**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-Q**





x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF


THE
      SECURITIES EXCHANGE ACT OF 1934





For
      the
      quarterly period ended May
      3,
      2008





or





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF


THE
      SECURITIES EXCHANGE ACT OF 1934





For
      the
      transition period from _________ to __________





Commission
      File Number: 0-25716





FINLAY
      ENTERPRISES, INC.


(Exact
      name of registrant as specified in its charter)





Delaware
            
            13-3492802(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                No.)





529
                Fifth Avenue, New York, NY
            
            10017(Address of principal executive offices)
            
            (Zip
                Code)





(212)
                808-2800(Registrant’s telephone number, including area code)





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
o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filer o
            Accelerated
                filer oNon-accelerated
                filer o (do not check if
                a smaller reporting company)
            Smaller
                reporting company x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).




Yes
            o
            No
            x





As
      of
      June 6, 2008, there were 9,317,515 shares of Common Stock, par value $0.01
      per
      share, of the registrant outstanding.













**FINLAY
      ENTERPRISES, INC.**





**FORM
      10-Q**





**QUARTERLY
      PERIOD ENDED MAY 3, 2008**





**INDEX**





**PAGE(S)****PART
                I - FINANCIAL INFORMATION**Item
                1.
            Consolidated
                Financial Statements (Unaudited)Consolidated
                Statements of Operations for the thirteen weeks ended May 3, 2008
                and May
                5, 2007
            2Consolidated
                Balance Sheets as of May 3, 2008 and February 2, 2008
            3Consolidated
                Statements of Changes in Stockholders’ Equity and Comprehensive Loss for
                the thirteen weeks ended May 3, 2008
            4Consolidated
                Statements of Cash Flows for the thirteen weeks ended May 3, 2008
                and May
                5, 2007
            5Notes
                to Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            17Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            29Item
                4.
            Controls
                and Procedures
            29**PART
                II - OTHER INFORMATION**Item
                1A.
            Risk
                Factors
            30Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            31Item
                6.
            Exhibits
            32**SIGNATURES**
            34








**PART
      I – FINANCIAL
      INFORMATION**


**Item
      1.** **Consolidated
      Financial Statements**





**FINLAY
      ENTERPRISES, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(in
      thousands, except share and per share data)**


**(unaudited)**





**Thirteen
                Weeks Ended****May
                3,**
              **2008**
            
            **May
                5,**
              **2007**Sales
            
            $
            205,112
            
            $
            162,871Cost
                of sales
            
            
            112,982
            
            
            86,505Gross
                margin
            
            
            92,130
            
            
            76,366Selling,
                general and administrative expenses
            
            
            96,023
            
            
            77,779Depreciation
                and amortization
            
            
            4,978
            
            
            3,543Loss
                from operations
            
            
            (8,871
            )
            
            (4,956
            )Interest
                expense, net
            
            
            8,775
            
            
            6,078Loss
                from continuing operations before income taxes
            
            
            (17,646
            )
            
            (11,034
            )Benefit
                for income taxes
            
            
            (6,635
            )
            
            (3,281
            )Loss
                from continuing operations
            
            
            (11,011
            )
            
            (7,753
            )Discontinued
                operations, net of tax
            
            
            -
            
            
            149Net
                loss
            
            $
            (11,011
            )
            $
            (7,604
            )Net
                income (loss) per share applicable to common shares –
              Basic
                and Diluted:Loss
                from continuing operations
            
            $
            (1.19
            )
            $
            (0.86
            )Discontinued
                operations, net of tax
            
            $
            -
            
            $
            0.02Net
                loss
            
            $
            (1.19
            )
            $
            (0.84
            )Weighted
                average shares outstanding -Basic
                and Diluted
            
            
            9,223,784
            
            
            9,052,477





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


2


**FINLAY
      ENTERPRISES, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(in
      thousands, except share and per share data)**





**May
                3,**
              **2008**
              **(unaudited)**
            
            **February
                2,**
              **2008**
              **(audited)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            5,390
            
            $
            5,358Accounts
                receivable
            
            
            30,030
            
            
            13,793Other
                receivables
            
            
            3,941
            
            
            1,590Merchandise
                inventories
            
            
            601,270
            
            
            611,488Prepaid
                expenses and other
            
            
            7,312
            
            
            7,236Total
                current assets
            
            
            647,943
            
            
            639,465Fixed
                assets:Building,
                equipment, fixtures and leasehold improvements
            
            
            117,818
            
            
            112,079Less
                –
                accumulated depreciation and amortization
            
            
            46,001
            
            
            41,887Fixed
                assets, net
            
            
            71,817
            
            
            70,192Deferred
                charges and other assets, net
            
            
            26,671
            
            
            27,431Total
                assets
            
            $
            746,431
            
            $
            737,088**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Short-term
                borrowings
            
            $
            297,613
            
            $
            224,231Accounts
                payable – trade (including cash overdraft of $17,496 and
                $7,209at
                May 3, 2008 and February 2, 2008, respectively)
            
            
            65,881
            
            
            110,475Accrued
                liabilities:Accrued
                salaries and benefits
            
            
            14,823
            
            
            15,799Accrued
                miscellaneous taxes
            
            
            8,710
            
            
            7,162Accrued
                interest
            
            
            7,751
            
            
            3,494Deferred
                income
            
            
            4,067
            
            
            4,364Deferred
                income taxes
            
            
            15,716
            
            
            16,009Other
            
            
            20,541
            
            
            29,515Income
                taxes payable
            
            
            -
            
            
            5,660Total
                current liabilities
            
            
            435,102
            
            
            416,709Long-term
                debt
            
            
            200,000
            
            
            200,000Deferred
                income taxes
            
            
            5,084
            
            
            3,593Other
                non-current liabilities
            
            
            3,459
            
            
            3,278Total
                liabilities
            
            
            643,645
            
            
            623,580Commitments
                and contingencies (Note 14)Stockholders’
                equity:Common
                Stock, par value $0.01 per share; authorized 25,000,000
                shares;
              issued
                11,645,355 and 11,514,359 shares, at May 3, 2008 andFebruary
                2, 2008, respectively
            
            
            116
            
            
            114Additional
                paid-in capital
            
            
            95,912
            
            
            95,613Retained
                earnings
            
            
            34,621
            
            
            45,632Less
                treasury stock of 2,330,154 and 2,302,597 shares, at May 3, 2008and
                February 2, 2008, respectively, at cost
            
            
            (27,863
            )
            
            (27,851
            )Total
                stockholders’ equity
            
            
            102,786
            
            
            113,508Total
                liabilities and stockholders’ equity
            
            $
            746,431
            
            $
            737,088





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


3





**FINLAY
      ENTERPRISES, INC.**


**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**


**AND
      COMPREHENSIVE LOSS**


**(in
      thousands, except share data)**





**Common
                Stock**
            
            **Additional**
            
            
            
            
            
            **Total****Number**
            
            
            
            **Paid-in**
            
            **Retained**
            
            **Treasury**
            
            **Stockholders’**
            
            **Comprehensive****of
                Shares**
            
            **Amount**
            
            **Capital**
            
            **Earnings**
            
            **Stock**
            
            **Equity**
            
            **Loss**Balance,
                February 2, 2008
            
            
            9,211,762
            
            $
            114
            
            $
            95,613
            
            $
            45,632
            
            $
            (27,851
            )
            $
            113,508Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (11,011
            )
            
            -
            
            
            (11,011
            )
            $
            (11,011
            )Comprehensive
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            $
            (11,011
            )Issuance
                of common stock
            
            
            130,996
            
            
            2
            
            
            -
            
            
            -
            
            
            -
            
            
            2Award
                of restricted stock units
            
            
            -
            
            
            -
            
            
            30
            
            
            -
            
            
            -
            
            
            30Amortization
                    of restricted stock compensation and restricted stock
                    units
            
            
            -
            
            
            -
            
            
            269
            
            
            -
            
            
            -
            
            
            269Purchase
                of treasury stock
            
            
            (27,557
            )
            
            -
            
            
            -
            
            
            -
            
            
            (12
            )
            
            (12
            )Balance,
                May 3, 2008 (unaudited)
            
            
            9,315,201
            
            $
            116
            
            $
            95,912
            
            $
            34,621
            
            $
            (27,863
            )
            $
            102,786





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


4


**FINLAY
      ENTERPRISES, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(in
      thousands)**


**(unaudited)**





**Thirteen
                Weeks Ended****May
                3,**
              **2008**
            
            **May
                5,**
              **2007**CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (11,011
            )
            $
            (7,604
            )Adjustments
                to reconcile net loss to net cash used inoperating
                activities:Depreciation
                and amortization
            
            
            4,978
            
            
            3,653Amortization
                of deferred financing costs
            
            
            508
            
            
            228Amortization
                of restricted stock compensation , stock options andrestricted
                stock units
            
            
            269
            
            
            441Deferred
                income taxes
            
            
            1,198
            
            
            (3,300
            )Other,
                net
            
            
            126
            
            
            393Changes
                in operating assets and liabilities:Increase
                in accounts and other receivables
            
            
            (18,588
            )
            
            (5,334
            )(Increase)
                decrease in merchandise inventories
            
            
            10,218
            
            
            (7,349
            )(Increase)
                decrease in prepaid expenses and other
            
            
            (451
            )
            
            352Decrease
                in accounts payable and accrued liabilities
            
            
            (59,137
            )
            
            (37,496
            )NET
                CASH USED IN OPERATING ACTIVITIES
            
            
            (71,890
            )
            
            (56,016
            )CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                of equipment, fixtures and leasehold improvements
            
            
            (6,153
            )
            
            (3,709
            )Acquisition
                of Bailey Banks & Biddle
            
            
            (5,559
            )
            
            -Deferred
                charges and other assets
            
            
            (23
            )
            
            (31
            )NET
                CASH USED IN INVESTING ACTIVITIES
            
            
            (11,735
            )
            
            (3,740
            )CASH
                FLOWS FROM FINANCING ACTIVITIESProceeds
                from revolving credit facility
            
            
            240,816
            
            
            176,948Principal
                payments on revolving credit facility
            
            
            (167,434
            )
            
            (130,011
            )Purchase
                of treasury stock
            
            
            (12
            )
            
            (93
            )Bank
                overdraft
            
            
            10,287
            
            
            13,449NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            83,657
            
            
            60,293INCREASE
                IN CASH AND CASH EQUIVALENTS
            
            
            32
            
            
            537CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            5,358
            
            
            2,415CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            5,390
            
            $
            2,952SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Interest
                paid
            
            $
            4,010
            
            $
            1,523Income
                taxes paid
            
            $
            211
            
            $
            1,905SUPPLEMENTAL
                DISCLOSURE OF NON-CASH ACTIVITIES:Award
                of vested participant restricted stock units
            
            $
            30
            
            $
            723Accrual
                for purchases of fixed assets
            
            $
            1,060
            
            $
            2,579





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


5


**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      1 - BASIS OF ACCOUNTING AND PRESENTATION**





The
      accompanying unaudited consolidated financial statements of Finlay Enterprises,
      Inc. (the “Company,” the “Registrant,” “we,” “us” and “our”), and its
      wholly-owned subsidiary, Finlay Fine Jewelry Corporation and its wholly-owned
      subsidiaries (“Finlay Jewelry”), have been prepared in accordance with
      accounting principles generally accepted in the United States of America for
      interim financial information. References to “Finlay” mean collectively, the
      Company and Finlay Jewelry. In the opinion of management, the accompanying
      unaudited consolidated financial statements contain all adjustments necessary
      to
      present fairly our financial position as of May 3, 2008, and our results of
      operations and cash flows for the thirteen weeks ended May 3, 2008 and May
      5,
      2007. Due to the seasonal nature of our business, results for interim periods
      are not indicative of annual results. The unaudited consolidated financial
      statements have been prepared on a basis consistent with that of the audited
      consolidated financial statements as of February 2, 2008 referred to below.
      Certain information and footnote disclosures normally included in financial
      statements prepared in accordance with accounting principles generally accepted
      in the United States of America have been condensed or omitted pursuant to
      the
      rules and regulations of the Securities and Exchange Commission (the
“Commission”).





These
      consolidated financial statements should be read in conjunction with the audited
      consolidated financial statements and notes thereto included in our Annual
      Report on Form 10-K for the fiscal year ended February 2, 2008 (“Form 10-K”)
      previously filed with the Commission.




Results
      from the prior year period ended May 5, 2007 exclude from continuing operations
      the results from Parisian stores that closed in fiscal 2007, which have been
      classified as discontinued operations in accordance with Statement of Financial
      Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or
      Disposal of Long-Lived Assets.”





Our
      fiscal year ends on the Saturday closest to January 31. References to 2008,
      2007
      and 2006 relate to the fiscal year ending on January 31, 2009 and the fiscal
      years ended on February 2, 2008 and February 3, 2007, respectively. Each of
      the
      fiscal years includes 52 weeks except 2006, which includes 53 weeks.





**NOTE
      2 - SIGNIFICANT ACCOUNTING POLICIES**





***Consolidation:*** The
      accompanying consolidated financial statements include the accounts of the
      Company and our wholly-owned subsidiary, Finlay Jewelry. Intercompany accounts
      and transactions have been eliminated in consolidation.





***Use
      of Estimates:*** The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America 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 expenses
      during the reporting period. Significant estimates include merchandise
      inventories, vendor allowances, useful lives of finite-lived assets, accounting
      for acquisitions, self-insurance reserves, income taxes and other accruals.
      Actual results may differ from those estimates.





***Merchandise
      Inventories:*** Consolidated
      inventories are stated at the lower of cost or market determined by the last-in,
      first-out (“LIFO”) method using internally developed indices. Inventory is
      reduced for estimated obsolescence or unmarketable inventory equal to the
      difference between the cost of inventory and the estimated market value based
      upon assumptions about future demand and market conditions.


6


**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      2 - SIGNIFICANT ACCOUNTING POLICIES (continued)**




***Vendor
      Allowances:*** We
      receive allowances from our vendors through a variety of programs and
      arrangements, including cooperative advertising. Vendor allowances are
      recognized as a reduction of **** cost
      of
      sales upon the sale of merchandise or selling, general and administrative
      expenses (“SG&A”) when the purpose for which the vendor funds were intended
      to be used has been fulfilled. Accordingly, a reduction in vendor allowances
      received would increase our cost of sales and/or SG&A.





Vendor
      allowances have been accounted for in accordance with Emerging Issues Task
      Force
      (“EITF”) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for
      Cash Consideration Received from a Vendor” (“EITF No. 02-16”). EITF No. 02-16
      addresses the accounting treatment for vendor allowances and provides that
      cash
      consideration received from a vendor should be presumed to be a reduction of
      the
      prices of the vendors’ product and should therefore be shown as a reduction in
      the purchase price of the merchandise. Further, these allowances should be
      recognized as a reduction in cost of sales when the related product is sold.
      To
      the extent that the cash consideration represents a reimbursement of a specific,
      incremental and identifiable cost, then those vendor allowances should be used
      to offset such costs.





As
      of May
      3, 2008 and February 2, 2008, deferred vendor allowances totaled (i) $6.4
      million and $7.1 million, respectively, for owned merchandise, which allowances
      are included as an offset to merchandise inventories on the Consolidated Balance
      Sheets, and (ii) $4.1 million and $4.4 million, respectively, for merchandise
      received on consignment, which allowances are included as deferred income on
      the
      Consolidated Balance Sheets.




***Net
      Income (Loss) Per Share*** :
      Net
      income (loss) per share has been computed in accordance with SFAS No. 128,
      “Earnings per Share”. Basic and diluted net income (loss) per share were
      calculated using the weighted average number of shares outstanding during each
      period, with options to purchase common stock, par value $0.01 per share
      (“Common Stock”), restricted stock and restricted stock units, included in
      diluted net income (loss) per share, using the treasury stock method, to the
      extent that such options, restricted stock and restricted stock units were
      dilutive. As we had a loss from continuing operations for the thirteen weeks
      ended May 3, 2008 and May 5, 2007, the stock options, restricted stock and
      restricted stock units are not considered in the calculation of diluted net
      income (loss) per share due to their anti-dilutive effect. As a result, the
      weighted average number of shares outstanding used for both the basic and
      diluted net income (loss) per share calculations was the same. Total stock
      options, restricted stock and restricted stock units outstanding were 1,347,016
      and 1,320,972 at May 3, 2008 and May 5, 2007, respectively, at prices ranging
      from $2.71 to $24.31 per share in each period.




***Discontinued
      Operations:*** We
      account for closing stores as discontinued operations when the operations and
      cash flows of a store being disposed of are eliminated from on-going operations
      and we do not have any significant continuing involvement in its operations.
      In
      reaching the determination as to whether the cash flows of a store will be
      eliminated from ongoing operations, we consider whether it is likely that
      customers will migrate to similar stores in the same geographic market, and
      our
      analysis includes an evaluation of the proximity to the disposed store.





***Intangible
      Assets:*** As
      a
      result of our acquisitions in recent years, tradenames and other intangible
      assets were recorded and are included in deferred charges and other assets,
      net
      in the accompanying Consolidated Balance Sheets. Indefinite lived intangible
      assets, consisting of tradenames, are tested for impairment each year or as
      impairment indicators arise in accordance with SFAS No. 142, “Goodwill and Other
      Intangible Assets”.


7





**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      2 - SIGNIFICANT ACCOUNTING POLICIES (continued)**





***Accounting
      Standards Adopted in 2008:*** On
      February 3, 2008, we adopted certain provisions of SFAS No. 157, “Fair Value
      Measurements” (“SFAS No. 157”), which establishes a single authoritative
      definition of fair value, sets a framework for measuring fair value and expands
      on required disclosures about fair value measurement. The provisions of SFAS
      No.
      157, adopted on February 3, 2008, relate to financial assets and liabilities
      as
      well as other assets and liabilities carried at fair value on a recurring basis
      and did not have any effect on our consolidated financial statements. The
      provisions of SFAS No. 157 related to other nonfinancial assets and liabilities
      will be effective for the Company on February 1, 2009, and will be applied
      prospectively. We are currently evaluating the impact that these additional
      SFAS
      No. 157 provisions will have on our consolidated financial
      statements.





**NOTE
      3 - DESCRIPTION OF BUSINESS**





We
      conduct business through our wholly-owned subsidiary, Finlay Jewelry. We are
      a
      retailer of fine jewelry products and operate licensed fine jewelry departments
      in department stores throughout the United States. Additionally, we operate
      luxury stand-alone jewelry stores on a national basis. All references herein
      to
“departments” refer to fine jewelry departments operated pursuant to license
      agreements with host stores and all references herein to “stand-alone jewelry
      stores” refer to our specialty jewelry stores, consisting of Carlyle & Co.
      Jewelers (“Carlyle”), L. Congress, Inc. (“Congress”) and Bailey Banks &
Biddle. Due to the seasonality of the retail jewelry industry, the fourth
      quarter of 2007 accounted for approximately 46.0% of our sales. During 2007,
      licensed departments in Macy’s accounted for 52.0% of our sales.





In
      November 2007, Finlay Jewelry completed the acquisition of substantially all
      of
      the assets and specified liabilities of the Bailey Banks & Biddle division
      of Zale Corporation. Finlay Jewelry currently operates 67 Bailey Banks &
Biddle specialty jewelry stores in 24 states with a focus on the luxury market
      offering jewelry and watches under high-end brand names.





In
      November 2006, Finlay Jewelry completed the acquisition of Congress. Congress
      currently operates five specialty jewelry stores in southwest Florida, also
      with
      a focus on the luxury jewelry market.





In
      May
      2005, Finlay Jewelry completed the acquisition of Carlyle. Carlyle currently
      operates 35 specialty jewelry stores, which sell luxury priced jewelry in nine
      states under the Carlyle & Co., J.E. Caldwell & Co. and Park Promenade
      tradenames.





Results
      of operations of acquired businesses are included in the accompanying
      Consolidated Statements of Operations since the date of
      acquisition.





**NOTE
      4 – BAILEY
      BANKS & BIDDLE ACQUISITION**





In
      November 2007, Finlay Jewelry completed the acquisition of substantially
      all of the assets and specified liabilities of Bailey Banks & Biddle. The
      purchase price was approximately $200.0 million, plus transaction fees of
      approximately $4.1 million, and was financed with borrowings under the
      Revolving Credit Agreement with General Electric Capital Corporation and certain
      other lenders (the “Revolving Credit Agreement”). A
      post-closing inventory adjustment of approximately $31.6 million was also
      financed under the Revolving Credit Agreement, with $26.0 million paid in
      November 2007 and the balance paid in February 2008. The acquisition was
      undertaken to complement and diversify our existing business and provides us
      with the opportunity to increase our presence in the specialty jewelry store
      and
      high-end sector.


8


**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      4 – BAILEY
      BANKS & BIDDLE ACQUISITION (continued)**





The
      Bailey Banks & Biddle acquisition has been accounted for as a purchase, and
      accordingly, the operating results of Bailey Banks & Biddle have been
      included in our consolidated financial statements since the date of acquisition.





The
      following consolidated unaudited pro forma information presents our sales and
      net loss as if the Bailey Banks & Biddle acquisition had taken place at the
      beginning of 2007:





**Thirteen Weeks**
              **Ended****May
                5,**
              **2007****(in thousands)**Sales
            
            $
            225,812Loss
                from continuing operations
            
            
            (9,647
            )Net
                loss
            
            
            (9,498
            )Basic
                and Diluted net loss per share
            
            
            (1.07
            )





Pro
      forma
      adjustments have been made to reflect depreciation and amortization using the
      asset values recognized after applying purchase accounting adjustments and
      interest expense on borrowings used to finance the acquisition. This pro forma
      information is presented for informational purposes only and is not necessarily
      indicative of actual results had the acquisition been effected at the beginning
      of the respective periods presented. It also is not necessarily indicative
      of
      future results, and does not reflect potential synergies, integration costs
      or
      other such costs or savings.





**NOTE
      5** **–
      CONSOLIDATION OF
      HOST STORE GROUPS AND OTHER**





In
      February 2008, Macy’s announced corporate restructuring initiatives impacting
      three divisional changes including the consolidation of Macy's North into Macy's
      East, Macy's Northwest into Macy's West, and Macy's Midwest into Macy's South.
      The consolidation of Macy's North as well as that of Macy's Northwest, will
      result in the non-renewal of these license agreements with Finlay Jewelry and
      the loss of 57 departments and 36 departments, respectively, on January 31,
      2009. In March 2008, Macy’s signed a two-year extension of Finlay Jewelry’s
      license agreement for Macy’s Central (the newly-merged division of Macy’s
      Midwest and Macy’s South), which will consist of 213 departments. The amended
      license agreement extends Finlay Jewelry’s current contract until January 29,
      2011. As of May 3, 2008, we operated a total of 340 departments in five of
      Macy’s eight divisions, as follows:





Macy’s
                South
            
            
            118Macy’s
                Midwest
            
            
            95Macy’s
                North (a)
            
            
            57Macy’s
                Northwest (a)
            
            
            36Bloomingdale’s
            
            
            34Total
            
            
            340





(a) Finlay
                    Jewelry will close 93 Macy’s
                    departments at the end of
                    2008.




In
      October 2006, Macy’s sold its Lord & Taylor division to NRDC Equity Partners
      LLC (“NRDC”). In February 2008, we received notification from NRDC that Finlay
      Jewelry’s license agreement would not be renewed upon expiration on January 31,
      2009, and Finlay Jewelry will close a total of 47 Lord & Taylor departments
      at the end of 2008.





We
      will
      account for Macy’s and Lord & Taylor department store closings as
      discontinued operations upon closing these departments at the end of
      2008.


9


**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      5 –** **CONSOLIDATION OF HOST STORE GROUPS AND OTHER (continued)**




Further,
      as a result of Belk, Inc.’s (“Belk”) acquisition of Parisian from Saks, Inc.
      (“Saks”) in October 2006, the Parisian departments closed in July 2007. In 2007,
      we generated sales of approximately $9.8 million from our 33 Parisian
      departments. For the thirteen weeks ended May 5, 2007, the results of operations
      for these closed stores have been classified as discontinued operations in
      accordance with SFAS No. 144.





Following
      is a summary of the activity in the accrual established for severance charges
      for both our field operations and corporate office that have been recorded
      within our department store based fine jewelry departments segment (in
      thousands):




**Severance and**
              **Termination**
              **Benefits**Balance
                at February 3, 2007
            
            $
            585Payments
            
            
            (398
            )Reversal
                of accrual
            
            
            (70
            )Balance
                at February 2, 2008
            
            
            117Charges
            
            
            392Payments
            
            
            (72
            )Balance
                at May 3, 2008
            
            $
            437





**NOTE
      6 - MERCHANDISE INVENTORIES**





Merchandise
      inventories consisted of the following:




**May
                3,**
              **2008**
            
            **February
                2,**
              **2008****(in
                thousands)**Jewelry
                goods –
                rings, watches and other fine jewelry(first-in,
                first-out (“FIFO”) basis)
            
            $
            641,946
            
            $
            649,960Less:
                Excess of FIFO cost over LIFO inventory value
            
            
            40,676
            
            
            38,472$
            601,270
            
            $
            611,488





We
      determine our LIFO inventory value by utilizing internally developed indices.
      The LIFO method had the effect of increasing the loss from continuing operations
      before income taxes for each of the thirteen weeks ended May 3, 2008 and May
      5,
      2007 by $2.2 million and $1.0 million, respectively.





Approximately
      $196.6 million and $217.9 million at May 3, 2008 and February 2, 2008,
      respectively, of merchandise received on consignment is not included in
      merchandise inventories and accounts payable-trade in the accompanying
      Consolidated Balance Sheets.





**NOTE
      7 - SHORT AND LONG-TERM DEBT**





The
      Revolving Credit Agreement, which matures in November 2012, provides Finlay
      Jewelry with a senior secured revolving line of credit up to $550.0 million
      (the
“Revolving Credit Facility”). The Revolving Credit Facility provides a five-year
      $512.5 million (“Tranche A”) and $37.5 million (“Tranche B”) Revolving Credit
      Facility. At May 3, 2008 and February 2, 2008, $297.6 million and $224.2 million
      was outstanding under this facility, at which point the available borrowings
      were $135.9 million and $174.2 million, respectively, ($105.9 million and $144.2
      million, respectively, of excess availability after taking into
      consideration the $30.0 million minimum unused balance requirement
      discussed below). The average amounts outstanding under the Revolving Credit
      Agreement were $282.8 million and $90.2 million for the thirteen weeks ended
      May
      3, 2008 and May 5, 2007, respectively. The maximum amount outstanding for the
      thirteen weeks ended May 3, 2008 was $310.8 million.


10


**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      7 - SHORT AND LONG-TERM DEBT (continued)**





At
      Finlay
      Jewelry’s option, Tranche A bears interest at a floating rate equal to a margin
      of 0.25% over the Index Rate or 2.00% over the LIBOR (London Interbank Offer
      Rate) from November 9, 2007 through January 1, 2009. After January 1, 2009,
      the
      loans under Tranche A will bear interest in accordance with a graduated pricing
      matrix based on the average excess availability under the facility for the
      previous quarter. Tranche B bears interest at a floating rate equal to a margin
      of 2.75% over the Index Rate or 4.50% over LIBOR. The Index Rate is equal to
      the
      higher of (i) the federal funds rate plus 50 basis points and (ii) the publicly
      quoted rate as published by the Wall Street Journal as the “prime rate”. The
      Revolving Credit Agreement has a $75.0 million letter of credit sub-limit,
      which
      reduces availability when utilized. The weighted average interest rate was
      5.5%
      and 7.0% for the thirteen weeks ended May 3, 2008 and May 5, 2007, respectively.





The
      Revolving Credit Agreement is limited by a borrowing base computed primarily
      on
      the balance of Finlay Jewelry’s inventory and accounts receivable and is secured
      by a first priority perfected security interest in all of Finlay Jewelry’s (and
      any subsidiary’s) present and future tangible and intangible assets. The
      Revolving Credit Agreement contains customary covenants, including limitations
      on, or relating to, liens, indebtedness, investments, mergers, acquisitions,
      affiliate transactions, management compensation and the payment of dividends
      and
      other restricted payments. Additionally, the Revolving Credit Agreement includes
      a requirement to maintain a minimum unused balance of not less than $30.0
      million at all times. As of May 3, 2008, Finlay Jewelry was in compliance with
      this requirement and expects to be in compliance during the remainder of 2008.





At
      May 3,
      2008 and February 2, 2008, we had letters of credit outstanding totaling $6.4
      million and $6.2 million, respectively, which guarantee various trade
      activities. The contract amounts of the letters of credit approximate their
      fair
      value.





Long-term
      debt consisted of the following:




**May
                3,**
              **2008**
            
            **February
                2,**
              **2008****(in
                thousands)**Senior
                Notes (a)
            
            $
            200,000
            
            $
            200,000





(a)
            The
                fair value of the Senior Notes, determined based on market quotes,
                was
                approximately $79.6 million at May 3, 2008 and $103.8 million at
                February
                2, 2008.





Finlay
      Jewelry’s 8-3/8% Senior Notes due June 1, 2012 (the “Senior Notes”), comprise an
      aggregate principal amount of $200.0 million. Interest on the Senior **** Notes
      is
      payable semi-annually on June 1 and December 1 of each year.





The
      Senior Notes are unsecured senior obligations and rank equally in right of
      payment with all of the existing and future unsubordinated indebtedness of
      Finlay Jewelry and senior to any future indebtedness of Finlay Jewelry that
      is
      expressly subordinated to the Senior Notes. The Senior Notes are effectively
      subordinated to Finlay Jewelry’s secured indebtedness, including obligations
      under its Revolving Credit Agreement, to the extent of the value of the assets
      securing such indebtedness, and effectively subordinated to the indebtedness
      and
      other liabilities (including trade payables) of its subsidiaries. Finlay Jewelry
      may redeem the Senior Notes, in whole or in part, at any time beginning June
      1,
      2008 at specified redemption prices plus **** accrued
      and unpaid interest, if any, to the date of the redemption. Upon certain change
      of control events, each holder of the Senior Notes may require Finlay Jewelry
      to
      purchase all or a portion of such holder's Senior Notes at a purchase price
      equal to 101% of the principal amount thereof, plus accrued interest to the
      purchase date.


11


**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      7 - SHORT AND LONG-TERM DEBT (continued)**





The
      indenture governing the Senior Notes contains restrictions relating to, among
      other things, the payment of dividends, redemptions or repurchases of capital
      stock, the incurrence of additional indebtedness, the making of certain
      investments, the creation of certain liens, the sale of certain assets, entering
      into transactions with affiliates, engaging in mergers and consolidations and
      the transfer of all or substantially all assets. Finlay Jewelry was in
      compliance with all of its covenants as of and for the thirteen weeks ended
      May
      3, 2008 and expects to be in compliance during the remainder of
      2008.





**NOTE
      8 –
      INCOME TAXES**





In
      compliance with the Financial Accounting Standards Board (“FASB”) Interpretation
      No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of
      FASB Statement No. 109” (“FIN 48”), the Company had unrecognized tax benefits of
      approximately $1.8 million as of May 3, 2008 and approximately $1.7 million
      as
      of February 2, 2008. Included in the balance are $1.6 million and $1.5 million
      as of May 3, 2008 and February 2, 2008, respectively, of unrecognized tax
      benefits that, if recognized, would affect the annual effective income tax
      rate.





For
      income tax reporting purposes, we have an October 31 year end. The Company
      files
      a consolidated federal income tax return with Finlay Jewelry and its
      wholly-owned subsidiaries and numerous consolidated and separate income tax
      returns in many state and local jurisdictions. The tax years 2003 through 2008
      remain open to examination by the major taxing jurisdictions to which we are
      subject. The Company recognizes accrued interest and penalties related to
      unrecognized tax benefits in income tax expense, which is a continuation of
      the
      Company’s historical accounting policy. Approximately $0.4 million and $0.3
      million in potential interest and penalties are included as a component of
      the
      $1.8 million and $1.7 million at May 3, 2008 and February 2, 2008, respectively.
      The Company anticipates $0.4 million of unrecognized tax benefits will be
      recognized as a result of the settlement of audits and the expiration of the
      statute of limitations prior to February 2, 2009.





**NOTE
      9 – STOCK-BASED COMPENSATION**




Stock
      options outstanding under our stock incentive plans have been granted at prices
      which are equal to the market value of our stock on the date of grant, generally
      vest over three or five years and expire no later than ten years after the
      grant
      date. During the thirteen weeks ended May 3, 2008 and May 5, 2007, we recognized
      approximately $32,000 and $0, respectively, in stock-based compensation expense.





There
      were no options granted, exercised or forfeited during the thirteen weeks ended
      May 3, 2008. The following table summarizes stock options outstanding at
      February 2, 2008 and May 3, 2008 and stock options exercisable at May 3,
      2008:





**Options
                Outstanding****Number**
              **Outstanding**
            
            **Wtd.
                Avg.**
              **Remaining**
              **Contractual Life**
            
            **Wtd.
                Avg.**
              **Ex.
                Price**
            
            **Aggregate**
              **Intrinsic**
              **Value
                (000’s)**Outstanding
                at February 2, 2008
            
            
            863,200
            
            
            4.94
            
            $
            8.07
            
            $
            -Outstanding
                at May 3, 2008
            
            
            863,200
            
            
            4.69
            
            $
            8.07
            
            $
            -Exercisable
                at May 3, 2008
            
            
            588,200
            
            
            2.40
            
            $
            10.58
            
            $
            -


12


**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      9 – STOCK-BASED COMPENSATION (continued)**




The
      following table summarizes the changes in restricted stock outstanding during
      the thirteen weeks ended May 3, 2008:




**Restricted**
              **Stock**
            
            **Wtd.
                Avg.**
              **Grant
                Date**
              **Fair
                Value**Balance
                at February 2, 2008
            
            
            48,367
            
            $
            11.78Vested
            
            
            (47,321
            )
            
            11.85Balance
                at May 3, 2008
            
            
            1,046
            
            $
            8.70





During
      the thirteen weeks ended May 3, 2008 and May 5, 2007, total amortization of
      restricted stock compensation was $0.1 million and $0.2 million,
      respectively.





The
      following table summarizes the changes in restricted stock units (“RSUs”)
      outstanding, including nonvested RSUs, during the thirteen weeks ended May
      3,
      2008:




**RSUs****(1)**
            
            **Wtd.
                Avg.**
              **Grant
                Date**
              **Fair
                Value**
              **Per
                Award**Balance
                at February 2, 2008
            
            
            530,051
            
            $
            8.29Granted
            
            
            36,394
            
            
            1.84Shares
                Issued
            
            
            (83,675
            )
            
            12.66Balance
                at May 3, 2008
            
            
            482,770
            
            $
            6.95





(1)
      Refer
      to Note 10 for additional information regarding RSUs.





During
      the thirteen weeks ended May 3, 2008 and May 5, 2007, total amortization expense
      was $0.2 million in each period.





**NOTE 10 –**
            **EXECUTIVE
                AND DIRECTOR DEFERRED COMPENSATION AND STOCK****PURCHASE
                PLANS**





**** In
      April
      2003, the Board of Directors adopted the Executive Deferred Compensation and
      Stock Purchase Plan and the Director Deferred Compensation and Stock Purchase
      Plan (the “RSU Plans”), which were approved by our stockholders on June 19,
      2003. Under the RSU Plans, key executives and non-employee directors, as
      directed by our Compensation Committee, are eligible to acquire RSUs. A RSU
      is a
      unit of measurement equivalent to one share of Common Stock, but with none
      of
      the attendant rights of a share of Common Stock. Two types of RSUs are awarded
      under the RSU Plans: (i) participant RSUs, where a plan participant may elect
      to
      defer, in the case of an executive employee, a portion of his or her actual
      or
      target bonus, and in the case of a non-employee director, his or her retainer
      fees and Committee chairmanship fees and receive RSUs in lieu thereof, and
      (ii)
      matching RSUs, where we will credit a participant’s plan account with one
      matching RSU for each participant RSU that a participant elects to purchase.
      While participant RSUs are fully vested at all times, matching RSUs are subject
      to vesting and forfeiture as set forth in the RSU Plans. At the time of
      distribution under the RSU Plans, RSUs are converted into actual shares of
      Common Stock. As of May 3, 2008, 482,770 RSUs are outstanding under the RSU
      Plans.





The
      shares issued upon distribution of RSUs under the RSU Plans are provided by
      the
      Company’s 2007 Long Term Incentive Plan (the “2007 Plan”). As a result of the
      unavailability of shares of the Company’s Common Stock under the 2007 Plan and
      in order to facilitate the satisfaction of our obligations to make awards of
      RSUs, on May 22, 2008, the Board of Directors authorized the repurchase of
      one
      senior officer’s stock options to acquire 40,000 shares of Common Stock with a
      per share exercise price of $12.75, subject to the execution of a repurchase
      agreement. The agreement was executed on June 5, 2008 following which, the
      repurchase consideration of $40.00, or $0.001 per share, was
      paid.


13


**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE 10 –**
            **EXECUTIVE
                AND DIRECTOR DEFERRED COMPENSATION AND STOCK****PURCHASE
                PLANS (continued)**





As
      a
      result of the unavailability of shares under the 2007 Plan to satisfy the
      Company’s obligations under the RSU Plans, each of the RSU Plans was also
      amended effective as of May 22, 2008 to reflect that we may delay crediting
      of
      the awards of RSUs payable under the RSU Plans until the requisite number of
      shares of Common Stock are available under the 2007 Plan.





Pursuant
      to these amendments, no new deferral agreements may be entered into under the
      RSU Plans, and any existing deferral agreements will remain in full force and
      effect, except that: (1) with respect to the Executive Plan, deferral agreements
      regarding the 2008 bonus payable on April 25, 2009, will be effectively
      cancelled, and such bonus amounts will be paid to the participants on April
      25,
      2009 in cash; and (2) with respect to the Director Plan, cash (rather than
      RSUs), will be paid for eligible director's fees deferred with respect to the
      third and fourth quarters of the 2008 fiscal year, and such cash amounts will
      be
      paid to the directors on February 2, 2009. Effective as of May 22, 2008, no
      more
      matching awards will be made under the RSU Plans.





**NOTE
      11 – SEGMENT INFORMATION**





In
      accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and
      Related Information”, we have two reporting segments: department store based
      fine jewelry departments and stand-alone specialty jewelry stores. The
      accounting policies of the segments are generally the same as those described
      in
      Note 2. There are no intercompany sales between the segments.




The
      following table provides segment level financial information for the thirteen
      weeks ended May 3, 2008 and May 5, 2007 (in thousands):




**Thirteen
                Weeks Ended****May
                3, 2008**
            
            **May
                5, 2007****Department
                Store**
              **Based Fine Jewelry
                Departments (1)**
            
            **Stand-alone**
              **Jewelry**
              **Stores**
            
            **Total**
            
            **Department Store**
              **Based Fine Jewelry
                Departments (1)**
            
            **Stand-alone**
              **Jewelry**
              **Stores**
            
            **Total**Sales
            
            $
            127,449
            
            $
            77,663
            
            $
            205,112
            
            $
            135,638
            
            $
            27,233
            
            $
            162,871Depreciation
                and amortization
            
            
            3,613
            
            
            1,365
            
            
            4,978
            
            
            3,174
            
            
            369
            
            
            3,543Income
                (loss) from operations
            
            
            (7,536
            )
            
            (1,335
            )
            
            (8,871
            )
            
            (5,511
            )
            
            555
            
            
            (4,956
            )Interest
                expense, net
            
            
            5,781
            
            
            2,994
            
            
            8,775
            
            
            5,420
            
            
            658
            
            
            6,078Benefit
                for income taxes
            
            
            (5,008
            )
            
            (1,627
            )
            
            (6,635
            )
            
            (3,242
            )
            
            (39
            )
            
            (3,281
            )Total
                assets
            
            
            408,678
            
            
            337,753
            
            
            746,431
            
            
            448,399
            
            
            100,750
            
            
            549,149Capital
                expenditures
            
            
            2,330
            
            
            3,823
            
            
            6,153
            
            
            3,530
            
            
            179
            
            
            3,709





(1)  Included
      in interest expense, net for each of the thirteen weeks ended May 3, 2008 and
      May 5, 2007 is $4.2 million related to the Senior Notes.





Additionally,
      our sales mix by merchandise category was as follows for the thirteen weeks
      ended May 3, 2008 and May 5, 2007 (dollars in thousands):


**Thirteen
                Weeks Ended****May
                3, 2008**
            
            **May
                5, 2007****Department Store Based**
              **Fine Jewelry Departments**
            
            **Stand-alone**
              **Jewelry Stores**
            
            **Department Store Based**
              **Fine Jewelry Departments**
            
            **Stand-alone**
              **Jewelry Stores****Sales**
            
            **%
                of**
              **Sales**
            
            **Sales**
            
            **%
                of**
              **Sales**
            
            **Sales**
            
            **%
                of**
              **Sales**
            
            **Sales**
            
            **%
                of**
              **Sales**Diamonds
            
            $
            31,394
            
            
            25
            %
            $
            26,188
            
            
            34
            %
            $
            33,438
            
            
            25
            %
            $
            6,986
            
            
            26
            %Gemstones
            
            
            22,672
            
            
            18
            
            
            5,670
            
            
            7
            
            
            25,102
            
            
            18
            
            
            3,018
            
            
            11Gold
            
            
            21,295
            
            
            17
            
            
            1,329
            
            
            2
            
            
            22,990
            
            
            17
            
            
            718
            
            
            2Watches
            
            
            18,405
            
            
            14
            
            
            23,814
            
            
            31
            
            
            17,997
            
            
            13
            
            
            10,245
            
            
            38Designer
            
            
            16,235
            
            
            13
            
            
            10,286
            
            
            13
            
            
            15,682
            
            
            12
            
            
            4,028
            
            
            15Other
                (1)
            
            
            17,448
            
            
            13
            
            
            10,376
            
            
            13
            
            
            20,429
            
            
            15
            
            
            2,238
            
            
            8Total
                Sales
            
            $
            127,449
            
            
            100
            %
            $
            77,663
            
            
            100
            %
            $
            135,638
            
            
            100
            %
            $
            27,233
            
            
            100
            %





(1)
            Includes
                special promotional items, remounts, estate jewelry, pearls, beads,
                cubic
                zirconia, sterling silver and men’s jewelry, as well as repair services
                and accommodation sales to our
                employees.


14


**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      12 – DISCONTINUED OPERATIONS**





As
      a
      result of the 33 Parisian store closings in July 2007, the results of operations
      for these departments have been segregated from those of continuing operations,
      net of tax, and classified as discontinued operations for all periods presented.
      All of the closed stores were operated in our department store based fine
      jewelry departments segment.





A
      summary
      of the statement of operations information relating to the discontinued
      operations is as follows (in thousands):




**Thirteen**
              **Weeks Ended****May
                5,**
              **2007**Sales
            
            $
            3,567Income
                before income taxes
            
            
            248Discontinued
                operations, net of tax
            
            
            149





**NOTE
      13 – LICENSE AGREEMENTS WITH DEPARTMENT STORES AND LEASE** **AGREEMENTS**





We
      conduct a substantial part of our operations as licensed departments in
      department stores. All of the department store licenses provide that, except
      under limited circumstances, the title to certain of our fixed assets transfers
      upon termination of the licenses, and that we will receive reimbursement for
      the
      undepreciated value of such fixed assets from the host store upon such transfer.
      The value of such fixed assets is recorded at the inception of the license
      arrangement as well as upon department renovations, and is reflected in
      the **** accompanying
      Consolidated Balance Sheets.





Our
      operating leases consist primarily of office space rentals and the stand-alone
      specialty jewelry store locations, which leases expire on various dates through
      2023. The department store license agreements provide for the payment of fees
      based on sales (i.e., contingent fees in the table below). Additionally, certain
      of the stand-alone specialty jewelry store leases require payment of contingent
      rent based on a percentage of store sales in excess of a specified threshold.
      License fees and lease expense included in SG&A are as follows:




**Thirteen
                Weeks Ended****May
                3,**
              **2008**
            
            **May
                5,**
              **2007****(in
                thousands)**Base
                rent
            
            $
            9,896
            
            $
            2,261Contingent
                fees
            
            
            21,924
            
            
            23,084Total
            
            $
            31,820
            
            $
            25,345





**NOTE
      14 – COMMITMENTS, CONTINGENCIES AND OTHER**





**** From
      time
      to time, we are involved in litigation arising out of our operations in the
      normal course of business. We are not a party to any legal proceedings that,
      individually or in the aggregate, are reasonably expected to have a material
      adverse effect on our business, results of operations, financial condition
      or
      cash flows. However, the results of these matters cannot be predicted with
      certainty, and an unfavorable resolution of one or more of these matters could
      have a material adverse effect on our consolidated financial
      statements.




The
      Senior Notes and the Revolving Credit Agreement currently restrict the amount
      of
      annual distributions from Finlay Jewelry to us.


15





**FINLAY
      ENTERPRISES, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**NOTE
      14 – COMMITMENTS, CONTINGENCIES AND OTHER (continued)**





Our
      concentration of credit risk consists principally of accounts receivable. In
      the
      department store based fine jewelry departments, substantially all consumer
      credit risk is borne by the host store rather than by us. During 2007, jewelry
      departments in store groups owned by Macy’s accounted for approximately 52% of
      our sales. We believe that the inability of Macy’s to pay its receivables could
      have a material adverse effect on our financial position or results of
      operations.





In
      2007,
      approximately 43.3% of sales were generated by merchandise obtained from our
      ten
      largest vendors and approximately 6.7% of sales were generated by merchandise
      obtained from our largest vendor.





We
      have
      not provided any third-party financial guarantees as of May 3, 2008 and February
      2, 2008.


16




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




The
      following Management's Discussion and Analysis of Financial Condition and
      Results of Operations ("MD&A") is organized as follows:




·
            ***Executive
                Overview –***This
                section provides a general description of our business and a brief
                discussion of the opportunities, risks and uncertainties that we
                focus on
                in the operation of our business.





·
            ***Results
                of Operations –***This
                section provides an analysis of the significant line items on the
                Consolidated Statements of
                Operations.





·
            ***Liquidity
                and Capital Resources –***This
                section provides an analysis of liquidity, cash flows, sources and
                uses of
                cash, contractual obligations and financial
                position.





·
            ***Seasonality –***This
                section describes the effects of seasonality on our
                business.





·
            ***Critical
                Accounting Policies and Estimates –***This
                section addresses those accounting policies that are considered important
                to our financial condition and results of operations, and require
                us to
                exercise subjective or complex judgments in their application. All
                of our
                significant accounting policies, including critical accounting policies,
                are summarized in Note 2 of Notes to the Consolidated Financial Statements
                included in our Form 10-K.





·
            ***Special
                Note Regarding Forward-Looking Statements –***This
                section provides cautionary information about forward-looking statements
                and a description of certain risks and uncertainties that could cause
                actual results to differ materially from our historical results or
                current
                expectations or projections.





This
      MD&A has been updated for the purpose of restating our financial statements
      for Parisian stores which have been treated as discontinued operations for
      2007.





In
      November 2007, Finlay Jewelry completed the acquisition of Bailey Banks &
Biddle. The purchase price of approximately $200.0 million plus transaction
      fees
      was financed with borrowings under the Revolving Credit Agreement. Additionally,
      a post-closing inventory adjustment of $31.6 million was financed under the
      Revolving Credit Agreement. Bailey Banks & Biddle’s results of operations
      are included in the accompanying Consolidated Statements of Operations since
      the
      date of acquisition.





**Executive
      Overview**





**Our
      Business**





We
      have
      two operating segments – licensed department store based fine jewelry
      departments and stand-alone specialty jewelry stores. We operate licensed fine
      jewelry departments in major department stores where we sell a broad selection
      of moderately priced jewelry, with an average sales price of approximately
      $272
      per item in 2007. Our stand-alone specialty jewelry stores sell luxury priced
      jewelry at an average sales price of approximately $1,300 per item in 2007.
      As
      of May 3, 2008, we operated a total of 781 locations, including 674 department
      store based fine jewelry departments in ten host store groups, in 40 states
      and
      the District of Columbia, as well as 107 stand-alone jewelry stores operating
      as
      67 Bailey Banks & Biddle stores in 24 states, 35 Carlyle stores in nine
      states, located principally in the southeastern United States and five Congress
      stores in southwest Florida.




17




Our
      primary focus is to offer desirable and competitively priced products, a breadth
      of merchandise assortments and to provide superior customer service. Our ability
      to quickly identify emerging trends and maintain strong relationships with
      vendors has enabled us to present superior assortments in our showcases. With
      respect to our department store based fine jewelry departments, we believe
      that
      we are an important contributor to each of our host store groups. By outsourcing
      their fine jewelry departments to us, host store groups gain our expertise
      in
      merchandising, selling and marketing jewelry and customer service. Additionally,
      by avoiding high working capital investments typically required of the
      traditional retail jewelry business, host stores improve their return on
      investment and increase their profitability. As a licensee, we benefit from
      the
      host stores’ reputation, customer traffic, credit services and established
      customer base. We also avoid the substantial capital investment in fixed assets
      typical of a stand-alone retail format. At the end of 2007, approximately 25%
      of
      our merchandise was held on consignment, which reduces our inventory exposure
      to
      changing fashion trends. These factors have generally led our new departments
      to
      achieve profitability within the first twelve months of operation.





Our
      stand-alone jewelry stores **** offer
      compelling shopping environments for the luxury consumer and focus on watches,
      gold, designer jewelry, diamonds and precious gemstones, complemented by an
      assortment of giftware. Our stand-alone jewelry stores each strive to provide
      their customers with a premier shopping experience by utilizing knowledgeable,
      professional and well-trained sales associates, marketing programs designed
      to
      promote customer awareness of their merchandise assortments and by extending
      credit to their customers through credit card programs which are managed by
      third-parties.





We
      measure ourselves against key financial measures that we believe provide a
      well-balanced perspective regarding our overall financial success. Those
      benchmarks are as follows, together with how they are computed:





·
            Diluted
                earnings per share (“EPS”) (net income divided by weighted average shares
                outstanding and share equivalents included to the extent they are
                dilutive) which is an indicator of the returns generated for our
                shareholders;





·
            Comparable
                store sales growth computed as the percentage change in sales for
                locations open for the same months during the comparable periods.
                Comparable store sales are measured against our host store groups
                as well
                as other jewelry retailers;





·
            Total
                net sales growth (current period total net sales minus prior period
                total
                net sales divided by prior period total net sales equals percentage
                change) which indicates, among other things, the success of our selection
                of new store locations and the effectiveness of our merchandising
                strategies; and





·
            Operating
                margin rate (income from operations divided by net sales) which is
                an
                indicator of our success in leveraging our fixed costs and managing
                our
                variable costs. Key components of income from operations which management
                focuses on include monitoring gross margin levels as well as continued
                emphasis on leveraging our
                SG&A.




18




**First
      Quarter Highlights**





Total
      sales were $205.1 million for the thirteen weeks ended May 3, 2008 compared
      to
      $162.9 million for the thirteen weeks ended May 5, 2007, an increase of 25.9%.
      Total sales for the first quarter of 2008 included $77.7 million of sales
      generated by our stand-alone jewelry stores compared to $27.2 million in the
      first quarter of 2007. The increase primarily relates to the acquisition of
      Bailey Banks & Biddle in November 2007. Comparable store sales decreased
      4.5%, as a result of decreased consumer spending in a weak economic environment
      in the first quarter of 2008. Gross margin increased by $15.8 million compared
      to 2007, and, as a percentage of sales, gross margin decreased by 2.0% from
      46.9% to 44.9%. The decrease in gross margin, as a percentage of sales, relates
      to increased volume from the stand-alone jewelry stores at lower margins, lower
      vendor concessions due to reduced merchandise receipts in 2007 as well as a
      higher LIFO provision. SG&A increased $18.2 million, and, as a percentage of
      sales, SG&A decreased 1.0%, from 47.8% to 46.8%, primarily as a result of
      our continued efforts to reduce corporate overhead costs and our ability to
      leverage administrative costs associated with the integration of Bailey Banks
      & Biddle. SG&A expenses include severance costs of $0.4 million for
      field personnel associated with the Macy’s and Lord & Taylor anticipated
      store closings, scheduled to close at the end of the current fiscal year.
      Borrowings under the Revolving Credit Agreement increased by $73.4 million
      at
      May 3, 2008 as compared to February 2, 2008, which reflects additional
      borrowings for working capital requirements. Maximum outstanding borrowings
      during the thirteen weeks ended May 3, 2008 were $310.8 million, at which point
      the available borrowings under the Revolving Credit Agreement were an additional
      $105.1 million ($75.1 million of excess availability after taking into
      consideration the $30.0 million minimum unused balance requirement under Finlay
      Jewelry’s Revolving Credit Agreement). Refer to Note 7 of Notes to the
      Consolidated Financial Statements.





**Opportunities**





An
      important initiative and focus of management is developing opportunities for
      our
      growth. We consider it a high priority to identify new businesses that offer
      growth, financial viability and manageability and will have a positive impact
      on
      shareholder value.





With
      the
      November 2007 acquisition of Bailey Banks & Biddle, a premier luxury brand,
      we will have a significantly higher portion of our business dedicated to the
      specialty jewelry store and high-end sector. The Bailey Banks & Biddle
      stand-alone jewelry stores provide us with a national presence in addition
      to
      further diversifying our revenue stream between the department store based
      fine
      jewelry business and the stand-alone jewelry store business.





Consumers
      spent approximately $65.0 billion on jewelry (including both fine jewelry and
      costume jewelry) in the United States in calendar year 2007, an increase of
      approximately $24.0 billion over 1997, according to the United States Department
      of Commerce. Our management believes that greater disposable income in the
      United States population in general has contributed to the growth of the fine
      jewelry retailing industry. Our management also believes that jewelry consumers
      today increasingly perceive fine jewelry as a fashion accessory, resulting
      in
      purchases which augment gift and special occasion sales.





In
      March
      2008, Finlay Jewelry signed a two-year extension with Macy’s for the newly
      formed consolidated Macy’s Central division formerly known as the Macy’s South
      and Macy’s Midwest divisions. The amended license agreement extends Finlay
      Jewelry’s current contract until January 29, 2011, and covers 213 departments.
      The agreement has no impact on the Bloomingdale’s division whose license
      agreement, covering 34 departments, currently runs through January 30, 2010.




19




During
      the thirteen weeks ended May 3, 2008, we opened four new Carlyle stores. Through
      the Bailey Banks & Biddle acquisition as well as opening new stand-alone
      jewelry stores and Bloomingdale’s departments, we have a larger portion of our
      business dedicated to the luxury sector. We currently plan to open seven new
      locations during the remainder of the year, including three Bailey Banks &
Biddle stand-alone stores and four department store based fine jewelry
      departments.





We
      will
      continue to seek to identify complementary businesses to leverage our core
      competencies in the jewelry industry and plan to continue to pursue the
      following key initiatives to further increase sales and earnings:





·
            Increase
                comparable store sales;





·
            Identify
                and acquire new businesses which diversify our existing businesses
                and
                provide additional growth
                opportunities;





·
            Add
                locations within our existing stand-alone specialty jewelry store
                and
                department store based fine jewelry
                businesses;





·
            Capitalize
                on developing fashion trends and emerging merchandise
                categories;





·
            Expand
                our most productive departments;





·
            Continue
                to improve operating leverage;





·
            Continue
                to raise customer service standards;
                and





·
            De-leverage
                the balance sheet.





**Risks
      and Uncertainties**





The
      risks
      and challenges facing our business include:





·
            Dependence
                on or loss of certain host store relationships;





·
            Host
                store consolidation; and





·
            Substantial
                debt leverage.





We
      operate licensed fine jewelry departments in major department stores and, as
      such, this segment of our business is substantially dependent on our
      relationships with our host store groups, especially Macy’s. A decision by
      Macy’s, or certain of our other host store groups, to terminate existing
      relationships, transfer the operation of some or all of their departments to
      a
      competitor, assume the operation of those departments themselves, or close
      a
      significant number of stores, would have a material adverse effect on our
      business and financial condition.





As
      of May
      3, 2008, we operated a total of 340 departments in five of Macy’s eight
      divisions. In February 2008, Macy’s announced corporate restructuring
      initiatives impacting three divisional changes including the consolidation
      of
      Macy's North into Macy's East, Macy's Northwest into Macy's West, and Macy's
      Midwest into Macy's South. The consolidation of Macy's North as well as that
      of
      Macy's Northwest will result in the non-renewal of these license agreements
      with
      Finlay Jewelry and the loss of 57 departments and 36 departments, respectively.
      In March 2008, Macy's signed a two-year extension of Finlay
      Jewelry’s license agreement for Macy’s Central (the newly-merged division of
      Macy's Midwest and Macy's South), which will consist of 213 departments. The
      amended license agreement extends Finlay Jewelry’s current contract until
      January 29, 2011. In 2007, our department store based fine jewelry sales were
      73% of our total sales, and approximately 52% of our total sales were generated
      by departments operated in store groups owned by Macy’s. In 2007, the Macy's
      North and Macy's Northwest locations generated approximately $120.0 million
      in
      combined revenue. We expect that Macy’s will comprise approximately 43% and 36%
      of our total sales over the next two years (after factoring in projected full
      year results for Bailey Banks & Biddle and the loss of the two Macy’s groups
      in 2009).




20




In
      February 2008, we received notification from NRDC that Finlay Jewelry’s license
      agreement would not be renewed with Lord & Taylor upon its expiration on
      January 31, 2009. We will close a total of 47 Lord & Taylor locations at the
      end of 2008. In 2007, the Lord & Taylor locations generated approximately
      $44.0 million in sales.




As
      a
      result of Belk’s decision not to renew Finlay Jewelry’s license agreement and
      acquisition of the Parisian departments from Saks, we closed 33 Parisian
      departments at the end of July 2007. In 2007, we generated sales of
      approximately $9.8 million from our Parisian departments.




We
      currently have a significant amount of debt. As of May 3, 2008, we had $200.0
      million of debt outstanding under our Senior Notes. Additionally, at May 3,
      2008, borrowings under the Revolving Credit Agreement were $297.6 million.




**Results
      of Operations**





**** The
      following table sets forth operating results as a percentage of sales for the
      periods indicated. The discussion that follows should be read in conjunction
      with the following table:





**Thirteen Weeks Ended****May
                3,**
              **2008**
            
            **May
                5,**
              **2007****Statement
                of Operations Data:**Sales
            
            
            100.0
            %
            
            100.0
            %Cost
                of sales
            
            
            55.1
            
            
            53.1Gross
                margin
            
            
            44.9
            
            
            46.9Selling,
                general and administrative expenses
            
            
            46.8
            
            
            47.8Depreciation
                and amortization
            
            
            2.4
            
            
            2.2Loss
                from operations
            
            
            (4.3
            )
            
            (3.1
            )Interest
                expense, net
            
            
            4.3
            
            
            3.7Loss
                  from continuing operations beforeincome
                  taxes
            
            
            (8.6
            )
            
            (6.8
            )Benefit
                for income taxes
            
            
            (3.2
            )
            
            (2.0
            )Loss
                from continuing operations
            
            
            (5.4
            )
            
            (4.8
            )Discontinued
                operations, net of tax
            
            
            -
            
            
            0.1Net
                loss
            
            
            (5.4
            )%
            
            (4.7
            )%





**Thirteen
      Weeks Ended May 3, 2008 Compared with Thirteen Weeks Ended May 5,
      2007**





***Sales.*** Sales
      for the thirteen weeks ended May 3, 2008 increased $42.2 million, or 25.9%,
      compared to the 2007 first quarter. Sales include $127.4 million from the
      department store based fine jewelry departments for the thirteen weeks ended
      May
      3, 2008, which represented a 6.0% decrease compared to sales of $135.6 million
      for the thirteen weeks ended May 5, 2007. Sales also include $77.7 million
      in
      sales generated by our stand-alone jewelry stores in 2008 compared to $27.2
      million in 2007, the increase of which primarily relates to the acquisition
      of
      Bailey Banks & Biddle in November 2007. Comparable store sales decreased
      4.5% as a result of decreased consumer spending in a weak economic environment
      in the first quarter of 2008.




21





During
      the thirteen weeks ended May 3, 2008, we opened four stand-alone specialty
      jewelry stores in our Carlyle division. Additionally, during the thirteen weeks
      ended May 3, 2008, we closed 13 department store based fine jewelry departments
      and three stand-alone specialty jewelry stores. The closings were comprised
      of
      the following:





**Store Group**
            
            **Number of**
              **Locations**
            
            **Reason**Macy’s
            
            10
            
            Host
                store decision to close these locations.Dillard’s
            
            2
            
            Host
                store decision to close these locations.Bailey
                Banks & Biddle
            
            2
            
            Management’s
                decision to close unprofitable stores.Carlyle
            
            1
            
            Management’s
                decision to close store and open a new store in a nearby
                location.Other
            
            1
            
            Other
                department store closing within existing host store
                group.Total
            
            16




The
      results of operations for these closed locations was not material for the
      current or prior quarter.





***Gross
      margin.*** Gross
      margin increased by $15.8 million in the first quarter of 2008 compared to
      2007.
      As a percentage of sales, gross margin decreased by 2.0% from 46.9% to 44.9%.
      The components of this net decrease in gross margin are as follows:





**Component**
            
            **%**
            
            **Reason**Merchandise
                cost of sales
            
            (1.1
            )%
            Increase
                in cost of sales is due to increased volume from the stand-alone
                jewelry
                division at lower gross margins and lower vendor concessions due
                to
                reduced merchandise receipts in 2007.LIFO
            
            (0.5
            )
            Increase
                in the LIFO provision is due to increases in our internal price indices.Other
            
            (0.4
            )
            Increase
                in various other components of cost of sales.Total
                decrease
            
            (2.0
            )%





***Selling,
      general and administrative expenses.*** The
      components of SG&A include payroll expense, license fees, rent expense, net
      advertising expenditures and other field and administrative expenses. SG&A
      increased $18.2 million, or 23.4%. As a percentage of sales, SG&A decreased
      by 1.0% from 47.8% to 46.8%. The components of this net decrease in SG&A are
      as follows:





**Component**
            
            **%**
            
            **Reason**Net
                advertising expenditures
            
            (0.3
            )%
            Decrease
                is primarily due to lower gross advertising
                expenditures.License
                and lease fees
            
            1.3
            
            Increase
                is primarily due to the impact of additional stand-alone jewelry
                store
                leases at higher lease fees, as a percentage of sales, as a result
                of the
                Bailey Banks & Biddle acquisition.Other
            
            (2.0)
            
            Decrease
                is due to our continued efforts to reduce corporate overhead costs
                and our
                ability to leverage administrative costs associated with the integration
                of Bailey Banks & Biddle.Total
                decrease
            
            (1.0
            )%




***Depreciation
      and amortization.*** Depreciation and amortization for the thirteen weeks ended May 3, 2008 and
      May
      5, 2007 totaled $5.0 million and $3.5 million, respectively. Included in the
      first quarter of 2008 is approximately $0.5 million for accelerated depreciation
      charges associated with the Macy’s and Lord & Taylor anticipated store
      closings at the end of the current fiscal year.





***Interest
      expense, net.*** Interest
      expense increased by $2.7 million primarily as a result of higher average
      borrowings under the Revolving Credit Agreement used to finance the acquisition
      of Bailey Banks & Biddle in 2007. The weighted average interest rate on all
      outstanding borrowings was approximately 6.7% for the first quarter in 2008
      compared with 8.0% for the comparable period in 2007.





***Benefit
      for income taxes.*** The
      income tax benefit for the first quarter of 2008 reflects an effective tax
      rate
      of 37.6% compared to 29.7% for the same period in the prior year. The effective
      tax rate is expected to be significantly higher in 2008 due to the projected
      higher-level of pre-tax loss in relation to non-deductible permanent
      differences.




22




***Discontinued
      operations.*** Discontinued operations for the thirteen weeks ended May 5, 2007 includes the
      results of operations for the Parisian departments closed in July 2007. Sales
      related to these operations totaled $3.6 million for the thirteen weeks ended
      May 5, 2007. Gross margin related to the discontinued departments totaled $1.7
      million, or 48.4% as a percentage of sales. The net income from discontinued
      operations for the thirteen weeks ended May 5, 2007 was $0.1
      million.





***Net
      income (loss).*** Net
      loss
      of $11.0 million for the 2008 period compares to net loss of $7.6 million in
      the
      prior year period as a result of the factors discussed above.





**Liquidity
      and Capital Resources**





Information
      about our financial position as of May 3, 2008 and February 2, 2008 is presented
      in the following table:




**May 3,**
              **2008**
            
            **February 2,**
              **2008****(dollars
                in thousands)**Cash
                and cash equivalents
            
            $
            5,390
            
            $
            5,358Working
                capital
            
            
            212,841
            
            
            222,756Short-term
                debt
            
            
            297,613
            
            
            224,231Long-term
                debt
            
            
            200,000
            
            
            200,000Stockholders’
                equity
            
            
            102,786
            
            
            113,508




Our
      primary capital requirements are funding working capital for new locations
      and
      growth of existing locations, as well as debt service obligations and license
      fees to host store groups, rent payments for the stand-alone jewelry stores,
      capital expenditures for opening new locations, renovating existing locations,
      information technology investments and funding acquisitions. For the thirteen
      weeks ended May 3, 2008, capital expenditures totaled $6.2 million and for
      2008
      are estimated to be in the range of $18.0 million to $20.0 million.





We
      currently expect to fund capital expenditure requirements as well as liquidity
      needs from a combination of cash, internally generated funds, vendor credit
      and
      borrowings under Finlay Jewelry’s Revolving Credit Agreement. We believe that
      our internally generated liquidity through cash flows from operations, together
      with access to external capital resources, will be sufficient to satisfy
      existing commitments and will provide adequate financing
      flexibility.





Cash
      flows provided by (used in) operating, investing and financing activities for
      the thirteen weeks ended May 3, 2008 and May 5, 2007 were as
      follows:


**Thirteen Weeks Ended****May 3,**
            
            **May 5,****2008**
            
            **2007****(dollars
                in thousands)**Operating
                activities
            
            $
            (71,890
            )
            $
            (56,016
            )Investing
                activities
            
            
            (11,735
            )
            
            (3,740
            )Financing
                activities
            
            
            83,657
            
            
            60,293Net
                increase in cash and cash equivalents
            
            $
            32
            
            $
            537




Our
      current priorities for the use of cash or borrowings, as a result of borrowings
      available under the Revolving Credit Agreement, are:





·
            Investment
                in inventory and for working capital;





·
            Capital
                expenditures for new locations, expansions and remodeling of existing
                locations;





·
            Investments
                in technology; and





·
            Strategic
                acquisitions.




23




***Operating
      Activities***





The
      primary source of our liquidity is cash flows from operating activities.
      Operating cash outflows include payments to vendors for inventory, services
      and
      supplies, payments for employee payroll, license fees, rent and payments of
      interest and taxes. Net cash flows used in operating activities were $71.9
      million and $56.0 million for the thirteen weeks ended May 3, 2008 and May
      5,
      2007, respectively. Inventory levels at May 3, 2008 decreased by $10.2 million,
      or 1.7%, as compared to February 2, 2008, primarily related to a decrease in
      inventory in our licensed fine jewelry departments in anticipation of department
      closings at the end of the current year. Accounts receivable increased to $30.0
      million from $13.8 million primarily related to the higher sales volume in
      April
      2008 as compared with January 2008 in our licensed fine jewelry department
      store
      business. Additionally, the decrease in accounts payable to $59.1 million from
      $110.5 million reflects vendor payments for inventory receipts and consignment
      sales associated with the 2007 holiday season.





Our
      operations involving licensed fine jewelry departments substantially preclude
      customer receivables as our license agreements typically require host stores
      to
      remit sales proceeds for each month (without regard to whether such sales were
      cash, store credit or national credit card) to us approximately three weeks
      after the end of such month. Additionally, at the end of 2007, approximately
      25%
      of our merchandise was held on consignment. Our working capital balance was
      $212.8 million at May 3, 2008, a decrease of $9.9 million from February 2,
      2008.





The
      seasonality of our business causes working capital requirements, and therefore,
      borrowings under the Revolving Credit Agreement, to reach their highest level
      in
      the months of October, November and December in anticipation of the year-end
      holiday season. Accordingly, we experience seasonal cash needs as inventory
      levels peak. Additionally, substantially all of our license agreements provide
      for accelerated payments during the months of November and December, which
      require the host store groups to remit to us 75% of the estimated months' sales
      prior to or shortly following the end of that month. These proceeds result
      in a
      significant increase in our cash, which is used to reduce our borrowings under
      the Revolving Credit Agreement.





***Investing
      Activities***





Net
      cash
      used in investing activities totaled $11.7 million and $3.7 million for the
      thirteen weeks ended May 3, 2008 and May 5, 2007, respectively. The current
      quarter included a post-closing inventory adjustment of $5.6 million in
      connection with the acquisition of Bailey Banks & Biddle. Capital
      expenditures for the current and prior year periods totaled $6.2 million and
      $3.7 million, respectively, related primarily to expenditures for opening new
      locations and renovating existing locations.





***Financing
      Activities***





Net
      cash
      provided by financing activities was $83.7 million for the thirteen weeks ended
      May 3, 2008, consisting primarily of proceeds from, and principal repayments
      on,
      the Revolving Credit Facility. Net cash provided from financing activities
      was
      $60.3 million for the thirteen weeks ended May 5, 2007.





The
      Revolving Credit Agreement provides Finlay Jewelry with a line of credit up
      to
      $550.0 million to finance working capital needs. At Finlay Jewelry’s option,
      Tranche A (up to $512.5 million) bears interest at a floating rate equal to
      a
      margin of 0.25% over the Index Rate or 2.00% over the LIBOR (London Interbank
      Offer Rate) from November 9, 2007 through January 1, 2009. After January 1,
      2009, the loans under Tranche A will bear interest in accordance with a
      graduated pricing matrix based on the average excess availability under the
      facility for the previous quarter. Tranche B (up to $37.5 million) bears
      interest at a floating rate equal to a margin of 2.75% over the Index Rate
      or
      4.50% over LIBOR. The Index Rate is equal to the higher of (i) the federal
      funds
      rate plus 50 basis points and (ii) the publicly quoted rate as published by
      the
      Wall Street Journal as the “prime rate”. The weighted average interest rate was
      5.5% and 7.0% for the thirteen weeks ended May 3, 2008 and May 5, 2007,
      respectively.




24





Borrowings
      under the Revolving Credit Agreement were $297.6 million at May 3, 2008,
      compared to $224.2 million at February 2, 2008 and $92.8 million at May 5,
      2007.
      The average amounts outstanding under the Revolving Credit Agreement were $282.8
      million and $90.2 million for the thirteen weeks ended May 3, 2008 and May
      5,
      2007, respectively. The maximum amount outstanding for the thirteen weeks ended
      May 3, 2008 was $310.8 million, **** at
      which
      point the available borrowings under the Revolving Credit Agreement were an
      additional $105.1 million ($75.1 million of excess availability after taking
      into consideration the $30.0 million minimum unused balance requirement under
      Finlay Jewelry’s Revolving Credit Agreement). At May 3, 2008, we had letters of
      credit outstanding totaling $6.4 million, which guarantee various trade
      activities.





In
      November 2007, Finlay Jewelry completed the acquisition of substantially all
      of
      the assets and specified liabilities that comprised the Bailey Banks &
Biddle division of Zale Corporation, a chain of 67 stand-alone retail stores
      in
      24 states with a focus on the luxury market, offering jewelry and watches under
      high-end name brands. The purchase price of approximately $200.0 million,
      plus transaction fees of approximately $4.1 million, was financed with
      borrowings under the Revolving Credit Agreement. A post-closing inventory
      adjustment of $31.6 million was also financed through borrowings under the
      Revolving Credit Agreement, with $26.0 million paid in November 2007 and the
      balance paid in February 2008. Since the date of acquisition, Bailey Banks
&
Biddle’s cash requirements have been, and will continue to be, funded under the
      Revolving Credit Agreement.





A
      significant amount of our operating cash flows will be used to pay interest
      with
      respect to the Senior Notes and amounts due under the Revolving Credit
      Agreement. As of May 3, 2008, our outstanding borrowings were $497.6 million,
      which included a $200.0 million balance under the Senior Notes and a $297.6
      million balance under the Revolving Credit Agreement. This compares to $292.8
      million as of May 5, 2007, including a $200.0 million balance under the Senior
      Notes and a $92.8 million balance under the Revolving Credit Agreement.





The
      Revolving Credit Agreement contains customary covenants, including limitations
      on, or relating to, liens, indebtedness, investments, mergers, acquisitions,
      affiliate transactions, management compensation and the payment of dividends
      and
      other restricted payments. The only financial covenant is the maintenance of
      a
      minimum of $30.0 million of availability under the facility. The indenture
      related to the Senior Notes contains restrictions relating to, among other
      things, the payment of dividends, redemptions or repurchases of capital stock,
      the incurrence of additional indebtedness, the making of certain investments,
      the creation of certain liens, the sale of certain assets, entering into
      transactions with affiliates, engaging in mergers and consolidations and the
      transfer of all or substantially all assets. We were in compliance with all
      such
      covenants as of May 3, 2008. Refer to Note 7 of Notes to the Consolidated
      Financial Statements.





We
      believe that, based upon current operations, anticipated growth and continued
      availability under the Revolving Credit Agreement, Finlay Jewelry will, for
      the
      foreseeable future, be able to meet its debt service and anticipated working
      capital obligations and to make distributions sufficient to permit us to pay
      certain expenses as they come due. No assurances, however, can be given that
      Finlay Jewelry’s operating results will continue to be sufficient to permit
      Finlay Jewelry to meet its debt service and other obligations. The amounts
      required to satisfy the aggregate of Finlay Jewelry’s interest expense totaled
      $4.0 million and $1.5 million for the thirteen weeks ended May 3, 2008 and
      May
      5, 2007, respectively.





Our
      needs
      for external financing will depend on our rate of growth, the level of
      internally generated funds and our ability to continue obtaining substantial
      amounts of merchandise on advantageous terms, including consignment
      arrangements, with our vendors. As of May 3, 2008, $196.7 million of consignment
      merchandise from approximately 300 vendors was on hand as compared to $217.9
      million at February 2, 2008.





The
      following table summarizes our contractual and commercial obligations which
      may
      have an impact on future liquidity and the availability of capital resources,
      as
      of May 3, 2008 (dollars in thousands):




25




**Payments
                Due By Period****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than**
              **1
                year**
            
            **1-3
                years**
            
            **3-5
                years**
            
            **More
                than**
              **5
                years**Long-Term
                Debt Obligations:Senior
                Notes (due 2012)
            
            $
            200,000
            
            $
            -
            
            $
            -
            
            $
            200,000
            
            $
            -Interest
                payments on Senior Notes
            
            
            75,375
            
            
            16,750
            
            
            33,500
            
            
            25,125
            
            
            -Operating
                lease obligations (1)
            
            
            160,879
            
            
            26,524
            
            
            43,431
            
            
            28,580
            
            
            62,344Revolving
                Credit Agreement (due 2012) (2)
            
            
            297,613
            
            
            297,613
            
            
            -
            
            
            -
            
            
            -Employment
                agreements
            
            
            1,308
            
            
            1,308
            
            
            -
            
            
            -
            
            
            -Contractual
                bonuses (3)
            
            
            862
            
            
            862
            
            
            -
            
            
            -
            
            
            -Letters
                of credit
            
            
            6,359
            
            
            6,359
            
            
            -
            
            
            -
            
            
            -Total
            
            $
            742,396
            
            $
            349,416
            
            $
            76,931
            
            $
            253,705
            
            $
            62,344







(1)
            Represents
                future minimum payments under noncancellable operating leases as
                of
                February 2, 2008.


(2)
            The
                above table excludes interest due under the Revolving Credit Agreement.
                Refer to Note 7 of Notes to the Consolidated Financial
                Statements.


(3)
            Represents
                a special bonus for four senior executives equal to 50% of the executives’
                salary if employed by Finlay Jewelry on the dates specified in the
                respective employment agreements.





The
      operating leases included in the above table do not include contingent rent
      based upon sales volume, which amounted to approximately $21.9 million for
      the
      thirteen weeks ended May 3, 2008, or variable costs such as maintenance,
      insurance and taxes. Our open purchase orders are cancelable without penalty
      and
      were excluded from the above table. There were no commercial commitments
      outstanding as of May 3, 2008 other than as disclosed in the table above, nor
      have we provided any third-party financial guarantees as of and for the thirteen
      weeks ended May 3, 2008.




We
      have
      not created, and are not party to, any off-balance sheet entities for the
      purpose of raising capital, incurring debt or operating our business. We do
      not
      have any arrangements or relationships with entities that are not consolidated
      into the financial statements that are reasonably likely to materially affect
      our liquidity or the availability of capital resources.





***Other
      Activities Affecting Liquidity***




We
      have
      entered into various employment agreements with certain senior executives which
      provide for future minimum compensation aggregating $1.3 million at May 3,
      2008.
      These agreements, each expiring after a three year period, guarantee a minimum
      annual salary level and incentive compensation upon achieving specific financial
      goals. Several agreements provide for a special bonus equal to 50% of the
      executive’s salary if the executive remains employed by Finlay Jewelry for the
      duration of the agreement.




**Seasonality**





Our
      business is highly seasonal, with a significant portion of our sales and income
      from operations generated during the fourth quarter of each year, which includes
      the year-end holiday season. The fourth quarter of 2007 accounted for an average
      of approximately 43.8% of our annual sales. We have typically experienced net
      losses in the first three quarters of our fiscal year. During these periods,
      working capital requirements have been funded by borrowings under the Revolving
      Credit Agreement. Accordingly, the results for any of the first three quarters
      of any given fiscal year, taken individually or in the aggregate, are not
      indicative of annual results.




**Inflation**





The
      effect of inflation on our results of operations has not been material in the
      periods discussed.




26




**Critical
      Accounting Policies and Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires the appropriate application
      of
      certain accounting policies, many of which require us to make estimates and
      assumptions about future events and their impact on amounts reported in our
      financial statements and related notes. We believe the application of our
      accounting policies, and the estimates inherently required therein, are
      reasonable. These accounting policies and estimates are periodically
      re-evaluated, as appropriate, and adjustments are made when facts and
      circumstances dictate a change. However, since future events and their impact
      cannot be determined with certainty, actual results may differ from our
      estimates, and such differences could be material to the consolidated financial
      statements. Historically, we have found our application of accounting policies
      to be appropriate, and actual results have not differed materially from those
      determined using necessary estimates. There have been no changes in our
      accounting policies since February 2, 2008. Our significant accounting policies
      relate to merchandise inventories, vendor allowances, long-lived assets, revenue
      recognition, self-insurance reserves, income taxes and accounting for
      acquisitions. A summary of our significant accounting policies and a description
      of accounting policies that we believe are most critical may be found in Note
      2
      of Notes to the Consolidated Financial Statements included in our Form 10-K
      for
      the year ended February 2, 2008.





**Special
      Note Regarding Forward-Looking Statements**





This
      Form
      10-Q includes forward-looking statements. All statements other than statements
      of historical information provided herein are forward-looking statements and
      may
      contain information about financial results, economic conditions, trends and
      known uncertainties. You can identify these forward-looking statements by the
      use of words like "strategy," "expect," "plan," "believe," "will," "estimate,"
      "intend," "project," "goals," "target," "anticipating," "hope" and other words
      of similar meaning. You can also identify them by the fact that they do not
      relate strictly to historical or current facts. The forward-looking statements
      contained herein are subject to certain risks and uncertainties that could
      cause
      actual results, performance or achievements to differ materially from those
      reflected in, or implied by, the forward-looking statements. Factors that might
      cause such a difference include, but are not limited to, those discussed under
      "Management's Discussion and Analysis of Financial Condition and Results of
      Operations." Important factors that could cause actual results to differ
      materially include, but are not limited to:





·
            Our
                dependence on, or loss of, certain host store relationships, particularly
                with respect to Macy’s, due to the concentration of sales generated by
                such host store groups;





·
            The
                impact of significant store closures by our host store groups;





·
            The
                seasonality of the retail jewelry business;





·
            The
                impact of changes in the popularity of malls and our host stores
                and mall
                traffic levels;





·
            Our
                ability to identify, finance and integrate any future acquisitions
                into
                our existing business;





·
            Our
                ability to continue to obtain substantial amounts of merchandise
                on
                consignment;





·
            Our
                ability to continue to obtain merchandise from our vendors on favorable
                credit terms;




·
            The
                impact of fluctuations in gold and diamond prices;





·
            Competition
                in the retail jewelry business and fluctuations in our quarterly
                results;





·
            Our
                ability to collect net sales proceeds from our host stores and the
                impact
                of any host store bankruptcy;




27




·
            The
                availability to us of alternate sources of merchandise supply in
                the case
                of an abrupt loss of any significant
                supplier;





·
            Our
                ability to identify and rapidly respond to fashion trends as well
                as our
                ability to maintain flexible return privileges on owned merchandise;





·
            Our
                ability to increase comparable store sales, expand our business or
                increase the number of locations we operate;





·
            Our
                dependence on key officers;





·
            Our
                high degree of leverage and the availability to us of financing and
                credit
                on favorable terms;





·
            Our
                compliance with applicable contractual covenants;





·
            Changes
                in regulatory requirements which are applicable to our business;





·
            The
                impact of future claims and legal actions arising in the ordinary
                course
                of business;





·
            Attacks
                or threats of attacks by terrorists or war which may negatively impact
                the
                economy and/or the financial markets and reduce discretionary spending;
                and





·
            Low
                or negative growth in the economy or in the financial markets which
                reduce
                discretionary spending on goods perceived to be luxury
                items.





Readers
      are cautioned not to unduly rely on these forward-looking statements, which
      reflect management's analysis, judgment, belief or expectation only as of the
      date hereof. We undertake no obligation to publicly revise these forward-looking
      statements to reflect events or circumstances that arise after the date hereof
      or to reflect the occurrence of unanticipated events. In addition to the
      disclosure contained herein, readers should carefully review any disclosure
      of
      risks and uncertainties contained in other documents we file or have filed
      from
      time to time with the Commission. A complete discussion of forward-looking
      information and risk factors that may affect our future results, may be found
      in
      Item 1A – “Risk Factors” included in our Form 10-K and in Part II of this
      report.




28




**Item
          3.** **Quantitative
          and Qualitative Disclosures About Market
          Risk**





***Interest
      Rate Risk***





We
      are
      exposed to market risk through the interest rate on our borrowings under the
      Revolving Credit Agreement, which has a variable interest rate. Based on the
      average amounts outstanding under the Revolving Credit Agreement for 2007,
      a 100
      basis point increase in interest rates would have resulted in an increase in
      interest expense of approximately $1.5 million in 2007. In seeking to minimize
      the risks from interest rate fluctuations, we manage exposures through our
      regular operating and financing activities.




***Commodity
      Risk***





We
      principally address commodity risk through retail price points. Our commodity
      risk exposure to diamond, gold and other merchandise categories is market price
      fluctuations, and we currently do not engage in any hedging
      activities.





**Item
      4.** **Controls
      and Procedures**





**Disclosure
      Controls and Procedures**





Our
      management, with the participation of our Chief Executive Officer (“CEO”) and
      Chief Financial Officer (“CFO”), carried out an evaluation of the effectiveness
      of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15
      as of the end of the period covered by this report. Based upon that evaluation,
      the CEO and CFO concluded that the design and operation of these disclosure
      controls and procedures are effective in ensuring that material financial and
      non-financial information required to be disclosed by us in reports that we
      file
      or submit under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in the Commission’s rules and forms.





Because
      of the inherent limitations in all control systems, no evaluation of controls
      can provide absolute assurance that our disclosure controls and procedures
      will
      detect or uncover every situation involving the failure of persons within the
      Company to disclose material information otherwise required to be set forth
      in
      our periodic reports.





**Changes
      in Internal Controls over Financial Reporting**





Our
      management, with the participation of our CEO and CFO, also conducted an
      evaluation of our internal control over financial reporting, as defined in
      Exchange Act Rule 13a-15(f), to determine whether any changes occurred during
      the quarter ended May 3, 2008 that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial reporting.
      Based on that evaluation, there was no such change during the quarter ended
      May
      3, 2008.




A
      control
      system, no matter how well conceived and operated, can provide only reasonable,
      not absolute, assurance that the objectives of the control system are met.
      Further, the design of a control system must reflect the fact that there are
      resource constraints, and the benefits of controls must be considered relative
      to their costs. Because of the inherent limitations in all controls systems,
      no
      evaluation of controls can provide absolute assurance that all control issues
      and instances of fraud, if any, within the Company have been detected. We
      conduct periodic evaluations of our controls to enhance, where necessary, our
      procedures and controls. Because of the inherent limitations in a cost-effective
      control system, misstatements due to error or fraud may occur and not be
      detected.




29




**PART
      II – OTHER INFORMATION**





**Item
      1A.** **Risk
      Factors**





In
      addition to the other information set forth in this report, you should carefully
      consider the factors discussed in Item 1A – “Risk Factors” in our Form 10-K
      for the year ended February 2, 2008, which could materially affect our business,
      financial condition or future results. The risks described in our Form 10-K
      are
      not the only risks we face. Additional risks and uncertainties not currently
      known to us, or that we currently deem to be immaterial, also may materially
      adversely affect our business, financial condition and/or operating
      results.





There
      have been no material changes in the risks faced by us as disclosed in our
      Form
      10-K, except as follows:





***We
      currently fail to meet two of Nasdaq’s listing requirements and our Common Stock
      may be delisted.***





Our
      Common Stock is listed on The Nasdaq Global Market (“Nasdaq”). On April 2,
      2008, we received notification from Nasdaq indicating that, for 30 consecutive
      trading days, our Common Stock had not maintained the minimum market value
      of
      publicly held shares of $5,000,000 required for continued inclusion on Nasdaq.
      Therefore, we are not in compliance with the market value requirement for
      continued listing on Nasdaq. We have 90 days, or until July 1, 2008, to regain
      compliance with this listing requirement. Compliance can be achieved during
      any
      compliance period by meeting the minimum market value requirement for a minimum
      of 10 consecutive trading days during the 90 day compliance period.





On
      April
      7, 2008, we received notification from Nasdaq indicating that, for 30
      consecutive trading days, the bid price of our Common Stock closed below the
      minimum $1.00 per share required for continued inclusion on Nasdaq. Therefore,
      we are not in compliance with the bid price requirement for continued listing
      on
      Nasdaq. We have 180 days, or until October 6, 2008, to regain compliance
      with this listing requirement. Compliance can be achieved during any compliance
      period by meeting the minimum bid price requirement for a minimum of 10
      consecutive trading days during the 180 day compliance period.





If
      we
      fail to regain compliance with either the market value or the bid price
      requirement or if at any time we fail to satisfy any of the other requirements
      for continued listing, our Common Stock will be delisted from Nasdaq. If
      delisted from Nasdaq, our Common Stock will likely be quoted on the
      over-the-counter market. In addition, if delisted, our Common Stock would become
      subject to the rules promulgated under the Securities Exchange Act of 1934
      relating to low-priced stocks (stocks trading below $5 per share). These rules
      require brokers who sell securities that are subject to the rules, and who
      sell
      to persons other than established customers and institutional accredited
      investors, to complete required documentation, make suitability inquiries of
      investors and provide investors with information concerning the risks of trading
      in the security. Consequently, we believe an investor would find it more
      difficult to buy or sell our Common Stock in the open market if it were quoted
      on the over-the-counter market.




30




**Item
      2.** **Unregistered
      Sales of Equity Securities and Use of Proceeds**





**Issuer
      Purchases of Equity Securities**





**** The
      table
      below sets forth information with respect to our repurchases of Common Stock
      during each month of the first quarter of fiscal 2008.





**Period**
            
            **Total Number of Shares**
              **Purchased (1)**
            
            **Average**
              **Price Paid**
              **per Share**
            
            **Total Number of Shares**
              **Purchased as Part of Publicly**
              **Announced Plans (2)**
            
            **Maximum Number of Shares**
              **that May Yet Be Purchased**
              **Under the Plans
                (2)**February
                3 - March 1, 2008
            
            
            -
            
            $
            -
            
            
            -
            
            
            -March
                2 - April 5, 2008
            
            
            -
            
            $
            -
            
            
            -
            
            
            -April
                6 - May 3, 2008
            
            
            27,557
            
            $
            0.45
            
            
            -
            
            
            -Total
            
            
            27,557
            
            $
            0.45
            
            
            -
            
            
            -







(1)
            We
                repurchased 27,557 shares from certain executives for approximately
                $12,000 pursuant to our long-term incentive plan, to satisfy tax
                withholding obligations related to the issuance of Common Stock to
                the
                executives.


(2)
            The
                Company’s stock repurchase program expired on September 30, 2005 and has
                not been renewed. No shares were repurchased by the Company during
                the
                first quarter of 2008 pursuant to a stock repurchase program.




31




**Item
      6.** **Exhibits**





**Exhibit
                No.**
            
            **Description**2.1
            
            Agreement
                and Plan of Merger, dated May 19, 2005, by and among Finlay Jewelry,
                FFJ
                Acquisition Corp., Carlyle & Co. Jewelers, certain stockholders of
                Carlyle & Co. Jewelers and Russell L. Cohen (as stockholders' agent)
                (incorporated by reference to Exhibit 2.1 to the Company’s Current Report
                on Form 8-K filed on May 25, 2005).2.2(a)
            
            Asset
                Purchase Agreement, dated September 27, 2007, by and among Zale
                Corporation, Zale Delaware, Inc., TXDC, L.P., Finlay Jewelry and,
                for
                limited purposes, the Company (incorporated by reference to Exhibit
                2.2(a)
                to the Company’s Quarterly Report on Form 10-Q for the period ended
                November 3, 2007 filed on December 13, 2007).2.2(b)
            
            Letter
                Agreement, dated November 9, 2007, amending the Asset Purchase Agreement,
                dated September 27, 2007, by and among Zale Corporation, Zale Delaware,
                Inc., TXDC, L.P., Finlay Jewelry and, for limited purposes, the Company
                (incorporated by reference to Exhibit 2.2(b) to the Company’s Quarterly
                Report on Form 10-Q for the period ended November 3, 2007 filed on
                December 13, 2007).3.1
            
            Certificate
                of Incorporation of the Company, as amended (incorporated by reference
                to
                Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the period
                ended January 28, 1995 filed on April 12, 1995).3.2
            
            Amended
                and Restated By-Laws of the Company, dated as of December 4, 2007
                (incorporated by reference to Exhibit 3.2 to the Company’s Current Report
                on Form 8-K filed on December 10, 2007).10.2(a)(i)
            
            Amendment
                No. 1 to Employment Agreement, dated as of March 11, 2008, among
                the
                Company, Finlay Jewelry, and Arthur E. Reiner (incorporated by reference
                to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March
                14, 2008).10.2(a)(ii)
            
            Amendment
                No. 2 to Employment Agreement, dated as of April 25, 2008, among
                the
                Company, Finlay Jewelry, and Arthur E. Reiner (incorporated by reference
                to Exhibit 10.2(a)(ii) to the Company’s Current Report on Form 8-K filed
                on April 28, 2008).10.6(e)
            
            Amendment
                No. 4 to the Company’s Executive Deferred Compensation and Stock Purchase
                Plan, effective May 22, 2008 (incorporated by reference to Exhibit
                10.2 to
                the Company’s Current Report on Form 8-K filed on June 9,
                2008).10.7(c)
            
            Amendment
                No. 1 to the Company’s Director Deferred Compensation and Stock Purchase
                Plan, effective May 22, 2008 (incorporated by reference to Exhibit
                10.3 to
                the Company’s Current Report on Form 8-K filed on June 9,
                2008).10.21
            
            Description
                of Director and Named Executive Officer Compensation.10.25
            
            Severance
                Agreement and General Release, dated as of March 27, 2008, between
                Finlay
                Jewelry and Edward J. Stein (incorporated by reference to Exhibit
                10.25 to
                the Company’s Current Report on Form 8-K filed on March 31,
                2008).




32




10.26
            
            Finlay
                Jewelry Change of Control Executive Severance Plan, effective March
                11,
                2008 (incorporated by reference to Exhibit 10.2 to the Company’s Current
                Report on Form 8-K filed on March 14, 2008).10.26(a)
            
            Amendment
                No. 1 to the Finlay Jewelry Change of Control Executive Severance
                Plan,
                effective April 16, 2008 (incorporated by reference to Exhibit 10.26(a)
                to
                the Company’s Current Report on Form 8-K filed on April 22,
                2008).10.27
            
            Letter
                agreement between the Company and Arthur E. Reiner, dated as of June
                5,
                2008 (incorporated by reference to Exhibit 10.1 to the Company’s Current
                Report on Form 8-K filed on June 9, 2008).31.1
            
            Certification
                of principal executive officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of principal financial officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of principal executive officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            
            Certification
                of principal financial officer pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.




33




**SIGNATURES**





Pursuant
      to the requirements 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.





Date:
                June 12, 2008
            **FINLAY
              ENTERPRISES, INC.**By:
            /s/
                Bruce E. ZurlnickBruce
                E. ZurlnickSenior
                Vice President, Treasurerand
                Chief Financial Officer(As
                both a duly authorized officer ofregistrant
                and as principal financialofficer
                of registrant)




34