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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

               For the Quarterly Period Ended October 30, 2004

                                       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  [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                       Yes  [X]                   No  [ ]

As of December 3, 2004, there were 8,957,010 shares of common stock, par value
$.01 per share, of the registrant outstanding.





                            FINLAY ENTERPRISES, INC.

                                    FORM 10-Q

                     QUARTERLY PERIOD ENDED OCTOBER 30, 2004

                                      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 30, 2004 and
          November 1, 2003.....................................................1

          Consolidated Balance Sheets as of October 30, 2004 and
          January 31, 2004.....................................................3

          Consolidated Statements of Changes in Stockholders' Equity
          for the year ended January 31, 2004 and the thirty-nine
          weeks ended October 30, 2004.........................................4

          Consolidated Statements of Cash Flows for the thirteen
          weeks and thirty-nine weeks ended October 30, 2004 and
          November 1, 2003.....................................................5

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

  Item 2. Management's Discussion and Analysis of
          Financial Condition and Results of Operations.......................17

  Item 3. Quantitative and Qualitative Disclosures about Market Risk..........33

  Item 4. Controls and Procedures.............................................33

PART II - OTHER INFORMATION

  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.........34

  Item 4. Submission of Matters to a Vote of Security Holders.................34

  Item 6. Exhibits............................................................34


SIGNATURES....................................................................36





PART I - FINANCIAL INFORMATION
  ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS



                            FINLAY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                   (UNAUDITED)



                                                                               THIRTEEN WEEKS ENDED
                                                                         -------------------------------
                                                                           OCTOBER 30,      NOVEMBER 1,
                                                                              2004              2003
                                                                         --------------    -------------


Sales .............................................................      $   166,841       $   165,784
Cost of sales .....................................................           82,229            81,067
                                                                         -----------       -----------
    Gross margin ..................................................           84,612            84,717
Selling, general and administrative expenses ......................           82,629            80,594
Depreciation and amortization .....................................            4,298             4,353
                                                                         -----------       -----------
    Loss from operations ..........................................           (2,315)
                                                                                                  (230)
Interest expense, net .............................................            5,596             5,922
                                                                         -----------       -----------
    Loss from continuing operations before income taxes ...........           (7,911)           (6,152)
Benefit for income taxes ..........................................           (3,085)           (2,399)
                                                                         -----------       -----------
    Loss from continuing operations ...............................           (4,826)           (3,753)
Discontinued operations, net of tax ...............................              -                (123)
                                                                         -----------       -----------
    Net loss ......................................................      $    (4,826)      $    (3,876)
                                                                         ===========       ===========

Net loss per share applicable to common shares - basic and diluted:
          Loss from continuing operations .........................      $     (0.55)      $     (0.42)
          Discontinued operations, net of tax .....................              -
                                                                                                 (0.01)
                                                                         -----------       -----------
          Net loss ................................................      $     (0.55)      $     (0.43)
                                                                         ===========       ===========

Weighted average shares outstanding -
         basic and diluted ........................................        8,714,961         8,989,586
                                                                         ===========       ===========







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




                                       1




                            FINLAY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                   (UNAUDITED)



                                                                             THIRTY-NINE WEEKS ENDED
                                                                       ----------------------------------
                                                                         OCTOBER 30,         NOVEMBER 1,
                                                                            2004                 2003
                                                                        -------------       -------------

Sales .............................................................       $   543,051        $   523,440
Cost of sales .....................................................           266,546            255,161
                                                                          -----------        -----------
    Gross margin ..................................................           276,505            268,279
Selling, general and administrative expenses ......................           258,096            249,124
Depreciation and amortization .....................................            13,061             12,718
                                                                          -----------        -----------
    Income from operations ........................................             5,348              6,437
Interest expense, net .............................................            17,109             17,628
Other expense - debt extinguishment costs .........................             9,090                -
                                                                          -----------        -----------
    Loss from continuing operations before income taxes ...........           (20,851)           (11,191)
Benefit for income taxes ..........................................            (8,756)            (4,362)
                                                                          -----------        -----------
     Loss from continuing operations ..............................           (12,095)            (6,829)
Discontinued operations, net of tax ...............................               -                  938
                                                                          -----------        -----------
     Net loss .....................................................       $   (12,095)       $    (5,891)
                                                                          ===========        ===========

Net loss per share applicable to common shares - basic and diluted:
            Loss from continuing operations .......................       $     (1.39)       $     (0.75)
            Discontinued operations, net of tax ...................               -
                                                                                                    0.10
                                                                          -----------        -----------
          Net loss per share ......................................       $     (1.39)       $     (0.65)
                                                                          ===========        ===========

Weighted average shares outstanding -
         basic and diluted ........................................         8,718,083          9,049,247
                                                                          ===========        ===========







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






                                       2



                            FINLAY ENTERPRISES, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                   (UNAUDITED)



                                                                                     OCTOBER 30,       JANUARY 31,
                                                                                        2004              2004
                                                                                    -------------     -------------

                                      ASSETS
Current assets:
  Cash and cash equivalents ...................................................       $   2,977        $  91,302
  Accounts receivable - department stores .....................................          37,065           21,602
  Other receivables ...........................................................          54,972           38,457
  Merchandise inventories .....................................................         305,282          272,948
  Prepaid expenses and other ..................................................           5,101            2,616
  Deferred income taxes .......................................................             -              6,564
                                                                                      ---------        ---------
     Total current assets .....................................................         405,397          433,489
                                                                                      ---------        ---------
Fixed assets:
  Building, equipment, fixtures and leasehold improvements ....................         126,396          117,631
  Less - accumulated depreciation and amortization ............................          61,310           51,506
                                                                                      ---------        ---------
     Fixed assets, net ........................................................          65,086           66,125
                                                                                      ---------        ---------
Deferred charges and other assets, net ........................................          17,912           18,120
Goodwill ......................................................................          77,288           77,288
                                                                                      ---------        ---------
     Total assets .............................................................       $ 565,683        $ 595,022
                                                                                      =========        =========

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Short-term borrowings .......................................................       $  78,497        $     -
  Accounts payable - trade ....................................................          54,094          122,976
  Accrued liabilities:
     Accrued salaries and benefits ............................................          15,793           18,756
     Accrued miscellaneous taxes ..............................................           5,883            7,180
     Accrued interest .........................................................           7,466            5,303
     Deferred income ..........................................................           6,569            9,515
     Deferred income taxes ....................................................           6,635              -
     Other ....................................................................          16,300           15,864
  Income taxes payable ........................................................          11,730           15,562
                                                                                      ---------        ---------
     Total current liabilities ................................................         202,967          195,156
Long-term debt ................................................................         200,000          225,000
Deferred income taxes .........................................................          22,548           21,890
Other non-current liabilities .................................................              67               80
                                                                                      ---------        ---------
     Total liabilities ........................................................         425,582          442,126
                                                                                      ---------        ---------
Stockholders' equity:
  Common Stock, par value $.01 per share; authorized 25,000,000 shares; issued
     11,092,913 and 10,833,080 shares, at October 30, 2004 and
     January 31, 2004, respectively ...........................................             111              108
  Additional paid-in capital ..................................................          88,647           82,808
  Retained earnings ...........................................................          79,912           92,007
  Unamortized restricted stock compensation ...................................          (1,829)          (1,405)
  Accumulated other comprehensive income (loss)................................             659              (85)
  Less treasury stock, of 2,207,904 and 1,815,159 shares, respectively, at cost         (27,399)         (20,537)
                                                                                      ---------        ---------
     Total stockholders' equity ...............................................         140,101          152,896
                                                                                      ---------        ---------
     Total liabilities and stockholders' equity ...............................       $ 565,683        $ 595,022
                                                                                      =========        =========




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


                                       3



                            FINLAY ENTERPRISES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                   (UNAUDITED)



                                           COMMON STOCK                          UNAMORTIZED   ACCUMULTED
                                        ------------------  ADDITIONAL            RESTRICTED      OTHER                  TOTAL
                                         NUMBER              PAID-IN   RETAINED    STOCK      COMPREHENSIVE  TREASURY  STOCKHOLDERS'
                                        OF SHARES   AMOUNT   CAPITAL   EARNINGS COMPENSATION  INCOME (LOSS)   STOCK       EQUITY
                                        ---------   ------   -------   -------- ------------  -------------   -----       ------

Balance, February 1, 2003 ............. 9,300,638    $106   $79,680   $ 83,597    $  (609)        $  55     $(13,793)   $ 149,036
    Net income ........................       -         -       -        8,410        -             -            -          8,410
    Change in fair value of gold
       forward contracts, net of tax ..       -         -       -          -          -            (140)         -           (140)
    Exercise of stock options and
       related tax benefit ............   149,500       1     1,722        -          -             -            -          1,722
    Issuance of restricted stock and
        restricted stock units ........    50,000       1     1,406        -       (1,327)          -            -             80
    Amortization of restricted stock
        compensation and restricted
        stock units ...................       -         -       -          -          531           -            -            531
    Purchase of treasury stock ........  (482,217)      -       -          -          -             -         (6,744)      (6,744)
                                        ---------    ----   -------   --------    -------         -----     --------    ---------
Balance, January 31, 2004 ............. 9,017,921     108    82,808     92,007     (1,405)          (85)     (20,537)     152,896
    Net loss ..........................       -         -       -      (12,095)       -             -            -        (12,095)
    Change in fair value of gold
       forward contracts, net of tax ..       -         -       -          -          -             744          -            744
    Exercise of stock options
       and related tax benefits .......   259,833       3     3,657        -          -             -            -          3,660
    Issuance of restricted stock and
       restricted stock units .........       -         -     2,182        -       (1,407)          -            -            775
    Amortization of restricted stock
       compensation and restricted
       stock units ....................       -         -       -          -          983           -            -            983
    Purchase of treasury stock ........  (392,745)      -       -          -          -             -         (6,862)      (6,862)
                                        ---------    ----   -------   --------    -------         -----     --------    ---------
Balance, October 30, 2004 ............. 8,885,009    $111   $88,647   $ 79,912    $(1,829)        $ 659     $(27,399)   $ 140,101
                                        =========    ====   =======   ========    =======         =====     ========    =========





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



                                       4




                            FINLAY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


                                                                    THIRTEEN WEEKS ENDED
                                                                 ---------------------------
                                                                 OCTOBER 30,     NOVEMBER 1,
                                                                    2004            2003
                                                                 ------------    -----------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss ..................................................      $  (4,826)      $  (3,876)
  Adjustments to reconcile net loss to net cash
      used in operating activities:
   Depreciation and amortization ............................          4,298           4,991
   Amortization of deferred financing costs .................            290             258
   Amortization of restricted stock compensation
       and restricted stock units ...........................            377             163
   Deferred income tax provision ............................          1,676           1,103
   Other, net ...............................................           (369)            169
   Changes in operating assets and liabilities:
     (Increase) decrease in accounts and other receivables ..          2,344          (9,872)
     Increase in merchandise inventories ....................        (24,854)        (35,430)
     Increase in prepaid expenses and other .................         (1,359)           (248)
     Increase in accounts payable and accrued liabilities ...         11,852          26,009
                                                                   ---------       ---------
         NET CASH USED IN OPERATING ACTIVITIES ..............        (10,571)        (16,733)
                                                                   ---------       ---------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements         (3,279)         (2,971)
  Deferred charges and other, net ...........................            -               (23)
                                                                   ---------       ---------
        NET CASH USED IN INVESTING ACTIVITIES ...............         (3,279)         (2,994)
                                                                   ---------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility ...................        149,237         155,925
  Principal payments on revolving credit facility ...........       (130,708)       (135,151)
  Capitalized financing costs ...............................            (78)            -
  Bank overdraft ............................................         (3,788)            640
  Purchase of treasury stock ................................            -            (2,170)
  Stock options exercised ...................................            362             397
                                                                   ---------       ---------
           NET CASH PROVIDED FROM FINANCING ACTIVITIES ......         15,025          19,641
                                                                   ---------       ---------
           INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .          1,175             (86)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..............          1,802           2,367
                                                                   ---------       ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................      $   2,977       $   2,281
                                                                   =========       =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Interest paid ...........................................      $   1,208       $     737
                                                                   =========       =========
    Income taxes paid (refunded) ............................      $  (9,412)      $   2,876
                                                                   =========       =========



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


                                       5



                            FINLAY ENTERPRISES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


                                                                                    THIRTY-NINE WEEKS ENDED
                                                                                  ----------------------------
                                                                                  OCTOBER 30,     NOVEMBER 1,
                                                                                     2004             2003
                                                                                  ------------    ------------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss ..................................................................      $ (12,095)      $  (5,891)
  Adjustments to reconcile net loss to net cash used in operating activities:
   Depreciation and amortization ............................................         13,061          13,710
   Amortization of deferred financing costs .................................            827             775
   Amortization of restricted stock compensation and
       restricted stock units ...............................................            983             315
   Loss on extinguishment of debt ...........................................          9,090             -
   Deferred income tax provision ............................................         13,857           3,040
   Other, net ...............................................................            150             583
   Changes in operating assets and liabilities:
      Increase in accounts and other receivables ............................        (31,978)        (29,362)
      Increase in merchandise inventories ...................................        (32,334)        (36,677)
      Increase in prepaid expenses and other ................................         (2,485)         (2,712)
      Decrease in accounts payable and accrued liabilities ..................        (84,691)        (61,887)
                                                                                   ---------       ---------
         NET CASH USED IN OPERATING ACTIVITIES ..............................       (125,615)       (118,106)
                                                                                   ---------       ---------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements ...............         (8,914)         (8,001)
                                                                                   ---------       ---------
        NET CASH USED IN INVESTING ACTIVITIES ...............................         (8,914)         (8,001)
                                                                                   ---------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility ...................................        478,753         462,409
  Principal payments on revolving credit facility ...........................       (400,256)       (407,863)
  Proceeds from issuance of New Senior Notes ................................        200,000             -
  Purchase and redemption of Senior Debentures and Senior Notes .............       (231,971)            -
  Capitalized financing costs ...............................................         (4,849)           (431)
  Bank overdraft ............................................................          8,432           9,317
  Purchase of treasury stock ................................................         (6,862)         (5,018)
  Stock options exercised ...................................................          2,957             643
                                                                                   ---------       ---------
           NET CASH PROVIDED FROM FINANCING ACTIVITIES ......................         46,204          59,057
                                                                                   ---------       ---------
           DECREASE IN CASH AND CASH EQUIVALENTS ............................        (88,325)        (67,050)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..............................         91,302          69,331
                                                                                   ---------       ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ....................................      $   2,977       $   2,281
                                                                                   =========       =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Interest paid ...........................................................      $  14,119       $  12,132
                                                                                   =========       =========
    Income taxes paid (refunded) ............................................      $  (6,138)      $  10,561
                                                                                   =========       =========



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


                                       6




                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF ACCOUNTING AND PRESENTATION

     The accompanying unaudited consolidated financial statements of Finlay
Enterprises, Inc. (the "Company," the "Registrant," "we," "us" and "our"), and
its wholly-owned subsidiary, Finlay Fine Jewelry Corporation and its
wholly-owned subsidiaries ("Finlay Jewelry"), have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information. References to "Finlay" mean collectively, the
Company and Finlay Jewelry. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments necessary to
present fairly our financial position as of October 30, 2004, and our results of
operations and cash flows for the thirteen weeks and thirty-nine weeks ended
October 30, 2004 and November 1, 2003. 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 31, 2004 referred to below, except as discussed in Notes 2 and 5 below.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission (the
"Commission").

     These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K, as amended, for the fiscal year ended January 31,
2004 ("Form 10-K") previously filed with the Commission.

     The results of operations and related disclosures for the thirteen weeks
and thirty-nine weeks ended November 1, 2003 reflect the Burdines departments as
a discontinued operation. See Note 11 for additional information regarding
discontinued operations.

     Our fiscal year ends on the Saturday closest to January 31. References to
2004, 2003, 2002 and 2001 relate to the fiscal years ending January 29, 2005,
January 31, 2004, February 1, 2003 and February 2, 2002, respectively. Each of
the fiscal years includes 52 weeks.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

     MERCHANDISE INVENTORIES: Consolidated inventories are stated at the lower
of cost or market determined by the last-in, first-out ("LIFO") method. See Note
5 for information regarding our change in method of determining price indices
used in the valuation of LIFO inventories from external indices published by the
Bureau of Labor Statistics ("BLS") to an internally developed index in 2004.
Inventory is reduced for estimated obsolescence or unmarketable inventory equal
to the difference between the cost of inventory and the estimated market value
based upon assumptions about future demand and market conditions.

     The cost to us of gold merchandise sold on consignment, which typically
varies with the price of gold, is not fixed until the merchandise is sold. We,
at times, enter into forward contracts based upon the anticipated sales of gold
product in order to hedge against the risk of gold price fluctuations. Such
contracts typically have durations ranging from one to nine months. At both
October 30, 2004 and January 31, 2004, we had several open positions in gold
forward contracts totaling 31,500 fine troy ounces and 25,000 fine troy ounces,
respectively, to purchase gold for $12.4 million and $10.2 million,
respectively. The fair value of gold under such contracts was $13.5 million and
$10.0 million at October 30, 2004 and January 31, 2004, respectively.


                                       7




                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

     Effective in 2002, the Financial Accounting Standards Board ("FASB")
Emerging Issues Task Force ("EITF") finalized Issue No. 02-16, "Accounting By a
Customer (Including a Reseller) for Cash Consideration Received from a Vendor"
("EITF 02-16"). EITF 02-16 addresses the accounting treatment for vendor
allowances and provides that cash consideration received from a vendor should be
presumed to be a reduction of the prices of the vendors' product and should
therefore be shown as a reduction in the purchase price of the merchandise.
Further, these allowances should be recognized as a reduction in cost of sales
when the related product is sold. To the extent that the cash consideration
represents a reimbursement of a specific, incremental and identifiable cost,
then those vendor allowances should be used to offset such costs.

      As of October 30, 2004 and January 31, 2004, deferred vendor allowances
totaled (i) $14.2 million and $17.1 million, respectively, for owned
merchandise, which allowances are included as an offset to merchandise
inventories on the Consolidated Balance Sheets, and (ii) $6.6 million and $9.5
million, respectively, for merchandise received on consignment, which allowances
are included as deferred income on the Consolidated Balance Sheets.

     HEDGING: Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. Under SFAS No. 133, all derivatives, whether designated in
hedging relationships or not, are required to be recorded on the balance sheet
at fair value. SFAS No. 133 defines requirements for designation and
documentation of hedging relationships, as well as ongoing effectiveness
assessments, which must be met in order to qualify for hedge accounting. For a
derivative that does not qualify as a hedge, changes in fair value would be
recorded in earnings immediately.

     We have designated our existing derivative instruments, consisting of gold
forward contracts, as cash flow hedges. For derivative instruments designated as
cash flow hedges, the effective portion of the change in the fair value of the
derivative is recorded in accumulated other comprehensive income, a separate
component of stockholders' equity, and is reclassified into cost of sales when
the offsetting effects of the hedged transaction impact earnings. Changes in the
fair value of the derivative attributable to hedge ineffectiveness are recorded
in earnings immediately. At October 30, 2004, the fair value of the gold forward
contracts resulted in the recognition of an asset of $1.1 million. At January
31, 2004, the fair value of the gold forward contracts resulted in the
recognition of a liability of $144,000. The amount recorded in accumulated other
comprehensive income at October 30, 2004 of $659,000, net of tax, is expected to
be reclassified into earnings through early 2005. The amount recorded in
accumulated other comprehensive loss at January 31, 2004 of $85,000, net of tax,
was reclassified into earnings in the first quarter of 2004.


                                       8




                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

We have documented all relationships between hedging instruments and hedged
items, as well as our risk management objectives and strategy for undertaking
various hedge transactions. We have also assessed, both at the hedge's inception
and on an ongoing basis, whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in cash flows of hedged
items. We believe that the designated hedges will be highly effective.

     NET INCOME (LOSS) PER SHARE: Net loss per share has been computed in
accordance with SFAS No. 128, "Earnings per Share". Basic and diluted net loss
per share were calculated using the weighted average number of shares
outstanding during each period, with options to purchase Common Stock,
restricted stock and restricted stock units included in diluted net income per
share, using the treasury stock method, to the extent that such options,
restricted stock and restricted stock units were dilutive. As we had a net loss
for the thirteen weeks and thirty-nine weeks ended October 30, 2004 and November
1, 2003, the stock options, restricted stock and restricted stock units are not
considered in the calculation of diluted net loss per share due to their
anti-dilutive effect. As a result, the weighted average number of shares
outstanding used for both the basic and diluted net loss per share calculations
was the same. Total stock options, restricted stock and restricted stock units
outstanding were 1,486,827 and 1,504,901 at October 30, 2004 and November 1,
2003, respectively, at prices ranging from $7.05 to $24.31 per share in each
period. For the thirty-nine weeks ended October 30, 2004, 213,750 shares of
restricted stock and 93,742 restricted stock units were excluded from the
computation of diluted earnings per share. For the thirty-nine weeks ended
November 1, 2003, 150,000 shares of restricted stock and 5,292 restricted stock
units were excluded from the computation of diluted earnings per share. See
Note 7.

     STOCK-BASED COMPENSATION: SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" amends SFAS No. 123 "Accounting for
Stock-Based Compensation", to provide alternative methods of transition for an
entity that voluntarily changes to the fair value method of accounting for stock
options. As permitted by SFAS No. 123, we have elected to account for stock
options using the intrinsic value method. In accordance with the provisions of
SFAS No. 148 and APB No. 25, we have not recognized compensation expense related
to our stock options. However, deferred stock-based compensation is amortized
using the straight-line method over the vesting period. Had the fair value
method of accounting been applied to our stock option plans, which requires
recognition of compensation cost ratably over the vesting period of the stock
options, net loss and net loss per share would be as follows:



                                                             THIRTEEN WEEKS ENDED           THIRTY-NINE WEEKS ENDED
                                                          ---------------------------     ----------------------------
                                                          OCTOBER 30,     NOVEMBER 1,     OCTOBER 30,      NOVEMBER 1,
                                                             2004            2003            2004             2003
                                                          -----------     -----------     -----------      -----------
                                                                                 (IN THOUSANDS)

Reported net loss ....................................      $(4,826)        $(3,876)        $(12,095)        $(5,891)
Add: Stock-based employee compensation expense
     determined under the fair value method,
     net of tax ......................................         (335)           (188)            (859)           (579)
Deduct: Stock-based employee compensation
     expense included in reported net loss, net of tax          254              94              619             187
                                                            -------         -------         --------         -------
Pro forma net loss ...................................      $(4,907)        $(3,970)        $(12,335)        $(6,283)
                                                            =======         =======         ========         =======

Basic and diluted net loss per share:
Reported net loss per share ..........................      $ (0.55)        $ (0.43)        $  (1.39)        $ (0.65)
                                                            =======         =======         ========         =======
Pro forma net loss per share .........................      $ (0.56)        $ (0.44)        $  (1.41)        $ (0.69)
                                                            =======         =======         ========         =======


                                       9



                            FINLAY ENTERPRISES, INC .
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     COMPREHENSIVE INCOME (LOSS): SFAS No. 130, "Reporting Comprehensive Income"
requires disclosure of comprehensive income, defined as the total of net income
and all other non-owner changes in equity, which are recorded directly to the
stockholders' equity section of the consolidated balance sheet and, therefore,
bypass net income. For 2004 and 2003, the only non-owner change in equity
related to the change in the fair value of our outstanding gold forward
contracts. For the thirteen weeks ended October 30, 2004 and November 1, 2003,
the comprehensive loss, calculated as the total of the net loss plus the change
in the fair value of our outstanding gold forward contracts, was $4.1 million
and $3.8 million, respectively. For the thirty-nine weeks ended October 30, 2004
and November 1, 2003, the comprehensive loss was $11.4 million and $5.3 million,
respectively.

     INCOME TAXES: The income tax benefit for both the 2004 and 2003 periods
reflects an effective tax rate of 39%. During the second quarter of fiscal 2004,
a benefit of approximately $0.6 million was recorded associated with the
reversal of tax accruals no longer required. Further, during the second quarter
of 2004, net current deferred tax assets decreased by approximately $10.1
million, primarily as a result of the utilization of deferred tax assets related
to the approval from the Internal Revenue Service of a favorable change of
accounting method regarding vendor allowances.

     NEW ACCOUNTING PRONOUNCEMENT: In June 2004, the FASB issued an
interpretation of FASB No. 143, "Accounting for Asset Retirement Obligations".
This interpretation clarifies the scope and timing of liability recognition for
conditional asset retirement obligations under FASB No. 143, and is effective no
later than the end of our 2005 fiscal year. We have determined that this
interpretation, and the adoption of FASB No. 143, will not have a material
impact on our consolidated financial statements.

NOTE 3 - DESCRIPTION OF BUSINESS

     We conduct business through our wholly-owned subsidiary, Finlay Jewelry. We
are a retailer of fine jewelry products and operate leased fine jewelry
departments in department stores throughout the United States. The fourth
quarter of 2003 accounted for approximately 42% of our sales and approximately
89% of our income from operations, due to the seasonality of the retail jewelry
industry. Approximately 51% of our sales in 2003 were from operations in The May
Department Stores Company ("May") and 18% in departments operated in store
groups owned by Federated Department Stores ("Federated"). Including our sales
in Marshall Fields which May recently acquired, departments operated by May
would have accounted for 60% of our sales in 2003.

NOTE 4 - SHORT AND LONG-TERM DEBT

     On January 22, 2003, Finlay Jewelry's revolving credit agreement with
General Electric Capital Corporation and certain other lenders was amended and
restated (the "Revolving Credit Agreement"). The Revolving Credit Agreement,
which matures in January 2008, provides Finlay Jewelry with a senior secured
revolving line of credit up to $225.0 million (the "Revolving Credit Facility").
At October 30, 2004, $78.5 million was outstanding under this facility, at which
point the available borrowings were $126.1 million. The average amounts
outstanding under the Revolving Credit Agreement were $49.4 million and $42.3
million for the thirty-nine weeks ended October 30, 2004 and November 1, 2003,
respectively. The maximum amount outstanding for the thirty-nine weeks ended
October 30, 2004 was $99.8 million, at which point the available borrowings were
an additional $113.5 million. Amounts outstanding under the Revolving Credit
Agreement bear interest at a rate equal to, at our option, (i) the

                                       10




                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - SHORT AND LONG-TERM DEBT (CONTINUED)

prime rate plus a margin ranging from zero to zero to 1.0% or (ii) the adjusted
Eurodollar rate plus a margin ranging from 1.0% to 2.0%, in each case depending
on our financial performance. The weighted average interest rate was 3.7% and
3.3% for the thirty-nine weeks ended October 30, 2004 and November 1, 2003,
respectively.

      On May 7, 2004, we and Finlay Jewelry each commenced an offer to purchase
for cash any and all of our 9% Senior Debentures, due May 1, 2008, having an
aggregate principal amount of $75.0 million (the "Senior Debentures") and Finlay
Jewelry's 8-3/8% Senior Notes, due May 1, 2008, having an aggregate principal
amount of $150.0 million (the "Senior Notes"), respectively. In conjunction with
the tender offers, we and Finlay Jewelry each solicited consents to effect
certain proposed amendments to the indentures governing the Senior Debentures
and the Senior Notes. On May 20, 2004, we and Finlay Jewelry announced that
holders of approximately 79% and 98% of the outstanding Senior Debentures and
the outstanding Senior Notes, respectively, tendered their securities and
consented to the proposed amendments to the related indentures.

      On June 3, 2004, Finlay Jewelry completed the sale of 8-3/8% Senior Notes,
due June 1, 2012, having an aggregate principal amount of $200.0 million (the
"New Senior Notes"). Interest on the New Senior Notes is payable semi-annually
on June 1 and December 1 of each year, commencing on December 1, 2004. Finlay
Jewelry used the net proceeds from the offering of the New Senior Notes,
together with drawings from its Revolving Credit Facility, to repurchase the
tendered Senior Notes and to make consent payments and to distribute $77.3
million to us to enable us to repurchase the tendered Senior Debentures and to
make consent payments. Additionally, on June 3, 2004, we and Finlay Jewelry
called for the redemption of all of the untendered Senior Debentures and Senior
Notes, respectively, and these securities were repurchased on July 2, 2004.

       Finlay Jewelry incurred approximately $5.1 million in costs, including
$4.9 million associated with the sale of the New Senior Notes, which have been
deferred and are being amortized over the term of the New Senior Notes. In June
2004, we recorded pre-tax charges of approximately $9.1 million, including $6.7
million for redemption premiums paid on the Senior Debentures and the Senior
Notes, $2.1 million to write-off deferred financing costs related to the
refinancing of the Senior Debentures and the Senior Notes and $0.3 million for
other expenses. These costs are included in other expense - debt extinguishment
costs in the accompanying Consolidated Statements of Operations.

      In September 2004, for the purpose of an exchange offer, Finlay Jewelry
registered notes with terms identical to the New Senior Notes under the
Securities Act of 1933. Finlay Jewelry completed the exchange offer in the third
quarter of 2004 and 100% of the original notes were exchanged for the registered
notes.

        The New Senior Notes are unsecured senior obligations and rank equally
in right of payment with all of the existing and future unsubordinated
indebtedness of Finlay Jewelry and senior to any future indebtedness of Finlay
Jewelry that is expressly subordinated to the New Senior Notes. The New Senior
Notes are effectively subordinated to Finlay Jewelry's secured indebtedness,
including obligations under its Revolving Credit Agreement and its Gold
Consignment Agreement (as defined herein), to the extent of the value of the
assets securing such indebtedness, and effectively subordinated to the
indebtedness and other liabilities (including trade payables) of its
subsidiaries. Finlay Jewelry may redeem the New Senior Notes, in whole or in
part, at any time on or after June 1, 2008 at specified redemption prices, plus
accrued and



                                       11



                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - SHORT AND LONG-TERM DEBT (CONTINUED)

unpaid interest, if any, to the date of the redemption. In addition, before June
1, 2007, Finlay Jewelry may redeem up to 35% of the aggregate principal amount
of the New Senior Notes with the net proceeds of certain equity offerings at
108.375% of the principal amount thereof, plus accrued interest to the
redemption date. Upon certain change of control events, each holder of the New
Senior Notes may require Finlay Jewelry to purchase all or a portion of such
holder's New Senior Notes at a purchase price equal to 101% of the principal
amount thereof, plus accrued interest to the purchase date.

       The indenture governing the New Senior Notes contains restrictions
relating to, among other things, the payment of dividends, redemptions or
repurchases of capital stock, the incurrence of additional indebtedness, the
making of certain investments, the creation of certain liens, the sale of
certain assets, entering into transactions with affiliates, engaging in mergers
and consolidations and the transfer of all or substantially all assets.

NOTE  5 - MERCHANDISE INVENTORIES

   Merchandise inventories consisted of the following:



                                                               OCTOBER 30,    JANUARY 31,
                                                                 2004          2004
                                                               -----------    -----------
                                                                     (IN THOUSANDS)

   Jewelry goods - rings, watches and other fine jewelry
       (first-in, first-out ("FIFO")  basis) ...........        $322,752        $289,546
   Less:  Excess of FIFO cost over LIFO inventory value           17,470          16,598
                                                                --------        --------
                                                                $305,282        $272,948
                                                                ========        ========


      In accordance with EITF 02-16, the FIFO basis of merchandise inventories
have been reduced by $14.2 million and $17.1 million at October 30, 2004 and
January 31, 2004, respectively, to reflect the vendor allowances as a reduction
in the cost of merchandise.

      During the third quarter of 2004, we changed our method of determining
price indices used in the valuation of LIFO inventories. Prior to the third
quarter of fiscal 2004, we determined our LIFO inventory value by utilizing
selected producer price indices published for jewelry and watches by the BLS.
During the third quarter of fiscal 2004, we began applying internally developed
indices that we believe more accurately measure inflation or deflation in the
components of our merchandise and our merchandise mix than the BLS producer
price indices. Additionally, we believe that this accounting change is an
alternative accounting principle that is preferable under the circumstances
described above. Under the new accounting method, the LIFO charge for the
thirteen and thirty-nine weeks ended October 30, 2004 was approximately $0.3
million and $0.9 million, respectively. The LIFO charge for the thirteen weeks
and the thirty-nine weeks ended October 30, 2004 would have been approximately
$1.3 million and $4.4 million, respectively, under the former LIFO method. Had
we not changed our method of determining price indices, the net loss and net
loss per share under the former LIFO method for the thirteen weeks and
thirty-nine weeks ended October 30, 2004 would have been approximately $5.5
million or $0.63 per share and approximately $14.2 million or $1.63 per share,
respectively. The net loss and net loss per share for each of the thirteen weeks
ended May 1, 2004 and July 31, 2004 have been restated to reflect this change.
Under the new accounting method, the LIFO charge for each of the thirteen weeks
ended May 1, 2004 and July 31, 2004 was approximately $0.3 million, compared to
$0.8 million and $1.0 million, respectively, as previously reported. The
cumulative effect of this change on retained earnings at the beginning of 2004
and the proforma impact of applying the new method in the periods prior to 2004
are not determinable.

                                       12




                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE  5 - MERCHANDISE INVENTORIES (CONTINUED)

Additionally, the prior year presented has not been restated to reflect this
change in accounting method. The following table presents the net loss and net
loss per share for the thirteen weeks ended May 1, 2004 and July 31, 2004, as
restated:

                                                       THIRTEEN WEEKS ENDED
                                                    ---------------------------
                                                       MAY 1,        JULY 31,
                                                       2004            2004
                                                    ------------    -----------
NET LOSS:
Net loss as previously reported ...................  $  (1,857)      $  (6,141)
Impact of change in LIFO inventory valuation
     method, net of tax ...........................        300             429
                                                     ---------       ---------
Net loss, as restated .............................  $  (1,557)      $  (5,712)
                                                     =========       =========

BASIC AND DILUTED NET LOSS PER SHARE:
Basic and diluted net loss per share, as previously
       reported ...................................  $   (0.21)      $   (0.71)
Impact of change in LIFO inventory valuation
       method, net of tax .........................       0.03            0.05
                                                     ---------       ---------
Basic and diluted net loss per share, as restated .  $   (0.18)      $   (0.66)
                                                     =========       =========

   Approximately $387.8 million and $364.5 million at October 30, 2004 and
January 31, 2004, respectively, of merchandise received on consignment is not
included in merchandise inventories and accounts payable-trade in the
accompanying Consolidated Balance Sheets.

     Finlay Jewelry is a party to an amended and restated gold consignment
agreement (as amended, the "Gold Consignment Agreement"), which enables Finlay
Jewelry to receive consignment merchandise by providing gold, or otherwise
making payment, to certain vendors. While the merchandise involved remains
consigned, title to the gold content of the merchandise transfers from the
vendors to the gold consignor.

     Finlay Jewelry's Gold Consignment Agreement matures on July 31, 2005, and
permits Finlay Jewelry to consign up to the lesser of (i) 165,000 fine troy
ounces or (ii) $50.0 million worth of gold, subject to a formula as prescribed
by the Gold Consignment Agreement. In the event this agreement is terminated,
Finlay Jewelry would be required to return the gold or purchase the outstanding
gold at the prevailing gold rate in effect on that date. At October 30, 2004 and
January 31, 2004, amounts outstanding under the Gold Consignment Agreement
totaled 115,615 and 116,835 fine troy ounces, respectively, valued at $49.2
million and $46.7 million, respectively. For financial statement purposes, the
consigned gold is not included in merchandise inventories on the Consolidated
Balance Sheets and, therefore, no related liability has been recorded.

NOTE 6 - LEASE AGREEMENTS

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

                                       13



                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6 - LEASE AGREEMENTS (CONTINUED)

      All of the department store leases provide that, except under limited
circumstances, the title to certain of our fixed assets transfers upon
termination of the leases, and that we will receive the undepreciated value of
such fixed assets from the host store in the event such transfers occur. The
values of such fixed assets are recorded at cost at the inception of the lease
arrangement and are reflected in the accompanying Consolidated Balance Sheets.

     In several cases, we are subject to limitations under our lease agreements
with host department stores which prohibit us 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. Only minimum fees, as
represented in the table below, are guaranteed by various lease agreements.
Lease expense, included in selling, general and administrative expenses, is as
follows:

                           THIRTEEN WEEKS ENDED        THIRTY-NINE WEEKS ENDED
                        --------------------------    --------------------------
                        OCTOBER 30,    NOVEMBER 1,    OCTOBER 30,    NOVEMBER 1,
                            2004          2003           2004            2003
                        -----------    -----------    -----------    -----------
                                            (IN THOUSANDS)
     Minimum fees ..      $   809        $   792        $ 2,509        $ 2,420
     Contingent fees       27,396         27,089         89,330         85,350
                          -------        -------        -------        -------
       Total .......      $28,205        $27,881        $91,839        $87,770
                          =======        =======        =======        =======

NOTE 7 - STOCK REPURCHASE PROGRAM AND RESTRICTED STOCK AWARDS

      Pursuant to our stock repurchase program we may, at the discretion of
management, purchase up to $12.6 million of our Common Stock, from time to time
through September 30, 2005. The extent and timing of repurchases will depend
upon general business and market conditions, stock prices, availability under
the Revolving Credit Facility, compliance with certain restrictive covenants and
our cash position and requirements going forward. The repurchase program may be
modified, extended or terminated by the Board of Directors at any time. Through
2003, we repurchased a total of 1,815,159 shares for approximately $20,537,000.
For the thirty-nine weeks ended October 30, 2004 and November 1, 2003, we
repurchased 392,745 shares and 370,238 shares for $6,862,000 and $5,018,000,
respectively. Our repurchases from inception of the program to date total
2,207,904 shares for $27,399,000.

      In February 2001, an executive officer of the Company was issued 100,000
shares of Common Stock, subject to restrictions ("Restricted Stock"), pursuant
to a restricted stock agreement. The Restricted Stock becomes fully vested after
four years of continuous employment with the Company and is accounted for as a
component of stockholders' equity. Compensation expense of approximately $1.2
million is being amortized over four years. Amortization for each of the
thirteen week periods ended October 30, 2004 and November 1, 2003 totaled
approximately $78,000. Amortization for each of the thirty-nine week periods
ended October 30, 2004 and November 1, 2003 totaled approximately $230,000.


                                       14




                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 - STOCK REPURCHASE PROGRAM AND RESTRICTED STOCK AWARDS (CONTINUED)

       In August 2003, an executive officer of the Company was issued an
additional 50,000 shares of Restricted Stock pursuant to a restricted stock
agreement. The Restricted Stock vests fifty percent on January 31, 2005, with
the remaining fifty percent vesting on June 30, 2007, subject to the provisions
of the restricted stock agreement, and is accounted for as a component of
stockholders' equity. Compensation expense of approximately $774,000 is being
amortized over the respective vesting periods. Amortization for the thirteen
weeks ended October 30, 2004 and November 1, 2003 totaled $92,000 and $78,000,
respectively. Amortization for the thirty-nine weeks ended October 30, 2004 and
November 1, 2003 totaled $275,000 and $78,000, respectively.

       In October 2003, certain executives of the Company were awarded a total
of 31,250 shares of Restricted Stock, pursuant to restricted stock agreements.
The Restricted Stock becomes fully vested after four years of continuous
employment with the Company and is accounted for as a component of stockholders'
equity with respect to unamortized restricted stock compensation. However, such
shares are not considered outstanding. Compensation expense of approximately
$473,000 is being amortized over four years. Amortization for the thirteen weeks
and thirty-nine weeks ended October 30, 2004 totaled $30,000 and $90,000,
respectively.

       In April 2004, certain executives of the Company were awarded a total of
32,500 shares of Restricted Stock, pursuant to restricted stock agreements. The
Restricted Stock becomes fully vested after two years of continuous employment
with the Company and is accounted for as a component of stockholders' equity
with respect to unamortized restricted stock compensation. However, such shares
are not considered outstanding. Compensation expense of approximately $629,000
is being amortized over two years. Amortization for the thirteen weeks and
thirty-nine weeks ended October 30, 2004 totaled $79,000 and $156,000,
respectively.

NOTE 8 - EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION AND STOCK PURCHASE PLANS

       In April 2003, the Board of Directors adopted the Executive Deferred
Compensation and Stock Purchase Plan and the Director Deferred Compensation and
Stock Purchase Plan, which was approved by our stockholders on June 19, 2003
(the "RSU Plans"). Under the RSU Plans, key executives and our non-employee
directors as designated by our Compensation Committee, are eligible to acquire
restricted stock units ("RSUs"). An RSU is a unit of measurement equivalent to
one share of common stock, but with none of the attendant rights of a
stockholder of a share of common stock. Two types of RSUs are awarded under the
RSU Plans: (i) participant RSUs, where a plan participant may elect to defer, in
the case of an executive employee, a portion of his or her actual or target
bonus, and in the case of a non-employee director, his or her retainer fees and
Committee chairmanship fees, and receive RSUs in lieu thereof and (ii) matching
RSUs, where we will credit a participant's plan account with one matching RSU
for each participant RSU that a participant elects to purchase. While
participant RSUs are fully vested at all times, matching RSUs are subject to
vesting and forfeiture as set forth in the RSU Plans. At the time of
distribution under the RSU Plans, RSUs are converted into actual shares of
Common Stock. As of October 30, 2004, 93,742 restricted stock units have been
awarded under the RSU Plans. Amortization for the thirteen weeks ended October
30, 2004 and November 1, 2003 totaled approximately $98,000 and $10,000,
respectively. Amortization for the thirty-nine weeks ended October 30, 2004 and
November 1, 2003 totaled $232,000 and $10,000, respectively.

                                       15




                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9 - DEPARTMENT CLOSINGS

      In July 2003, May announced its intention to divest 32 Lord & Taylor
stores, as well as two other stores in its Famous-Barr division resulting in the
closure of nine departments in 2003 and ten departments during the thirty-nine
weeks ended October 30, 2004. In 2003, we generated approximately $20.0 million
in sales from these 34 departments. Currently, May has not announced a specific
timeline for when the remaining stores will close, with the exception of one
store expected to close in the fourth quarter of 2004. For the thirty-nine weeks
ended October 30, 2004 and November 1, 2003, we recorded charges of
approximately $0.9 million and $0.3 million, respectively, relating to the
accelerated depreciation of fixed assets, the loss on disposal of fixed assets
and severance.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

      From time to time, we are involved in litigation relating to claims
arising out of our operations in the normal course of business. As of December
3, 2004, we are not a party to any legal proceedings that, individually or in
the aggregate, are reasonably expected to have a material adverse effect on our
business, results of operations, financial condition or cash flows. However, the
results of these matters cannot be predicted with certainty, and an unfavorable
resolution of one or more of these matters could have a material adverse effect
on our consolidated financial statements.

      We have not provided any third-party financial guarantees as of and for
the thirty-nine weeks ended October 30, 2004.

NOTE 11 - DISCONTINUED OPERATIONS

     In August 2003, we announced that Federated would not renew our lease in
the Burdines department store division due to the planned consolidation of the
Burdines and Macy's fine jewelry departments in early 2004. The termination of
the lease, effective January 31, 2004, resulted in the closure of 46 Finlay
departments in the Burdines department store division. In 2003, we generated
approximately $55.0 million in sales from the Burdines departments. The results
of operations of the Burdines departments have been segregated from those of
continuing operations, net of tax, and classified as discontinued operations for
the thirteen weeks and thirty-nine weeks ended November 1, 2003.

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



                                                     THIRTEEN WEEKS     THIRTY-NINE WEEKS
                                                          ENDED                ENDED
                                                   NOVEMBER 1, 2003      NOVEMBER 1, 2003
                                                   -----------------    ------------------

  Sales........................................           $ 9,149             $ 30,473
  Income (loss) before income taxes (1)(2).....              (204)               1,534
  Discontinued operations, net of tax..........              (123)                 938


----------
(1)    Includes an allocation of $46,000 and $142,000 for the thirteen weeks and
       the thirty-nine weeks ended November 1, 2003, respectively, of interest
       expense related to the Revolving Credit Agreement.
(2)    The results of operations of the Burdines departments excludes
       allocations of general and administrative expenses and interest expense
       related to the Senior Notes and the Senior Debentures.


                                       16



PART I - FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

        Our Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is provided as a supplement to the accompanying
consolidated financial statements and notes thereto contained in Item 1 of this
report. This MD&A is organized as follows:

        o   EXECUTIVE OVERVIEW - This section provides a general description of
            our business and a brief discussion of the opportunities, challenges
            and risks that we focus on in the operation of our business.

        o   RESULTS OF OPERATIONS - This section provides an analysis of the
            significant line items on the consolidated statements of operations.

        o   LIQUIDITY AND CAPITAL RESOURCES - This section provides an analysis
            of liquidity, cash flows, sources and uses of cash, contractual
            obligations and financial position.

        o   SEASONALITY - This section describes the effects of seasonality on
            our business.

        o   CRITICAL ACCOUNTING POLICIES AND ESTIMATES - This section discusses
            those accounting policies that both are considered important to our
            financial condition and results of operations, and require us to
            exercise subjective or complex judgments in their application. In
            addition, all of our significant accounting policies, including
            critical accounting policies, are summarized in Note 2 to the
            consolidated financial statements included in our Form 10-K.

        o   SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS - This section
            provides cautionary information about forward-looking statements and
            a description of certain risks and uncertainties that could cause
            actual results to differ materially from our historical results or
            current expectations or projections.

        The results of operations for the thirteen weeks and thirty-nine weeks
ended November 1, 2003 reflect the Burdines departments as a discontinued
operation.

EXECUTIVE OVERVIEW

OUR BUSINESS

     We are one of the leading retailers of fine jewelry in the United States
and operate fine jewelry departments in major department stores for retailers
such as May and Federated. We sell a broad selection of moderately priced
jewelry, with an average sales price of approximately $191 per item. As of
October 30, 2004, we operated 975 locations in 16 host store groups, in 46
states and the District of Columbia.

     Our primary focus is to offer high quality, desirable and competitively
priced products, a breadth of merchandise assortments and to provide superior
customer service. Our ability to quickly identify emerging trends and maintain
strong relationships with vendors has enabled us to present better assortments
in our showcases. We believe that we are an important contributor to each of our
host store groups and we continue to seek opportunities to penetrate the
department store segment. By outsourcing their fine jewelry departments to us,
host store groups gain our expertise in merchandising, selling and marketing
jewelry and customer service. Additionally, by avoiding high working capital
investments


                                       17



typically required of the traditional retail jewelry business, host stores
improve their return on investment and increase their profitability. As a
lessee, we benefit from the host stores' reputation, customer traffic, credit
services and established customer base. We also avoid the substantial capital
investment in fixed assets typical of a stand-alone retail format. These factors
have generally led our new departments to achieve profitability within the first
twelve months of operation.

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

     o   Diluted earnings per share ("EPS") (net income divided by weighted
         average shares outstanding with options to purchase common stock,
         restricted stock and restricted stock units, included to the extent
         they are dilutive) which, when compared to prior period, is an
         indicator of the increased returns generated for our shareholders;

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

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

     o   Operating margin rate (income from operations divided by net sales)
         which is an indicator of our success in leveraging our fixed costs and
         managing our variable costs.

THIRD QUARTER HIGHLIGHTS

     During the third quarter of 2004, we continued to successfully execute our
marketing and merchandising strategy. Total sales were $166.8 million for the
thirteen weeks ended October 30, 2004 compared to $165.8 million for the
thirteen weeks ended November 1, 2003, an increase of 0.6%. Comparable
department sales increased 0.7%. Gross margin decreased by $0.1 million compared
to 2003, and as a percentage of sales, gross margin decreased by 0.4% from 51.1%
to 50.7%. SG&A increased $2.0 million and as a percentage of sales, SG&A
increased 0.9% from 48.6% to 49.5%. Borrowings under the Revolving Credit
Agreement increased by $24.0 million at October 30, 2004 as compared to November
1, 2003, primarily as a result of the refinancing of the Senior Debentures and
the Senior Notes. Maximum outstanding borrowings during the thirty-nine weeks
ended October 30, 2004 peaked at $99.8 million, at which point the available
borrowings under the Revolving Credit Agreement were an additional $113.5
million.

OUTLOOK

   We continue to seek growth opportunities and plan to continue to pursue the
following key initiatives:

     o   Increase comparable department sales;

     o   Add departments within existing host store groups;

     o   Add new host store relationships;


                                       18



     o   Open new channels of distribution;

     o   Continue to raise customer service standards;

     o   Strengthen selling teams through training programs;

     o   Continue to improve operating leverage;

     o   De-leverage the balance sheet; and

     o   Continue our stock repurchase program.

     We believe that current trends in jewelry retailing provide a significant
opportunity for our growth. Consumers spent approximately $54.0 billion on
jewelry (including both fine jewelry and costume jewelry) in the United States
in calendar year 2003, an increase of approximately $19.9 billion over 1993,
according to the United States Department of Commerce, representing a compound
annual growth rate of 4.7%. In the department store sector in which we operate,
consumers spent an estimated $4.0 billion on fine jewelry in calendar year 2002.
Our management believes that demographic factors such as the maturing U.S.
population and an increase in the number of working women, have resulted in
greater disposable income, thus contributing to the growth of the fine jewelry
retailing industry. Our management also believes that jewelry consumers today
increasingly perceive fine jewelry as a fashion accessory, resulting in
purchases which augment our gift and special occasion sales.

OPPORTUNITIES, RISKS AND UNCERTAINTIES

     We achieved sustained growth during 2003 and the nine months of 2004,
however, we faced certain challenges as well, including:

     o   Dependence on or loss of certain host store relationships; and

     o   Host store consolidation.

     During 2003, Federated announced that it would not renew our lease in the
Burdines department store division, which resulted in the closure of 46 Burdines
departments in January 2004. These 46 departments generated approximately $55
million in revenue during 2003, which is included in discontinued operations.
Due to the termination of the Burdines lease, we recorded a non-cash charge of
$13.8 million in 2003 for the write-down of goodwill resulting from the closure
of the Burdines departments.

     Additionally, during 2003, May announced its intention to close certain of
its smaller, less profitable stores, including 32 Lord & Taylor stores, as well
as two stores in its Famous-Barr division, resulting in the closure of nine
departments in 2003 and ten departments during the thirty-nine weeks ended
October 30, 2004. In 2003, we generated approximately $20 million in sales from
these 34 departments.

     During 2003, approximately 51% and 18% of our sales were generated by
departments operated in store groups owned by May and Federated, respectively.
Including our sales in Marshall Fields which May recently acquired, departments
operated by May would have accounted for 60% of our sales in 2003. We have
operated departments with May since 1948 and with Federated since 1983. We
believe that our relationships with these host stores are excellent.
Nevertheless, a decision by either company to transfer the operation of some or
all of their departments to a competitor or to assume the operation of


                                       19



those departments themselves would have a material adverse effect on our
business and financial condition. Additionally, the department store industry
may experience significant consolidations in the future, however, there is no
assurance that our host store relationships will not be impacted as a result of
such host store consolidation.

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

RESULTS OF OPERATIONS

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

STATEMENTS OF OPERATIONS DATA



                                                                     THIRTEEN WEEKS ENDED            THIRTY-NINE WEEKS ENDED
                                                                 ----------------------------     -----------------------------
                                                                  OCTOBER 30,     NOVEMBER 1,      OCTOBER 30,      NOVEMBER 1,
                                                                    2004              2003           2004               2003
                                                                 -----------      -----------     -----------       -----------

Sales......................................................        100.0%           100.0%          100.0%            100.0%
Cost of sales..............................................         49.3             48.9            49.1              48.7
                                                                 -----------      -----------     -----------       -----------
    Gross margin...........................................         50.7             51.1            50.9              51.3
Selling, general and administrative expenses...............         49.5             48.6            47.5              47.6
Depreciation and amortization..............................          2.6              2.6             2.4               2.5
                                                                 -----------      -----------     -----------       -----------
    Income (loss) from operations..........................         (1.4)            (0.1)            1.0               1.2
Interest expense, net......................................          3.3              3.6             3.1               3.3
Other expense - debt extinguishment costs..................          -                -               1.7               -
                                                                 -----------      -----------     -----------       -----------
    Loss from continuing operations before
      income taxes.........................................         (4.7)            (3.7)           (3.8)             (2.1)
Benefit for income taxes...................................         (1.8)            (1.4)           (1.6)             (0.8)
                                                                 -----------      -----------     -----------       -----------
    Loss from continuing operations........................         (2.9)            (2.3)           (2.2)             (1.3)
Discontinued operations, net of tax........................          -                -               -                 0.2
                                                                 -----------      -----------     -----------       -----------
    Net loss...............................................         (2.9)%           (2.3)%          (2.2)%            (1.1)%
                                                                 ===========      ===========     ===========       ===========



THIRTEEN WEEKS ENDED OCTOBER 30, 2004 COMPARED WITH THIRTEEN WEEKS ENDED NOVEMBER 1, 2003

     SALES. Sales for the thirteen weeks ended October 30, 2004 increased $1.1
million, or 0.6%, over the comparable period in 2003. Comparable department
sales (departments open for the same months during the comparable periods)
increased 0.7%. We attribute the increase in sales primarily to our
merchandising and marketing strategy, which includes the following initiatives:
(i) emphasizing our "Best Value" merchandising programs, which provide a
targeted assortment of items at competitive prices; (ii) focusing on holiday and
event-driven promotions as well as host store marketing programs; and (iii)
positioning our departments as "destination locations" for fine jewelry.

     During the thirteen weeks ended October 30, 2004, we opened twelve
departments, including three departments in Dillard's and closed four
departments. The openings and closings were all within existing store groups.



                                       20





     GROSS MARGIN. Gross margin for the period decreased by $0.1 million in 2004
compared to 2003, and, as a percentage of sales, gross margin decreased by 0.4%.
The components of this 0.4% net decrease in gross margin are as follows:





            COMPONENT                         %                                 REASON
-----------------------------------    ----------------    --------------------------------------------------

Merchandise cost of sales.........          (0.9)          Increase in merchandise cost of sales is primarily
                                                           due to our continued efforts to increase market
                                                           penetration and market share through our pricing
                                                           strategy, as well as the mix of sales with
                                                           increased sales in the diamond, designer and
                                                           clearance categories, which have lower margins than
                                                           other categories.

LIFO .............................           0.3           Net decrease in the LIFO provision from $0.8
                                                           million in the 2003 period to $0.3 million in the
                                                           2004 period. As discussed in Note 5 to the
                                                           accompanying consolidated financial statements, we
                                                           changed our method of valuing inventory for LIFO
                                                           purposes. Under the former method, the LIFO charge
                                                           would have increased to $1.3 million, which is $1.0
                                                           million more than the LIFO charge under the new
                                                           method.

Shortage .........................           0.2           The 2004 physical inventory results (actual
                                                           shortage vs. accrual) were more favorable as
                                                           compared to the 2003 results.
                                          --------
             Total ...............          (0.4)%
                                          ========


     During the third quarter of 2004, we changed our method of determining
price indices used in the valuation of LIFO inventories. Prior to the third
quarter of 2004, we determined our LIFO inventory value by utilizing selected
producer price indices published for jewelry and watches by the BLS. During the
third quarter of 2004, we began applying internally developed indices that we
believe more accurately measure inflation or deflation in the components of our
merchandise and our merchandise mix than the BLS producer price indices.
Additionally, we believe that this change in accounting method is an alternative
accounting principle that is preferable under the circumstances described above.
As a result of this change in accounting method, we recorded LIFO charges of
approximately $0.3 million and $0.9 million for the thirteen weeks and
thirty-nine weeks ended October 30, 2004, respectively. Using the BLS producer
price indices, the LIFO charge for the thirteen weeks and thirty-nine weeks
ended October 30, 2004 would have been $1.3 million and $4.4 million,
respectively. Had we not changed our method of determining price indices, the
net loss and net loss per share under the former LIFO method for the thirteen
weeks and thirty-nine weeks ended October 30, 2004 would have been approximately
$5.5 million or $0.63 per share and approximately $14.2 million or $1.63 per
share, respectively.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The components of SG&A
include payroll expense, lease fees, net advertising expenditures and other
field and administrative expenses. SG&A increased $2.0 million, or 2.5%. As a
percentage of sales, SG&A increased by 0.9%. The components of this 0.9% net
increase in SG&A are as follows:


                                       21






            COMPONENT                         %                                 REASON
-----------------------------------    ----------------    --------------------------------------------------

Net advertising expenditures......           0.3           Decrease in net advertising expenditures is due to
                                                           lower gross advertising as a percentage of sales.

Lease fees........................          (0.1)          Increase in lease fees is due to a change in the
                                                           mix of host store group sales.

Payroll expense ..................          (0.8)          Although sales increased over the prior year, the
                                                           increase in payroll expense is due to lower than
                                                           expected same store sales negatively impacting the
                                                           leveraging of payroll expense.

Other expenses ...................          (0.3)          Increase in other expenses is due primarily to
                                                           lower than expected same store sales negatively
                                                           impacting the leveraging of these expenses.
                                          --------
             Total ...............          (0.9)%
                                          ========


     DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased by
$0.1 million reflecting additional depreciation and amortization as a result of
capital expenditures for the most recent twelve months, offset by the effect of
certain assets becoming fully depreciated. In addition, accelerated depreciation
costs totaling approximately $0.1 million, associated with the Lord & Taylor
store closings, were recorded in the period.

     INTEREST EXPENSE, NET. Interest expense decreased by $0.3 million primarily
due to a decrease in the weighted average interest rate (7.1% for the period in
2004 compared to 7.5% for the comparable period in 2003) as a result of the
refinancing of the Senior Debentures and the Senior Notes. Average borrowings
increased from $278.5 million for the 2003 period to $280.2 million for the 2004
period.

      BENEFIT FOR INCOME TAXES. The income tax benefit for both the 2004 and
2003 periods reflects effective tax rates of 39%.

     DISCONTINUED OPERATIONS. Discontinued operations includes the results of
operations of the Burdines departments. The loss from discontinued operations,
net of tax, for the 2003 period was $0.1 million.

     NET LOSS. Net loss of $4.8 million for the 2004 period represents an
increase of $0.9 million as compared to the net loss of $3.9 million in the
prior period as a result of the factors discussed above.

THIRTY-NINE WEEKS ENDED OCTOBER 30, 2004 COMPARED WITH THIRTY-NINE WEEKS ENDED
NOVEMBER 1, 2003

     SALES. Sales for the thirty-nine weeks ended October 30, 2004 increased
$19.6 million, or 3.7%, over the comparable period in 2003. Comparable
department sales increased 3.6%.

     During the thirty-nine weeks ended October 30, 2004, we opened 25
departments and closed 22 departments. The openings and closings were all within
existing store groups. The openings included eleven departments in Dillard's and
the closings included nine departments in Lord & Taylor and one in Famous Barr
as a result of May's decision to close certain of its smaller, less profitable
stores.

     GROSS MARGIN. Gross margin for the period increased by $8.2 million in 2004
compared to 2003, and, as percentage of sales, gross margin decreased by 0.4%.
The components of this 0.4% net decrease in gross margin are as follows:


                                       22





            COMPONENT                         %                                 REASON
-----------------------------------    ----------------    --------------------------------------------------

Merchandise cost of sales.........           (0.7)         Increase in merchandise cost of sales is primarily
                                                           due to our continued efforts to increase market
                                                           penetration and market share through our pricing
                                                           strategy, as well as the mix of sales with
                                                           increased sales in the diamond, designer and
                                                           clearance categories, which have lower gross
                                                           margins than other categories.

LIFO .............................            0.2          Net decrease in the LIFO provision from $2.2
                                                           million in the 2003 period to $0.9 million in the
                                                           2004 period. As discussed in Note 5 of the
                                                           accompanying consolidated financial statements, we
                                                           changed our method of valuing inventory for LIFO
                                                           purposes. Under the former method, the LIFO charge
                                                           would have increased to $4.4 million, which is $3.5
                                                           million more than the LIFO charge under the new
                                                           method.

Shortage .........................            0.1          The 2004 physical inventory results (actual
                                                           shortage vs. accrual) were more favorable compared
                                                           to the 2003 results.
                                             ------
             Total ...............           (0.4)%
                                             ======


     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The components of SG&A
include payroll expense, lease fees, net advertising expenditures and other
field and administrative expenses. SG&A increased $9.0 million, or 3.6%. As a
percentage of sales, SG&A decreased to 47.5% from 47.6% primarily due to a
decrease in net advertising expenditures, offset by an increase in both payroll
expense and lease fees.

     DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.3
million reflecting additional depreciation and amortization as a result of
capital expenditures for the most recent twelve months, offset by the effect of
certain assets becoming fully depreciated. In addition, accelerated depreciation
costs totaling approximately $0.4 million, associated with the Lord & Taylor
store closings, were recorded in the period.

     INTEREST EXPENSE, NET. Interest expense decreased by $0.5 million primarily
due to a decrease in average borrowings ($262.8 million for the period in 2004
compared to $267.3 million for the comparable period in 2003) as a result of the
refinancing of the Senior Debentures and the Senior Notes. The weighted average
interest rate was approximately 7.6% for the 2004 period compared to 7.7% for
the comparable period in 2003.

     OTHER EXPENSE - DEBT EXTINGUISHMENT COSTS. Other expense - debt
extinguishment costs includes $6.7 million for redemption premiums paid on the
Senior Debentures and the Senior Notes, $2.1 million to write-off deferred
financing costs related to the refinancing of the Senior Debentures and the
Senior Notes and $0.3 million for other expenses.

      BENEFIT FOR INCOME TAXES. The income tax benefit for both the 2004 and
2003 periods reflects effective tax rates of 39%. Additionally, the 2004 period
includes a benefit of approximately $0.6 million associated with the reversal of
tax accruals no longer required.

     DISCONTINUED OPERATIONS. Discontinued operations includes the results of
operations of the Burdines departments. Income from discontinued operations, net
of tax, for the 2003 period was $0.9 million.

                                       23


     NET LOSS. Net loss of $12.1 million for the 2004 period represents an
increase of $6.2 million as compared to the net loss of $5.9 million in the
prior period as a result of the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

     Information about our financial position as of October 30, 2004 and January
31, 2004 is presented in the following table:

                                                OCTOBER 30,      JANUARY 31,
                                                   2004              2004
                                               -------------    -------------
                                                   (DOLLARS IN THOUSANDS)
         Cash and cash equivalents.........      $   2,977      $  91,302
         Working capital...................        202,430        238,333
         Long-term debt....................        200,000        225,000
         Stockholders' equity..............        140,101        152,896

     Our primary capital requirements are for funding working capital for new
departments and for growth of existing departments, as well as debt service
obligations and lease payments to host store groups, and, to a lesser extent,
capital expenditures for opening new departments, renovating existing
departments and information technology investments. For 2003, capital
expenditures totaled $12.9 million and for 2004 are estimated to be
approximately $12 to $13 million. Although capital expenditures are limited by
the terms of the Revolving Credit Agreement, to date, this limitation has not
precluded us from satisfying our capital expenditure requirements.

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

     Cash flows provided from (used in) operating, investing and financing
activities for the thirty-nine weeks ended October 30, 2004 and November 1, 2003
were as follows:

                                                     THIRTY-NINE WEEKS ENDED
                                               ---------------------------------
                                                 OCTOBER 30,        NOVEMBER 1,
                                                     2004              2003
                                               --------------     --------------
                                                     (DOLLARS IN THOUSANDS)
     Operating activities.....................   $ (125,615)       $  (118,106)
     Investing activities.....................       (8,914)            (8,001)
     Financing activities.....................       46,204             59,057
           Net decrease in cash and cash       --------------     --------------
                 equivalents .................   $  (88,325)       $   (67,050)
                                               ==============     ==============

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

     o    Investment in inventory and for working capital;

     o    Capital expenditures for new departments, expansions and remodeling of
          existing departments;

     o    Investments in technology;

     o    Strategic acquisitions; and


                                       24


     o    Stock repurchases under our stock repurchase program.

OPERATING ACTIVITIES

     The primary source of our liquidity is cash flows from operating
activities. The key component of operating cash flow is merchandise sales.
Operating cash outflows include payments to vendors for inventory, services and
supplies, payments for employee payroll, lease payments and payments of interest
and taxes. Net cash flows used in operating activities were $125.6 million for
the thirty-nine weeks ended October 30, 2004, consisting principally of a
decrease in accounts payable primarily due to lower inventory receipts and lower
consignment inventory sales as well as a decrease in net current deferred tax
assets related to a change in accounting method for tax purposes regarding
vendor allowances. Net cash flows used in operating activities was $118.1
million for the thirty-nine weeks ended November 1, 2003.

     Our operations substantially preclude customer receivables as our lease
agreements require host stores to remit sales proceeds for each month (without
regard to whether such sales were cash, store credit or national credit card) to
us approximately three weeks after the end of such month. However, we cannot
ensure the collection of sales proceeds from our host stores. Additionally, on
average, approximately 50% of our merchandise has been carried on consignment.
Our working capital balance was $202.4 million at October 30, 2004, a decrease
of $35.9 million from January 31, 2004, resulting primarily from the impact of
the interim net loss (exclusive of depreciation and amortization), capital
expenditures, the purchase of treasury stock and additional borrowings under the
Revolving Credit Agreement related to the refinancing of the Senior Debentures
and the Senior Notes.

     The seasonality of our business causes working capital requirements, and
therefore borrowings under the Revolving Credit Agreement, to reach their
highest level in the months of October, November and December in anticipation of
the year-end holiday season. Accordingly, we experience seasonal cash needs as
inventory levels peak. Additionally, substantially all of our lease agreements
provide for accelerated payments during the months of November and December,
which require the host store groups to remit to us 75% of the estimated months'
sales prior to or shortly following the end of that month. These proceeds result
in a significant increase in our cash, which is used to reduce our borrowings
under the Revolving Credit Agreement. Inventory levels increased by $5.1
million, or 1.7%, as compared to November 1, 2003 somewhat as a result of
further investments in the diamond and designer categories.

INVESTING ACTIVITIES

      Investing cash outflows include payments for capital expenditures,
including property and equipment. Net cash used in investing activities was $8.9
million and $8.0 million for the thirty-nine weeks ended October 30, 2004 and
November 1, 2003, respectively. Capital expenditures during each period related
primarily to expenditures for new department openings and renovations.

FINANCING ACTIVITIES

     Proceeds from, and principal payments on, the Revolving Credit Facility and
stock repurchases have been our primary financing activities. Additionally,
during the second quarter of 2004, we refinanced our long-term debt. Net cash
provided from financing activities was $46.2 million for the thirty-nine weeks
ended October 30, 2004, consisting principally of proceeds from, and principal
payments on, the Revolving Credit Facility, proceeds from the issuance of the
New Senior Notes by Finlay Jewelry and funds received from stock option
exercises, offset by the purchase and redemption of the outstanding Senior
Debentures and the Senior Notes and the repurchase of 392,745 shares of Common
Stock for approximately $6.9 million under our stock repurchase program. Net
cash provided from financing activities was $59.1 million for the thirty-nine
weeks ended November 1, 2003.



                                       25


     In January 2003, we entered into the Revolving Credit Agreement, which
expires in January 2008. The Revolving Credit Agreement provides us with a line
of credit of up to $225.0 million to finance working capital needs. Amounts
outstanding under the Revolving Credit Agreement bear interest at a rate equal
to, at our option, (i) the prime rate plus a margin ranging from zero to 1.0% or
(ii) the adjusted Eurodollar rate plus a margin ranging from 1.0% to 2.0%, in
each case depending on our financial performance. The weighted average interest
rate was 3.7% and 3.3% for the thirty-nine weeks ended October 30, 2004 and
November 1, 2003, respectively.

      In each year, we are 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 were $78.5 million at October 30, 2004, compared
to a zero balance at January 31, 2004 and $54.5 million at November 1, 2003. The
average amounts outstanding under the Revolving Credit Agreement were $49.4
million and $42.3 million for the thirty-nine weeks ended October 30, 2004 and
November 1, 2003, respectively. The maximum amount outstanding for the
thirty-nine weeks ended October 30, 2004 was $99.8 million, at which point the
available borrowings were an additional $113.5 million.

     On May 7, 2004, we and Finlay Jewelry each commenced an offer to purchase
for cash any and all of our Senior Debentures and Finlay Jewelry's Senior Notes,
respectively. In conjunction with the tender offers, we and Finlay Jewelry each
solicited consents to effect certain proposed amendments to the indentures
governing the Senior Debentures and the Senior Notes. On May 20, 2004, we and
Finlay Jewelry announced that holders of approximately 79% and 98% of the
outstanding Senior Debentures and the outstanding Senior Notes, respectively,
tendered their securities and consented to the proposed amendments to the
related indentures.

     On June 3, 2004, Finlay Jewelry completed the sale of the New Senior Notes.
Interest on the New Senior Notes is payable semi-annually on June 1 and December
1 of each year, commencing on December 1, 2004. Finlay Jewelry used the net
proceeds from the offering of the New Senior Notes, together with drawings from
its Revolving Credit Facility, to repurchase the tendered Senior Notes and to
make consent payments and to distribute $77.3 million to us to enable us to
repurchase the tendered Senior Debentures and to make consent payments.
Additionally, on June 3, 2004, we and Finlay Jewelry called for the redemption
of all of the untendered Senior Debentures and Senior Notes, respectively, and
these securities were repurchased on July 2, 2004.

     The tender offers, New Senior Notes offering, and redemptions of the
outstanding Senior Debentures and Senior Notes were all undertaken to simplify
our capital structure by eliminating debt at the parent company level, as well
as decreasing total long-term debt, decreasing our overall interest rate and
extending our debt maturities. As a result of the completion of the redemption
of the Senior Debentures, Finlay Jewelry is no longer required to provide the
funds necessary to pay the higher debt service costs associated with the Senior
Debentures.

     Finlay Jewelry incurred approximately $5.1 million in costs, including $4.9
million associated with the sale of the New Senior Notes, which have been
deferred and are being amortized over the term of the New Senior Notes. In June
2004, we recorded pre-tax charges of approximately $9.1 million, including $6.7
million for redemption premiums paid on the Senior Debentures and the Senior
Notes, $2.1 million to write-off deferred financing costs related to the
refinancing of the Senior Debentures and the Senior Notes and $0.3 million for
other expenses. These costs are included in other expense - debt extinguishment
costs in the accompanying Consolidated Statements of Operations.


                                       26


     In September 2004, for the purpose of an exchange offer, Finlay Jewelry
registered notes with terms identical to the New Senior Notes under the
Securities Act of 1933. Finlay Jewelry completed the exchange offer in the third
quarter of 2004 and 100% of the original notes were exchanged for the registered
notes.

      In the past, a significant amount of our operating cash flow has been used
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. Although the Senior
Debentures and the Senior Notes are no longer outstanding as a result of the
refinancing, a significant amount of our operating cash flow will still be
required to pay interest with respect to the New Senior Notes and amounts due
under the Revolving Credit Agreement, including payments required under the
Balance Reduction Requirement. As of October 30, 2004, our outstanding
borrowings were $278.5 million, which included a $200.0 million balance under
the New Senior Notes and a $78.5 million balance under the Revolving Credit
Agreement.

      Our agreements covering the Revolving Credit Agreement and the New Senior
Notes each require that we comply with certain restrictive and financial
covenants. In addition, Finlay Jewelry is a party to the Gold Consignment
Agreement, which also contains certain covenants. As of and for the thirty-nine
weeks ended October 30, 2004, we are in compliance with all of our covenants. We
expect to be in compliance with all of our covenants through 2004. Because
compliance is based, in part, on our management's estimates and actual results
can differ from those estimates, there can be no assurance that we will be in
compliance with the covenants in the future or that the lenders will waive or
amend any of the covenants should we be in violation thereof. We believe the
assumptions used are appropriate.

       The Revolving Credit Agreement contains customary covenants, including
limitations on, or relating to, capital expenditures, liens, indebtedness,
investments, mergers, acquisitions, affiliate transactions, management
compensation and the payment of dividends and other restricted payments. The
Revolving Credit Agreement also contains various financial covenants, including
minimum earnings and fixed charge coverage ratio requirements and certain
maximum debt limitations.

       The indenture related to the New Senior Notes contains restrictions
relating to, among other things, the payment of dividends, redemptions or
repurchases of capital stock, the incurrence of additional indebtedness, the
making of certain investments, the creation of certain liens, the sale of
certain assets, entering into transactions with affiliates, engaging in mergers
and consolidations and the transfer of all or substantially all assets.

     We believe that, based upon current operations, anticipated growth and
continued availability under the Revolving Credit Agreement, Finlay Jewelry
will, for the foreseeable future, be able to meet its debt service and
anticipated working capital obligations and to make distributions sufficient to
permit us to pay certain expenses as they come due. No assurances, however, can
be given that Finlay Jewelry's 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 to meet its debt service and other
obligations. Currently, Finlay Jewelry's principal financing arrangements
restrict the amount of annual distributions from Finlay Jewelry to us. Other
dividends and distributions, including those required to fund stock repurchases,
are subject to Finlay's satisfaction of certain restrictive covenants. The
amounts required to satisfy the aggregate of Finlay Jewelry's interest expense
totaled $10.0 million and $8.8 million for the thirty-nine weeks ended October
30, 2004 and November 1, 2003, respectively.

     Our long-term needs for external financing will depend on our 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 our vendors. As of October 30, 2004,



                                       27


$387.8 million of consignment merchandise from approximately 300 vendors was on
hand as compared to $381.8 million at November 1, 2003. For 2003, we had an
average balance of consignment merchandise of $364.7 million.

      The following table summarizes our contractual and commercial obligations
which may have an impact on future liquidity and the availability of capital
resources, as of October 30, 2004 (dollars in thousands):



                                                                         PAYMENTS DUE BY PERIOD
                                           -----------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS                         TOTAL    LESS THAN 1 YEAR   1 - 3 YEARS     3 - 5 YEARS   MORE THAN 5 YEARS
-----------------------                      ----------  ----------------   -----------     -----------   -----------------

Long-Term Debt Obligations:
    New Senior Notes (due 2012) (1) .......   $200,000        $   --          $   --          $   --          $200,000

Interest payments on New Senior Notes .....    134,000          16,750          33,500          33,500          50,250
Operating lease obligations (2) ...........      9,070           2,028           3,847           3,195            --

Revolving Credit Agreement (due 2008) (3) .     78,497          78,497            --              --              --
Gold Consignment Agreement (expires 2005) .     49,200          49,200            --              --              --
Gold forward contracts ....................     12,362          12,362            --              --              --
Letters of credit .........................     11,690          11,440            --               250            --
                                              --------        --------        --------        --------        --------
   Total ..................................   $494,819        $170,277        $ 37,347        $ 36,945        $250,250
                                              ========        ========        ========        ========        ========

-----------------------
(1)   On June 3, 2004, Finlay Jewelry issued $200.0 million of New Senior Notes
      due 2012. Refer to Note 4 of Notes to the Consolidated Financial
      Statements.

(2)   Represents future minimum payments under noncancellable operating leases
      as of January 31, 2004.

(3)  The outstanding balance under the Revolving Credit Agreement at December 3,
     2004 was $93.4 million.

      The operating leases included in the above table do not include contingent
rent based upon sales volume or variable costs such as maintenance, insurance
and taxes. Our open purchase orders are cancelable without penalty and are
therefore not included in the above table. There were no commercial commitments
outstanding as of October 30, 2004, other than as disclosed in the table above,
nor have we provided any third-party financial guarantees as of and for the
thirty-nine weeks ended October 30, 2004.

OFF-BALANCE SHEET ARRANGEMENTS

     Finlay Jewelry's Gold Consignment Agreement enables Finlay Jewelry to
receive consignment merchandise by providing gold, or otherwise making payment,
to certain vendors. While the merchandise involved remains consigned, title to
the gold content of the merchandise transfers from the vendors to the gold
consignor. The Gold Consignment Agreement matures on July 31, 2005 and permits
Finlay Jewelry to consign up to the lesser of (i) 165,000 fine troy ounces or
(ii) $50.0 million worth of gold, subject to a formula as prescribed by the Gold
Consignment Agreement. Finlay Jewelry believes its relationship with the gold
consignor is good and expects to be in a position to extend the Gold Consignment
Agreement upon its expiration. At October 30, 2004, amounts outstanding under
the Gold Consignment Agreement totaled 115,615 fine troy ounces, valued at $49.2
million. The average amount outstanding under the Gold Consignment Agreement was
$48.0 million in 2003. In the event this agreement is terminated, Finlay Jewelry
would be required to return the gold or purchase the outstanding gold at the
prevailing gold rate in effect on that date. For financial statement purposes,
the consigned gold is not included in merchandise inventories on the
Consolidated Balance Sheets and, therefore, no related liability has been
recorded.

     The Gold Consignment Agreement requires Finlay Jewelry to comply with
certain covenants, including restrictions on the incurrence of certain
indebtedness, the creation of liens, engaging in transactions with affiliates
and limitations on the payment of dividends. In addition, the Gold Consignment
Agreement also contains various financial covenants, including minimum earnings
and



                                       28


fixed charge coverage ratio requirements and certain maximum debt limitations.
At October 30, 2004, Finlay Jewelry was in compliance with all of its covenants
under the Gold Consignment Agreement.

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

OTHER ACTIVITIES AFFECTING LIQUIDITY

     We have an employment agreement with one senior executive which provides
for a base salary level as well as incentive compensation based on meeting
specific financial goals. This agreement expires on January 31, 2005 and has a
remaining aggregate value of $0.3 million as of October 30, 2004. In December
2004, we entered into a new employment agreement with the aforementioned senior
executive. The new employment agreement has a term of four years commencing on
January 30, 2005 and ending on January 31, 2009, unless earlier terminated by
the senior executive, in accordance with the provisions of the employment
agreement. The new employment agreement provides a base annual salary level of
approximately $1.0 million as well as incentive compensation based on meeting
specific financial goals, which are not yet determinable.

     From time to time, we enter into forward contracts based upon the
anticipated sales of gold product in order to hedge against the risk arising
from our payment arrangements. At October 30, 2004, we had several open
positions in gold forward contracts totaling 31,500 fine troy ounces, to
purchase gold for $12.4 million. There can be no assurance that these hedging
techniques will be successful or that hedging transactions will not adversely
affect our results of operations or financial position.

      In January 2000, Sonab, our European leased jewelry department subsidiary,
sold the majority of its assets for approximately $9.9 million. We recorded a
pre-tax charge in the fourth quarter of 1999 of $28.6 million, or $1.62 per
share on a diluted basis after-tax. As of October 30, 2004, our exit plan has
been completed with the exception of certain employee litigation and other legal
matters. To date, we have charged a total of $26.4 million against our revised
estimate of $27.2 million. We do not believe future operating results or
liquidity will be materially impacted by any remaining payments or litigation
and legal matters mentioned above.

SEASONALITY

     Our business is highly seasonal, with a significant portion of our sales
and income from operations generated during the fourth quarter of each year,
which includes the year-end holiday season. The fourth quarter of 2003 accounted
for approximately 42% of our sales and approximately 89% of our income from
operations. We have typically experienced net losses in the first three quarters
of our fiscal year. During these periods, working capital requirements have been
funded by borrowings under the Revolving Credit Agreement. Accordingly, the
results for any of the first three quarters of any given fiscal year, taken
individually or in the aggregate, are not indicative of annual results.

INFLATION

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


                                       29




CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the appropriate
application of certain accounting policies, many of which require us to make
estimates and assumptions about future events and their impact on amounts
reported in our financial statements and related notes. We believe the
application of our accounting policies, and the estimates inherently required
therein, are reasonable. These accounting policies and estimates are constantly
re-evaluated, and adjustments are made when facts and circumstances dictate a
change. However, since future events and their impact cannot be determined with
certainty, actual results may differ from our estimates, and such differences
could be material to the consolidated financial statements. Historically, we
have found our application of accounting policies to be appropriate, and actual
results have not differed materially from those determined using necessary
estimates. A summary of our significant accounting policies and a description of
accounting policies that we believe are most critical may be found in Note 2 to
the consolidated financial statements included in our Form 10-K for the year
ended January 31, 2004.

        MERCHANDISE INVENTORIES

     We value our inventories at the lower of cost or market. The cost is
determined by the last-in, first-out method. We are required to determine the
LIFO cost on an interim basis by estimating annual inflation trends, annual
purchases and ending inventory levels for the fiscal year. Actual annual
inflation rates and inventory balances as of the end of any fiscal year may
differ from interim estimates. Factors related to inventories, such as future
consumer demand and the economy's impact on consumer discretionary spending,
inventory aging, ability to return merchandise to vendors, merchandise condition
and anticipated markdowns, are analyzed to determine estimated net realizable
values. An adjustment is recorded to reduce the LIFO cost of inventories, if
required. Any significant unanticipated changes in the factors above could have
a significant impact on the value of the inventories and our reported operating
results.

     Shrinkage is estimated for the period from the last inventory date to the
end of the fiscal year on a store by store basis. The shrinkage rate from the
most recent physical inventory, in combination with historical experience, is
the basis for estimating shrinkage.

       VENDOR ALLOWANCES

     We receive allowances from our vendors through a variety of programs and
arrangements, including cooperative advertising. Vendor allowances are
recognized as a reduction of cost of sales upon the sale of merchandise or SG&A
when the purpose for which the vendor funds were intended to be used has been
fulfilled. Accordingly, a reduction or increase in vendor allowances has an
inverse impact on cost of sales and/or SG&A.

       FINITE-LIVED ASSETS

     Finite-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable. If the undiscounted future cash flows from the finite-lived assets
are less than the carrying value, we recognize a loss equal to the difference
between the carrying value and the fair value of the assets. We determine the
fair value of the underlying assets based upon the discounted future cash flows
of the assets. Various factors, including future sales growth and profit
margins, are included in this analysis. To the extent these future projections
or our strategies change, the conclusion regarding impairment may differ from
the current estimates.



                                       30


       GOODWILL

     We evaluate goodwill for impairment annually or whenever events and changes
in circumstances suggest that the carrying amount may not be recoverable from
our estimated future cash flows. To the extent these future cash flows or our
strategies change, the conclusion regarding impairment may differ from current
estimates.

       REVENUE RECOGNITION

     We recognize revenue upon the sale of merchandise, either owned or
consigned, to our customers, net of anticipated returns. The provision for sales
returns is based on our historical return rate.

       SELF-INSURANCE RESERVES

    We are self-insured for medical and workers' compensation claims up to
certain maximum liability amounts. Although the amounts accrued are actuarially
determined based on analysis of historical trends of losses, settlements,
litigation costs and other factors, the amounts that we will ultimately disburse
could differ materially from the accrued amounts.

       INCOME TAXES

      We are subject to income taxes in many jurisdictions and must first
determine which revenues and expenses should be included in each taxing
jurisdiction. This process involves the estimation of our actual current tax
exposure, together with the assessment of temporary differences resulting from
differing treatment of income or expense items for tax and accounting purposes.
We establish tax reserves in our consolidated financial statements based on our
estimation of current tax exposures. If we prevail in tax matters for which
reserves have been established or if we are required to settle matters in excess
of established reserves, the effective tax rate for a particular period could be
materially affected.

RECENT ACCOUNTING PRONOUNCEMENT

        In June 2004, the FASB issued an interpretation of FASB No. 143,
"Accounting for Asset Retirement Obligations". This interpretation clarifies the
scope and timing of liability recognition for conditional asset retirement
obligations under FASB No. 143, and is effective no later than the end of our
2005 fiscal year. We have determined that this interpretation, and the adoption
of FASB No. 143, will not have a material impact on our consolidated financial
statements.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E
of the Securities Exchange Act of 1934. 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, performances
or achievements to differ materially from those reflected in, or implied by, the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations". Important factors
that could cause actual results to differ materially include, but are not
limited to:

                                       31


     o    our dependence on or loss of certain host store relationships,
          particularly with respect to May and Federated, due to the
          concentration of sales generated by such host stores;

     o    the impact of significant store closures by our host store groups;

     o    the seasonality of the retail jewelry business;

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

     o    our ability to continue to obtain substantial amounts of merchandise
          on consignment;

     o    Finlay Jewelry's continuation of its Gold Consignment Agreement;

     o    the impact of fluctuations in gold and diamond prices;

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

     o    trends in the general economy in the United States;

     o    low or negative growth in the economy or in the financial markets
          which reduce discretionary spending on goods perceived to be luxury
          items;

     o    competition in the retail jewelry business and fluctuations in our
          quarterly results;

     o    our ability to collect net sales proceeds from our host stores;

     o    the impact of any host store bankruptcy;

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

     o    our ability to identify and rapidly respond to fashion trends;

     o    our ability to increase comparable department sales, expand our
          business or increase the number of departments we operate;

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

     o    our dependence on key officers;

     o    our compliance with applicable contractual covenants;

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

     o    the impact of recent accounting developments, including the impact of
          proposed accounting standards to require companies to expense stock
          options;



                                       32


     o    our high degree of leverage and the availability to us of financing
          and credit on favorable terms; and

     o    changes in regulatory requirements which are applicable to our
          business.

     Readers are cautioned not to unduly rely on these forward-looking
statements, which reflect our management's analysis, judgment, belief or
expectation only as of the date hereof. We undertake no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof or to reflect the occurrence of unanticipated
events. In addition to the disclosure contained herein, readers should carefully
review any disclosure of risks and uncertainties contained in other documents we
file or have filed from time to time with the Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risk through the interest rate on our borrowings
under the Revolving Credit Agreement, which has a variable interest rate. Based
on the average amounts outstanding under the Revolving Credit Agreement for
2003, a 100 basis point change in interest rates would have resulted in an
increase in interest expense of approximately $427,000. In seeking to minimize
the risks from interest rate fluctuations, we manage exposures through our
regular operating and financing activities. In addition, the majority of our
borrowings are under fixed rate arrangements, as described in Note 4 of Notes to
Consolidated Financial Statements.

      COMMODITY RISK

      We enter into forward contracts for the purchase of the majority of our
gold in order to hedge the risk of gold price fluctuations. As of October 30,
2004, we had several open positions in gold forward contracts totaling 31,500
fine troy ounces, to purchase gold for $12.4 million. The fair value of gold
under such contracts was $13.5 million at October 30, 2004. These contracts have
settlement dates ranging from December 30, 2004 through March 31, 2005.

ITEM 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

     There have been no changes in our internal control over financial
reporting that occurred during our last fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



                                       33


PART II - OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

     There were no repurchases of equity securities made by us during the third
quarter of 2004.

     Pursuant to our stock repurchase program we may, at the discretion of
management, purchase up to $12.6 million of our Common Stock from time to time
through September 30, 2005. The extent and timing of repurchases will depend
upon general business and market conditions, stock prices, availability under
the Revolving Credit Facility, compliance with certain restrictive covenants and
our cash position and requirements going forward. Through 2003, we repurchased a
total of 1,815,159 shares for approximately $20,537,000. For the thirty-nine
weeks ended October 30, 2004 and November 1, 2003, we repurchased 392,745 shares
and 370,238 shares for $6,862,000 and $5,018,000, respectively. Our repurchases
from inception of the program to date totaled 2,207,904 shares for $27,399,000.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       A Special Meeting of the Stockholders of the Registrant was held on
September 8, 2004, pursuant to notice, at which (i) a proposal to approve the
Registrant's 2004 Cash Bonus Plan (the "Cash Bonus Plan") was passed with
7,750,986 votes in favor, 768,170 votes against and 77,646 votes abstaining, and
(ii) a proposal to approve an amendment to the Registrant's 1997 Long Term
Incentive Plan (the "1997 Plan") to allow for awards based on performance to be
deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), was passed with 5,986,666 votes in favor, 891,645 votes against
and 77,846 votes abstaining.

       In July 2004, the Board of Directors of the Registrant, upon the
recommendation of the Compensation Committee (the "Committee"), adopted, subject
to stockholder approval, the Cash Bonus Plan so as to qualify bonuses paid to
certain senior executive officers under the Cash Bonus Plan as
"performance-based" for purposes of Section 162(m) of the Code.

     In July 2004, the Board of Directors of the Registrant, upon the
recommendation of the Committee, adopted, subject to stockholder approval, an
amendment to the 1997 Plan to allow for awards based on performance to be
deductible under Section 162(m) of the Code. Compliance with the requirements of
Section 162(m) would enable the Registrant to deduct compensation associated
with awards under the plan which qualifies as "performance-based" for purposes
of Section 162(m) of the Code.

ITEM 6.  EXHIBITS

EXHIBIT NO.       DESCRIPTION
-----------       -----------
         2        Not Applicable

         3        Not Applicable

         4        Not Applicable

      10.1        Finlay Enterprises, Inc. 2004 Cash Bonus Plan (incorporated by
                  reference to Exhibit 10.1 filed as part of the Current Report
                  on Form 8-K filed by Registrant on September 10, 2004).

                                       34


      10.2        Amendment to the Finlay Enterprises, Inc. 1997 Long Term
                  Incentive Plan (incorporated by reference to Exhibit 10.2
                  filed as part of the Current Report on Form 8-K filed by
                  Registrant on September 10, 2004).

      10.3        Consent and Amendment No. 3, dated as of November 19, 2004 to
                  the Second Amended and Restated Credit Agreement, dated of
                  January 22, 2003, among Registrant, Finlay Jewelry, General
                  Electric Capital Corporation, individually and in its capacity
                  as administrative agent, Fleet Precious Metals, Inc.,
                  individually and as documentation agent, and certain other
                  banks and institutions (incorporated by reference to Exhibit
                  10.1 filed as part of the Current Report on Form 8-K filed by
                  Registrant on November 24, 2004).

      10.4        Seventh Amendment, dated as of November 22, 2004, among
                  Sovereign Bank, as agent and a bank, Sovereign Precious Metals
                  LLC, Commerzbank International S.A., Finlay Jewelry and
                  eFinlay, Inc. to the Amended and Restated Gold Consignment
                  Agreement, dated as of March 30, 2001, as amended
                  (incorporated by reference to Exhibit 10.2 filed as part of
                  the Current Report on Form 8-K filed by Registrant on November
                  24, 2004).

      10.5        Employment Agreement, dated as of January 30, 2005, among the
                  Registrant, Finlay Jewelry and Arthur E. Reiner (including the
                  forms of restricted stock agreements annexed thereto).

        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        Preferability letter from Deloitte & Touche LLP regarding
                  change in inventory valuation methodology.

        19        Not applicable.

        22        Not applicable.

        23        Not applicable.

        24        Not applicable.

      31.1        Certification of principal executive officer pursuant to the
                  Sarbanes-Oxley Act of 2002, Section 302.

      31.2        Certification of principal financial officer pursuant to the
                  Sarbanes-Oxley Act of 2002, Section 302.

      32.1        Certification of principal executive officer pursuant to the
                  Sarbanes-Oxley Act of 2002, Section 906.

      32.2        Certification of principal financial officer pursuant to the
                  Sarbanes-Oxley Act of 2002, Section 906.


                                       35




                                   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 3, 2004               FINLAY ENTERPRISES, INC.

                                     By: /s/ Bruce E. Zurlnick
                                         --------------------------------------
                                         Bruce E. Zurlnick
                                         Senior Vice President, Treasurer
                                         and Chief Financial Officer
                                         (As both a duly authorized officer of
                                         Registrant and as principal financial
                                         officer of Registrant)




                                       36`