----

----

|  | x | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE      SECURITIES EXCHANGE ACT OF 1934 |
|--|---|---------------------------------------------------------------------------------------------------|

|  | o | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF  1934 |
|--|---|-----------------------------------------------------------------------------------------------|

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

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

|       Large      accelerated filer o                                                  | Accelerated      filer o         |
|--------------------------------------------------------------------------------------------------------------------------|----------------------------------|
|                                                                                                                     |                             |
|       Non-accelerated      filer o      (Do not check if a smaller reporting company) | Smaller      reporting company x |

----

----

----

| PART      I - FINANCIAL INFORMATION |          |
|-------------------------------------|---------------|
|                                |          |   |   |
|                                | Item      1.  | Consolidated      Financial Statements (Unaudited) |   |
|                                |          |   |   |
|                                |          | Consolidated      Statements of Operations for the thirteen weeks ended November 1,      2008 and November 3, 2007 | 2 |
|                                |          |   |   |
|                                |          | Consolidated      Statements of Operations for the thirty-nine weeks ended November      1, 2008 and November 3, 2007 | 3 |
|                                |          |   |   |
|                                |          | Consolidated      Balance Sheets as of November 1, 2008 and February 2, 2008 | 4 |
|                                |          |   |   |
|                                |          | Consolidated      Statements of Changes in Stockholders’ Equity and Comprehensive      Loss for the thirty-nine weeks ended November 1, 2008 | 5 |
|                                |          |   |   |
|                                |          | Consolidated      Statements of Cash Flows for the thirty-nine weeks ended November      1, 2008 and November 3, 2007 | 6 |
|                                |          |   |   |
|                                |          | Notes      to Consolidated Financial Statements | 7 |
|                                |          |   |   |
|                                | Item      2.  | Management’s      Discussion and Analysis of Financial Condition and Results of      Operations | 20 |
|                                |          |   |   |
|                                | Item      3.  | Quantitative      and Qualitative Disclosures About Market Risk | 35 |
|                                |          |   |   |
|                                | Item      4.  | Controls      and Procedures | 35 |
|                                |          |   |   |
| PART      II - OTHER INFORMATION    |          |
|                                |          |   |   |
|                                | Item      1A. | Risk      Factors | 36 |
|                                |          |   |   |
|                                | Item      2.  | Unregistered      Sales of Equity Securities and Use of Proceeds | 36 |
|                                |          |   |   |
|                                | Item      6.  | Exhibits | 37 |
|                                |          |   |   |
|                                |          |   |   |
| SIGNATURES                          | 39            |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Thirteen      Weeks Ended |      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | November      1,2008      |      |   | November      3,2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                      |      |   |   |   |
| Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                         | 160,286   |   |   | $ | 141,918 |   |
| Cost      of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                      | 93,221    |   |   |   | 77,946 |   |
| Gross      margin                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                      | 67,065    |   |   |   | 63,972 |   |
| Selling,      general and administrative      expenses                                                                                                           |   |                      | 88,314    |   |   |   | 69,133 |   |
| Depreciation      and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                      | 4,509     |   |   |   | 3,611 |   |
| Loss      from operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                      | (25,758   | ) |   |   | (8,772 | ) |
| Interest      expense, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                      | 9,048     |   |   |   | 6,763 |   |
| Loss      from operations before income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                      | (34,806   | ) |   |   | (15,535 | ) |
| Benefit      for income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                      | (14,033   | ) |   |   | (8,014 | ) |
| Net      loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                         | (20,773   | ) |   | $ | (7,521 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |      |   |   |   |   |   |
| Net      loss per share applicable to common shares – Basic and    Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                         | (2.23     | ) |   | $ | (0.82 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                      |      |   |   |   |   |   |
| Weighted      average shares outstanding - Basic and Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                      | 9,319,522 |   |   |   | 9,120,000 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Thirty-Nine      Weeks Ended |      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | November      1,2008         |      |   | November      3,2007 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                         |      |   |   |   |
| Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                            | 555,956   |   |   | $ | 452,793 |   |
| Cost      of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                         | 311,949   |   |   |   | 244,079 |   |
| Gross      margin                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                         | 244,007   |   |   |   | 208,714 |   |
| Selling,      general and administrative expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                         | 276,205   |   |   |   | 217,186 |   |
| Depreciation      and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                         | 13,936    |   |   |   | 10,858 |   |
| Loss      from operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                         | (46,134   | ) |   |   | (19,330 | ) |
| Interest      expense, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                         | 26,620    |   |   |   | 19,253 |   |
| Loss      from continuing operations before income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                         | (72,754   | ) |   |   | (38,583 | ) |
| Benefit      for income      taxes                                                                                                             |   |                         | (28,688   | ) |   |   | (14,854 | ) |
| Loss      from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                         | (44,066   | ) |   |   | (23,729 | ) |
| Discontinued      operations, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                         | -         |   |   |   | 236 |   |
| Net      loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                            | (44,066   | ) |   | $ | (23,493 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                         |      |   |   |   |   |   |
|  Net      income (loss) per share applicable to common shares – Basic and      Diluted:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                         |      |   |   |   |   |   |
| Loss      from continuing operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                            | (4.75     | ) |   | $ | (2.61 | ) |
| Discontinued      operations, net of tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                            | -         |   |   | $ | 0.03 |   |
| Net      loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $                            | (4.75     | ) |   | $ | (2.58 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                         |      |   |   |   |   |   |
| Weighted      average shares outstanding - Basic and Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                         | 9,286,472 |   |   |   | 9,088,943 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | November      1,2008(unaudited) |    |   | February      2,2008(audited) |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|--------|-------------------------------|--------|
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |    |   |                          |   |
|  Current      assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                            |    |   |                          |   |
| Cash and cash      equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | $                               | 4,354   |   |                          | $      | 5,358 |   |
| Accounts    receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            | 21,619  |   |                          |   | 13,793 |   |
| Otherreceivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                            | 11,096  |   |                          |   | 1,590 |   |
| Merchandise      inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                            | 595,548 |   |                          |   | 611,488 |   |
| Prepaid expenses and      other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                            | 9,430   |   |                          |   | 7,236 |   |
| Total      current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                            | 642,047 |   |                          |   | 639,465 |   |
|  Fixed      assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                            |    |   |                          |   |   |   |
| Building, equipment, fixtures      and leasehold improvements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                            | 129,868 |   |                          |   | 112,079 |   |
| Less – accumulated depreciation      and      amortization                                                                                                  |   |                            | 54,218  |   |                          |   | 41,887 |   |
| Fixed      assets,      net                                                                                                                                                      |   |                            | 75,650  |   |                          |   | 70,192 |   |
| Deferred      charges and other assets,      net                                                                                                        |   |                            | 25,068  |   |                          |   | 27,431 |   |
| Total assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                               | 742,765 |   |                          | $      | 737,088 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                            |    |   |                          |   |   |   |
| LIABILITIES      AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                            |    |   |                          |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                            |    |   |                          |   |   |   |
| Current      liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                            |    |   |                          |   |   |   |
| Short-term      borrowings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | $                               | 352,952 |   |                          | $      | 224,231 |   |
| Accounts payable – trade      (including cash overdraft of $18,334 and $7,209                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                            |    |   |                          |   |   |   |
|         at      November 1, 2008 and February 2, 2008, respectively)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                            | 46,913  |   |                          |   | 110,475 |   |
| Accrued    liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                            |    |   |                          |   |   |   |
| Accrued salaries and      benefits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                            | 14,095  |   |                          |   | 15,799 |   |
| Accrued      miscellaneous taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                            | 9,227   |   |                          |   | 7,162 |   |
| Accrued      interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                            | 8,199   |   |                          |   | 3,494 |   |
| Deferred      income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                            | 3,516   |   |                          |   | 4,364 |   |
| Deferred      income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                            | 8,836   |   |                          |   | 16,009 |   |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                            | 22,800  |   |                          |   | 29,515 |   |
| Income taxes      payable                                                                                                                                         |   |                            | -       |   |                          |   | 5,660 |   |
| Total current      liabilities                                                                                                                                                   |   |                            | 466,538 |   |                          |   | 416,709 |   |
| Long-term      debt                                                                                                                                     |   |                            | 200,000 |   |                          |   | 200,000 |   |
| Deferred      income      taxes                                                                                                                         |   |                            | 1,099   |   |                          |   | 3,593 |   |
| Other      non-current      liabilities                                                                                                                 |   |                            | 5,053   |   |                          |   | 3,278 |   |
| Total      liabilities                                                                                                                                            |   |                            | 672,690 |   |                          |   | 623,580 |   |
| Commitments      and contingencies (Note 14)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                            |    |   |                          |   |   |   |
| Stockholders’      equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                            |    |   |                          |   |   |   |
| Common      Stock, par value $0.01 per share; authorized 25,000,000 shares;      issued      11,649,721 and  11,514,359 shares at November 1, 2008 and      February 2, 2008, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                            | 116     |   |                          |   | 114 |   |
| Additional paid-in      capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                            | 96,256  |   |                          |   | 95,613 |   |
| Retained      earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                            | 1,566   |   |                          |   | 45,632 |   |
| Less treasury stock of 2,330,154      and 2,302,597 shares at November 1, 2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                            |    |   |                          |   |   |   |
| and      February 2, 2008, respectively, at cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                            | (27,863 | )      |                          |   | (27,851 | ) |
| Total stockholders’      equity                                                                                                                                            |   |                            | 70,075  |   |                          |   | 113,508 |   |
| Total liabilities and      stockholders’      equity                                                                                                                       |   | $                               | 742,765 |   |                          | $      | 737,088 |   |

----

|                                                                                   |   | 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 | ) |   | $ | 113,508 |   |   |   |   |
|      Net      loss                                            |   |              | -         |   |       |   | -      |    |   |   | -        |   |   |     | (44,066 | )      |                |   | - |   |   |   | (44,066 | ) |   | $ | (44,066 | ) |
|      Comprehensive      loss                                  |   |              |      |   |       |   |   |    |   |   |     |   |   |     |    |   |                |   |   |   |   |   |   |   |   | $ | (44,066 | ) |
|      Issuance      of common stock                            |   |              | 135,362   |   |       |   | 2      |    |   |   | -        |   |   |     | -       |   |                |   | - |   |   |   | 2 |   |   |   |   |   |
|      Award      of restricted stock units                     |   |              | -         |   |       |   | -      |    |   |   | 57       |   |   |     | -       |   |                |   | - |   |   |   | 57 |   |   |   |   |   |
|      Amortization      of restricted stock                    |   |              |      |   |       |   |   |    |   |   |     |   |   |     |    |   |                |   |   |   |   |   |   |   |   |   |   |   |
|          compensation      and restricted |   |              |      |   |       |   |   |    |   |   |     |   |   |     |    |   |                |   |   |   |   |   |   |   |   |   |   |   |
|          stock      units                 |   |              | -         |   |       |   | -      |    |   |   | 586      |   |   |     | -       |   |                |   | - |   |   |   | 586 |   |   |   |   |   |
|      Purchase      of treasury stock                          |   |              | (27,557   | )      |       |   | -      |    |   |   | -        |   |   |     | -       |   |                |   | (12 | ) |   |   | (12 | ) |   |   |   |   |
|    Balance,      November 1, 2008 (unaudited)                           |   |              | 9,319,567 |   |       | $      | 116    |    |   | $      | 96,256   |   |   | $        | 1,566   |   |                | $      | (27,863 | ) |   | $ | 70,075 |   |   |   |   |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | Thirty-Nine      Weeks Ended |     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | November      1,2008         |     |   | November      3,2007 |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                         |     |   |   |   |
| Net      loss                                                                                                                                                                                     |   | $                            | (44,066  | ) |   | $ | (23,493 | ) |
| Adjustments to reconcile net      loss to net cash used in                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                         |     |   |   |   |   |   |
|         operating      activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                         |     |   |   |   |   |   |
| Depreciation and      amortization                                                                                                                                                                |   |                         | 13,936   |   |   |   | 11,031 |   |
|    Amortization      of deferred financing      costs                                                                                                               |   |                         | 1,521    |   |   |   | 724 |   |
|    Amortization      of restricted stock compensation, stock options and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                         |     |   |   |   |   |   |
|         restricted      stock      units                                                                                                   |   |                         | 586      |   |   |   | 1,622 |   |
|    Deferred      income      taxes                                                                                                                                  |   |                         | (9,667   | ) |   |   | (6,070 | ) |
|    Other,      net                                                                                                                                                  |   |                         | 2,056    |   |   |   | (365 | ) |
|    Changes      in operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                         |     |   |   |   |   |   |
| (Increase) decrease in accounts      and other      receivables                                                                                                                                             |   |                         | (17,332  | ) |   |   | 1,240 |   |
| (Increase) decrease in      merchandise      inventories                                                                                                                                                    |   |                         | 15,940   |   |   |   | (27,784 | ) |
|       Increase      in prepaid expenses and other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                         | (2,427   | ) |   |   | (688 | ) |
| Decrease in accounts payable      and accrued      liabilities                                                                                                                                              |   |                         | (77,883  | ) |   |   | (31,142 | ) |
|     NET      CASH USED IN OPERATING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                         | (117,336 | ) |   |   | (74,925 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                         |     |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                         |     |   |   |   |   |   |
| Purchases of equipment, fixtures      and leasehold improvements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                         | (17,871  | ) |   |   | (9,022 | ) |
|    Acquisition      of Bailey Banks &      Biddle                                                                                                               |   |                         | (5,559   | ) |   |   | - |   |
|    Deferred      charges and other      assets                                                                                                                      |   |                         | (72      | ) |   |   | (64 | ) |
|    NET CASH USED      IN INVESTING      ACTIVITIES                                                                                                                                           |   |                         | (23,502  | ) |   |   | (9,086 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                         |     |   |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                         |     |   |   |   |   |   |
| Proceeds from revolving credit      facility                                                                                                                                                      |   |                         | 629,617  |   |   |   | 462,309 |   |
| Principal payments on revolving      credit      facility                                                                                                                                         |   |                         | (500,896 | ) |   |   | (383,613 | ) |
|    Capitalized      financing      costs                                                                                                                            |   |                         | -        |   |   |   | (358 | ) |
|    Bank      overdraft                                                                                                                                              |   |                         | 11,125   |   |   |   | 6,347 |   |
|    Purchase      of treasury      stock                                                                                                                             |   |                         | (12      | ) |   |   | (184 | ) |
|            NET      CASH PROVIDED BY FINANCING ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                         | 139,834  |   |   |   | 84,501 |   |
|            INCREASE      (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                         | (1,004   | ) |   |   | 490 |   |
| CASH      AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                         | 5,358    |   |   |   | 2,415 |   |
| CASH      AND CASH EQUIVALENTS, END OF PERIOD                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                            | 4,354    |   |   | $ | 2,905 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                         |     |   |   |   |   |   |
| SUPPLEMENTAL      DISCLOSURE OF CASH FLOW INFORMATION:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                         |     |   |   |   |   |   |
|     Interest      paid                                                                                                                                         |   | $                            | 20,394   |   |   | $ | 14,150 |   |
|     Income      taxes paid      (refunded)                                                                                                                     |   | $                            | (4,847   | ) |   | $ | 3,091 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                         |     |   |   |   |   |   |
| SUPPLEMENTAL      DISCLOSURE OF NON-CASH ACTIVITIES:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                         |     |   |   |   |   |   |
|     Award      of vested participant restricted stock      units                                                                                               |   | $                            | 57       |   |   | $ | 817 |   |
|     Accrual      for purchases of fixed      assets                                                                                                            |   | $                            | 1,639    |   |   | $ | 2,207 |   |

----

----

----

----

|                                      |   | November      3, 2007                      |    |
|-------------------------------------------|--------|--------------------------------------------|---------|
|                                      |   | Thirteen      Weeks Ended             |    |   | Thirty-Nine      WeeksEnded |   |
|                                      |   | (in      thousands, except per share data) |    |
| Sales                                     |   | $                                          | 192,936 |   |   | $ | 625,032 |   |
| Loss      from continuing operations      |   |                                       | (11,567 | ) |   |   | (31,852 | ) |
| Net      loss                             |   |                                       | (11,567 | ) |   |   | (31,616 | ) |
| Basic      and Diluted net loss per share |   |                                       | (1.27   | ) |   |   | (3.47 | ) |

----

| Macy’s      Central       |   |   | 216 |   |
|---------------------------------|--------|--------|-----|--------|
| Macy’s      North (a)     |   |   | 57  |   |
| Macy’s      Northwest (a) |   |   | 36  |   |
| Bloomingdale’s            |   |   | 34  |   |
| Total                           |   |   | 343 |   |

----

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

|                             |   | Severance      andTerminationBenefits |   |
|----------------------------------|--------|---------------------------------------|--------|
| Balance      at February 3, 2007 |   | $                                     | 585    |   |
| Payments                         |   |                                  | (398   | ) |
| Reversal      of accrual         |   |                                  | (70    | ) |
| Balance      at February 2, 2008 |   |                                  | 117    |   |
| Charges                          |   |                                  | 1,176  |   |
| Payments                         |   |                                  | (148   | ) |
| Balance      at November 1, 2008 |   | $                                     | 1,145  |   |

----

|                                                                |   | November      1,2008 |    |   | February      2,2008 |   |
|---------------------------------------------------------------------|--------|----------------------|---------|--------|----------------------|--------|
|                                                                |   | (in      thousands)  |    |
| Jewelry      goods – rings, watches and other fine jewelry    |   |                 |    |   |                 |   |
| (first-in, first-out      (“FIFO”)  basis)    |   | $                    | 642,696 |   |                 | $      | 649,960 |   |
| Less:  Excess      of FIFO cost over LIFO inventory value |   |                 | 47,148  |   |                 |   | 38,472 |   |
|                                                                |   | $                    | 595,548 |   |                 | $      | 611,488 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | November      1,2008 |    |   | 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 $33.0 million at November 1, 2008 and $103.8 million at      February 2, 2008. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                 |   | Options      Outstanding |     |
|--------------------------------------|--------|--------------------------|----------|
|                                 |   |  NumberOutstanding  |     |   | 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 |   |   | $ | - |   |
| Cancelled                            |   |                     | (139,500 | ) |   |   | - |   |   | $ | 11.03 |   |   | $ | - |   |
| Outstanding      at November 1, 2008 |   |                     | 723,700  |   |   |   | 4.66 |   |   | $ | 7.50 |   |   | $ | - |   |
| Exercisable      at November 1, 2008 |   |                     | 463,700  |   |   |   | 2.18 |   |   | $ | 10.19 |   |   | $ | - |   |

|                             |   | RestrictedStock |    |   | Wtd.      Avg. Grant      Date Fair      Value |   |
|----------------------------------|--------|-----------------|---------|--------|-----------------------------------------------------|--------|
| Balance      at February 2, 2008 |   |            | 48,367  |   |                                                | $      | 11.78 |   |
| Vested                           |   |            | (47,321 | )      |                                                |   | 11.85 |   |
| Balance      at November 1, 2008 |   |            | 1,046   |   |                                                | $      | 8.70 |   |

----

|                             |   | RSUs(1) |    |   | Wtd.      Avg. Grant      DateFair      ValuePer      Award |   |
|----------------------------------|--------|---------|---------|--------|------------------------------------------------------------------|--------|
| Balance      at February 2, 2008 |   |    | 530,051 |   |                                                             | $      | 8.29 |   |
| Granted                          |   |    | 168,284 |   |                                                             |   | 0.80 |   |
| Shares      issued               |   |    | (88,041 | )      |                                                             |   | 12.34 |   |
| Balance      at November 1, 2008 |   |    | 610,294 |   |                                                             | $      | 5.58 |   |

----

----

|                                           |   | Thirteen      Weeks Ended                                          |    |
|------------------------------------------------|--------|--------------------------------------------------------------------|---------|
|                                           |   | November      1, 2008                                              |    |   | November      3, 2007 |   |
|                                           |   | Department      Store Based      Fine Jewelry Departments      (1) |    |   | Stand-alone Jewelry Stores      (2) |   |   |   Total |   |   | Department      Store Based      Fine      Jewelry Departments      (1) |   |   | Stand-alone Jewelry Stores |   |   |   Total |   |
|   Sales                              |   | $                                                                  | 102,258 |   |   | $ | 58,028 |   |   | $ | 160,286 |   |   | $ | 118,308 |   |   | $ | 23,610 |   |   | $ | 141,918 |   |
|   Depreciation      and amortization |   |                                                               | 2,953   |   |   |   | 1,556 |   |   |   | 4,509 |   |   |   | 3,206 |   |   |   | 405 |   |   |   | 3,611 |   |
|   Loss      from operations          |   |                                                               | (15,327 | ) |   |   | (10,431 | ) |   |   | (25,758 | ) |   |   | (7,762 | ) |   |   | (1,010 | ) |   |   | (8,772 | ) |
|   Interest      expense, net         |   |                                                               | 5,846   |   |   |   | 3,202 |   |   |   | 9,048 |   |   |   | 6,060 |   |   |   | 703 |   |   |   | 6,763 |   |
|   Benefit      for income taxes      |   |                                                               | (8,668  | ) |   |   | (5,365 | ) |   |   | (14,033 | ) |   |   | (7,336 | ) |   |   | (678 | ) |   |   | (8,014 | ) |
|   Total      assets                  |   |                                                               | 369,878 |   |   |   | 372,887 |   |   |   | 742,765 |   |   |   | 452,645 |   |   |   | 109,431 |   |   |   | 562,076 |   |
|   Capital      expenditures          |   |                                                               | 2,459   |   |   |   | 5,108 |   |   |   | 7,567 |   |   |   | 3,478 |   |   |   | 411 |   |   |   | 3,889 |   |

----

| (1)   | Included      in interest expense, net for each of the      thirteen  week  periods is $4.2 million related to the      Senior Notes. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Reflects      operating results of Bailey Banks & Biddle acquired in November      2007. |
|-----------------|----------------------------------------------------------------------------------------------|

|                                           |   | Thirty-Nine      Weeks Ended                                       |    |
|------------------------------------------------|--------|--------------------------------------------------------------------|---------|
|                                           |   | November      1, 2008                                              |    |   | November      3, 2007 |   |
|                                           |   | Department      Store Based      Fine Jewelry Departments      (1) |    |   | Stand-alone Jewelry Stores      (2) |   |   |   Total |   |   | Department      Store Based      Fine Jewelry Departments      (1) |   |   | Stand-alone Jewelry Stores |   |   |   Total |   |
|   Sales                              |   | $                                                                  | 345,349 |   |   | $ | 210,607 |   |   | $ | 555,956 |   |   | $ | 374,921 |   |   | $ | 77,872 |   |   | $ | 452,793 |   |
|   Depreciation      and amortization |   |                                                               | 9,643   |   |   |   | 4,293 |   |   |   | 13,936 |   |   |   | 9,683 |   |   |   | 1,175 |   |   |   | 10,858 |   |
|   Loss      from operations          |   |                                                               | (31,576 | ) |   |   | (14,558 | ) |   |   | (46,134 | ) |   |   | (19,324 | ) |   |   | (6 | ) |   |   | (19,330 | ) |
|   Interest      expense, net         |   |                                                               | 17,451  |   |   |   | 9,169 |   |   |   | 26,620 |   |   |   | 17,220 |   |   |   | 2,033 |   |   |   | 19,253 |   |
|   Benefit      for income taxes      |   |                                                               | (19,527 | ) |   |   | (9,161 | ) |   |   | (28,688 | ) |   |   | (14,049 | ) |   |   | (805 | ) |   |   | (14,854 | ) |
|   Total      assets                  |   |                                                               | 369,878 |   |   |   | 372,887 |   |   |   | 742,765 |   |   |   | 452,645 |   |   |   | 109,431 |   |   |   | 562,076 |   |
|   Capital      expenditures          |   |                                                               | 5,774   |   |   |   | 12,097 |   |   |   | 17,871 |   |   |   | 8,274 |   |   |   | 748 |   |   |   | 9,022 |   |

----

| (1)   | Included      in interest expense, net for each of the  thirty-nine week      periods is $12.6 million related to the Senior  Notes. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Reflects      operating results of Bailey Banks & Biddle acquired in November      2007. |
|-----------------|----------------------------------------------------------------------------------------------|

|             |   | Thirty-Nine      Weeks Ended                             |    |
|------------------|--------|----------------------------------------------------------|---------|
|             |   | November      1, 2008                                    |    |   | November      3, 2007 |   |
|             |   | Department      Store BasedFine      Jewelry Departments |    |   | Stand-aloneJewelry      Stores |   |   | Department      Store BasedFine      Jewelry Departments |   |   | Stand-aloneJewelry      Stores |   |
|             |   |  Sales                                              |    |   | %      ofSales |   |   |  Sales |   |   | %      ofSales |   |   |  Sales |   |   | %      ofSales |   |   |  Sales |   |   | %      ofSales |   |
| Diamonds         |   | $                                                        | 82,110  |   |   |   | 24 | % |   | $ | 73,368 |   |   |   | 35 | % |   | $ | 88,982 |   |   |   | 24 | % |   | $ | 20,787 |   |   |   | 27 | % |
| Gemstones        |   |                                                     | 61,309  |   |   |   | 18 |   |   |   | 14,921 |   |   |   | 7 |   |   |   | 68,572 |   |   |   | 18 |   |   |   | 7,858 |   |   |   | 10 |   |
| Gold             |   |                                                     | 60,974  |   |   |   | 17 |   |   |   | 2,447 |   |   |   | 1 |   |   |   | 63,459 |   |   |   | 17 |   |   |   | 1,566 |   |   |   | 2 |   |
| Watches          |   |                                                     | 52,239  |   |   |   | 15 |   |   |   | 69,527 |   |   |   | 33 |   |   |   | 56,944 |   |   |   | 15 |   |   |   | 34,491 |   |   |   | 44 |   |
| Designer         |   |                                                     | 40,639  |   |   |   | 12 |   |   |   | 26,934 |   |   |   | 13 |   |   |   | 42,095 |   |   |   | 11 |   |   |   | 8,631 |   |   |   | 11 |   |
| Other      (1)   |   |                                                     | 48,078  |   |   |   | 14 |   |   |   | 23,410 |   |   |   | 11 |   |   |   | 54,869 |   |   |   | 15 |   |   |   | 4,539 |   |   |   | 6 |   |
| Total      Sales |   | $                                                        | 345,349 |   |   |   | 100 | % |   | $ | 210,607 |   |   |   | 100 | % |   | $ | 374,921 |   |   |   | 100 | % |   | $ | 77,872 |   |   |   | 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 ouremployees. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                     |   | Thirty-Nine      Weeks      Ended November      3, 2007 |   |
|------------------------------------------|--------|--------------------------------------------------------------|--------|
| Sales                                    |   | $                                                            | 9,833  |   |
| Income      before income taxes          |   |                                                         | 393    |   |
| Discontinued      operations, net of tax |   |                                                         | 236    |   |

|                                                                                                                                                                                                                                               |   | Thirteen      Weeks Ended |   |   | Thirty-Nine      Weeks Ended |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|--------|--------|------------------------------|--------|
|                                                                                                                                                                                                                                               |   | November      1,2008      |   |   | November      3,2007         |   |   | November      1,2008 |   |   | November      3,2007 |   |
|                                                                                                                                                                                                                                               |   | (in      thousands)       |   |   | (in      thousands)          |   |
| Base      rent                                            |   | $                         | 9,968  |   |                         | $      | 2,314 |   |   | $ | 29,616 |   |   | $ | 6,857 |   |
| Contingent      fees                                      |   |                      | 17,455 |   |                         |   | 20,077 |   |   |   | 59,313 |   |   |   | 63,733 |   |
| Total                                                               |   | $                         | 27,423 |   |                         | $      | 22,391 |   |   | $ | 88,929 |   |   | $ | 70,590 |   |

----

----

----

|   | · | 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. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | 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 ourSG&A. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | Improve      comparable store sales; |
|--------|--------|--------------------------------------|

|   | · | Reduce      expenses; |
|--------|--------|-----------------------|

|   | · | Improve      liquidity; |
|--------|--------|-------------------------|

|   | · | Focus      on improved marketing initiatives to more efficiently reach and expand our      customer base; and |
|--------|--------|---------------------------------------------------------------------------------------------------------------|

|   | · | Maintain      high customer service standards. |
|--------|--------|------------------------------------------------|

|   | · | Substantial debt      leverage; |
|--------|--------|---------------------------------|

|   | · | Decrease in consumer      discretionary spending in the current macro-economic environment and the      impact on our liquidity needs;and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Dependence      on or loss of certain host storerelationships. |
|--------|--------|----------------------------------------------------------------|

----

----

|                                              |   | Thirteen      Weeks Ended |   |   | Thirty-Nine      Weeks Ended |   |
|---------------------------------------------------|--------|---------------------------|--------|--------|------------------------------|--------|
|                                              |   | November      1,2008      |   |   | November      3,2007         |   |   | November      1,2008 |   |   | November      3,2007 |   |
| Statement      of Operations Data:                |   |                      |   |   |                         |   |   |   |   |   |   |   |
| Sales                                             |   |                      | 100.0  | %      |                         |   | 100.0 | % |   |   | 100.0 | % |   |   | 100.0 | % |
| Cost      of sales                                |   |                      | 58.2   |   |                         |   | 54.9 |   |   |   | 56.1 |   |   |   | 53.9 |   |
| Gross margin                                      |   |                      | 41.8   |   |                         |   | 45.1 |   |   |   | 43.9 |   |   |   | 46.1 |   |
| Selling,      general and administrative expenses |   |                      | 55.1   |   |                         |   | 48.7 |   |   |   | 49.7 |   |   |   | 48.0 |   |
| Depreciation      and amortization                |   |                      | 2.8    |   |                         |   | 2.5 |   |   |   | 2.5 |   |   |   | 2.4 |   |
| Loss      from operations                         |   |                      | (16.1  | )      |                         |   | (6.1 | ) |   |   | (8.3 | ) |   |   | (4.3 | ) |
| Interest      expense, net                        |   |                      | 5.6    |   |                         |   | 4.8 |   |   |   | 4.8 |   |   |   | 4.2 |   |
| Loss      from continuing operations before       |   |                      |   |   |                         |   |   |   |   |   |   |   |   |   |   |   |
|     income      taxes         |   |                      | (21.7  | )      |                         |   | (10.9 | ) |   |   | (13.1 | ) |   |   | (8.5 | ) |
| Benefit      for income taxes                     |   |                      | (8.8   | )      |                         |   | (5.6 | ) |   |   | (5.2 | ) |   |   | (3.3 | ) |
| Loss      from continuing operations         |   |                      | (12.9  | )      |                         |   | (5.3 | ) |   |   | (7.9 | ) |   |   | (5.2 | ) |
| Discontinued      operations, net of tax          |   |                      | -      |   |                         |   | - |   |   |   | - |   |   |   | - |   |
| Net      loss                                     |   |                      | (12.9  | )%     |                         |   | (5.3 | )% |   |   | (7.9 | )% |   |   | (5.2 | )% |

| Component                                                                                         |   | %      |   | Reason                                                                                                                                                                                                                                                                                 |
|---------------------------------------------------------------------------------------------------|--------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Merchandise      cost of sales                                                                    |   | (1.1)% |   | Increase      in cost of sales is due to increased volume from the stand-alone jewelry      segment at lower gross margins as well as lower margins at the Macy’s and      Lord & Taylor departments, scheduled to close at the end of 2008, as      we liquidate inventory. |
| LIFO                                                                                              |   | (1.2)  |   | Increase      in the LIFO provision is due to increases in our internal price indices as      well as increased owned inventory as a result of the Bailey Banks &      Biddle acquisition.                                                                                         |
| Other                                                                                             |   | (1.0)  |   | Increase      in various other components of cost of sales.                                                                                                                                                                                                                            |
|              Total      decrease |   | (3.3)% |   |                                                                                                                                                                                                                                                                                   |

----

| Component                                                                                         |   | %    |   | Reason                                                                                                                                                                                                                                                                      |
|---------------------------------------------------------------------------------------------------|--------|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| License      and lease fees                                                                  |   | 2.3% |   | 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.                                                   |
| Payroll      expenses                                                                             |   | 2.0  |   | Increase      is primarily due to the unfavorable leveraging of payroll expenses on      lower sales.                                                                                                                                                                       |
| Net      advertising expenditures                                                                 |   | 0.5  |   | Increase      is primarily due to higher advertising expenditures in the stand-alone      specialty jewelry store segment, as a percentage of  sales.                                                                                                                       |
| Other                                                                                        |   | 1.6  |   | Increase      is due to consulting fees totaling $0.7 million associated with the      restructuring of the Senior Notes, as described in Note 15 of Notes to the      Consolidated Financial Statements as well as unfavorable leveraging of      expenses on lower sales. |
|              Total      increase |   | 6.4% |   |                                                                                                                                                                                                                                                                        |

|  Store      Group                                |   | Number      ofLocations |   |
|-------------------------------------------------------|--------|-------------------------|--------|
| Macy’s                                          |   |                    | 10     |   |
| Dillard’s                                       |   |                    | 8      |   |
| Bailey      Banks & Biddle                        |   |                    | 2      |   |
| Carlyle                                               |   |                    | 1      |   |
| Other                                                 |   |                    | 3      |   |
|         Total |   |                    | 24     |   |

----

| Component                                                                                         |   | %            |   | Reason                                                                                                                                                                                                                                                                                  |
|---------------------------------------------------------------------------------------------------|--------|--------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Merchandise      cost of sales                                                                    |   |  (1.0)% |   | Increase      in cost of sales is due to increased volume from the stand-alone jewelry      segment at lower gross margins, as well as lower margins at the Macy’s and      Lord & Taylor departments, scheduled to close at the end of 2008, as      we liquidate inventory. |
| LIFO                                                                                              |   |  (0.6)  |   | Increase      in the LIFO provision is due to increases in our internal price indices as      well as increased owned inventory as a result of the Bailey Banks &      Biddle acquisition.                                                                                          |
| Other                                                                                             |   |  (0.6)  |   | Increase      in various other components of cost of sales.                                                                                                                                                                                                                             |
|              Total      decrease |   |  (2.2)% |   |                                                                                                                                                                                                                                                                                    |

| Component                                                                                         |   | %    |   | Reason                                                                                                                                                                                                                                            |
|---------------------------------------------------------------------------------------------------|--------|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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.                         |
| Payroll      expenses                                                                   |   | 0.4  |   | Increase      is primarily due to severance costs associated with the Macy’s and Lord      & Taylor departments scheduled to close at the end of 2008 as well as      the unfavorable leveraging of payroll expenses on lower    sales. |
|              Total      increase |   | 1.7% |   |                                                                                                                                                                                                                                              |

----

|                            |   | November      1,2008        |    |   | February      2,2008 |   |
|---------------------------------|--------|-----------------------------|---------|--------|----------------------|--------|
|                            |   | (dollars      in thousands) |    |
| Cash      and cash equivalents  |   | $                           | 4,354   |   |                 | $      | 5,358 |   |
| Working      capital            |   |                        | 175,509 |   |                 |   | 222,756 |   |
| Short-term      debt            |   |                        | 352,952 |   |                 |   | 224,231 |   |
| Long-term      debt             |   |                        | 200,000 |   |                 |   | 200,000 |   |
| Stockholders’      equity |   |                        | 70,075  |   |                 |   | 113,508 |   |

|                                                                                          |   | Thirty-Nine      Weeks Ended |     |
|-----------------------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                                          |   | November      1,             |     |   | November      3, |   |
|                                                                                          |   | 2008                         |     |   | 2007 |   |
|                                                                                          |   | (dollars      in thousands)  |     |
| Operating      activities                                                                     |   | $                            | (117,336 | ) |   | $ | (74,925 | ) |
| Investing      activities                                                                     |   |                         | (23,502  | ) |   |   | (9,086 | ) |
| Financing      activities                                                                     |   |                         | 139,834  |   |   |   | 84,501 |   |
|       Net      increase (decrease) in cash and cash equivalents |   | $                            | (1,004   | ) |   | $ | 490 |   |

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|                                                                |   | Payments      Due By Period |    |
|---------------------------------------------------------------------|--------|-----------------------------|---------|
|    Contractual      Obligations                      |   | Total                       |    |   | Less      than1      year |   |   | 1-3      years |   |   | 3-5      years |   |   | More      than5      years |   |
| Long-Term      Debt Obligations:                                    |   |                        |    |   |   |   |   |   |   |   |   |   |   |   |   |
|     Senior      Notes (due 2012)  (1) |   | $                           | 200,000 |   |   | $ | - |   |   | $ | - |   |   | $ | 200,000 |   |   | $ | - |   |
| Interest      payments on Senior Notes (1)                          |   |                        | 67,000  |   |   |   | 16,750 |   |   |   | 33,500 |   |   |   | 16,750 |   |   |   | - |   |
| Operating      lease obligations (2)                                |   |                        | 160,879 |   |   |   | 26,524 |   |   |   | 43,431 |   |   |   | 28,580 |   |   |   | 62,344 |   |
| Revolving      Credit Agreement (due 2012) (3)                      |   |                        | 352,952 |   |   |   | 352,952 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Employment      agreements                                          |   |                        | 355     |   |   |   | 355 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Contractual      bonus (4)                                          |   |                        | 171     |   |   |   | 171 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Letters      of credit                                              |   |                        | 8,734   |   |   |   | 8,734 |   |   |   | - |   |   |   | - |   |   |   | - |   |
|    Total                                             |   | $                           | 790,091 |   |   | $ | 405,486 |   |   | $ | 76,931 |   |   | $ | 245,330 |   |   | $ | 62,344 |   |

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| (1)   | Refer      to Note 15 of Notes to the Consolidated Financial Statements for recent      transactions relating to the restructuring of the Senior      Notes. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| (3)   | The      above table excludes interest due under the Revolving Credit      Agreement.  Refer to Note 7 of Notes to the Consolidated      Financial Statements. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)   | Represents      a special bonus for a senior executive equal to 50% of the executive’s      salary if employed by Finlay Jewelry on the date specified in the      executive’s employment agreement. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Our      high degree of leverage and the availability to us of financing and      credit; |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | · | Low      or negative growth in the economy or in the financial markets which      reduces discretionary spending on goods perceived to be luxury      items; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our      dependence on, or loss of, certain department store relationships,      particularly with respect to Macy’s, due to the concentration of sales      generated by that department storegroup; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our      ability to collect net sales proceeds from any of the department stores in      which we operate and the impact of any such department store      bankruptcy; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | The      impact of significant store closures by any of the department stores in      which we operate; |
|--------|--------|---------------------------------------------------------------------------------------------------------|

|   | · | The      seasonality of the retail jewelrybusiness; |
|--------|--------|-----------------------------------------------------|

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

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

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

|   | · | The      impact of fluctuations in gold and diamond  prices; |
|--------|--------|--------------------------------------------------------------|

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

|   | · | The      availability to us of alternate sources of merchandise supply in the case      of an abrupt loss of any significantsupplier; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | · | 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 weoperate; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our      dependence on key officers; |
|--------|--------|--------------------------------------|

|   | · | 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; and |
|--------|--------|---------------------------------------------------------------------------------------------------------|

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

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| 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). |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.2(a) | Amendment      to Amended and Restated By-Laws of the Company, dated as of December 3,      2008 (incorporated by reference to Exhibit 3.2(a) to the Company’s Current      Report on Form 8-K filed on December 9,2008). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.5(f) | Supplemental      Indenture dated as of November 26, 2008 between Finlay Jewelry and HSBC      Bank USA, National Association, as trustee, relating to Finlay Jewelry’s      8-3/8% Senior Notes due June 1, 2012 (incorporated by reference to Exhibit      4.1 to the Company’s Current Report on Form 8-K filed on December 3,      2008). |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.8 | Indenture      dated as of November 26, 2008 between Finlay Jewelry and HSBC Bank USA,      National Association, as trustee, relating to Finlay Jewelry’s      11.375%/12.125% Senior Secured Second Lien Notes due June 1, 2012      (incorporated by reference to Exhibit 4.2 to the Company’s Current Report      on Form 8-K filed on December 3,2008). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.9 | Indenture      dated as of November 26, 2008 between Finlay Jewelry and HSBC Bank USA,      National Association, as trustee, relating to Finlay Jewelry’s      8.375%/8.945% Senior Secured Third Lien Notes due June 1, 2012      (incorporated by reference to Exhibit 4.3 to the Company’s Current Report      on Form 8-K filed on December 3,2008). |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.10 | Intercreditor      Agreement dated as of November 26, 2008 between General Electric Capital      Corporation, as first lien agent, HSBC Bank USA, National Association, as      second lien agent and as third lien agent (incorporated by reference to      Exhibit 4.4 to the Company’s Current Report on Form 8-K filed on December      3, 2008). |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 10.8(h) | Amendment      No. 1 dated as of November 18, 2008 to Fourth Amended and Restated Credit      Agreement, among Finlay Jewelry, Carlyle & Co. Jewelers LLC, and L.      Congress, Inc., as borrowers, the Company, Finlay Jewelry, Inc., Finlay      Merchandising & Buying LLC, eFinlay, Inc. and Park Promenade LLC, as      credit parties, General Electric Capital Corporation, as agent for the      lenders, and the lenders parties thereto (incorporated by reference to      Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December      3, 2008). |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.28 | Exchange      and Purchase Agreement dated as of November 26, 2008 by and among Finlay      Jewelry and certain beneficial holders of Finlay Jewelry’s 8-3/8% Senior      Notes due June 1, 2012 parties thereto (incorporated by reference to      Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December      3, 2008). |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.29 | Second      Lien Security Agreement dated as of November 26, 2008, among Finlay      Jewelry, Finlay Jewelry, Inc., Finlay Merchandising & Buying LLC,      eFinlay, Inc., Carlyle & Co. Jewelers LLC, Park Promenade, LLC, L.      Congress, Inc. and the Company, as grantors, and HSBC Bank USA, National      Association, as collateral agent (incorporated by reference to Exhibit      10.3 to the Company’s Current Report on Form 8-K filed on December 3,      2008). |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.30 | Third      Lien Security Agreement dated as of November 26, 2008, among Finlay      Jewelry, Finlay Jewelry, Inc., Finlay Merchandising & Buying LLC,      eFinlay, Inc., Carlyle & Co. Jewelers LLC, Park Promenade, LLC, L.      Congress, Inc. and the Company, as grantors, and HSBC Bank USA, National      Association, as collateral agent (incorporated by reference to Exhibit      10.4 to the Company’s Current Report on Form 8-K filed on December 3,      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. |
|------|-------------------------------------------------------------------------------------------------------------------|

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| Date:      December 16,      2008               | FINLAY ENTERPRISES,      INC. |                                                                                                                                                                              |
|-----------------------------------------------------------------------------------------------------------------------|-------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                  |                          |                                                                                                                                                                              |   |
|                                                                                                                  | By:                           | /s/ Bruce      E. Zurlnick                                                                                                                                                   |   |
|                                                                                                                  |                          | Bruce      E. ZurlnickSenior Vice President, Treasurerand Chief Financial Officer(As both a duly authorized officer ofregistrant and as principal financialofficer of registrant) |   |
|                                                                                                                  |                          |                                                                                                                                                                              |   |
|                                                                                                                  |                          |                                                                                                                                                                              |   |

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