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




                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-Q

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

               For the Quarterly Period Ended  October 30, 1999
                                              ------------------
                                       or

         __    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
               THE SECURITIES EXCHANGE ACT OF 1934

               For the Transition Period from _________ to __________

                         Commission File Number: 0-25716



                            FINLAY ENTERPRISES, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)


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



      529 Fifth Avenue, New York, NY                                 10017
------------------------------------------                        ----------
 (Address of principal executive offices)                         (zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                           Yes   X                   No
                               ----                     ----

As of December 10, 1999, there were 10,416,353 shares of common stock, par value
$.01 per share, of the Registrant outstanding.

<PAGE>




                             FINLAY ENTERPRISES, INC

                                    FORM 10-Q

                     QUARTERLY PERIOD ENDED OCTOBER 30, 1999

                                      INDEX



                                                                         PAGE(S)
                                                                         -------
PART I - FINANCIAL INFORMATION

 Item 1. Consolidated Financial Statements (Unaudited)

         Consolidated Statements of Operations for the thirteen weeks and
         thirty-nine weeks ended October 31, 1998 and October 30, 1999.........1

         Consolidated Balance Sheets as of January 30, 1999 and
         October 30, 1999......................................................3

         Consolidated Statements of Changes in Stockholders' Equity for the
         year ended January 30, 1999 and thirty-nine weeks ended
         October 30, 1999......................................................4

         Consolidated Statements of Cash Flows for the thirteen weeks and
         thirty-nine weeks ended October 31, 1998 and October 30, 1999.........5

         Notes to Consolidated Financial Statements............................7

 Item 2. Management's Discussion and Analysis of
         Financial Condition and Results of Operations........................14

 Item 3. Quantitative and Qualitative Disclosures about Market Risk...........21


PART II - OTHER INFORMATION

 Item 6. Exhibits and Reports on Form 8-K.....................................22

SIGNATURES....................................................................23


<PAGE>

PART I - FINANCIAL INFORMATION
  Item 1. Consolidated Financial Statements



                            FINLAY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except share and per share data)
                                   (unaudited)

<TABLE>
<CAPTION>

                                                                                      Thirteen Weeks Ended
                                                                                -----------------------------------

                                                                                  October 31,          October 30,
                                                                                     1998                 1999
                                                                                --------------       --------------

<S>                                                                             <C>                  <C>
Sales....................................................................       $    165,894         $    175,280
Cost of sales............................................................             81,207               86,631
                                                                                --------------       --------------
    Gross margin.........................................................             84,687               88,649
Selling, general and administrative expenses.............................             78,927               81,813
Depreciation and amortization............................................              3,916                4,142
                                                                                --------------       --------------
    Income (loss) from operations........................................              1,844                2,694
Interest expense, net....................................................              8,153                7,953
                                                                                --------------       --------------
    Income (loss) before income taxes....................................             (6,309)              (5,259)
Provision (benefit) for income taxes.....................................             (2,458)              (1,814)
                                                                                --------------       --------------
    Net income (loss)....................................................       $     (3,851)        $     (3,445)
                                                                                ==============       ==============

Net income (loss) per share applicable to common shares:
       Basic net income (loss) per share.................................       $      (0.37)        $      (0.33)
                                                                                ==============       ==============
       Diluted net income (loss) per share:..............................       $      (0.37)        $      (0.33)
                                                                                ==============       ==============
Weighted average shares and share equivalents outstanding................         10,402,653           10,416,142
                                                                                ==============       ==============
</TABLE>






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






                                       1
<PAGE>

                            FINLAY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except share and per share data)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                     Thirty-Nine Weeks Ended
                                                                               ----------------------------------

                                                                                October 31,          October 30,
                                                                                   1998                 1999
                                                                               --------------      --------------
<S>                                                                            <C>                 <C>
Sales....................................................................      $    504,252        $    527,026
Cost of sales............................................................           246,620             258,988
                                                                               --------------      --------------
    Gross margin.........................................................           257,632             268,038
Selling, general and administrative expenses.............................           235,874             243,487
Depreciation and amortization............................................            11,617              12,618
                                                                               --------------      --------------
    Income (loss) from operations........................................            10,141              11,933
Interest expense, net....................................................            25,183              22,386
Nonrecurring interest associated with refinancing........................               655              -
                                                                               --------------      --------------
    Income (loss) before income taxes and extraordinary charges..........           (15,697)            (10,453)
Provision (benefit) for income taxes.....................................            (5,927)             (3,277)
                                                                               --------------      --------------
    Income (loss) before extraordinary charges...........................            (9,770)             (7,176)
Extraordinary charges from early extinguishment of debt,
      net of income tax benefit of $4,765................................             7,415              -
                                                                               --------------      --------------
    Net income (loss)....................................................      $    (17,185)       $     (7,176)
                                                                               ==============      ==============

Net income (loss) per share applicable to common shares:
    Basic net income (loss) per share:
       Before extraordinary charges......................................      $      (0.96)       $      (0.69)
                                                                               ==============      ==============
       Extraordinary charges from early extinguishment of debt...........      $      (0.73)       $       -
                                                                               ==============      ==============
       Net income (loss).................................................      $      (1.69)       $      (0.69)
                                                                               ==============      ==============
    Diluted net income (loss) per share:
       Before extraordinary charges......................................      $      (0.96)       $      (0.69)
                                                                               ==============      ==============
       Extraordinary charges from early extinguishment of debt...........      $      (0.73)       $       -
                                                                               ==============      ==============
       Net income (loss).................................................      $      (1.69)       $      (0.69)
                                                                               ==============      ==============
Weighted average shares and share equivalents outstanding................        10,171,712          10,411,880
                                                                               ==============      ==============

</TABLE>





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





                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                       (unaudited)
                                                                                      January 30,       October 30,
                                                                                          1999              1999
                                                                                     -------------     -------------
                                      ASSETS
Current assets
<S>                                                                                  <C>               <C>
  Cash and cash equivalents....................................................      $    17,328       $     4,183
  Accounts receivable - department stores......................................           19,147            38,241
  Other receivables............................................................           23,353            36,289
  Merchandise inventories......................................................          295,265           317,345
  Prepaid expenses and other...................................................            2,366             3,906
                                                                                     -------------     -------------
     Total current assets......................................................          357,459           399,964
                                                                                     -------------     -------------
Fixed assets
  Equipment, fixtures and leasehold improvements...............................          106,735           116,960
  Less - accumulated depreciation and amortization.............................           36,620            44,681
                                                                                     -------------     -------------
     Fixed assets, net.........................................................           70,115            72,279
                                                                                     -------------     -------------
Deferred charges and other assets..............................................           15,871            20,312
Goodwill.......................................................................          100,547            97,739
                                                                                     -------------     -------------
     Total assets..............................................................      $   543,992       $   590,294
                                                                                     =============     =============

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Notes payable................................................................      $     -           $   127,398
  Accounts payable - trade.....................................................          160,434            83,450
  Accrued liabilities:
     Accrued salaries and benefits.............................................           15,760            15,261
     Accrued miscellaneous taxes...............................................            4,704             5,150
     Accrued insurance.........................................................              755             1,538
     Accrued interest..........................................................            5,135            10,278
     Accrued management transition and consulting..............................              676               435
     Other.....................................................................           15,409            16,302
  Income taxes payable.........................................................            5,076             3,569
  Deferred income taxes........................................................            2,173             2,132
                                                                                     -------------     -------------
     Total current liabilities.................................................          210,122           265,513
Long-term debt.................................................................          225,000           225,000
Other non-current liabilities..................................................            9,059            10,089
                                                                                     -------------     -------------
     Total liabilities.........................................................          444,181           500,602
                                                                                     -------------     -------------
Stockholders' equity
  Common Stock, par value $.01 per share; authorized 25,000,000 shares;
     issued and outstanding 10,410,353 and 10,416,353 shares, respectively.....              104               104
  Additional paid-in capital ..................................................           77,057            77,194
  Retained earnings (deficit)..................................................           27,439            20,263
  Foreign currency translation adjustment......................................           (4,789)           (7,869)
                                                                                     -------------     -------------
     Total stockholders' equity................................................           99,811            89,692
                                                                                     -------------     -------------
     Total liabilities and stockholders' equity................................      $   543,992       $   590,294
                                                                                     =============     =============
</TABLE>



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



                                       3
<PAGE>

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

<TABLE>
<CAPTION>



                                      Common Stock                    Note                     Foreign
                                  ------------------    Additional  Receivable   Retained     Currency      Total
                                     Number              Paid-in      from       Earnings    Translation Stockholders' Comprehensive
                                   of shares    Amount   Capital    Stock Sale  (Deficit)     Adjustment    Equity        Income
                                  ------------  ------  ----------  ----------- ----------  ------------ ------------- -------------
<S>              <C> <C>           <C>        <C>      <C>          <C>         <C>         <C>           <C>
Balance, January 31, 1998........   9,779,050   $  98   $  61,745   $  (1,001)  $  18,340   $   (6,843)  $    72,339
  Net income (loss)..............       -          -        -           -           9,099        -             9,099   $     9,099
  Foreign currency translation
     adjustment..................       -          -        -           -            -           2,054         2,054         2,054
                                                                                                                       -------------
  Comprehensive income (loss)....       -          -        -           -            -           -             -       $    11,153
  Issuance of Common Stock.......     567,310       6      13,753       -            -           -            13,759   =============
  Note receivable repayment......       -          -        -           1,001        -           -             1,001
  Exercise of stock options......      56,993      -        1,559       -            -           -             1,559
                                  ------------  ------  ----------  ----------- ----------  ------------ -------------
Balance, January 30, 1999........  10,403,353     104      77,057       -          27,439       (4,789)        99,811
  Net income (loss)..............       -          -        -           -          (7,176)       -             (7,176) $    (7,176)
  Foreign currency translation
     adjustment..................       -          -        -           -            -          (3,080)        (3,080)      (3,080)
                                                                                                                       -------------
  Comprehensive income (loss)....       -          -        -           -            -           -             -       $   (10,256)
  Exercise of stock options......      13,000      -          137       -            -           -                137  =============
                                  ------------  ------  ----------  ----------- ----------  ------------ -------------
Balance, October 30, 1999
  (unaudited)....................  10,416,353   $ 104   $  77,194   $   -       $  20,263   $   (7,869)  $     89,692
                                  ============  ======  ==========  =========== ==========  ============ =============

</TABLE>












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













                                       4
<PAGE>

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


<TABLE>
<CAPTION>

                                                                                            Thirteen Weeks Ended
                                                                                        -------------------------------
                                                                                          October 31,       October 30,
                                                                                             1998              1999
                                                                                        -------------     -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                     <C>               <C>
  Net income (loss)..............................................................       $    (3,851)      $    (3,445)
  Adjustments to reconcile net income (loss) to net cash used in
     operating activities:
  Depreciation and amortization..................................................             4,216             4,452
  Other, net.....................................................................              (398)              349
  Changes in operating assets and liabilities:
     Increase in accounts and other receivables..................................           (12,742)           (8,529)
     Increase in merchandise inventories.........................................           (16,478)          (24,663)
     Increase in prepaid expenses and other......................................            (1,203)             (248)
     Increase  in accounts payable and accrued liabilities.......................            16,125            22,075
                                                                                        -------------     -------------
        NET CASH USED IN OPERATING ACTIVITIES....................................           (14,331)          (10,009)
                                                                                        -------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements....................            (4,483)           (3,650)
  Deferred charges and other, net................................................            (3,088)           (1,200)
                                                                                        -------------     -------------
        NET CASH USED IN INVESTING ACTIVITIES....................................            (7,571)           (4,850)
                                                                                        -------------     -------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility........................................           139,894           145,285
  Principal payments on revolving credit facility................................          (118,467)         (130,824)
  Capitalized financing costs....................................................               (36)            -
  Stock options exercised and other, net.........................................               775                16
                                                                                        -------------     -------------
        NET CASH PROVIDED FROM FINANCING ACTIVITIES..............................            22,166            14,477
                                                                                        -------------     -------------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH..................................               280               (75)
                                                                                        -------------     -------------
        INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.........................               544              (457)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................             2,890             4,640
                                                                                        -------------     -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.........................................       $     3,434       $     4,183
                                                                                        =============     =============

Supplemental disclosure of cash flow information:
  Interest paid..................................................................       $     2,989       $     2,745
  Income taxes (received) paid...................................................              (811)            3,006

</TABLE>


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





                                       5
<PAGE>

                            FINLAY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)
<TABLE>
<CAPTION>


                                                                                           Thirty-Nine Weeks Ended
                                                                                        ------------------------------
                                                                                         October 31,      October 30,
                                                                                             1998             1999
                                                                                        -------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                     <C>              <C>
  Net income (loss)..............................................................       $  (17,185)      $    (7,176)
  Adjustments to reconcile net income (loss) to net cash used in
     operating activities:
  Depreciation and amortization..................................................           12,575            13,532
  Imputed interest on debentures.................................................            2,527            -
  Write-off of deferred financing costs and debt discount........................            3,900            -
  Redemption premiums............................................................            7,102            -
  Other, net.....................................................................              (83)            1,306
  Changes in operating assets and liabilities:
     Increase in accounts and other receivables..................................          (43,130)          (32,353)
     Increase in merchandise inventories.........................................          (43,302)          (24,156)
     Increase in prepaid expenses and other......................................           (3,079)           (1,570)
     Decrease in accounts payable and accrued liabilities........................          (67,982)          (72,121)
                                                                                        ------------     -------------
        NET CASH USED IN OPERATING ACTIVITIES....................................         (148,657)         (122,538)
                                                                                        ------------     -------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements....................          (11,661)          (11,565)
  Deferred charges and other, net................................................           (3,830)           (6,413)
                                                                                        ------------     -------------
        NET CASH USED IN INVESTING ACTIVITIES....................................          (15,491)          (17,978)
                                                                                        ------------     -------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility........................................          643,436           500,291
  Principal payments on revolving credit facility................................         (493,314)         (372,893)
  Prepayment of Old Notes........................................................         (135,000)           -
  Prepayment of Old Debentures...................................................          (89,293)           -
  Payment of redemption premiums.................................................           (7,102)           -
  Net proceeds from public offering of Common Stock..............................           13,759            -
  Proceeds from senior note offering.............................................          150,000            -
  Proceeds from senior debenture offering........................................           75,000            -
  Proceeds from repayment of note receivable.....................................            1,001            -
  Capitalized financing costs....................................................           (6,180)           -
  Stock options exercised and other, net.........................................            1,556               137
                                                                                        ------------     -------------
        NET CASH PROVIDED FROM FINANCING ACTIVITIES..............................          153,863           127,535
                                                                                        ------------     -------------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH..................................              131              (164)
                                                                                        ------------     -------------
        DECREASE IN CASH AND CASH EQUIVALENTS....................................          (10,154)          (13,145)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................           13,588            17,328
                                                                                        ------------     -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.........................................       $    3,434       $     4,183
                                                                                        ============     =============

Supplemental disclosure of cash flow information:
  Interest paid..................................................................       $   15,735       $    16,329
  Income taxes paid..............................................................              300             2,479

</TABLE>

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


                                       6
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements of Finlay
Enterprises,  Inc.  (the  "Company" or the  "Registrant"),  and its wholly owned
subsidiary,  Finlay Fine Jewelry  Corporation and its wholly owned  subsidiaries
("Finlay  Jewelry"),  have been prepared in accordance  with generally  accepted
accounting principles for interim financial information.  References to "Finlay"
mean collectively, the Company and Finlay Jewelry. In the opinion of management,
the  accompanying   unaudited  consolidated  financial  statements  contain  all
adjustments necessary to present fairly the financial position of the Company as
of  October  30,  1999,  and the  results of  operations  and cash flows for the
thirteen  weeks and  thirty-nine  weeks  ended  October 31, 1998 and October 30,
1999. Due to the seasonal  nature of the business,  results for interim  periods
are not  indicative  of annual  results.  The unaudited  consolidated  financial
statements  have been  prepared on a basis  consistent  with that of the audited
consolidated  financial  statements  as of January 30,  1999  referred to below.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed  or omitted  pursuant to the rules and  regulations  of the
Securities and Exchange Commission (the "Commission").

     These consolidated  financial statements should be read in conjunction with
the audited consolidated  financial statements and notes thereto included in the
Company's  annual report on Form 10-K for the fiscal year ended January 30, 1999
("Form 10-K") previously filed with the Commission.

     Finlay's fiscal year ends on the Saturday closest to January 31. References
to 1996, 1997, 1998 and 1999 relate to the fiscal years ending February 1, 1997,
January 31, 1998, January 30, 1999 and January 29, 2000,  respectively.  Each of
the fiscal years includes fifty-two weeks.

     Net income (loss) per share has been computed in accordance  with Statement
of Financial  Accounting Standards ("SFAS") No. 128, "Earnings per Share". Basic
and  diluted  net income  (loss) per share were  calculated  using the  weighted
average  number of shares  outstanding  during  each  period,  with  options  to
purchase Common Stock included in diluted net income (loss) per share, using the
treasury  stock method,  to the extent that such options were  dilutive.  As the
Company  had a net loss for the  thirteen  weeks  and  thirty-nine  weeks  ended
October 31, 1998 and October 30, 1999,  the dilutive  stock options  outstanding
are not  considered in the  calculation  of dilutive net income (loss) per share
due to their  anti-dilutive  effect. As a result, the weighted average number of
shares  outstanding  used for both the basic and dilutive net income  (loss) per
share calculations was the same.

     In 1998,  the  Company  adopted  SFAS  No.  130,  "Reporting  Comprehensive
Income". This Statement requires disclosure of comprehensive income,  defined as
the total of net income and all other  nonowner  changes in equity,  which under
generally  accepted  accounting   principles,   are  recorded  directly  to  the
stockholders'  equity section of the consolidated  balance sheet and, therefore,
bypass net income.  In Finlay's case, the only nonowner change in equity relates
to the foreign currency translation adjustment.






                                       7
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION (continued)

Comprehensive income (loss) is as follows (in thousands):
<TABLE>
<CAPTION>

                                                              Thirteen Weeks Ended               Thirty-Nine Weeks Ended
                                                         -------------------------------      ------------------------------
                                                           October 31,      October 30,        October 31,      October 30,
                                                              1998              1999               1998             1999
                                                         -------------     -------------      -------------    -------------
<S>                                                      <C>               <C>                <C>              <C>
Net income (loss)....................................    $    (3,851)      $    (3,445)       $   (17,185)     $    (7,176)
Foreign currency translation adjustment..............          1,850              (511)             2,063           (3,080)
                                                         -------------     -------------      -------------    -------------
Comprehensive income (loss)..........................    $    (2,001)      $    (3,956)       $   (15,122)     $   (10,256)
                                                         =============     =============      =============    =============
</TABLE>

     In 1998,  Statement  of Position  No.  98-1,  "Accounting  for the Costs of
Computer  Software  Developed or Obtained for Internal Use" was issued. As such,
Finlay is required to capitalize  software  purchased  from third party software
vendors,  external  consulting costs incurred in the development and enhancement
of  management  information  systems  and  certain  internal  payroll  costs for
employees  directly  associated  with the  development of software.  The Company
adopted this  statement in 1999,  and it will not have a material  impact on its
consolidated financial statements.

NOTE 2 - DESCRIPTION OF BUSINESS

     The Company conducts business through its wholly owned  subsidiary,  Finlay
Jewelry.  Finlay is a retailer of fine jewelry  products and primarily  operates
leased fine jewelry  departments  in  department  stores  throughout  the United
States  and  France.  Over the past  three  fiscal  years,  the  fourth  quarter
accounted for an average of 42% of Finlay's sales due to the  seasonality of the
retail jewelry  industry.  Approximately  47% of Finlay's domestic sales in 1998
were from operations in The May Department Stores Company and 21% in departments
operated in store groups owned by Federated Department Stores.

NOTE 3 - MERCHANDISE INVENTORIES

     Merchandise inventories consisted of the following:
<TABLE>
<CAPTION>
                                                                                                (unaudited)
                                                                             January 30,         October 30,
                                                                                1999                1999
                                                                          --------------       --------------
                                                                                       (in thousands)
   Jewelry goods - rings, watches and other fine jewelry
<S>                                                                       <C>                  <C>
       (specific identification basis)...............................     $    300,777         $     323,142
   Less:  Excess of specific identification cost over LIFO
       inventory value...............................................            5,512                 5,797
                                                                          --------------       ---------------
                                                                          $    295,265         $     317,345
                                                                          ==============       ===============
</TABLE>

     The LIFO method had the effect of  decreasing  the loss before income taxes
for the thirteen weeks and thirty-nine  weeks ended October 31, 1998 by $177,000
and  $523,000,  respectively.  The effect of  applying  the LIFO  method for the
thirteen weeks and thirty-nine  weeks ended October 30, 1999 was to increase the
loss  before  income  taxes  by  $95,000  and  $286,000,  respectively.   Finlay
determines its LIFO



                                       8
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - MERCHANDISE INVENTORIES (continued)

inventory  value by utilizing  selected  producer  price  indices  published for
jewelry and watches by the Bureau of Labor Statistics.

     Approximately $283,793,000 and $355,114,000 at January 30, 1999 and October
30, 1999, respectively, of merchandise received on consignment has been excluded
from  Merchandise  inventories and Accounts  payable-trade  in the  accompanying
Consolidated Balance Sheets.

     Finlay  Jewelry  is  party  to a  gold  consignment  agreement  (the  "Gold
Consignment   Agreement"),   which  expires  on  December  31,  2001.  The  Gold
Consignment Agreement enables Finlay Jewelry to receive merchandise by providing
gold, or otherwise  making  payment,  to certain  vendors who supply Finlay with
merchandise on consignment.  While the merchandise  involved remains  consigned,
title to the gold content of the  merchandise  transfers from the vendors to the
gold  consignor.  Finlay  Jewelry can obtain,  pursuant to the Gold  Consignment
Agreement,  up to the lesser of (i) 95,000 fine troy ounces or (ii)  $32,000,000
worth of gold,  subject  to a  formula  as  prescribed  by the Gold  Consignment
Agreement.  At October 30, 1999, amounts  outstanding under the Gold Consignment
Agreement  totaled  78,637  fine  troy  ounces,  valued at  approximately  $23.5
million. For financial statement purposes, the consigned gold is not included in
Merchandise  inventories  on the  Company's  Consolidated  Balance  Sheets  and,
therefore, no related liability has been recorded.

     The cost to Finlay of gold merchandise sold on consignment in some cases is
not fixed until the sale is reported to the vendor or to the gold  consignor  in
the case of merchandise sold pursuant to the Gold Consignment Agreement.  Finlay
at times enters into futures contracts,  such as options or forwards, based upon
the  anticipated  sales of gold product,  to hedge against the risk arising from
those payment arrangements. Changes in the market value of futures contracts are
accounted  for as an addition  to or  reduction  from the  inventory  cost.  The
Company did not have any open positions in futures contracts for gold at January
30,  1999.  At October 30, 1999,  the Company had two open  positions in futures
contracts  for gold  totaling  25,000  fine troy  ounces or  approximately  $8.1
million, which expire at the end of November 1999.

     In June 1998,  SFAS No. 133,  "Accounting  for Derivative  Instruments  and
Hedging  Activities"  was issued.  This  Statement  requires that all derivative
instruments  be recorded in the  balance  sheet as either an asset or  liability
measured at its fair value and that changes in the derivative  instrument's fair
value be recognized currently in earnings.  SFAS No. 133 is effective for fiscal
years  beginning  after June 15,  2000 and,  based on current  levels of hedging
activities, is not expected to have a material impact on the Company's financial
position or results of operations.

NOTE 4 - LEASE AGREEMENTS

     Finlay conducts  substantially all of its operations as leased  departments
in department  stores.  All of these leases, as well as rentals for office space
and equipment,  are accounted for as operating leases. The department  operating
leases  expire on various  dates through 2003 and the office space and equipment
operating leases expire on various dates through 2008. All references  herein to
leased departments refer to departments  operated pursuant to license agreements
or other  arrangements with host department  stores.


                                       9
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - LEASE AGREEMENTS (continued)

     Substantially  all of the department store leases provide that the title to
certain fixed assets of Finlay  transfers upon  termination  of the leases,  and
that Finlay will receive the  undepreciated  value of such fixed assets from the
host store in the event such transfers occur, although the depreciation schedule
provided  for in the lease may  differ  from that used for  financial  reporting
purposes.  The values of such fixed assets are recorded at the  inception of the
lease  arrangement and are reflected in the  accompanying  Consolidated  Balance
Sheets.

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

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

                                         Thirteen Weeks Ended                Thirty-Nine Weeks Ended
                                   --------------------------------     --------------------------------
                                    October 31,        October 30,        October 31,       October 30,
                                        1998              1999               1998               1999
                                   -------------      -------------     -------------      -------------
                                                             (in thousands)
<S>                                <C>                <C>               <C>                <C>
     Minimum fees..............    $     5,911        $     4,297       $    15,567        $    12,935
     Contingent fees...........         21,248             24,396            66,499             73,405
                                   -------------      -------------     -------------      -------------
       Total...................    $    27,159        $    28,693       $    82,066        $    86,340
                                   =============      =============     =============      =============
</TABLE>

NOTE 5 - PENDING SALE AND DISPOSITION OF SONAB

     On November 29, 1999,  Societe  Nouvelle d'Achat de Bijouterie - S.O.N.A.B.
("Sonab"), the Company's European leased jewelry department subsidiary, signed a
letter of intent to sell the majority of its assets.  Under the current terms of
the letter of intent,  the buyer will  operate more than 80 locations of Sonab's
130-location base in France.  The remaining  departments will be closed.  Finlay
anticipates  that a final  agreement  will be entered into before the end of the
fiscal year.

     Pending final negotiations, the Company anticipates it will record a pretax
charge  in the  fourth  quarter  of 1999 of  approximately  $25  million  to $27
million,  or $1.42 to $1.53  per  share on a diluted  basis  after-tax,  for the
write-down of assets for  disposition  and related  closure  expenses.  The cash
portion of this charge is estimated to be approximately $7 to $8 million.








                                       10
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - PENDING SALE AND DISPOSITION OF SONAB (continued)

     The  preliminary  estimate  of the  pre-tax  components  of the  charge for
write-down of assets for disposition and related closure  expenses,  the related
income tax effects and the net cash portion of the charge are  approximately  as
follows (in millions):
<TABLE>
<CAPTION>

<S>                                                                            <C>            <C>
Costs associated with the write-down of inventory for liquidation              $   8.0    -   $    8.5
Costs associated with the write off of undepreciated fixed assets                  1.5    -        1.5
Realization of foreign exchange losses                                             8.0    -        8.5
Payroll and severance costs                                                        4.0    -        4.5
Other closing costs (a)                                                            3.5    -        4.0
                                                                               -------------------------

Sub-total                                                                         25.0    -       27.0
Income tax benefit                                                               (10.1)   -      (10.9)
                                                                               -------------------------

Net after tax                                                                     14.9    -       16.1
Non cash - Foreign exchange losses (above)                                        (8.0)   -       (8.5)
                                                                               -------------------------

Net cash portion of charge                                                     $   6.9    -   $    7.6
                                                                               =========================
</TABLE>


(a)  Including  transfer of  inventory,  furniture  removal,  main office  costs
     during close down period, lease termination costs and professional fees.


















                                       11
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - DOMESTIC OPERATIONS UNAUDITED PRO FORMA FINANCIAL    INFORMATION

     The following  table  presents pro forma  statements of operations  for the
Company's  domestic  operations  for the  thirteen and  thirty-nine  weeks ended
October  31,  1998 and October 30,  1999.  The pro forma  financial  information
excludes  the  operating  results  of Sonab  and  reflects  a  reduction  in the
consolidated interest expense as a portion has been allocated to Sonab.

In thousands, except share
and per share amounts
(unaudited)
<TABLE>
<CAPTION>

                                                 Thirteen Weeks Ended                             Thirty-Nine Weeks Ended
                                   ------------------------------------------------  -----------------------------------------------
                                       Oct. 31, 1998               Oct. 30, 1999        Oct. 31, 1998 (1)          Oct. 30, 1999
                                   ----------------------   -----------------------  ----------------------   ----------------------
<S>                                <C>            <C>       <C>             <C>      <C>            <C>       <C>            <C>
Sales                              $ 157,100      100.0%    $ 168,927       100.0%   $ 474,682      100.0%    $ 507,894      100.0%
Cost of sales                         76,805       48.9        82,624        48.9      231,988       48.9       248,142       48.9
                                   -----------   --------   -----------   ---------  -----------  ---------   -----------  ---------
     Gross margin                     80,295       51.1        86,303        51.1      242,694       51.1       259,752       51.1
Selling, general and
 administrative expenses              74,172       47.2        78,098        46.2      220,914       46.5       232,025       45.7
Depreciation and amortization          3,768        2.4         3,970         2.4       11,122        2.4        12,103        2.3
                                   -----------   --------   -----------   ---------  -----------  ---------   -----------  ---------
     Income (loss) from
       operations                      2,355        1.5         4,235         2.5       10,658        2.2        15,624        3.1
Interest expense, net                  7,447        4.7         7,448         4.4       23,205        4.9        20,736        4.1
                                   -----------   --------   -----------   ---------  -----------  ---------   -----------  ---------
Income (loss) before income taxes     (5,092)      (3.2)       (3,213)       (1.9)     (12,547)      (2.7)       (5,112)      (1.0)
Provision (benefit) for income
  taxes                               (1,971)      (1.2)       (1,002)       (0.6)      (4,699)      (1.0)       (1,169)      (0.2)
                                   -----------   --------   -----------   ---------  -----------  ---------   -----------  ---------

Net income (loss)                  $  (3,121)      (2.0)%   $  (2,211)       (1.3)%  $  (7,848)      (1.7)%   $  (3,943)      (0.8)%
                                   ===========   ========   ===========   =========  ===========  =========   ===========  =========


Net income (loss) per share
  applicable to common shares:
Basic net income (loss) per share  $   (0.30)               $   (0.21)               $   (0.77)               $   (0.38)
                                   ===========              ===========              ===========              ===========
Diluted net income (loss) per
  share                            $   (0.30)               $   (0.21)               $   (0.77)               $   (0.38)
                                   ===========              ===========              ===========              ===========


Weighted average shares and
  share equivalents outstanding    10,402,653               10,416,142               10,171,712               10,411,880
                                   ==========               ==========               ===========              ===========
</TABLE>

__________________________________________________________________________
(1) Refer to Note 8 for additional 1998 pro forma financial information.

NOTE 7 - 1998 TRANSACTIONS

     On April 24,  1998,  the Company  completed a public  offering of 1,800,000
shares of its Common Stock at a price of $27.50 per share (the "1998 Offering"),
of which 567,310 shares were sold by the Company and 1,232,690  shares were sold
by certain selling stockholders. Concurrently with the 1998


                                       12
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - 1998 TRANSACTIONS (continued)

Offering,  the Company and Finlay Jewelry completed the public offering of $75.0
million aggregate  principal amount of 9% Senior Debentures due May 1, 2008 (the
"Senior  Debentures")  and $150.0 million  aggregate  principal amount of 8-3/8%
Senior Notes due May 1, 2008 (the "Senior Notes"), respectively. In addition, on
April 24, 1998,  Finlay's  revolving  credit  agreement (the  "Revolving  Credit
Agreement")  was amended to  increase  the line of credit  thereunder  to $275.0
million and to make certain other changes.  On May 1, 1998, the Company  prepaid
all of the $39.0  million  of  accreted  interest  on the  Company's  12% Senior
Discount Debentures due 2005 (the "Old Debentures") as of such date.

     On May 26, 1998,  the net  proceeds to the Company from the 1998  Offering,
the sale of the Senior  Debentures,  together with other available  funds,  were
used to redeem the  Company's Old  Debentures,  including  associated  premiums.
Also, on May 26, 1998, Finlay Jewelry used the net proceeds from the sale of the
Senior Notes to redeem Finlay Jewelry's  10-5/8% Senior Notes due 2003 (the "Old
Notes"),  including associated premiums.  The above transactions,  excluding the
1998  Offering,  are  referred  to  herein  as the  "Refinancing".  The  Company
recorded,  in the second  quarter  of 1998,  a pre-tax  extraordinary  charge of
approximately $12.2 million,  including $7.1 million for redemption premiums and
$3.9 million to write off deferred financing costs and debt discount  associated
with the Old Debentures and the Old Notes.

NOTE 8 - 1998 UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION

     The following  table  presents the  calculation of  consolidated  pro forma
earnings per share data for  thirty-nine  weeks ended October 31, 1998.  The pro
forma consolidated  financial  information  excludes the extraordinary charge of
$12.2  million,  on a pre-tax  basis,  including  $7.1  million  for  redemption
premiums and  approximately  $3.9 million to write off deferred  financing costs
and debt discount  associated  with the Old  Debentures  and the Old Notes.  The
income  tax  benefit on the  extraordinary  charges  totaled  $4.8  million.  In
addition,   the  pro  forma  consolidated  financial  information  excludes  the
nonrecurring  interest  associated with  refinancing as a result of certain call
requirements on the debt retired.

<TABLE>
<CAPTION>

In thousands, except share and                                                   Thirty-Nine
Per share amounts                                                                Weeks Ended
(unaudited)                                                                    October 31, 1998
                                                                              ------------------
<S>                                                                           <C>
Net income (loss) per Consolidated Statements of Operations.........          $       (17,185)
Add:   Extraordinary charges from early extinguishment of
       debt, net of income tax benefit..............................                    7,415
Add:   Nonrecurring interest associated with refinancing,
       net of income tax benefit....................................                      400
                                                                              ------------------
Pro Forma net income (loss).........................................          $        (9,370)
                                                                              ==================

Pro Forma net income (loss) per share applicable to
    common shares:
    Basic net income (loss) per share...............................          $         (0.92)
                                                                              ==================
    Diluted net income (loss) per share.............................          $         (0.92)
                                                                              ==================
Weighted average shares and share equivalents outstanding...........               10,171,712
                                                                              ==================
</TABLE>

                                       13
<PAGE>

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

Results of Operations

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

Statements of Operations Data
(unaudited)
<TABLE>
<CAPTION>

                                                                    Thirteen Weeks Ended             Thirty-Nine Weeks Ended
                                                               ------------------------------    -------------------------------
                                                                October 31,       October 30,     October 31,       October 30,
                                                                   1998             1999             1998              1999
                                                               -------------    -------------    -------------     -------------
<S>                                                               <C>              <C>               <C>              <C>
Sales.....................................................        100.0%           100.0%            100.0%           100.0%
Cost of sales.............................................         49.0             49.4              48.9             49.1
                                                               -------------    -------------    -------------     -------------
    Gross margin..........................................         51.0             50.6              51.1             50.9
Selling, general and administrative expenses..............         47.6             46.7              46.8             46.2
Depreciation and amortization.............................          2.3              2.4               2.3              2.4
                                                               -------------    -------------    -------------     -------------
    Income (loss) from operations.........................          1.1              1.5               2.0              2.3
Interest expense, net.....................................          4.9              4.5               5.0              4.3
Nonrecurring interest associated with refinancing.........          -                -                 0.1              -
                                                               -------------    -------------    -------------     -------------
    Income (loss) before income taxes and
      extraordinary charges...............................         (3.8)            (3.0)             (3.1)            (2.0)
Provision (benefit) for income taxes......................         (1.5)            (1.0)             (1.2)            (0.6)
                                                               -------------    -------------    -------------     -------------
    Income (loss) before extraordinary charges............         (2.3)            (2.0)             (1.9)            (1.4)
Extraordinary charges from early extinguishment
      of debt, net of income tax benefit..................          -                -                 1.5              -
                                                               -------------    -------------    -------------     -------------
    Net income (loss).....................................         (2.3)%           (2.0)%            (3.4)%           (1.4)%
                                                               =============    =============    =============     =============
</TABLE>

Thirteen Weeks Ended October 30, 1999 Compared with Thirteen Weeks Ended October
31, 1998

     Sales.  Sales for the thirteen  weeks ended October 30, 1999 increased $9.4
million,  or 5.7%, over the comparable period in 1998.  Consolidated  comparable
department  sales  (departments  open  for the  same  months  during  comparable
periods) increased 5.8% and domestic comparable department sales increased 6.8%.
Management  attributes this increase in the comparable  department  sales to the
following  initiatives:   (i)  emphasizing  its  "Key  Item"  and  "Best  Value"
merchandising  programs,  which  provide  a  targeted  assortment  of  items  at
competitive prices; (ii) increasing focus on holiday and event-driven promotions
as well as host  store  marketing  programs;  (iii)  positioning  the  Company's
departments as a "destination  location" for fine jewelry;  and (iv)  continuing
project PRISM (Promptly Reduce  Inefficiencies  and Sales  Multiply),  a program
designed to allow  Finlay's  sales  associates  more time for customer sales and
service.

     In the second quarter of 1998, Sonab began to experience lower sales trends
due to the  transition  from a promotional  pricing  strategy to an everyday low
price strategy.  The adverse impact of such change continued through October 30,
1999.  As discussed  in Note 5 of Notes to  Consolidated  Financial  Statements,
Sonab has  signed a letter of intent to sell the  majority  of its  assets.  The
buyer will operate more than 80 locations of Sonab's 130-location base, with the
remaining  departments to be closed.  Finlay  anticipates that a final agreement
will be entered into before the end of the fiscal year.


                                       14
<PAGE>

     During  the  thirteen  weeks  ended  October  30,  1999,  Finlay  opened 26
departments and closed nine  departments.  The openings were all within existing
store groups,  with the exception of two departments in Herberger's,  a division
of Saks Incorporated.  The closings were within existing store groups, including
four departments in France and one of the Company's outlet stores.

     Gross  margin.  Gross  margin for the  period  increased  by $4.0  million,
primarily as a result of the sales  increase.  As a percentage  of sales,  gross
margin  decreased  by 0.4%.  Gross  margin  as a  percentage  of  sales  for the
Company's domestic  operations was the same as the prior year although there was
a LIFO charge of $0.1 million for the thirteen  weeks ended October 30, 1999, as
compared to a LIFO benefit of $0.2 million in the prior year.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses ("SG&A") increased $2.9 million, or 3.7%, due primarily
to payroll  expense and lease fees associated with the increase in the Company's
domestic  sales.  SG&A as a percentage of sales decreased by 0.9% as a result of
the  leveraging of these  expenses and lower  expenses  related to the Company's
year 2000 remediation project,  which totaled approximately $0.3 million for the
thirteen  weeks ended  October 30, 1999 as compared to $0.9 million in the prior
year.  The  slowdown  of sales in  France  had a  negative  impact  on SG&A as a
percentage of sales.

     Depreciation and amortization.  Depreciation and amortization  increased by
$0.2 million,  reflecting an increase in capital  expenditures  and  capitalized
software  costs for the most  recent  twelve  months,  offset  by the  effect of
certain assets becoming fully depreciated.  The increase in fixed assets was due
to the addition of new departments and the renovation of existing departments.

     Interest expense, net. Interest expense decreased by $0.2 million primarily
due to a decrease in average  borrowings  ($360.0 million for the period in 1999
compared to $375.0  million for the  comparable  period in 1998).  The  weighted
average interest rate was 8.1% for both the 1999 and 1998 periods.

     Provision (benefit) for income taxes. The income tax provision for the 1999
and 1998 periods reflects an effective tax rate of 40.5%.

     Net income  (loss).  The net loss of $3.4  million  for the 1999 period was
$0.4  million  lower  than the net  loss in the  prior  year as a result  of the
factors discussed above.

Thirty-Nine  Weeks Ended October 30, 1999 Compared with Thirty-Nine  Weeks Ended
October 31, 1998

     Sales.  Sales for the  thirty-nine  weeks ended October 30, 1999  increased
$22.8  million,  or  4.5%,  over the  comparable  period  in 1998.  Consolidated
comparable  department sales increased 6.3% and domestic  comparable  department
sales  increased  8.4%.  Management  attributes  this increase in the comparable
department  sales  primarily  to the "Key Item" and "Best  Value"  merchandising
programs and to the marketing  initiatives  discussed above.  Total consolidated
sales were negatively  impacted by $9.0 million primarily  relating to Dillard's
purchase  of the  Mercantile  Stores  in the fall of 1998 and the  change  to an
everyday  low price  strategy  as well as the net  effect of new store  openings
offset by store closings.

     During the  thirty-nine  weeks ended  October 30,  1999,  Finlay  opened 53
departments  and closed 53  departments.  The openings were all within  existing
store  groups,  with the  exception of three  departments  in  Herberger's.  The
closings included 14 departments in Crowley's and Steinbach due to



                                       15
<PAGE>

the  bankruptcy  of the host  store,  22  departments  in France  and one of the
Company's  outlet  stores,  with the  remaining  16  departments  closed  within
existing store groups.

     Gross  margin.  Gross  margin for the period  increased  by $10.4  million,
primarily as a result of the sales  increase.  As a percentage  of sales,  gross
margin  decreased  by 0.2%.  Gross  margin  as a  percentage  of  sales  for the
Company's domestic  operations was the same as the prior year although there was
a LIFO charge of $0.3 million for the  thirty-nine  weeks ended October 30, 1999
as compared to a LIFO benefit of $0.5 million in the prior year.

     Selling,  general and administrative expenses. SG&A increased $7.6 million,
or 3.2%,  due primarily to payroll  expense and lease fees  associated  with the
increase in the  Company's  domestic  sales as well as expenses  relating to the
Company's  year 2000  remediation  project,  which  totaled  approximately  $2.0
million  in 1999 as  compared  to $0.9  million  in the  prior  year.  SG&A as a
percentage  of sales  decreased by 0.6% as a result of the  leveraging  of these
expenses.  The  slowdown  of sales in France had a negative  impact on SG&A as a
percentage of sales.

     Depreciation and amortization.  Depreciation and amortization  increased by
$1.0 million,  reflecting an increase in capital  expenditures  and  capitalized
software  costs for the most  recent  twelve  months,  offset  by the  effect of
certain assets becoming fully depreciated.  The increase in fixed assets was due
to the addition of new departments and the renovation of existing departments.

     Interest   expense,   net.  Interest  expense  decreased  by  $2.8  million
reflecting  a lower  weighted  average  interest  rate (8.1% for the 1999 period
compared  to 8.8% for the  comparable  period  in 1998)  relating  to the  lower
interest rates on the Senior  Debentures and the Senior Notes as compared to the
Old Debentures and the Old Notes,  which were  outstanding  for a portion of the
1998 period.  In addition,  there was a decrease in average  borrowings  ($334.6
million  for the period in 1999  compared to $360.7  million for the  comparable
period in 1998). The 1998 average borrowings were adjusted to exclude the timing
impact  of the  call  requirements  on the Old  Debentures  and  the Old  Notes,
discussed above.

     Nonrecurring  interest associated with refinancing.  As a result of certain
call requirements associated with the Old Debentures and the Old Notes, the debt
could not be repaid until May 26, 1998. Thus, for twenty-five days in the second
quarter of 1998,  Finlay was  required to maintain as  outstanding  both the new
debt issued on April 24, 1998 as well as the old debt  retired on May 26,  1998.
The net effect of  carrying  the new and old debt,  offset by  reduced  interest
expense on the Company's revolving credit facility and interest income on excess
cash balances, was an increase to interest expense of $0.7 million.

     Provision (benefit) for income taxes. The income tax provision for the 1999
and 1998 periods reflects an effective tax rate of 40.5%.

     Extraordinary  charges from early extinguishment of debt, net of income tax
benefit.  In  conjunction  with the repayment of the Old  Debentures and the Old
Notes, the Company recorded a pre-tax  extraordinary  charge of $12.2 million in
the second quarter of 1998,  including $7.1 million for redemption  premiums and
approximately  $3.9  million  to write  off  deferred  financing  costs and debt
discount  associated  with the Old Debentures and the Old Notes.  The income tax
benefit on the extraordinary charges totaled $4.8 million.



                                       16
<PAGE>

     Net income  (loss).  The net loss of $7.2  million  for the 1999 period was
$10.0 million lower than the net loss of $17.2 million for the comparable period
as a result of the factors discussed above.  Excluding the extraordinary  charge
in 1998, the net loss for 1999 was $2.6 million lower than the prior year.

Liquidity and Capital Resources

     Finlay's  primary capital  requirements are for funding working capital for
new departments and for working capital growth of existing departments and, to a
lesser extent,  capital  expenditures  for opening new  departments,  renovating
existing departments and information technology investments. For the thirty-nine
weeks ended October 31, 1998 and October 30, 1999, capital  expenditures totaled
$11.7 million and $11.6 million,  respectively.  For 1998, capital  expenditures
totaled  $14.9  million and for 1999 are  estimated  to be  approximately  $15.0
million. Although capital expenditures are limited by the terms of the Revolving
Credit  Agreement,  to date this  limitation  has not precluded the Company from
satisfying its capital expenditure requirements.

     Finlay's  operations  substantially  preclude  customer  receivables and in
recent years, on average, approximately 49% of Finlay's domestic merchandise has
been carried on consignment.  Accordingly,  management  believes that relatively
modest  levels of working  capital  are  required  in  comparison  to many other
retailers.  The Company's  working capital balance was $134.5 million at October
30,  1999,  a decrease of $12.9  million  from  January 30,  1999.  The decrease
resulted  primarily  from  the  impact  of the  interim  net loss  exclusive  of
depreciation and  amortization,  capital  expenditures,  an increase in deferred
charges and the movement in the foreign exchange rate with France.  Based on the
seasonal nature of Finlay's business, working capital requirements and therefore
borrowings  under the Revolving  Credit Agreement can be expected to increase on
an interim basis during the first three  quarters of any given fiscal year.  See
"--Seasonality".

     The seasonality of Finlay's business causes working capital requirements to
reach their  highest  level in the months of October,  November  and December in
anticipation of the year-end  holiday season.  Accordingly,  Finlay  experiences
seasonal cash needs as inventory  levels peak.  The Revolving  Credit  Agreement
provides Finlay with a line of credit of up to $275.0 million to finance working
capital needs.  Amounts  outstanding  under the Revolving  Credit Agreement bear
interest at a rate equal to, at Finlay's option,  (i) the Index Rate (as defined
in the Revolving  Credit  Agreement)  plus a margin ranging from zero to 1.0% or
(ii)  adjusted  LIBOR  plus a margin  ranging  from  1.0% to 2.0%,  in each case
depending on the financial performance of the Company.

     In each year, Finlay is required to reduce the outstanding revolving credit
balance and letter of credit  balance  under the Revolving  Credit  Agreement to
$50.0  million  or less  and  $20.0  million  or  less,  respectively,  for a 30
consecutive day period (the "Balance Reduction  Requirement").  Borrowings under
the Revolving Credit Agreement at October 30, 1999 were $127.4 million, compared
to a zero  balance at January 30, 1999 and $150.1  million at October 31,  1998.
The average amounts outstanding under the Revolving Credit Agreement were $131.4
million  (adjusted  for the impact of the  temporary  paydown  of the  revolving
credit  facility  due to  certain  call  requirements  associated  with  the Old
Debentures and the Old Notes) and $109.6 million for the thirty-nine weeks ended
October  31,  1998 and  October  30,  1999,  respectively.  The  maximum  amount
outstanding for the thirty-nine weeks ended October 30, 1999 was $153.3 million.

     On November 29, 1999, Sonab,  Finlay's  European leased jewelry  department
subsidiary,  signed a letter of intent to sell the majority of its assets. Under
the current  terms of the letter of intent,  the buyer will operate more than 80
locations of Sonab's 130-location base in France. The remaining departments


                                       17
<PAGE>

will be closed.  Finlay  anticipates that a final agreement will be entered into
before the end of the fiscal  year.  Pending  final  negotiations,  the  Company
anticipates  it will  record a pretax  charge in the  fourth  quarter of 1999 of
approximately  $25  million  to $27  million,  or $1.42 to $1.53  per share on a
diluted  basis  after-tax,  for the  write-down  of assets for  disposition  and
related  closure  expenses.  The cash  portion of this charge is estimated to be
approximately $7 to $8 million.

     Finlay's  long-term needs for external financing will depend on its rate of
growth,  the level of  internally  generated  funds and the  ability to continue
obtaining  substantial amounts of merchandise on advantageous  terms,  including
consignment  arrangements  with its  vendors.  For 1998,  Finlay  had an average
balance of  consignment  merchandise of $268.5  million from  approximately  300
vendors as  compared  to an average  balance  of $216.5  million in 1997.  As of
October 30,  1999,  $355.1  million of  consignment  merchandise  was on hand as
compared to $283.8 million at January 30, 1999 and $315.7 million at October 31,
1998.

     A substantial  amount of Finlay's operating cash flow has been used or will
be required to pay interest  with respect to the Senior  Debentures,  the Senior
Notes and  amounts  due under the  Revolving  Credit  Agreement,  including  the
payments required pursuant to the Balance Reduction  Requirement.  As of October
30, 1999, Finlay's outstanding  borrowings were $352.4 million, which included a
$75.0 million  balance under the Senior  Debentures,  a $150.0  million  balance
under the Senior Notes and a $127.4 million  balance under the Revolving  Credit
Facility.

     Finlay Jewelry is party to the Gold Consignment Agreement, which expires on
December 31, 2001.  The Gold  Consignment  Agreement  enables  Finlay Jewelry to
receive  merchandise by providing gold, or otherwise making payment,  to certain
vendors.  Finlay Jewelry can obtain, pursuant to the Gold Consignment Agreement,
up to the lesser of (i) 95,000 fine troy ounces or (ii) $32.0  million  worth of
gold, subject to a formula as prescribed by the Gold Consignment  Agreement.  At
October 30,  1999,  amounts  outstanding  under the Gold  Consignment  Agreement
totaled 78,637 fine troy ounces,  valued at  approximately  $23.5  million.  The
average  amount  outstanding  under  the Gold  Consignment  Agreement  was $15.6
million in 1998.

     During 1998, the Company began several information technology  initiatives,
including  the  design and  development  of a new  merchandising  system and the
upgrade of  point-of-sale  systems  and  related  hardware  in the  majority  of
Finlay's departments.  These projects will serve to support future growth of the
Company as well as provide improved analysis and reporting  capabilities and are
expected to be completed in mid-2000. The cost associated with these projects is
estimated  to be $12.0  million for  software and  implementation  costs,  to be
included in Deferred charges and other assets,  and  approximately  $4.0 million
for  hardware  and related  equipment,  to be  included  as a  component  of the
Company's  capital  expenditures  and reflected in Fixed assets.  At October 30,
1999, a total of approximately $9.8 million has been expended.

     Section 382 of the Internal  Revenue Code of 1986,  as amended (the "Code")
restricts  utilization  of net operating  loss  carryforwards  ("NOLs") after an
ownership   change   exceeding  50%.  As  a  result   certain   recapitalization
transactions  in 1993,  a change  in  ownership  of the  Company  exceeding  50%
occurred  within the  meaning of Section 382 of the Code.  Similar  restrictions
apply to other  carryforwards.  Consequently,  there is a material limitation on
the  Company's  annual  utilization  of its NOLs and other  carryforwards  which
requires  a  deferral  or  loss  of  the  utilization  of  such  NOLs  or  other
carryforwards.  The Company  had, at October  31, 1998 (the  Company's  tax year
end), a NOL for tax purposes of approximately  $11.5 million which is subject to
an annual limit of approximately $2.0 million per year.  However,  for financial
reporting  purposes,  no NOL exists as of January 30,  1999.


                                       18
<PAGE>

     From time to time, Finlay enters into futures contracts, such as options or
forwards,  based upon the  anticipated  sales of gold  product in order to hedge
against the risk  arising from its payment  arrangements.  Changes in the market
value of futures contracts are accounted for as an addition to or reduction from
the inventory  cost.  For the year ended  January 30, 1999,  the gain or loss on
open  futures  contracts  was not  material.  The  Company did not have any open
positions  in futures  contracts  for gold at January 30,  1999.  At October 30,
1999, the Company had two open positions in futures  contracts for gold totaling
25,000 fine troy ounces or approximately  $8.1 million,  which expire at the end
of November 1999.  There can be no assurance that these hedging  techniques will
be  successful  or that  hedging  transactions  will not  adversely  affect  the
Company's results of operations or financial position.

     Finlay believes that, based upon current  operations,  anticipated  growth,
and availability under the Revolving Credit Agreement,  Finlay Jewelry will, for
the foreseeable future, be able to meet its debt service and anticipated working
capital  obligations,  and to make  distributions  to the Company  sufficient to
permit the Company to meet its debt service obligations and to pay certain other
expenses  as they come due.  No  assurances,  however,  can be given that Finlay
Jewelry's  current  level of operating  results will continue or improve or that
Finlay Jewelry's income from operations will continue to be sufficient to permit
Finlay Jewelry and the Company to meet their debt service and other obligations.
Currently,  Finlay Jewelry's  principal financing  arrangements  restrict annual
distributions  from Finlay  Jewelry to the Company to 0.25% of Finlay  Jewelry's
net sales for the  preceding  fiscal  year and also allow  distributions  to the
Company to enable it to make  interest  payments on the Senior  Debentures.  The
amounts  required to satisfy the  aggregate  of  Finlay's  interest  expense and
required  amortization  payments totaled $15.7 million and $16.3 million for the
thirty-nine weeks ended October 31, 1998 and October 30, 1999, respectively.

Year 2000

     Many of Finlay's computer systems,  software products,  other systems using
embedded chips  ("non-information  technology systems") and third party systems,
accepted only two entries in the date field to distinguish  the year.  Beginning
in the year 2000,  these date fields will need to accept four digit entries,  or
properly handle two digit entries,  to distinguish  21st century dates from 20th
century dates. As a result,  Finlay's date critical functions would be adversely
affected  unless the computer  systems and software  products of both Finlay and
significant third parties were year 2000 compliant.

     A  comprehensive  plan was  prepared  so that all  systems  critical to the
operation of the Company would be year 2000  compliant.  The plan was structured
into five primary phases: identification,  assessment,  remediation, testing and
implementation.  The Company has  completed all phases and has  implemented  all
remediated  applications.  The  Company  continues  to conduct  general  systems
testing as well as  testing  of  specific  year 2000  scenarios  in an effort to
verify that the systems are year 2000 compliant.

     Finlay used a combination of internal and external resources to execute its
year 2000 project plan. The Company estimates that the costs related to its year
2000  efforts  will  total  approximately  $4.0  million,  of  which a total  of
approximately $3.9 million has been spent through October 30, 1999 ($1.9 million
in fiscal 1998 and $2.0 million in fiscal 1999). The Company has funded the year
2000 costs through operating cash flows.

     The Company has formally  communicated  with its host  stores,  vendors and
other  third  parties  to  determine  the  extent  to which the  Company  may be
vulnerable  to the failure of their  systems and to


                                       19
<PAGE>

obtain year 2000  compliance  certification.  To date, none of the third parties
contacted  have raised year 2000 issues which the Company  believes would have a
material adverse effect on Finlay.

     Management expects that with the successful implementation of the year 2000
project,  the year 2000 issue will not pose  significant  operational  problems.
Although the Company has implemented its remediated  applications  and completed
its year 2000 plan, there can be no assurance that Finlay's systems and software
will not  experience  year 2000  related  issues,  or that Finlay will not incur
significant  unforeseen  additional  expenses  to address any such  issues.  The
consequences of a disruption of the Company's operations,  whether caused by the
Company's internal systems or those of any significant third party, could have a
material  adverse  effect on the  Company's  financial  position  or  results of
operations.  The likely worst case  scenario  may be an inability to  distribute
merchandise to the Company's  departments  and to process its daily business for
some period of time.  The lost  revenues,  if any,  resulting  from a worst case
scenario  would depend on the time period in which the failure goes  uncorrected
and the difficulty to remediate such failure.

     Management  recognizes the  importance of developing a contingency  plan in
the event of a year 2000 failure. The Company has assessed the potential effects
of a year 2000  related  failure  and,  to the extent  deemed  appropriate,  has
identified  tasks necessary to address such effects in its contingency  plan. In
addition,  progress  reports on the year 2000  project  continue to be presented
regularly to senior management and the Company's Board of Directors.

Seasonality

     Finlay's  business is highly  seasonal,  with a significant  portion of its
sales and income from  operations  generated  during the fourth  quarter of each
year, which includes the year-end holiday season.  The fourth quarter  accounted
for an average of 42% of Finlay's  sales and 82% of its income  from  operations
for 1996,  1997 and 1998.  Finlay has  typically  experienced  net losses in the
first three quarters of its fiscal year.  During these periods,  working capital
requirements   have  been  funded  by  borrowings  under  the  Revolving  Credit
Agreement.  Accordingly,  the results for any of the first three quarters of any
given fiscal year, taken individually or in the aggregate, are not indicative of
annual results.

Inflation

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

Special Note Regarding Forward-Looking Statements

     This Quarterly  Report on Form 10-Q includes  "forward-looking  statements"
within the meaning of Section 27A of the  Securities Act of 1993 and Section 21E
of the  Securities  Exchange Act of 1934 (the  "Exchange  Act").  All statements
other  than   statements  of   historical   information   provided   herein  are
forward-looking  statements and may contain information about financial results,
economic  conditions,  trends  and  known  uncertainties.   The  forward-looking
statements  contained herein are subject to certain risks and uncertainties that
could cause  actual  results to differ  materially  from those  reflected in the
forward-looking statements.  Factors that might cause such a difference include,
but are not limited to,  those  discussed  under  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations", as well as trends in
the general  economy in the United States and France,  competition in the retail
jewelry business,  the seasonality of the retail jewelry business, the Company's
ability to increase comparable department sales and to open new departments, the
Company's  estimate of the cost to


                                       20
<PAGE>

address year 2000 compliance  issues and the impact on the Company's  operations
of a  year  2000  failure,  the  Company's  dependence  on  certain  host  store
relationships  due to the  concentration of sales generated by such host stores,
the  availability to the Company of alternate  sources of merchandise  supply in
the case of an abrupt loss of any significant supplier, the Company's ability to
continue  to obtain  substantial  amounts of  merchandise  on  consignment,  the
Company's dependence on key officers,  the Company's ability to integrate future
acquisitions into its existing  business,  the Company's high degree of leverage
and the  availability  to the Company of financing and credit on favorable terms
and changes in  regulatory  requirements  which are  applicable to the Company's
business.

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     The Company is exposed to market risk  primarily  through the interest rate
on its borrowings  under the Revolving  Credit  Agreement,  which has a variable
interest rate. In seeking to minimize the risks from interest rate fluctuations,
the  Company  manages  exposures  through its regular  operating  and  financing
activities.  In addition,  the majority of the  Company's  borrowings  are under
fixed rate arrangements, and as such, there was no material market risk exposure
to the Company's financial  position,  results of operations or cash flows as of
January 30, 1999 or October 30, 1999.
















                                       21
<PAGE>

PART II - OTHER INFORMATION

Item 6.    Exhibits and Reports on Form 8-K

     A.    Exhibits

        2         Not applicable.

        3         Not applicable.

        4         Not applicable.

       10         Not applicable.

       11         Statement  re:    computation  of   earnings  per  share  (not
                  required  because  the  relevant   computation  can be clearly
                  determined   from    material    contained  in  the  financial
                  statements).

       15         Not applicable.

       18         Not applicable.

       19         Not applicable.

       22         Not applicable.

       23         Not applicable.

       24         Not applicable.

       27         Financial Data Schedule.

       99         Not applicable.

     B.     Reports on Form 8-K

                  None.











                                       22
<PAGE>

                                   SIGNATURES


     Pursuant to the  requirement  of the  Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




Date: December 10, 1999               FINLAY ENTERPRISES, INC.

                                      By: /s/ Bruce E. Zurlnick
                                          -------------------------------------
                                          Bruce E. Zurlnick
                                           Treasurer
                                          (As both a duly authorized officer of
                                          Registrant and as principal financial
                                          officer of Registrant)





























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