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



                       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, 1997    

                                       or

            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. Employer
incorporation or organization)                              Identification No.)


          521 Fifth Avenue, New York, NY                10175  
     ----------------------------------------         ----------  
     (Address of principal executive offices)         (zip code)

                               (212) 808-2060                   
             -------------------------------------------------- 
            (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

As of June 13, 1997, there were 7,559,438 shares of common stock, par value $.01
per share, of the Registrant outstanding.


<PAGE>

                            FINLAY ENTERPRISES, INC.

                                    FORM 10-Q

                       QUARTERLY PERIOD ENDED MAY 3, 1997

                                      INDEX


                                                                        PAGE(S)

PART I - FINANCIAL INFORMATION

 Item 1.  Consolidated Financial Statements (Unaudited)

          Consolidated Statements of Operations for the thirteen 
           weeks ended May 4, 1996 and May 3, 1997............................1

          Consolidated Balance Sheets as of February 1, 1997
           and May 3, 1997....................................................2

          Consolidated Statements of Changes in Stockholders' Equity for the 
           year ended February 1, 1997 and thirteen weeks ended May 3, 1997...3

          Consolidated Statements of Cash Flows for the thirteen weeks 
           ended May 4, 1996 and May 3, 1997..................................4

          Notes to Consolidated Financial Statements..........................5

 Item 2.  Management's Discussion and Analysis of
          Financial Condition and Results of Operations.......................8


PART II - OTHER INFORMATION

 Item 6.  Exhibits and Reports on Form 8-K...................................12


SIGNATURES...................................................................13



<PAGE>

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)


<TABLE>
<CAPTION>


                                                                                       Thirteen Weeks Ended
                                                                                ------------------------------
                                                                                                     
                                                                                   May 4,            May 3,
                                                                                    1996              1997
                                                                                ------------      ------------

<S>                                                                             <C>               <C>        
Sales..................................................................         $   130,719       $   134,592
Cost of sales..........................................................              64,038            65,722
                                                                                ------------      ------------
   Gross margin........................................................              66,681            68,870
Selling, general and administrative expenses...........................              63,696            65,167
Depreciation and amortization..........................................               2,638             2,753
                                                                                ------------      ------------
  Income (loss) from operations........................................                 347               950
Interest expense, net..................................................               7,284             7,699
                                                                                ------------      ------------
   Income (loss) before income taxes...................................              (6,937)           (6,749)
Provision (credit) for income taxes....................................              (2,537)           (2,523)
                                                                                ------------      ------------
Net income (loss)......................................................         $    (4,400)      $    (4,226)
                                                                                ============      ============ 
Net income (loss) per share applicable to common shares................         $     (0.59)      $     (0.56)
                                                                                ============      ============
Weighted average shares outstanding ...................................           7,474,478         7,492,792
                                                                                ============      ============
</TABLE>








 






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



                                        1
<PAGE>

                            FINLAY ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>

                                                                                                (unaudited)
                                                                                February 1,        May 3,
                                                                                    1997            1997
                                                                                -----------     ------------
                                                                                     
                                              ASSETS
         Current assets
<S>                                                                             <C>             <C>        
   Cash and cash equivalents................................................... $   20,846      $     2,762
   Accounts receivable - department stores.....................................     15,362           30,272
   Other receivables...........................................................      4,350            8,841
   Merchandise inventories.....................................................    222,445          246,362
   Prepaid expenses and other..................................................      1,437            1,434
                                                                                -----------     ------------
      Total current assets.....................................................    264,440          289,671
                                                                                -----------     ------------
Fixed assets
   Equipment, fixtures and leasehold improvements..............................     73,223           76,404
   Less - accumulated depreciation and amortization............................     21,423           23,319
                                                                                -----------     ------------
      Fixed assets, net........................................................     51,800           53,085
                                                                                -----------     ------------
Deferred charges and other assets..............................................      9,770           10,359
Goodwill.......................................................................     95,263           94,455
                                                                                -----------     ------------
      Total assets............................................................. $  421,273      $   447,570
                                                                                ===========     ============

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
   Notes payable............................................................... $      -        $   101,210
   Current portion of long-term debt...........................................          2                9
   Accounts payable - trade....................................................    133,252           76,634
   Accrued liabilities:
       Accrued salaries and benefits...........................................     15,061           12,921
       Accrued miscellaneous taxes.............................................      4,148            4,495
       Accrued insurance.......................................................        762              872
       Accrued interest........................................................      3,833              452
       Accrued management transition and consulting............................      1,787            1,513
       Other...................................................................     15,124           11,471
   Income taxes payable........................................................     12,046            7,092
   Deferred income taxes.......................................................        809              650
                                                                                -----------     ------------
       Total current liabilities...............................................    186,824          217,319
Long-term debt.................................................................    211,427          213,685
Other non-current liabilities..................................................        517              512
                                                                                -----------     ------------
       Total liabilities.......................................................    398,768          431,516
                                                                                -----------     ------------
Stockholders' equity
   Common Stock, par value $.01 per share; authorized 25,000,000 shares;                                    
       issued and outstanding 7,558,838 and 7,559,438 shares, respectively.....         76               76
   Additional paid-in capital..................................................     47,725           47,732
   Distributions to investor group in excess of carryover basis................    (24,390)         (24,390)
   Note receivable from stock sale.............................................     (1,001)          (1,001)
   Retained earnings (deficit).................................................      3,145           (1,081)
   Foreign currency translation adjustment.....................................     (3,050)          (5,282)
                                                                                -----------     ------------ 
                                                                                    22,505           16,054
                                                                                -----------     ------------ 
       Total liabilities and stockholders' equity.............................. $  421,273      $   447,570
                                                                                ===========     ============

</TABLE>

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


                                        2
<PAGE>

                            FINLAY ENTERPRISES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        (in thousands, except share data)




                                                                               

<TABLE>
<CAPTION>
                                                                                                          
                                   Common Stock                 Distributions to    Note                     Foreign               
                              --------------------- Additional   investor group  Receivable   Retained      Currency       Total
                                 Number              Paid-in      in excess of      from      Earnings    Translation  Stockholders'
                                of shares   Amount   Capital    carryover basis  Stock Sale   (Deficit)    Adjustment     Equity
                               ----------- -------- ----------  ---------------- -----------  ----------  -----------  -------------
<S>               <C>           <C>        <C>      <C>          <C>             <C>          <C>         <C>          <C>        
Balance, February 3, 1996.....  7,524,356  $   75   $  47,459    $    (24,390)   $   (1,001)  $  (8,612)  $     (747)  $    12,784
 Net income (loss)............      -         -         -              -             -           11,757        -            11,757
 Foreign currency 
   translation adjustment           -         -         -              -             -            -           (2,303)       (2,303)
Exercise of stock options.....     34,482       1         266          -             -            -            -               267
                               ----------- -------- ----------- ---------------- -----------  ----------  -----------  -------------
Balance, February 1, 1997.....  7,558,838      76      47,725         (24,390)       (1,001)      3,145       (3,050)       22,505
 Net income (loss)............      -         -         -              -             -           (4,226)       -            (4,226)
 Foreign currency 
   translation adjustment           -         -         -              -             -            -           (2,232)       (2,232)
 Exercise of stock options....        600     -             7          -             -            -            -                 7
                               ----------- -------- ----------- ---------------- -----------  ----------  -----------  -------------
Balance, May 3, 1997
 (unaudited)..................  7,559,438  $   76   $   47,732   $    (24,390)   $   (1,001)  $  (1,081)  $   (5,282)  $    16,054 
                               =========== ======== =========== ================ ===========  ==========  ===========  =============
</TABLE>











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

                                        3
<PAGE>

                            FINLAY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)

<TABLE>
<CAPTION>


                                                                                       Thirteen Weeks Ended
                                                                                 --------------------------------
                                                                                      May 4,            May 3,            
                                                                                       1996              1997             
                                                                                 -------------      -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                               <C>                <C>        
   Net income (loss)............................................................  $   (4,400)        $   (4,226)
   Adjustments to reconcile net income (loss) to net cash used in                                                         
       operating activities:                                                                                              
   Depreciation and amortization................................................       2,938              3,061
   Imputed interest on debentures...............................................       2,001              2,249
   Other, net...................................................................        (423)              (354)
   Changes in operating assets and liabilities:
       Increase in accounts and other receivables...............................     (15,048)           (19,772)
       Increase in merchandise inventories......................................      (9,202)           (25,311)
       Increase in prepaid expenses and other...................................        (918)               (18)
       Decrease in accounts payable and accrued liabilities.....................     (65,613)           (70,597)
                                                                                 -------------      -------------
         NET CASH USED IN OPERATING ACTIVITIES..................................     (90,665)          (114,968)
                                                                                 -------------      -------------
CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of equipment, fixtures and leasehold improvements..................      (3,602)            (3,375)
   Other, net...................................................................         (34)              (547)
                                                                                 -------------      -------------
         NET CASH USED IN INVESTING ACTIVITIES..................................      (3,636)            (3,922)
                                                                                 -------------      -------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from revolving credit facility......................................     153,633            179,387
   Principal payments on revolving credit facility..............................     (81,821)           (78,177)
   Other, net...................................................................           7                 14
                                                                                 -------------      -------------
         NET CASH PROVIDED FROM FINANCING ACTIVITIES............................      71,819            101,224
                                                                                 -------------      -------------
         EFFECT OF EXCHANGE RATE CHANGES ON CASH................................         (41)              (418)
                                                                                 -------------      ------------- 
         DECREASE IN CASH AND CASH EQUIVALENTS..................................     (22,523)           (18,084)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................................      26,014             20,846
                                                                                 -------------      -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................  $     3,491        $    2,762         
                                                                                 =============      =============
Supplemental disclosure of cash flow information:
   Interest paid................................................................  $     8,537        $    8,531
   Income taxes paid............................................................        4,833             4,613
</TABLE>


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

                                        4
<PAGE>

                                       
NOTE 1 - BASIS OF PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements of Finlay
Enterprises,  Inc.  (the  "Company" or the  "Registrant"),  and its wholly owned
subsidiary,  Finlay  Fine  Jewelry  Corporation  ("Finlay  Jewelry"),  have been
prepared in accordance with generally accepted accounting principles for interim
financial  information.  References to "Finlay" mean collectively,  the Company,
Finlay Jewelry and all predecessor businesses. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all adjustments
necessary to present  fairly the financial  position of the Company as of May 3,
1997,  and the results of operations and cash flows for the thirteen weeks ended
May 4, 1996 and May 3, 1997. Due to the seasonal nature of the 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 1, 1997
referred  to  below.  Certain  information  and  footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted  pursuant to the rules and
regulations of the Securities and Exchange Commission.

     These consolidated  financial statements should be read in conjunction with
the audited consolidated  financial statements and notes thereto included in the
Company's  annual report on Form 10-K for the fiscal year ended February 1, 1997
("Form 10-K"), previously filed.

     Finlay's fiscal year ends on the Saturday closest to January 31. References
to 1994,  1995, 1996 and 1997 relate to the fiscal years ended or ending January
28, 1995, February 3, 1996, February 1, 1997 and January 31, 1998, respectively.
Each of the fiscal years includes  fifty-two  weeks except 1995,  which includes
fifty-three weeks.

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting Standards ("SFAS") No. 128, "Earnings per Share." Under
SFAS No. 128, the  presentation of both basic and diluted  earnings per share is
required on the  statements of operations  for periods ending after December 15,
1997, at which time  restatement  for prior  periods will be necessary.  Had the
provisions  of SFAS No. 128 been in effect  during 1997,  the Company would have
reported  basic net  income  (loss)  per share of $(0.59)  and  $(0.57)  for the
thirteen weeks ended May 4, 1996 and May 3, 1997,  respectively.  Under SFAS No.
128,  diluted net income  (loss) per share is equal to the net income (loss) per
share currently disclosed by the Company.

NOTE 2 - DESCRIPTION OF BUSINESS

     Finlay is a retailer of fine jewelry  products and the leading  operator of
leased fine jewelry  departments  in department  stores in the United States and
France.  Finlay also  operates  leased fine  jewelry  departments  in the United
Kingdom and Germany. A significant portion of Finlay's revenues are generated in
the fourth quarter due to the seasonality of the retail industry.  Approximately
70% of Finlay's sales in 1996 were from operations in two major department store
groups of which 48% represents Finlay's sales from one department store group.








                                        5
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - MERCHANDISE INVENTORIES

     Merchandise inventories consisted of the following:

<TABLE>
<CAPTION>
                                                                                                       (unaudited)
                                                                                  February 1,             May 3,
                                                                                      1997                 1997
                                                                                --------------       --------------
                                                                                         (in thousands)
         Jewelry goods - rings, watches and other fine jewelry                                                     
<S>                                                                             <C>                  <C>         
            (specific identification basis)................................     $     231,298        $    255,406
         Less:  Excess of specific identification cost over LIFO                                                   
            inventory value................................................             8,853               9,044
                                                                                --------------       --------------
                                                                                $     222,445        $    246,362
                                                                                ==============       ==============
</TABLE>
 
     The LIFO method had the effect of  decreasing  income  (loss) before income
taxes for the  thirteen  weeks ended May 4, 1996 and May 3, 1997 by $191,000 for
each period.  Finlay  determines its LIFO inventory value by utilizing  selected
producer price indices  published for jewelry and watches by the Bureau of Labor
Statistics.

     Approximately  $194,276,000 and $220,154,000 at February 1, 1997 and May 3,
1997,  respectively,  of merchandise  received on consignment  has been excluded
from  Merchandise  inventories and Accounts  payable- trade in the  accompanying
Consolidated Balance Sheets.

     The cost to Finlay of gold merchandise sold on consignment, which typically
varies  with the price of gold,  is not fixed  until the sale is reported to the
vendor  following the sale of the  merchandise.  Finlay  frequently  enters into
futures  contracts,  based upon the anticipated  sales of gold product,  such as
options or  forwards,  to hedge  against  the risk  arising  from those  payment
arrangements. Changes in the market value of futures contracts are accounted for
as an addition to or reduction  from the inventory  cost. At May 4, 1996 and May
3, 1997, the gain/loss on open futures contracts was not material.

     In August 1995,  Finlay Jewelry  consummated a gold  consignment  agreement
(the "Gold  Consignment  Agreement")  with Rhode Island  Hospital Trust National
Bank  ("RIHT"),  which  matures  on  February  28,  1998.  The Gold  Consignment
Agreement  enables Finlay Jewelry to pay for  merchandise by providing  gold, or
otherwise  making payment,  to certain vendors who currently  supply Finlay with
merchandise on consignment.  While the merchandise  involved remains  consigned,
the consignor and title to the gold content of the merchandise  changes from the
vendors to RIHT.  Finlay  Jewelry can obtain,  pursuant to the Gold  Consignment
Agreement,  up to the lesser of (i) 85,000 fine troy ounces or (ii)  $25,000,000
worth of gold,  subject  to a  formula  as  prescribed  by the Gold  Consignment
Agreement.  At May 3,  1997,  amounts  outstanding  under  the Gold  Consignment
Agreement  totaled  39,596  fine  troy  ounces,  valued at  approximately  $13.5
million. For financial statement purposes, the consigned gold is not included in
merchandise   inventories  on  the  Company's  consolidated  balance  sheet  and
therefore no related liability has been recorded.

NOTE 4 - LEASE AGREEMENTS

     Finlay conducts  substantially all of its operations as leased  departments
in department  stores.  All of these leases, as well as rentals for office space
and equipment,  are accounted for as operating  leases. A substantial  number of
such  operating  leases expire on various dates  through  2008.  All  references
herein to leased  departments refer to departments  operated pursuant to license
agreements or the arrangements with host department stores.


                                        6
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - LEASE AGREEMENTS (continued)

     Substantially  all of the leases  provide  that the title to certain  fixed
assets of Finlay transfers upon termination of the leases,  and that Finlay will
receive  the  undepreciated  value of such fixed  assets  from the lessor in the
event such transfers  occur. The values of such fixed assets are recorded at the
inception  of the  lease  arrangement  and  are  reflected  in the  accompanying
Consolidated Balance Sheets.

     In many cases,  Finlay is subject to limitations under its lease agreements
with host department stores which prohibit Finlay from operating departments for
other store groups within a certain geographical radius of the host store.

     The store leases  provide for the payment of fees based on sales,  plus, in
some instances,  installment payments for fixed assets. Lease expense,  included
in Selling, general and administrative expenses, is as follows (unaudited):
<TABLE>
<CAPTION>

                                                    Thirteen Weeks Ended
                                                ----------------------------                                                 
                                                  May 4,            May 3,
                                                   1996               1997
                                                ----------        ----------                                                      
                                                     (in thousands)
<S>                                             <C>               <C>      
Minimum fees..............................      $   1,172         $   1,842
Contingent fees...........................         19,634            19,891
                                                ----------        ----------
     Total................................      $  20,806         $  21,733
                                                ----------        ----------
</TABLE>

NOTE 5 - STOCKHOLDERS' EQUITY

     On March 5, 1997, a senior  officer of the Company  received  options under
the Company's  Long Term Incentive  Plan (the  "Incentive  Plan") to purchase an
aggregate of 139,719  shares of Common Stock at an exercise  price of $14.00 per
share. Such options vest and become exercisable on January 2, 2001.

     On March 6, 1997,  the Board of Directors  of the Company  adopted the 1997
Long Term  Incentive  Plan ("1997  Plan"),  subject to approval by the Company's
stockholders. The 1997 Plan, which is similar to the Incentive Plan, is intended
as a successor to the Incentive  Plan and will provide for the grant of the same
types of  awards  as are  currently  available  under  the  Incentive  Plan.  An
aggregate of 350,000 shares of the Company's Common Stock have been reserved for
issuance  pursuant  to the 1997  Plan,  of which a total of  315,148  shares are
subject to options  granted to certain  senior  management,  key employees and a
director,  subject to stockholder  approval of the 1997 Plan. The exercise price
of such options range from $13.875 per share to $14.875 per share.











                                        7
<PAGE>

PART I - FINANCIAL INFORMATION
  Item 2.  Management's Discussion and Analysis of
             Financial Condition and Results of Operations


Results of Operations

The following  table sets forth  operating  results as a percentage of sales for
the periods indicated:


Statement of Operations Data
(unaudited)

<TABLE>
<CAPTION>

                                                                                   Thirteen Weeks Ended
                                                                                -------------------------
                                                                                  May 4,         May 3,
                                                                                    1996          1997
                                                                                ----------     ----------
<S>                                                                                <C>            <C>   
Sales...................................................................           100.0%         100.0%
Cost of sales...........................................................            49.0           48.8
                                                                                ----------     ----------
    Gross margin........................................................            51.0           51.2
Selling, general and administrative expenses............................            48.7           48.4
Depreciation and amortization...........................................             2.0            2.1
                                                                                ----------     ----------
    Income (loss) from operations.......................................             0.3            0.7
Interest expense, net...................................................             5.6            5.7
                                                                                ----------     ----------
    Income (loss) before income taxes...................................            (5.3)          (5.0)
Provision (credit) for income taxes.....................................            (1.9)          (1.9)
                                                                                ----------     ----------
    Net income (loss)...................................................            (3.4)%         (3.1)%
                                                                                ==========     ==========
</TABLE>

Thirteen Weeks Ended May 3, 1997 Compared with Thirteen Weeks Ended May 4, 1996

     Sales.  Sales for the  thirteen  weeks  ended May 3,  1997  increased  $3.9
million,  or 3.0%,  over the comparable  period in 1996.  Comparable  department
sales (departments open for the same months during comparable periods) increased
4.3%.  Management  attributes  this  increase  in  comparable  department  sales
primarily to the promotion of "Key Item' and "Best Value" programs, an increased
emphasis on holiday and event  related  promotions as well as  participating  in
host store  special  promotions  and to the  marketing of its  departments  as a
"destination  location" for fine jewelry. The increase in comparable departments
sales was offset by a $1.7  million  decrease  in sales  resulting  from the net
effect of department openings and closings.  During the thirteen weeks ended May
3, 1997, Finlay opened 17 departments and closed four departments.  The openings
and closings were all within existing store groups.  The closings  resulted from
host store decisions to close the stores,  with one of the stores reopening at a
new location with a Finlay operated department.

     Gross margin. Gross margin for the period increased by $2.2 million and, as
a percentage of sales,  gross margin increased by 0.2% primarily  related to the
lower average price of gold in the 1997 period compared to the 1996 period.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses ("SG&A") increased $1.5 million, or 2.3%, due primarily
to payroll and lease fees associated  with the increase in the Company's  sales.
In  addition,   through   increased   vendor   participation,   net  advertising
expenditures  were  comparable  with the 1996 period.  As a percentage of sales,
SG&A decreased by 0.3% as a result of the leveraging of these expenses.

                                        8
<PAGE>

     Depreciation   and   amortization.   Depreciation   and   amortization  was
essentially  unchanged,  reflecting an increase in capital  expenditures for the
most recent twelve months, offset by the effect of certain assets becoming fully
depreciated.  The  increase  in  fixed  assets  was due to the  addition  of new
departments, the renovation of existing departments and construction relating to
the Company's distribution and warehouse facility.

     Interest   expense,   net.  Interest  expense  increased  by  $0.4  million
reflecting an increase in average  borrowings  ($294.0 million for the period in
1997 compared to $260.7 million for the comparable  period in 1996) primarily as
a result of the  timing of  inventory  receipts  during  the 1997  period and an
increase  in the  outstanding  balance  of the  Company's  12%  Senior  Discount
Debentures  due 2005 (the  "Debentures")  due to the accretion of interest.  The
increase in average  borrowings is partially  offset by a lower weighted average
interest  rate (10.3% for the 1997 period  compared to 10.5% for the  comparable
period in 1996).

     Provision  (credit) for income taxes. The income tax provision for the 1997
and 1996 periods reflects an effective tax rate of 41.5%.

     Net income  (loss).  The net loss of $4.2  million  for the 1997 period was
$0.2 million lower than the net loss of $4.4 million for the  comparable  period
in 1996 as a result of the factors discussed above.

Liquidity and Capital Resources

     Finlay's capital requirements are primarily for funding working capital for
new departments and for working capital growth of existing departments and, to a
lesser extent,  capital  expenditures for opening new departments and renovating
existing departments.  For the thirteen weeks ended May 4, 1996 and May 3, 1997,
capital  expenditures  totaled  $3.6 million  and  $3.4  million,  respectively.
Capital expenditures for 1997, in total, are estimated to be approximately $12.0
million. Although capital expenditures are limited by the terms of the Company's
$135.0 million Revolving Credit Facility (the "Revolving Credit  Facility"),  to
date this  limitation has not precluded the Company from  satisfying its capital
expenditure requirements.

     Finlay's  operations  substantially  preclude  consumer  receivables and in
recent years, on average, approximately 50% of Finlay's domestic merchandise has
been carried on consignment.  Accordingly,  management  believes that relatively
modest  levels of working  capital  are  required  in  comparison  to many other
retailers.  The Company's  working capital balance was  $72.4 million  at May 3,
1997, a decrease of $5.3 million from  February 1,  1997. The decrease  resulted
from capital  expenditures  and the impact of the interim net loss  exclusive of
depreciation  and  amortization.  Based  on  the  seasonal  nature  of  Finlay's
business,  working  capital  requirements  and therefore,  borrowings  under the
Revolving  Credit  Facility,  can be expected  to  increase on an interim  basis
during the first three quarters of any given fiscal year. See "-Seasonality."

     The seasonality of Finlay's business causes working capital requirements to
reach their highest level in the months of October and November in  anticipation
of the year-end holiday season.  Accordingly,  Finlay experiences  seasonal cash
needs as inventory  levels peak. The Revolving  Credit Facility  provides Finlay
with a line of credit of up to $135.0  million  which is  available  to  finance
seasonal cash and other working  capital needs.  The Revolving  Credit  Facility
bears  interest at a rate equal to, at Finlay's  option,  (i) the Index Rate (as
defined in the Revolving  Credit Facility) plus l.0% or (ii) adjusted LIBOR plus
2.0%.  Pursuant to the Debenture  indenture,  the Company has pledged all of the
issued and outstanding shares of capital stock of Finlay Jewelry for the benefit
of the Debenture  holders.  Pursuant to the Revolving  Credit  Facility,  Finlay
Jewelry has  pledged or caused to be pledged  all of the issued and  outstanding
capital  stock (or other equity  securities)  of each of its direct and indirect
subsidiaries  (including  Sonab Holdings,  Inc., Sonab  International,  Inc. and
Sonab) for the benefit of the lenders under the Revolving Credit Facility.



                                        9
<PAGE>

     Finlay is required to reduce the balance of the Revolving  Credit  Facility
in each year to $10.0  million  or less for a 20  consecutive  day  period,  and
immediately  thereafter  to zero for an  additional  ten consecutive  days  (the
"Balance Reduction Requirement"). Borrowings under the Revolving Credit Facility
at May 3, 1997 were $101.2  million,  compared to a zero  balance at February 1,
1997 in accordance with the Balance Reduction Requirement,  and $71.8 million at
May 4, 1996.  The  average  amounts  outstanding  were $56.0  million  and $80.7
million for the thirteen weeks ended May 4, 1996 and May 3, 1997,  respectively.
The maximum  amount  outstanding  for the  thirteen  weeks ended May 3, 1997 was
$108.0 million.

     Finlay's  long-term needs for external financing will depend on its rate of
growth,  the level of  internally  generated  funds and the  ability to continue
obtaining  substantial amounts of merchandise on advantageous  terms,  including
consignment  arrangements  with its  vendors.  For 1996,  Finlay  had an average
balance of consignment  merchandise of  $201.8 million  from over 200 vendors as
compared to an average  balance of  $208.5 million  in 1995.  As of May 3, 1997,
$220.2  million of  consignment  merchandise  was on hand as  compared to $194.3
million at February 1, 1997 and $198.8 million at May 4, 1996.
 
     A  substantial  amount  of  operating  cash  flow of  Finlay  is or will be
required to pay,  directly or  indirectly,  interest with respect to the 10 5/8%
Senior Notes due 2003 of Finlay  Jewelry (the  "Notes") and the  Debentures  and
amounts  due  under  the  Revolving  Credit  Facility.  As of May 3,  1997,  the
Company's  outstanding  borrowings were $314.9  million,  which included a $78.7
million balance under the  Debentures,  a $135.0 million balance under the Notes
and a $101.2 million balance under the Revolving Credit Facility. The Debentures
do not pay cash interest until November 1, 1998.

     In August 1995, Finlay Jewelry entered into the Gold Consignment  Agreement
with RIHT.  The Gold  Consignment  Agreement  enables  Finlay Jewelry to pay for
merchandise by providing gold, or otherwise making payment,  to certain vendors.
Finlay Jewelry can obtain, pursuant to the Gold Consignment Agreement, up to the
lesser of (i) 85,000 fine troy ounces or (ii) $25,000,000 worth of gold, subject
to a formula as prescribed by the Gold  Consignment  Agreement.  At May 3, 1997,
amounts  outstanding  under the Gold Consignment  Agreement  totaled 39,596 fine
troy  ounces,   valued  at  approximately  $13.5  million.  The  average  amount
outstanding under the Gold Consignment Agreement was $11.9 million in 1996.

     Finlay believes that, based upon current  operations,  anticipated  growth,
availability   under  the  Revolving   Credit   Facility  and  the   anticipated
availability  of  additional  debt  financing,  Finlay  Jewelry  will,  for  the
foreseeable  future,  be able to meet its debt service and  anticipated  working
capital  obligations,  and to make  distributions  to the Company  sufficient to
permit the Company to meet its debt service obligations and to pay certain other
expenses  as they come due.  No  assurances,  however,  can be given that Finlay
Jewelry's  current  level of operating  results will continue or improve or that
Finlay Jewelry's income from operations will continue to be sufficient to permit
Finlay Jewelry and the Company to meet their debt service and other obligations.
The Revolving  Credit  Facility,  the Note  indenture  and the Gold  Consignment
Agreement restrict  distributions from Finlay Jewelry to the Company to 0.25% of
Finlay  Jewelry's net sales for the preceding  fiscal year. The amounts required
to satisfy the  aggregate  of Finlay  Jewelry's  interest  expense and  required
amortization  payments  totaled  $8.7  million and $8.6 million for the thirteen
weeks ended May 4, 1996 and May 3, 1997, respectively.

     Section 382 of the Internal  Revenue Code of 1986, as amended (the "Code"),
restricts  utilization  of net operating  loss  carryforwards  ("NOLs") after an
ownership  change  exceeding  50%.  As  a  result  of  certain  recapitalization
transactions  in 1993,  a change  in  ownership  of the  Company  exceeding  50%
occurred  within the meaning of  Section 382 of the Code.  Similar  restrictions
apply to other  carryforwards.  Consequently,  there is a material limitation on
the  Company's  annual  utilization  of its NOLs and other  carryforwards  which
requires  a  deferral  or  loss  of  the  utilization  of  such  NOLs  or  other
carryforwards.  The Company had, at  October 31,  1996 (the  Company's  tax year
end), a NOL for tax purposes of approximately  $14.0 million which is subject to
an annual limit of approximately $2.0 million per year. For financial  reporting
purposes, no NOL exists as of February 1, 1997.

                                       10
<PAGE>

Seasonality

     Finlay's business is highly seasonal,  with peak sales occurring during the
fourth quarter of each year,  which includes the year-end  holiday  season.  The
fourth  quarter  accounted  for an average of 42% of Finlay's  annual  sales and
approximately 86% of its income from operations (excluding nonrecurring charges)
for 1994,  1995 and 1996.  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.  Generally,  Finlay's  operations  during the
first  three  quarters  of any  given  fiscal  year are  financed  by  increased
borrowings under the Revolving Credit Facility.

Inflation

     The effect of  inflation  on Finlay's  results of  operations  has not been
material in the periods discussed.
 
Forward - Looking Statements

     This Quarterly  Report on Form 10-Q includes  "forward-looking  statements'
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the  Securities  Exchange Act of 1934 (the  "Exchange  Act").  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.   The  forward-looking
statements  contained herein are subject to certain risks and uncertainties that
could cause  actual  results to differ  materially  from those  reflected in the
forward-looking statements.  Factors that might cause such a difference include,
but are not limited to, trends in the general economy, competition in the retail
jewelry  business,  the  seasonality  of the  retail  business,  the  ability to
increase comparable department sales and to open new departments, the dependence
on certain host store  relationships due to the concentration of sales generated
by such host stores, the availability of alternate sources of merchandise supply
in the case of an  abrupt  loss of any  significant  supplier,  the  ability  to
continue  to obtain  substantial  amounts of  merchandise  on  consignment,  the
dependence on key officers,  the high degree of leverage and the availability of
financing and credit on favorable  terms and changes in regulatory  requirements
which are applicable to the Company's business.

     Readers are cautioned not to place undue reliance on these  forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof.  The Company  undertakes  no  obligation to publicly
revise these forward-looking  statements to reflect events or circumstances that
arise after the date hereof.  In addition to the  disclosure  contained  herein,
readers  should  carefully  review  any  disclosure  of risks and  uncertainties
contained in other  documents  the Company  files or has filed from time to time
with the Securities and Exchange Commission pursuant to the Exchange Act.

                                       11
<PAGE>

PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

   A.       Exhibits

      2     Not applicable.

      4     Not applicable.

     10     Amendment No. 2 to Employment Agreement, dated as of March 5, 1997, 
            among the Company, Finlay Jewelry and Arthur E. Reiner.

     11     Computation of earnings per share.
 
     15     Not applicable.

     18     Not applicable.

     19     Not applicable.

     22     Not applicable.

     23     Not applicable.

     24     Not applicable.

     27     Financial Data Schedule.

     99     Not applicable.



   B.       Reports on Form 8-K


   None.

                                       12
<PAGE>

                                   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.



                                    FINLAY ENTERPRISES, INC.



Date: June 13, 1997                 By:/s/ Barry D. Scheckner                
                                       --------------------------           
                                       Barry D. Scheckner, Senior Vice
                                       President and Chief Financial
                                       Officer
                                       (As both a duly authorized officer of
                                       Registrant and as principal financial
                                       officer of Registrant)

 



                                       13