash
flow to meet its obligations. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.





Dallas, Texas
August 29, 2001


                                       22
<PAGE>   23

                             SAMUELS JEWELERS, INC.
                                 BALANCE SHEETS
                    (amounts in thousands, except share data)


<Table>
<Caption>
ASSETS                                                                               June 2,           June 3,
                                                                                      2001              2000
                                                                                   ---------         ---------
<S>                                                                                <C>               <C>
Current assets:
   Cash and cash equivalents ..............................................        $   1,148         $   1,960
   Accounts receivable, net (Note 2) ......................................            5,308             6,446
   Merchandise inventories (Notes 3 and 7) ................................           47,723            61,269
   Prepaid expenses and other current assets ..............................            2,386             3,348
                                                                                   ---------         ---------
Total current assets ......................................................           56,565            73,023
                                                                                   ---------         ---------
Property and equipment:
   Leasehold improvements, furniture and fixtures .........................           24,349            28,718
   Computers and equipment ................................................            6,744             6,380
                                                                                   ---------         ---------
                                                                                      31,093            35,098
   Less: accumulated depreciation and amortization ........................            9,332             6,225
                                                                                   ---------         ---------
   Net property and equipment .............................................           21,761            28,873
Other assets ..............................................................              632               561
Goodwill, net of accumulated amortization of $0 and $252 ..................               --             4,598
Reorganization value in excess of amounts allocated to identifiable
   assets, net of accumulated amortization of $0 and $2,940 ...............               --            14,748
                                                                                   ---------         ---------
Total assets ..............................................................        $  78,958         $ 121,803
                                                                                   =========         =========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Notes payable (Note 5) .................................................        $  18,213         $  26,569
   Accounts payable - trade ...............................................           15,305            38,742
   Other accrued liabilities (Note 4) .....................................           16,965            18,136
                                                                                   ---------         ---------
Total current liabilities .................................................           50,483            83,447

Notes payable (Note 5) ....................................................           22,955                89

Commitments and contingencies (Note 7)

Stockholders' equity (Note 8):
   Common stock, $.001 par value; authorized 20,000,000 shares;
      issued and outstanding, 7,909,185 and 5,153,900 shares ..............                8                 5
   Additional paid-in capital .............................................           63,642            49,329
   Deferred compensation ..................................................             (417)             (834)
   Notes receivable .......................................................           (1,960)             (512)
   Accumulated deficit ....................................................          (55,753)           (9,721)
                                                                                   ---------         ---------
Total stockholders' equity ................................................            5,520            38,267
                                                                                   ---------         ---------
Total liabilities and stockholders' equity ................................        $  78,958         $ 121,803
                                                                                   =========         =========
</Table>

                       See Notes to Financial Statements.


                                       23
<PAGE>   24

                             SAMUELS JEWELERS, INC.
                            STATEMENTS OF OPERATIONS
                  (amounts in thousands, except per share data)

<Table>
<Caption>
                                                                                     Successor                           Predecessor
                                                                    ----------------------------------------------       -----------
                                                                      Year              Year          Eight Months       Four Months
                                                                     Ended              Ended            Ended              Ended
                                                                     June 2,           June 3,           May 29,          October 2,
                                                                      2001              2000              1999              1998
                                                                    ---------         ---------       ------------       -----------
<S>                                                                 <C>               <C>             <C>                <C>
Net sales ..................................................        $ 148,044         $ 157,527         $  81,043         $  27,494
Finance and credit insurance fees ..........................               --             2,639             6,517             3,397
                                                                    ---------         ---------         ---------         ---------
                                                                      148,044           160,166            87,560            30,891
                                                                    ---------         ---------         ---------         ---------
Costs and expenses:
   Cost of goods sold, buying and occupancy ................          100,602            95,099            48,906            17,750
   Selling, general and administrative expenses ............           52,800            57,691            31,217            12,980
   Provision for doubtful accounts .........................            6,040             5,076             4,017             1,492
   Depreciation and amortization ...........................            7,815             6,702             3,292             1,341
   Impairment, asset disposal and other (Note 10) ..........           24,089                --                --                --
                                                                    ---------         ---------         ---------         ---------
                                                                      191,346           164,568            87,432            33,563
                                                                    ---------         ---------         ---------         ---------
Operating income (loss) ....................................          (43,302)           (4,402)              128            (2,672)

Interest expense, net ......................................            2,730             2,834             2,202             2,367
                                                                    ---------         ---------         ---------         ---------
Loss before reorganization items, income taxes, and
   extraordinary item ......................................          (46,032)           (7,236)           (2,074)           (5,039)
Reorganization items:
   Fresh-Start adjustments (Note 1) ........................               --                --                --           (66,042)
   Reorganization costs (Note 9) ...........................               --                --               400             4,437
                                                                    ---------         ---------         ---------         ---------

Earnings (loss) before income taxes and extraordinary
   item ....................................................          (46,032)           (7,236)           (2,474)           56,566
Income taxes (Note 6) ......................................               --                11                --                --
                                                                    ---------         ---------         ---------         ---------
Earnings (loss) before extraordinary item ..................          (46,032)           (7,247)           (2,474)           56,566
Extraordinary item (Note 1) ................................               --                --                --            11,545
                                                                    ---------         ---------         ---------         ---------
Net earnings (loss) ........................................        $ (46,032)        $  (7,247)        $  (2,474)        $  68,111
                                                                    =========         =========         =========         =========

Basic and diluted per share data:
   Earnings (loss) before extraordinary item ...............        $   (5.92)        $   (1.43)        $   (0.49)        $   11.31
   Extraordinary item (Note 1) .............................               --                --                --              2.31
                                                                    ---------         ---------         ---------         ---------
   Net earnings (loss) .....................................        $   (5.92)        $   (1.43)        $   (0.49)        $   13.62
                                                                    =========         =========         =========         =========
   Weighted-average number of common shares
     outstanding ...........................................            7,773             5,081             5,002             5,002
                                                                    =========         =========         =========         =========
</Table>

                       See Notes to Financial Statements.


                                       24
<PAGE>   25

                             SAMUELS JEWELERS, INC.
                 STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                             (amounts in thousands)

<Table>
<Caption>
                                            Predecessor        Successor
                                           Common Stock       Common Stock    Additional Deferred              Retained
                                       -------------------  ---------------     Paid-in   Compen-     Notes    Earnings
                                        Shares      Amount  Shares   Amount     Capital   sation    Receivable (Deficit)    Total
                                       -------    --------  ------   ------   ---------- --------   ---------- ---------   --------

<S>                                    <C>        <C>       <C>      <C>      <C>        <C>        <C>        <C>         <C>
Balance at May 30, 1998 ............     4,029    $ 33,247                                                     $(68,111)   $(34,864)

Net income for the four months
ended October 2, 1998 ..............                                                                             68,111      68,111

Fresh-Start reporting adjustment ...    (4,029)    (33,247)                                                                 (33,247)
Exchange of senior secured
notes for stock ....................                         2,500   $    2     $32,086                                      32,088
Shares issued pursuant to plan
of reorganization (Notes 1 and 8)                            2,502        3      16,260                                      16,263
Deferred compensation (Note 8) .....                                                      $(1,251)                           (1,251)
Notes receivable (Note 8) ..........                                                                 $  (771)                  (771)
Net loss for the eight months
ended May 29, 1999 .................                                                                             (2,474)     (2,474)
                                       -------    --------  ------   ------     -------   -------    -------   --------    --------
Balance at May 29, 1999 ............        --          --   5,002        5      48,346    (1,251)      (771)    (2,474)     43,855
Deferred compensation
amortization (Note 8) ..............                                                          417                               417
Notes receivable payments (Note 8)                                                                       259                    259
Silverman acquisition (Note 2) .....                            57       --         260                                         260
Musselman acquisition (Note 2) .....                            60       --         465                                         465
JewelryLine acquisition (Note 2) ...                            35       --         258                                         258
Net loss for the year ..............                                                                             (7,247)     (7,247)
                                       -------    --------  ------   ------     -------   -------    -------   --------    --------
Balance at June 3, 2000 ............        --          --   5,154        5      49,329      (834)      (512)    (9,721)     38,267
Deferred compensation
amortization (Note 8) ..............                                                          417                               417
Issuance of notes receivable
(Note 8) ...........................                                                                  (1,704)                (1,704)
Notes receivable payments (Note 8)                                                                       256                    256
Shares issued ......................                         2,815        3      14,778                                      14,781
Other ..............................                           (60)      --        (465)                                       (465)
Net loss for the year ..............                                                                            (46,032)    (46,032)
                                       -------    --------  ------   ------     -------   -------    -------   --------    --------
Balance at June 2, 2001 ............   $    --    $     --   7,909   $    8     $63,642   $  (417)   $(1,960)  $(55,753)   $  5,520
                                       =======    ========  ======   ======     =======   =======    =======   ========    ========
</Table>

                       See Notes to Financial Statements.


                                       25
<PAGE>   26

                             SAMUELS JEWELERS, INC.
                            STATEMENTS OF CASH FLOWS
                             (amounts in thousands)

<Table>
<Caption>
                                                                              Successor      Successor     Successor    Predecessor
                                                                                 Year          Year       Eight Months  Four Months
                                                                                Ended          Ended          Ended         Ended
                                                                                June 2,       June 3,        May 29,     October 2,
                                                                                 2001           2000           1999          1998
                                                                              ---------      ---------    ------------  -----------
<S>                                                                           <C>            <C>          <C>           <C>
 Cash Flows from Operating Activities:
  Net earnings (loss) .....................................................    $(46,032)      $ (7,247)      $ (2,474)    $ 68,111
  Adjustments to reconcile net earnings (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 ........................................       7,398          6,285          3,292        1,341
     Deferred compensation ................................................         417            417             --           --
     Provision for doubtful accounts ......................................       6,040          5,076          4,017        1,492
     Impairment charges ...................................................      20,621             --             --           --
     (Gain)/Loss on sale or abandonment of property and equipment .........       1,477             (8)           315           --
     Adjustment to notes payable offset ...................................         980             --             --           --
     Management stock grant ...............................................          --             --             --          417
  Changes in working capital:
     Accounts receivable ..................................................      (4,902)        33,916         (5,183)       2,652
     Merchandise inventories ..............................................      13,546        (18,417)        (6,155)      (4,592)
     Prepaid expenses and other current assets ............................         963         (1,953)          (190)         552
     Accounts payable-- trade .............................................      (9,102)        21,355           (545)       3,616
     Other accrued liabilities ............................................      (1,939)         3,388         (1,936)       1,921
                                                                               --------       --------       --------     --------
          Net cash provided by (used in) operating
            activities ....................................................     (10,533)        42,812         (8,859)      (2,077)
                                                                               --------       --------       --------     --------

Cash Flows from Investing Activities:
  Purchase of property and equipment ......................................      (2,650)       (13,506)        (6,478)      (2,641)
  Acquisition of stores ...................................................          --         (1,274)            --           --
  Proceeds from sale of assets ............................................         100             13            100           --
  Increase/(decrease) in other assets .....................................         (71)           147           (148)         (21)
                                                                               --------       --------       --------     --------

          Net cash used in investing activities ...........................      (2,621)       (14,620)        (6,526)      (2,662)
                                                                               --------       --------       --------     --------

Cash Flows from Financing Activities:
  Net repayments under revolving credit facility ..........................      (8,566)       (27,947)          (565)     (11,397)
  Borrowings under notes payable ..........................................       8,500             --             --           --
  Repayments of notes payable .............................................        (925)            --             --           --
  Issuance of common stock ................................................      13,140             --         15,012           --
  Notes receivable ........................................................         193            259           (771)          --
                                                                               --------       --------       --------     --------
          Net cash provided by (used in) financing activities .............      12,342        (27,688)        13,676      (11,397)
                                                                               --------       --------       --------     --------

Net increase (decrease) in cash and cash equivalents ......................        (812)           504         (1,709)     (16,136)
Cash and cash equivalents at beginning of year ............................       1,960          1,456          3,165       19,301
                                                                               --------       --------       --------     --------
Cash and cash equivalents at end of year ..................................    $  1,148       $  1,960       $  1,456     $  3,165
                                                                               ========       ========       ========     ========

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:
     Interest .............................................................    $  2,658       $  2,973       $  1,958     $  2,060
     Income taxes .........................................................    $     --       $     11       $     --     $     --
  Noncash investing and financing activities:
     Exchange of Senior Notes for Common Stock (Note 1) ...................    $     --       $     --       $ 32,088     $     --
     Notes issued in exchange for accounts payable ........................    $ 14,335       $     --       $     --     $     --
     Deferred compensation (Notes 1 and 8) ................................    $     --       $     --       $ (1,251)    $     --
     Stock issued for notes receivable (Note 8) ...........................    $  1,641       $     --       $     --     $     --
     Stock and debt issued for acquisitions (Note 2) ......................    $     --       $  6,983       $     --     $     --
</Table>

                       See Notes to Financial Statements.


                                       26
<PAGE>   27

                             SAMUELS JEWELERS, INC.
                          NOTES TO FINANCIAL STATEMENTS
             FOR THE FISCAL YEAR ENDED JUNE 2, 2001, THE FISCAL YEAR
          ENDED JUNE 3, 2000, THE EIGHT MONTHS ENDED MAY 29, 1999, AND
                      THE FOUR MONTHS ENDED OCTOBER 2, 1998
                        (in thousands, except share data)

1. REORGANIZATION AND BASIS OF PRESENTATION


REORGANIZATION

     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.

     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").

     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 was allocated to the Company's assets in conformity with
the procedures specified by 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
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 259,925 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 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 received payment at a rate of $0.15 for each
dollar of their allowed claims. Substantially all claims were been paid by the
Company. 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, 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 Securities and Exchange Act regulations. Thus, as
used herein, the Company, refers to Samuels for periods after October 2, 1998
and to Barry's for periods through October 2, 1998.


BASIS OF PRESENTATION

Going Concern Basis

     The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company's current senior
revolving line of credit expires on October 2, 2001. Management is currently in
negotiations to obtain financing to replace this line of credit, however, as of
August 28, 2001 the Company has not obtained such financing. Management's plan,
to continue as a going concern, consists of obtaining sufficient financing from
alternative sources to replace the Company's current credit agreement and
improve its profitability by reviewing and improving store operating margins,
overhead expenditures and unprofitable stores. Management believes that these


                                       27
<PAGE>   28

improvements, coupled with new financing, will be sufficient to meet the
Company's operating needs. However, there is no assurance that alternative
financing will be available in the future, and if available, at terms and
conditions agreeable to the Company. Should the Company be unable to obtain
alternative financing the Company may be unable to continue as a going concern
for a reasonable period of time. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

Fresh Start Reporting

     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 (referred to as "Predecessor") and the effects of Fresh-Start
Reporting. The results of operations and cash flows for the fiscal year ended
June 2, 2001, the fiscal year ended June 3, 2000 and for the eight months ended
May 29, 1999, include operations subsequent to the Company's emergence from
Chapter 11 proceedings (referred to as "Successor") and reflect the effects of
Fresh-Start Reporting. As a result, the net loss for the fiscal year ended June
2, 2001, the fiscal year ended June 3, 2000, and for the eight months ended May
29, 1999, is not comparable with prior periods and the net income (loss) for the
year-to-date period ended May 29, 1999 is divided into Successor and Predecessor
and is also not comparable with prior periods.

     The reorganized value, on October 2, 1998, 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 was 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 adoption of the Fresh-Start reporting requirements had the following
effect on the Company's unaudited Condensed Balance Sheet dated October 2, 1998:

<Table>
<Caption>
                                                           Pre-           Debt      Exchange                 Additional
                                                       Confirmation    Discharge    of Stock  Fresh-Start  Capitalization   Adjusted
                                                       ------------    ---------   ---------  -----------  --------------  ---------
<S>                                                    <C>             <C>         <C>        <C>          <C>             <C>
                                                               ASSETS

Current assets:
   Cash and cash equivalents ........................   $  14,562      $ (11,397)  $      --   $      --      $      --    $   3,165
   Customer receivables, net ........................      43,932             --          --          --             --       43,932
   Merchandise inventories ..........................      31,585             --          --      (5,056)            --       26,529
   Prepaid expenses and other current assets ........       1,017             --          --          --             --        1,017
                                                        ---------      ---------   ---------   ---------      ---------    ---------
Total current assets ................................      91,096        (11,397)         --      (5,056)            --       74,643

Net property and equipment ..........................      14,905             --          --      (1,238)            --       13,667
Other assets ........................................       1,209           (718)         --          --             --          491
Reorganization value in excess of amounts
allocated to identifiable assets, net ...............          --             --          --      17,687             --       17,687
                                                        ---------      ---------   ---------   ---------      ---------    ---------
Total assets ........................................   $ 107,210      $ (12,115)  $      --   $  11,393      $      --    $ 106,488
                                                        =========      =========   =========   =========      =========    =========


                                         LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
   Accounts payable - trade .........................   $  12,702      $      --   $      --   $      --      $      --    $  12,702
   Other accrued liabilities ........................      11,932          3,308          --          --             --       15,240
                                                        ---------      ---------   ---------   ---------      ---------    ---------
Total current liabilities ...........................      24,634          3,308          --          --             --       27,942

Liabilities subject to compromise under
reorganization proceedings ..........................     126,499        (73,426)    (53,073)         --             --           --
Long-term debt ......................................          --         46,458          --          --        (15,012)      31,446
Stockholders' equity (deficiency):
   Common stock, no par value; authorized 8,000,000
      shares; Issued and outstanding, 4,029,372
      shares at May 29, 1999 ........................      33,247             --     (33,247)         --             --           --
   Common stock, $.001 par value; authorized
      20,000,000 Shares; issued and outstanding,
      5,001,800 shares at October 2, 1998 ...........          --             --           2          --              3            5
   Additional paid-in capital .......................         417             --      86,318     (54,649)        15,009       47,095
   Accumulated deficit ..............................     (77,587)        11,545          --      66,042             --           --
                                                        ---------      ---------   ---------   ---------      ---------    ---------
Total stockholders' equity (deficiency) .............     (43,923)        11,545      53,073      11,393         15,012       47,100
                                                        ---------      ---------   ---------   ---------      ---------    ---------
Total liabilities and stockholders' deficiency ......   $ 107,210      $ (12,115)  $      --   $  11,393      $      --    $ 106,488
                                                        =========      =========   =========   =========      =========    =========
</Table>


                                       28
<PAGE>   29


     During the fourth quarter of Fiscal 2001, the Company evaluated its
reorganization value in excess of amounts allocated to identifiable assets, and
determined that its value had been impaired. Consequently, the company wrote-off
the total net book value of this intangible assets in the amount of $13.0
million in the fourth quarter of Fiscal 2001. See "Notes to Financial Statements
10. Impairment, asset disposal and other expenses".


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Fiscal Year. The Company's fiscal years ended June 2, 2001 ("Fiscal 2001"),
June 3, 2000 ("Fiscal 2000") and May 29, 1999 ("Fiscal 1999"), may be referred
to herein as such. Fiscal 2000 is a 53-week period. Fiscal 2001 and 1999 are
each a 52-week period.

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

     Accounts Receivable. On August 30, 1999 the Company sold its then existing
credit card accounts, totaling approximately $46.8 million, to WFN at face value
less a holdback reserve. The holdback reserve is to protect WFN against
charged-off accounts through the term of the program. The credit card program
has an initial term of five years, but provides the parties the option to extend
the agreement beyond such initial term. The holdback reserve will be released to
the Company at the end of the program. The Company has recorded the holdback
reserve net of a valuation allowance to reflect management's estimate of losses
based on past performance. Prior to August 30, 1999, the Company offered its
merchandise on credit terms to qualified customers. In accordance with industry
practice, accounts receivables were included in current assets in the Company's
balance sheet. As of June 2, 2001, the holdback reserve was $5.3 million, net of
a valuation allowance of $4.8 million.

     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 as of October
2, 1998 were stated at fair values as of that date pursuant to Fresh-Start
reporting adopted in connection with the Reorganization. See "Notes to Financial
Statements--1. Reorganization." Additions since October 2, 1998 are recorded at
cost.

     Depreciation and amortization of leasehold improvements, furniture and
fixtures and 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 tangible and intangible assets for impairment and recognize a loss if
expected future undiscounted 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 discounted future cash flows.

     Goodwill. Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, was amortized on a straight-line basis over 10
years. During the fourth quarter of Fiscal 2001 the Company recorded an
impairment write-off of $4.1 million on the goodwill, all of which was acquired
in the C&H Rauch acquisition. See "Notes to Financial Statements--10.
Impairment, asset disposal and other expenses." Amortization of goodwill during
Fiscal 2001 and Fiscal 2000 was $0.5 and $0.3, respectively.

     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, which approximates the interest method, 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 were expensed as incurred. See
"Notes to Financial Statements--9. Reorganization Costs."


                                       29
<PAGE>   30

     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.

     Earnings (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
statement of operations. Basic earnings per 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.

     Accounting for Acquisitions. The Company has accounted for the acquisition
of the assets of JewelryLine.com and the former Silverman's and Musselman's
stores using the purchase method of accounting and, accordingly, the purchase
price has been allocated to the assets acquired and the liabilities assumed
based upon their preliminary fair values at the date of acquisition. The Company
included the results of operations for these stores in its Statement of
Operations at the time the Company began operating each store.

     Henry Silverman Jewelers, Inc.--On July 27, 1999, the Company entered into
a purchase agreement with Henry Silverman Jewelers, Inc. ("Silverman's") to
acquire its tradenames, customer lists, fixtures and the lease rights for 14
Silverman's stores. The Company's purchase price for these assets was 54,600
shares of its common stock, then valued at approximately $0.3 million. The
Company did not assume any of Silverman's liabilities or acquire any of
Silverman's remaining assets as part of the purchase agreement. The shares of
common stock were issued and registered under the Company's shelf registration
statement on Form S-1, declared effective by the SEC on June 9, 1999. The
Company also issued 2,500 shares of its common stock to an individual as a
finder's fee as part of the transaction. The Company currently operates these 11
stores in five states under the name "Samuels Diamonds".

     Musselman Jewelers--Pursuant to an asset purchase agreement that was
entered into in December 1999, the Company acquired from Wilkerson & Associates
substantially all of its interests in and rights to 14 Musselman Jewelers stores
("Musselman"), including tradenames, customer lists, fixtures and the lease
rights related to such stores. The Company's purchase price for these assets was
60,000 shares of its common stock, then valued at approximately $0.5 million.
Under the terms of the asset purchase agreement, Wilkerson & Associates has the
right to put back the shares to the Company at $11.45 per share, on the second
anniversary of the date of closing. The liability, for this put option, is
included in other accrued liabilities. The Company did not assume any of
Musselman's liabilities and did not acquire any of Musselman's other assets as
part of the acquisition. The 60,000 shares of the Company's common stock were
registered under the Company's shelf registration statement on Form S-1, as
amended by Post-Effective Amendment No. 1 on Form S-4 to Form S-1 Registration
Statement. The Company currently operates three of these stores all as "Samuels"
under Musselman's prior lease agreements.

     C & H Rauch, Inc.--In November 1999, the Company acquired substantially all
of the assets of C & H Rauch, Inc. ("Rauch") through the purchase of all of the
outstanding stock of Rauch. The Company's net purchase price for this
acquisition was approximately $20.0 million, consisting of $2.0 million in cash,
notes payable in the amount of $6.0 million (see "Notes to Financial Statements
--5. Notes Payable") and approximately $12.0 million in liabilities assumed.
The Company's acquisition of Rauch added 40 new stores, including operations in
the states of Kentucky, Ohio, Indiana, West Virginia and Virginia. Upon
completion of the acquisition, Rauch was merged with and into the Company.
Currently, the Company continues to operate 24 of these stores under the "C&H
Rauch" nameplate and has converted 3 stores to "Samuels".

     The Company accounted for the Rauch acquisition using the purchase method
of accounting and, accordingly, the purchase price was allocated to the assets
acquired and the liabilities assumed based upon their preliminary fair values at
the date of acquisition. The excess of the purchase price over the fair value of
the net assets acquired was approximately $4.9 million, which the Company
recorded as goodwill and was amortizing on a straight-line basis over ten years.
The Company has included the results of operations for the Rauch acquisition in
its Statement of Operations beginning November 1999. The Rauch home office was
closed at the end of January 2000, the lease on its home office was cancelled
and the functions performed in Lexington, Kentucky have been absorbed by the
Company's home office in Austin, Texas. The net purchase price was allocated as
follows (in thousands):


                                       30
<PAGE>   31

<Table>
<S>                                                    <C>
     Cash and cash equivalents                         $   726
     Accounts receivable                                   339
     Merchandise inventories                            10,168
     Prepaid expenses and other current assets           3,046
     Leasehold improvements, furniture and fixtures        855
     Goodwill                                            4,851
                                                       -------
         Total purchase price                          $19,985
                                                       =======
</Table>

     During Fiscal 2001 the Company incurred additional expenses related to the
acquisition of C&H Rauch, Inc. totaling $1.1 million. These costs were charged
to operating expense during the year.

     The following unaudited pro forma summary data for Fiscal 2000 and the
eight months ended May 29, 1999 (in thousands, except per share amounts)
combines the results of operations of the Company and its acquisitions as if the
acquisitions had occurred as of October 2, 1998, after giving effect to certain
adjustments, including increased depreciation and amortization expense on assets
acquired. The results of operations of Musselman's, Silverman's and
JewelryLine.com are not material and are, therefore, excluded from the pro forma
results. The unaudited pro forma results do not necessarily represent results
which would have occurred if the Company had made the acquisitions on October 2,
1998, nor are they indicative of the results of future consolidated operations.

<Table>
<Caption>
                                          PRO FORMA         PRO FORMA
                                         FISCAL YEAR       EIGHT MONTHS
                                        ENDED JUNE 3,     ENDED MAY 29,
                                            2000               1999
                                        -------------     -------------
                                         (unaudited)        (unaudited)
<S>                                     <C>               <C>
Revenues                                  $ 166,434         $ 104,733
Net income                                $  (8,387)        $  (1,225)
Basic and diluted (loss) per share        $   (1.63)        $   (0.24)
</Table>

     The Company also began online jewelry shopping operations during Fiscal
2000. As of March 8, 2000, the Company acquired the online operations and assets
of JewelryLine.com, Inc. ("JewelryLine") , including the registered domain
names, related to JewelryLine's operation of an online Internet site for the
sale of jewelry and related items. The Company's purchase price for the
JewelryLine assets was 35,000 shares of the Company's common stock, then valued
at approximately $0.3 million, that were registered pursuant to the Company's
shelf registration statement on Form S-1, as amended by Post-Effective Amendment
No. 1 on Form S-4 to Form S-1 Registration Statement. The Company did not assume
any of JewelryLine's liabilities as part of the transaction. The Company also
registered Samuels.cc and SamuelsJewelers.com web site locations and began
offering merchandise at such locations, along with JewelryLine.com, on April 17,
2000.

     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. The Company
has elected to continue using the intrinsic value method in accordance with
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 "Notes to Financial Statements--8.
Stockholders' Equity."

     Disclosure about Segments of an Enterprise and Related Information. The
Company is not engaged in multiple businesses or geographic segments requiring
separate disclosure under SFAS No. 131.

     Newly Issued Accounting Standards. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which is effective for fiscal years beginning after June
15, 2000. Therefore, the Company adopted SFAS No. 133 for its fiscal year
beginning June 3, 2001. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments that require every derivative to be
recorded on the balance sheet as an asset or liability measured at its fair
value. The statement also defines the accounting for the change in the fair
value of derivatives depending on their intended use. The Company's adoption of
SFAS No. 133 did not have a material impact on its financial condition or
results of operations.


                                       31
<PAGE>   32

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (SFAS 141), Business Combinations. This
standard eliminates the pooling method of accounting for business combinations
initiated after June 30, 2001. In addition, SFAS 141 addresses the accounting
for intangible assets and goodwill acquired in a business combination. This
portion of SFAS 141 is effective for business combinations completed after June
30, 2001. The Company does not expect SFAS 141 to have a material effect on the
Company's financial position or results of operations.

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Intangible
Assets, which revises the accounting for purchased goodwill and intangible
assets. Under SFAS 142, goodwill and intangible assets with indefinite lives
will no longer be amortized, but will be tested for impairment annually and also
in the event of an impairment indicator. The amortization provisions of SFAS 142
apply to goodwill and intangible assets acquired after June 30, 2001. With
respect to goodwill and intangible assets acquired prior to July 1, 2001,
companies are required to adopt the pronouncement in their fiscal year beginning
after December 15, 2001. Management believes that the adoption of SFAS 142 will
not have a material impact on the Company's financial position or results of
operations. See "Notes to Financial Statements--10. Impairment, Asset Disposal
and Other Expenses".

     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 Value of Financial Instruments. The carrying amounts of accounts
receivable, 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 $0 at June 2, 2001, and $460 at June 3, 2000.
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:

<Table>
<Caption>
                                           JUNE 2,        JUNE 3,
                                            2001           2000
                                           -------        -------
<S>                                        <C>            <C>
Accrued wages and benefits ........        $ 3,555        $ 3,920
Accrued bankruptcy claims .........            654            904
Accrued professional fees .........            291            403
Sales tax .........................            723          1,113
Layaway and customer refunds ......            854          1,232
Accrued interest ..................            223            151
Accrued rent ......................          1,161            921
Payable to WFN ....................            284            816
Deferred revenue ..................            198            633
Property tax ......................            436            403
Other accrued expenses ............          8,586          7,640
                                           -------        -------
                                           $16,965        $18,136
                                           =======        =======
</Table>

5. 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 are committed to make revolving
advances to the Company


                                       32
<PAGE>   33

in amounts determined based on percentages of eligible 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, a minimum level
of borrowing availability under the line of credit 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, Amendment Number Two on
August 30, 1999, Amendment Number Three on November 24, 1999, Amendment Number
Four on January 25, 2000, and Amendment Number Five on June 2, 2000. These
amendments allowed for the sale of the credit card portfolio, the acquisition of
stores and adjusted some of the covenants required of the Company under this
financing agreement. On April 30, 2001, the Company entered into Amendment
Number Six which allowed for a new loan agreement between the Company and
lenders represented by DDJ Capital Management, LLC, as discussed below, and
adjusted some of the financial covenants required of the Company.

     As of June 2, 2001, the Company had direct borrowings of $16.0 million
outstanding under the senior revolving line of credit, with an interest rate of
7.1% on $13.0 million and 6.3% on $3.0 million. The weighted average interest
rate for the fiscal year ended June 2, 2001, was 9.3%. As of June 2, 2001 the
Company had additional credit available under the line of approximately $1.7
million.

     As a result of its cash losses and in order to meet its liquidity needs,
the Company entered into a loan agreement and junior security agreement on April
30, 2001, with lenders represented by DDJ Capital Management, LLC acting as
their agent, in order to address the Company's liquidity needs. The agreement
provides up to $15 million for working capital needs based on percentages of
eligible inventory and the level of borrowings outstanding under the senior
revolving line of credit and also includes the lending of an additional $14.3
million arising out of the purchase at a discount of a portion of the Company's
accounts payable during the second quarter of Fiscal 2001. Interest is payable
monthly. The interest rate on borrowings under this agreement is 20% per annum
through October 31, 2001 and then increases by .25% per month until the
expiration of the agreement in June 2002. Upon the occurrence and during the
continuance of any event of default, interest shall accrue at a per annum rate
that is 2% above the otherwise applicable rate. Under terms of the junior
security agreement, the Company granted a security interest in and to
substantially all owned or thereafter acquired assets, both tangible and
intangible, as collateral for amounts borrowed under the loan agreement. The
security provided by the Company is subordinated to the secured liens the
Company provides to the lenders under its senior revolving credit facility per
the terms of the junior security agreement and a separate intercreditor and
subordination agreement that was entered into by and between the lenders of the
senior revolving credit facility and the lenders of the new loan agreement.

     As of June 2, 2001 the Company had direct borrowings of $22.8 million
outstanding under the loan agreement with the lenders represented by DDJ Capital
Management, LLC with an interest rate of 20.0%. As of June 2, 2001 the Company
had additional credit available under the line of approximately $6.5 million.

     In conjunction with the Company's acquisition of Rauch, the Company issued
three promissory notes due and payable for $2.0 million each in January 2000,
2001 and 2002, respectively. The first promissory note, due January 2000, has
been paid. The two remaining notes have a stated interest rate of 7% per annum
with interest due and payable beginning January 15, 2000 and on each successive
six-month anniversary thereafter until the notes are paid in full. The Company
has not paid the January 2001 installment. The holders of the promissory note
for payment in January 2001 have brought an action for payment thereon. The
Company intends to defend the action based upon rights it negotiated as part of
the purchase of C&H Rauch, Inc. See "Notes to Financial Statements--11.
Subsequent Event." Samuels may offset its payment obligations under these notes
to the extent and in the event any liabilities arise that were not accounted for
and not disclosed in the unaudited balance sheet of Rauch as of October 31,
1999. Accordingly, the Company has offset the amounts due under such notes by
$1.8 million, which represents the amount the Company believes was not accounted
for and not disclosed as of October 31, 1999. Upon the occurrence and during the
continuation of an event of default under the notes, Samuels' payment
obligations may bear interest at a per annum rate of 15%.




6. INCOME TAXES



     During Fiscal 2001, the Company's net operating losses (NOLs) increased by
approximately $ 22.0 million. During Fiscal 2000, the Company's NOLs increased
by approximately $10.0 million. As of June 2, 2001, the Company had NOL
carryforwards for federal income tax purposes of approximately $101.0 million.
Approximately $40.0 million of this NOL carryforward is related to


                                       33
<PAGE>   34

losses incurred subsequent to October 2, 1998, which may be used in their
entirety to offset future taxable income. The remaining carryforward, from prior
to October 2, 1998, is subject to an annual limitation on its use of
approximately $1.7 million. These losses begin to expire in 2012. In addition,
the Company has alternative minimum tax credit carryforwards of $109. These
credits do not expire. The Company maintains a full 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.

     The provision for income taxes includes the following:

<Table>
<Caption>
                                                         SUCCESSOR
                       SUCCESSOR       SUCCESSOR          FOR THE        PREDECESSOR
                      FOR THE YEAR    FOR THE YEAR     EIGHT MONTHS      FOR THE FOUR
                          ENDED          ENDED            ENDED          MONTHS ENDED
                         JUNE 2,         JUNE 3,          MAY 29,         OCTOBER 2,
                          2001            2000             1999             1998
                      ------------    ------------     ------------      -----------
<S>                   <C>             <C>              <C>               <C>
Current:
  Federal .....        $      --        $      --        $      --        $      --
  State .......               --               11               --               --
                       ---------        ---------        ---------        ---------
                              --               11               --               --
                       ---------        ---------        ---------        ---------
Deferred:
  Federal .....               --               --               --               --
  State .......               --               --               --               --
                       ---------        ---------        ---------        ---------
                       $      --        $      11        $      --        $      --
                       =========        =========        =========        =========
</Table>

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

<Table>
<Caption>
                                   SUCCESSOR     SUCCESSOR   SUCCESSOR FOR  PREDECESSOR
                                  FOR THE YEAR  FOR THE YEAR   THE EIGHT    FOR THE FOUR
                                     ENDED         ENDED      MONTHS ENDED   MONTHS ENDED
                                     JUNE 2,       JUNE 3,      MAY 29,      OCTOBER 2,
                                      2001          2000          1999          1998
                                  ------------  ------------ -------------  -------------
<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          34.0
Other ........................          --            --            --            --
                                      ----          ----          ----          ----
                                       0.0%          0.0%          0.0%          0.0%
                                      ====          ====          ====          ====
</Table>

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

<Table>
<Caption>
                                                      JUNE 2,          JUNE 3,
                                                       2001             2000
                                                     --------         --------
<S>                                                  <C>              <C>
Current tax assets (liabilities):
  Reserve for bad debts .....................        $  1,632         $  1,167
  Inventory .................................             804              729
  Vacation accrual ..........................             232              328
  State franchise taxes .....................              --              680
  Restructuring reserve .....................              --              486
  Other .....................................             203               --
                                                     --------         --------
                                                        2,871            3,390
                                                     --------         --------
Noncurrent tax assets (liabilities):
  State franchise taxes .....................              --             (655)
  Property and equipment ....................           1,301              713
  Net operating loss carryforwards ..........          34,436           16,737
  Other .....................................           1,971              682
                                                     --------         --------
                                                       37,708           17,477
Total deferred tax assets ...................          40,579           20,867
Valuation allowance .........................         (40,470)         (20,758)
                                                     --------         --------
Net deferred tax assets .....................        $    109         $    109
                                                     ========         ========
</Table>


                                       34
<PAGE>   35

7. 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 2011. The store leases provide for additional rentals based upon sales
and for payment of taxes, insurance and certain other expenses. Base rental
expense is amortized on a straight-line basis over the life of the lease. Rent
expense is charged to operations as follows:

<Table>
<Caption>
                                                                            PREDECESSOR
                           SUCCESSOR        SUCCESSOR     SUCCESSOR FOR       FOR THE
                          FOR THE YEAR    FOR THE YEAR      THE EIGHT       FOUR MONTHS
                             ENDED            ENDED        MONTHS ENDED        ENDED
                            JUNE 2,          JUNE 3,         MAY 29,         OCTOBER 2,
                              2001            2000             1999             1998
                          ------------    ------------    -------------     -----------
<S>                       <C>             <C>             <C>               <C>
Minimum rentals             $ 2,457          $ 1,822          $ 5,078          $ 2,620
Contingent rentals           12,617           10,698            1,218              536
                            -------          -------          -------          -------
                            $15,074          $12,520          $ 6,296          $ 3,156
                            =======          =======          =======          =======
</Table>

     Minimum rental commitments for all remaining noncancelable leases in effect
as of June 2, 2001 are as follows for the fiscal years ended May:

<Table>
<S>                                           <C>
                         2002.............    $ 10,761
                         2003.............      10,157
                         2004.............       9,084
                         2005.............       7,714
                         2006.............       6,613
                         Thereafter.......      18,139
                                              --------
                                              $ 62,468
                                              ========
</Table>

     The Company enters into consignment inventory agreements with its key
vendors in the ordinary course of business. During Fiscal 2001 consignment
inventory on hand ranged from $27.9 to $44.5 million. These amounts are excluded
from the merchandise inventory balance on the accompanying balance sheet.
Consignment inventory was approximately $28.6 million and $44.5 as of June 2,
2001 and June 3, 2000, respectively.

     On August 16, 2001, Harry S. Cohen and Steven D. Singleton, the former
owners of all of the issued and outstanding stock of C&H Rauch, Inc., filed an
action against the Company in the Kentucky Circuit Court of Fayette County,
Kentucky seeking the payment of $2,475,000 pursuant to a promissory note for
payment in January 2001 that was executed and delivered to them by the Company
as part of the purchase price paid by the Company in the acquisition of C & H
Rauch, Inc. The Company intends to defend the suit vigorously based upon its
belief that any payment under such note is subject to rights that it negotiated
as part of such note and the other transaction documents for such acquisition.

     Additionally, 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
will not have a material adverse effect on the Company's financial position,
results of operations or cash flows.



8. STOCKHOLDERS' EQUITY


     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 25% per year. As of June 2, 2001, the Company had 348,805
options outstanding with an average exercise price of $4.247 per share (ranging
from $0.600 to $7.875 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 25% per year.
As of June 2, 2001, the Company had 70,000 options outstanding with an average
exercise price of $5.833 per share, (ranging from $5.500 to $6.667 per share).


                                       35
<PAGE>   36

     The following table summarizes the status of the Company's stock option
plans:

<Table>
<Caption>
                                          NUMBER OF      WEIGHTED AVERAGE
                                           OPTIONS           OPTIONS
                                          ---------      ----------------
<S>                                       <C>            <C>
Outstanding as of October 2, 1998                --              --
         Granted                            256,200           $6.67
         Canceled/Exercised                      --              --
                                           --------           -----
Outstanding as of May 29, 1999              256,200            6.67
         Granted                            170,575            4.99
         Canceled                           (21,900)           6.50
         Exercised                               --              --
                                           --------           -----
Outstanding as of June 3, 2000              404,875            5.97
         Granted                            161,940            2.26
         Canceled                          (148,010)           6.03
         Exercised                               --              --
                                           --------           -----
Outstanding as of June 2, 2001              418,805           $4.51
                                           ========           =====
</Table>

     The following table summarizes information about options outstanding and
exercisable as of June 2, 2001:

<Table>
<Caption>
                 RANGE OF          NUMBER       WEIGHTED AVERAGE    WEIGHTED AVERAGE      NUMBER       WEIGHTED AVERAGE
              EXERCISE PRICES    OUTSTANDING    CONTRACTUAL LIFE     EXERCISE PRICE     EXERCISABLE     EXERCISE PRICE
              ---------------    -----------    ----------------    ----------------    -----------    ----------------
<S>                              <C>            <C>                 <C>                 <C>            <C>
              $0.60 to $7.875      418,805             10                 $4.51           103,856             $6.172
</Table>

     The company has elected to follow APB 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation expense has been
recognized since stock options granted under these plans were at exercise prices
which approximated market value at the grant date. Had compensation expense been
determined for stock option grants using fair value methods provided for in SFAS
No. 123, Accounting for Stock Based Compensation, the Company's pro forma net
loss and net loss per common share would have been the amounts indicated below:


<Table>
<Caption>
                                                 FISCAL YEAR ENDED   FISCAL YEAR ENDED   39 WEEKS ENDED
                                                   JUNE 2, 2001        JUNE 3, 2000       MAY 29, 1999
                                                 -----------------   -----------------   --------------
                                                            (in thousands except share data)
<S>                                              <C>                 <C>                 <C>
Compensation cost                                    $      69           $     300           $     573
Net loss:
     As reported                                     $ (46,032)          $  (7,247)          $  (2,474)
     Pro forma                                       $ (46,101)          $  (7,547)          $  (3,047)
Net loss per share
     As reported                                     $   (5.92)          $   (1.43)          $   (0.49)
     Pro forma                                       $   (5.93)          $   (1.49)          $   (0.61)
Stock option share data:
     Stock options granted during period               161,940             170,575             256,200
     Weighted average option fair value(a)           $    0.96           $    2.58           $    3.15
</Table>

(a)  Calculated in accordance with the Black-Scholes option pricing model, using
     the following assumptions:

     (1)  For Fiscal 2001 grants; expected life of 6.54 years; expected
          volatility of 35%; expected dividend yield of 0% and risk-free rates
          of return as of the date of grant of 4.6% based on the yield of the
          U.S. Treasury securities nearest in life to the average expected lives
          at the date of grant.

     (2)  For Fiscal 2000 grants; expected life of 7.23 years; expected
          volatility of 35%; expected dividend yield of 0% and risk-free rates
          of return as of the date of grant of 5.8% based on the yield of the
          U.S. Treasury securities nearest in life to the average expected lives
          at the date of grant.

     (3)  For 39 weeks ended May 29, 1999, grants; expected life of 7.78 years;
          expected volatility of 35%; expected dividend yield of 0% and risk-
          free rates of return as of the date of grant of 4.8% based on the
          yield of the U.S. Treasury securities nearest in life to the average
          expected lives at the date of grant.


                                       36
<PAGE>   37

     Warrants. At June 2, 2001 the Company had 259,925 warrants outstanding
which were issued to stockholders of Barry's Jewelers, Inc as a part of the
Company's Reorganization. Beginning October 2, 1998, 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 $0.20 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. The Predecessor'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 1998 and 1999 at $0.50 per dollar of contribution up to a 6%
deferral rate. The Board of Directors agreed to match contributions for calendar
year 2000 at $.07 per dollar of contribution up to a 6% deferral rate. The match
can be made in dollars or in the form of Company stock valued as of the last day
of the Plan Year. Participants are partially vested in employer matching
contributions after two years and fully vested after five years of employment
with the Company. Employer contributions were $51, $186 and $83 for calendar
2000, 1999, and 1998, respectively.

     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 June 2, 2001, 62,500 shares were unvested. As a
result of these grants, the Company recognized deferred compensation expense in
the amount of $0.4 million for Fiscal 2001. The deferred compensation expense is
being recognized over the remaining vesting period.

     Private Equity Placement. In June and July 2000, the Company completed the
sale of 2,795,940 shares of its common stock, par value $.001 per share, to
several purchasers pursuant to a private offering by the Company. The purchasers
of such common stock included funds controlled by DDJ Capital Management, LLC,
certain vendors of the Company and directors and officers of the Company. The
Company sold the shares at a price of $5.25 per share for an aggregate purchase
price of approximately $14.7 million. The Company conducted the private offering
and sold the 2,795,940 shares under an exemption from registration of such
shares under the Securities Act of 1933, as amended (the "Securities Act"),
provided in Section 4(2) of the Securities Act and pursuant to Rule 506 under
Regulation D under the Securities Act. As part of the purchase agreements for
such sales of common stock, the Company agreed to register such stock under the
Securities Act of 1933, as amended, for resale pursuant to a shelf registration
statement.

     Notes Receivable. As part of the employment agreements for certain key
executives, the Company made loans in the amount of $936 in Fiscal 1999, $59 in
Fiscal 2000, and $63 in Fiscal 2001 (and agreed to issue more loans 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 when issued 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 recorded deferred compensation
expense in the full amount of the notes issued. The deferred compensation
expense is amortized over the remaining vesting period.

     In July 2000, as part of the purchase by certain officers of the Company in
a private placement of the Company's common stock, the Company permitted
officers to purchase common stock in return for a combination of a promissory
note for up to 90% of such officer's purchase price of the common stock and
cash. The total amount of notes issued was $1.6 million. The notes are 100%
recourse as to accrued interest and range from 25% to 33% recourse as to
principal. The notes require payment in full by the seventh anniversary of the
date of the amount of the respective loan, and the related accrued interest, for
the purchase price of the common stock. The notes accrue interest at a rate per
annum equal to the federal mid-term rate of interest published by the U.S.
Treasury in accordance with IRC Section 1274(d). The notes require a mandatory
annual prepayment of the principal and accrued interest on the respective note
in an amount equal to the lesser of 25% of the pre-tax amount of any cash bonus
paid by the Company to the respective officer and the sum of accrued and unpaid
interest owing on the respective note plus the unpaid principal amount
outstanding on the note. Each officer may elect for one year in the seven-year
period to omit the inclusion of the unpaid principal amount outstanding on the
note under the foregoing calculation. The notes permit the suspension of the
payment of the applicable prepayment amounts as long as an officer has made
sufficient deferrals of amounts from the officer's base salary and any bonuses
under the Company's Deferred Compensation Plan to equal the prepayment amounts
that are being suspended. The Deferred Compensation Plan provides for the
withholding of a percentage of an eligible employee's base salary and any bonus
for a period not to exceed the seven-year anniversary of the date of the first
deferral under the plan. The Company credits amounts deferred under the Deferred
Compensation Plan to a book entry account of the Company for each participant in
the plan and such amounts shall accrue interest at a rate equal to the prime
rate of interest in effect from time to time. The total amount withheld under
the Company's Deferred Compensation Plan during Fiscal 2001 was $44.


                                       37
<PAGE>   38


9. REORGANIZATION COSTS



     Reorganization costs consisted of the following:

<Table>
<Caption>
                                                                          SUCCESSOR        PREDECESSOR
                                                                        FOR THE EIGHT      FOR THE FOUR       PREDECESSOR
                                                                            MONTHS           MONTHS             FOR THE
                                                                            ENDED             ENDED           YEAR ENDED
                                                                            MAY 29,         OCTOBER 2,           MAY 30,
                                                                             1999              1998               1998
                                                                        -------------      ------------       -----------
<S>                                                                     <C>                <C>                <C>
Professional fees ...............................................          $     --          $  3,196           $  5,662
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
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
                                                                           ========          ========           ========
</Table>

     Cash paid (net of interest income) for reorganization costs during the
years ended June 2, 2001, June 3, 2000, the eight months ended May 29,1999, the
four months ended October 2, 1998, and the year ended May 1998 amounted to $.3
million, $1.4 million, $2.5 million, $2.3 million and $3.6 million,
respectively.



10. IMPAIRMENT, ASSET DISPOSAL AND OTHER EXPENSES

     During Fiscal 2001, as part of its repositioning strategy the Company
closed 38 under-performing stores. As a result of these closures the Company
recorded approximately $2.4 million in expenses including the loss on disposal
of assets and payments made to landlords for lease terminations. Amounts
associated with these closures are included in impairment, asset disposal and
expenses for the year ended June 2, 2001.

     The Company evaluated its goodwill associated with the purchase of C&H
Rauch and its reorganization value in excess of amounts allocated to
identifiable assets, and determined that their value had been impaired.
Consequently, the company wrote-off the total net book value of these intangible
assets in the amount of $17.1 million in the fourth quarter of Fiscal 2001.
Amortization of these intangible assets in Fiscal 2001 was $2.3 million.

     The Company reviewed the expected future cash flows from property and
equipment associated with its retail stores. As a result of recent trends, the
Company recognized a loss of $3.3 million during the fourth quarter of Fiscal
2001 for the impairment of assets at certain stores.

     The Company also recorded a charge of $1.1 million for costs related to the
purchase of C & H Rauch.



11. SUBSEQUENT EVENTS

     Promissory Note Demand for Payment. On August 16, 2001, Harry S. Cohen and
Steven D. Singleton, the former owners of all of the issued and outstanding
stock of C & H Rauch, Inc., filed an action against the Company in the Kentucky
Circuit Court of Fayette County, Kentucky seeking the payment of $2,475,000
pursuant to a promissory note for payment in January 2001 that was executed and
delivered to them by the Company as part of the purchase price paid by the
Company in the acquisition of C & H Rauch, Inc. The Company intends to defend
the suit vigorously based upon its belief that any payment under such note is
subject to rights that it negotiated as part of such note and the other
transaction documents for such acquisition.


                                       38
<PAGE>   39

12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

 Unaudited quarterly results for the years ended June 2, 2001 and June 3, 2000
were as follows (amounts in thousands except per share data):

<Table>
<Caption>
                                                                     FISCAL 2001
                                                            FOR THE THREE MONTHS ENDED
                                            June 2,         March 3,        December 2,     September 2,
                                             2001             2001             2000             2000
                                           --------         --------        -----------     ------------
<S>                                        <C>              <C>             <C>             <C>
Net Sales .........................        $ 26,773         $ 57,359         $ 34,381         $ 29,531
Gross margin ......................           7,748           21,955            8,545            9,194
Net earnings (loss) ...............         (30,874)           2,001          (10,948)          (6,211)
Earnings (loss) per share:
   Basic and diluted ..............        $  (3.87)        $   0.25         $  (1.37)        $  (0.86)
</Table>

<Table>
<Caption>
                                                                   FISCAL 2000
                                                           FOR THE THREE MONTHS ENDED
                                            June 3,       February 26,     November 27,      August 28,
                                             2000             2000             1999             1999
                                           --------       ------------     ------------      ----------
<S>                                        <C>            <C>              <C>               <C>
Net Sales .........................        $ 36,624         $ 73,302         $ 26,470         $ 21,131
Gross margin ......................          14,519           31,287            9,577            7,045
Net earnings (loss) ...............          (8,075)           8,651           (4,519)          (3,304)
Earnings (loss) per share:
   Basic ..........................        $  (1.57)        $   1.70         $  (0.89)        $   (.66)
   Diluted ........................        $  (1.57)        $   1.68         $  (0.89)        $   (.66)
</Table>


                                       39
<PAGE>   40

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the financial statements of Samuels Jewelers, Inc., as of June
2, 2001 and June 3, 2000 (Successor Company balance sheets), and the related
statements of operations, stockholders' equity (deficiency) and cash flows for
the years then ended, the eight months ended May 29, 1999 (Successor Company
operations), and the four months ended October 2, 1998 (Predecessor Company
operations), and have issued our report thereon dated August 29, 2001, which
report expresses an unqualified opinion and includes an explanatory paragraph
regarding 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 and an explanatory paragraph relating to
substantial doubt about the Company's ability to continue as a going concern
(included elsewhere in this Annual Report on Form 10-K). Our audits also
included the financial statement schedule listed in the Index at Item 14 of this
Annual Report on Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.




Dallas, Texas
August 29, 2001


                                       40
<PAGE>   41

                                   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 2001:
  Allowance for doubtful accounts           $    3,434    $    6,040     $  (4,674)     $    4,800
  Inventory valuation allowance(1)          $      460    $       --     $    (460)     $       --
YEAR END 2000:
  Allowance for doubtful accounts           $    5,120    $    5,076     $  (6,762)     $    3,434
  Inventory valuation allowance(1)          $    5,336    $      700     $  (5,576)     $      460
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
</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 "Notes to
          Financial Statements--1. Reorganization and Basis of Presentation."


                                       41
<PAGE>   42

                                INDEX TO EXHIBITS
<Table>
<Caption>
Exhibit No.       Description
-----------       -----------
<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)

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

         3.2      Bylaws of Samuels Jewelers, Inc.(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)

         10.1(d)  Amendment Number Three to Loan and Security Agreement entered
                  into as of November 24, 1999, among the Company, Foothill
                  Capital Corporation and the financial institutions listed on
                  the signature pages thereto.(4)

         10.1(e)  Amendment Number Four to Loan and Security Agreement entered
                  into as of January 25, 2000, among the Company, Foothill
                  Capital Corporation and the financial institutions listed on
                  the signature pages thereto.(5)

         10.1(f)  Amendment Number Five to Loan and Security Agreement entered
                  into as of June 2, 2000, among the Company, Foothill Capital
                  Corporation and the financial institutions listed on the
                  signature pages thereto.(6)

         10.1(g)  Amendment Number Six to Loan and Security Agreement entered
                  into as of April 30, 2001, among the Company, Foothill Capital
                  Corporation and the financial institutions listed on the
                  signature pages thereto.(10)

         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)

         10.9     Registration Rights Agreement dated as of June 21, 2000, by
                  and among the Company, Weil, Gotshal & Manges LLP, B III
                  Capital Partners, L.P. and B III-A Capital Partners, L.P.(6)

         10.10    Form of Investment Agreement for private placement in June
                  2000 of common stock with investors (excluding officers of
                  Samuels Jewelers, Inc.)(6)

         10.11    Form of Samuels Jewelers, Inc. Stock Purchase Agreement for
                  private placement in July 2000 of common stock with officers
                  of Samuels Jewelers, Inc.(6)

         10.12    Samuels Jewelers, Inc. Deferred Compensation Plan.(6)

         10.13    Samuels Jewelers, Inc. 1998 Stock Option Plan.(8)

         10.14    Samuels Jewelers, Inc. 1998 Stock Option Plan for Non-Employee
                  Directors.(9)

         10.15    Loan Agreement, dated as of April 30, 2001, among Samuels
                  Jewelers, Inc., the lenders party thereto and DDJ Capital
                  Management, LLC, as agent for the lenders.(10)

         10.16    Junior Security Agreement, dated as of April 30, 2001, among
                  Samuels Jewelers, Inc., lenders party thereto and DDJ Capital
                  Management, LLC, as agent for the lenders.(10)

         10.17    Intercreditor and Subordination Agreement, dated as of April
                  30, 2001, among Foothill Capital Corporation, LaSalle Business
                  Credit, Inc., Sunrock Capital Corp. and DDJ Capital
                  Management, LLC, as acknowledged by Samuels Jewelers, Inc.(10)

         23.1     Consent of Independent Auditors.(7)
</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)      Incorporated by reference to the Company's Annual Report on Form 10-K
         for the year ended May 29, 1999.


                                       42
<PAGE>   43

(4)      Incorporated by reference to the Company's Quarterly Report on Form
         10-Q for the quarter ended November 27, 1999.

(5)      Incorporated by reference to the Company's Quarterly Report on Form
         10-Q for the quarter ended February 26, 2000.

(6)      Incorporated by reference to the Company's Annual Report on Form 10-K
         for the year ended June 3, 2000

(7)      Filed herewith.

(8)      Incorporated by reference to Annex A of the Company's Proxy Statement
         on Schedule 14A dated October 21, 1998.

(9)      Incorporated by reference to Annex B of the Company's Proxy Statement
         on Schedule 14A dated October 21, 1998.

(10)     Incorporated by reference to the Company's Current Report on Form 8-K
         filed July 19, 2001.


                                       43