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



                       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 July 31, 1999

                                                                  or

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

               For the Transition Period from _________ to __________

                                      Commission File Number: 0-25716



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


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



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

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

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

                     Yes   X                   No
                          ---                     ---

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

<PAGE>

                             FINLAY ENTERPRISES, INC

                                    FORM 10-Q

                      QUARTERLY PERIOD ENDED JULY 31, 1999

                                      INDEX



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

  Item 1.  Consolidated Financial Statements (Unaudited)

           Consolidated Statements of Operations for the thirteen weeks and
           twenty-six weeks ended August 1, 1998 and July 31, 1999.............1

           Consolidated Balance Sheets as of January 30, 1999
           and July 31, 1999...................................................3

           Consolidated Statements of Changes in Stockholders' Equity for the
           year ended January 30, 1999 and twenty-six weeks ended
           July 31, 1999.......................................................4

           Consolidated Statements of Cash Flows for the thirteen weeks and
           twenty-six weeks ended August 1, 1998 and July 31, 1999.............5

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

  Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations......................12

  Item 3.  Quantitative and Qualitative Disclosures about Market Risk.........19


PART II - OTHER INFORMATION

  Item 4.  Submission of Matters to a Vote of Security Holders................20

  Item 6.  Exhibits and Reports on Form 8-K...................................20

SIGNATURES....................................................................22


<PAGE>
PART I - FINANCIAL INFORMATION
  Item 1. Consolidated Financial Statements



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

<TABLE>
<CAPTION>

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

                                                                                   August 1,           July 31,
                                                                                     1998               1999
                                                                                -------------        -------------

<S>                                                                             <C>                  <C>
Sales....................................................................       $   177,366          $   183,367
Cost of sales............................................................            87,309               90,438
                                                                                -------------        -------------
    Gross margin.........................................................            90,057               92,929
Selling, general and administrative expenses.............................            79,998               81,770
Depreciation and amortization............................................             3,907                4,276
                                                                                -------------        -------------
    Income (loss) from operations........................................             6,152                6,883
Interest expense, net....................................................             8,025                7,427
Nonrecurring interest associated with refinancing........................               655                -
                                                                                -------------        -------------
    Income (loss) before income taxes and extraordinary charges..........            (2,528)                (544)
Provision (benefit) for income taxes.....................................              (811)                  99
                                                                                -------------        -------------
    Income (loss) before extraordinary charges...........................            (1,717)                (643)
Extraordinary charges from early extinguishment of debt,
      net of income tax benefit of $4,765................................             7,415                -
                                                                                -------------        -------------
    Net income (loss)....................................................       $    (9,132)         $      (643)
                                                                                =============        =============

Net income (loss) per share applicable to common shares:
    Basic net income (loss) per share:
       Before extraordinary charges......................................       $     (0.17)         $     (0.06)
                                                                                =============        =============
       Extraordinary charges from early extinguishment of debt...........       $     (0.71)         $     -
                                                                                =============        =============
       Net income (loss).................................................       $     (0.88)         $     (0.06)
                                                                                =============        =============
    Diluted net income (loss) per share:
       Before extraordinary charges......................................       $     (0.17)         $     (0.06)
                                                                                =============        =============
       Extraordinary charges from early extinguishment of debt...........       $     (0.71)         $     -
                                                                                =============        =============
       Net income (loss).................................................       $     (0.88)         $     (0.06)
                                                                                =============        =============
Weighted average shares and share equivalents outstanding................        10,393,086           10,412,762
                                                                                =============        =============

</TABLE>





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

                                       1
<PAGE>

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

<TABLE>
<CAPTION>

                                                                                     Twenty-Six Weeks Ended
                                                                               ------------------------------------

                                                                                  August 1,             July 31,
                                                                                    1998                 1999
                                                                               --------------      --------------

<S>                                                                            <C>                 <C>
Sales....................................................................      $    338,358        $    351,746
Cost of sales............................................................           165,413             172,357
                                                                               --------------      --------------
    Gross margin.........................................................           172,945             179,389
Selling, general and administrative expenses.............................           156,947             161,674
Depreciation and amortization............................................             7,701               8,476
                                                                               --------------      --------------
    Income (loss) from operations........................................             8,297               9,239
Interest expense, net....................................................            17,030              14,433
Nonrecurring interest associated with refinancing........................               655              -
                                                                               --------------      --------------
    Income (loss) before income taxes and extraordinary charges..........            (9,388)             (5,194)
Provision (benefit) for income taxes.....................................            (3,469)             (1,463)
                                                                               --------------      --------------
    Income (loss) before extraordinary charges...........................            (5,919)             (3,731)
Extraordinary charges from early extinguishment of debt,
      net of income tax benefit of $4,765................................             7,415              -
                                                                               --------------      --------------
    Net income (loss)....................................................      $    (13,334)       $     (3,731)
                                                                               ==============      ==============

Net income (loss) per share applicable to common shares:
    Basic net income (loss) per share:
       Before extraordinary charges......................................      $      (0.59)       $      (0.36)
                                                                               ==============      ==============
       Extraordinary charges from early extinguishment of debt...........      $      (0.74)       $       -
                                                                               ==============      ==============
       Net income (loss).................................................      $      (1.33)       $      (0.36)
                                                                               ==============      ==============
    Diluted net income (loss) per share:
       Before extraordinary charges......................................      $      (0.59)       $      (0.36)
                                                                               ==============      ==============
       Extraordinary charges from early extinguishment of debt...........      $      (0.74)       $       -
                                                                               ==============      ==============
       Net income (loss).................................................      $      (1.33)       $      (0.36)
                                                                               ==============      ==============
Weighted average shares and share equivalents outstanding................        10,057,033          10,409,750
                                                                               ==============      ==============
</TABLE>






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




                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                        (unaudited)
                                                                                     January 30,         July 31,
                                                                                         1999              1999
                                                                                     -------------     -------------
                                      ASSETS
Current assets
<S>                                                                                  <C>               <C>
  Cash and cash equivalents....................................................      $    17,328       $     4,640
  Accounts receivable - department stores......................................           19,147            41,534
  Other receivables............................................................           23,353            24,509
  Merchandise inventories......................................................          295,265           293,041
  Prepaid expenses and other...................................................            2,366             3,671
                                                                                     -------------     -------------
     Total current assets......................................................          357,459           367,395
                                                                                     -------------     -------------
Fixed assets
  Equipment, fixtures and leasehold improvements...............................          106,735           113,661
  Less - accumulated depreciation and amortization.............................           36,620            41,962
                                                                                     -------------     -------------
     Fixed assets, net.........................................................           70,115            71,699
                                                                                     -------------     -------------
Deferred charges and other assets..............................................           15,871            19,644
Goodwill.......................................................................          100,547            98,672
                                                                                     -------------     -------------
     Total assets..............................................................      $   543,992       $   557,410
                                                                                     =============     =============

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Notes payable................................................................      $     -           $   112,937
  Accounts payable - trade.....................................................          160,434            61,949
  Accrued liabilities:
     Accrued salaries and benefits.............................................           15,760            15,505
     Accrued miscellaneous taxes...............................................            4,704             4,887
     Accrued insurance.........................................................              755             1,658
     Accrued interest..........................................................            5,135             5,380
     Accrued management transition and consulting..............................              676               498
     Other.....................................................................           15,409            17,562
  Income taxes payable.........................................................            5,076             6,530
  Deferred income taxes........................................................            2,173             2,124
                                                                                     -------------     -------------
     Total current liabilities.................................................          210,122           229,030
Long-term debt.................................................................          225,000           225,000
Other non-current liabilities..................................................            9,059             9,748
                                                                                     -------------     -------------
     Total liabilities.........................................................          444,181           463,778
                                                                                     -------------     -------------
Stockholders' equity
  Common Stock, par value $.01 per share; authorized 25,000,000 shares;
     issued and outstanding 10,410,353 and 10,414,753 shares, respectively.....              104               104
  Additional paid-in capital ..................................................           77,057            77,178
  Retained earnings (deficit)..................................................           27,439            23,708
  Foreign currency translation adjustment......................................           (4,789)           (7,358)
                                                                                     -------------     -------------
     Total stockholders' equity................................................           99,811            93,632
                                                                                     -------------     -------------
     Total liabilities and stockholders' equity................................      $   543,992       $   557,410
                                                                                     =============     =============
</TABLE>



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


                                       3
<PAGE>

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

<TABLE>
<CAPTION>



                                      Common Stock                    Note                   Foreign
                                  ------------------    Additional  Receivable   Retained     Currency      Total
                                     Number              Paid-in      from       Earnings    Translation Stockholders' Comprehensive
                                   of shares    Amount   Capital    Stock Sale  (Deficit)     Adjustment    Equity        Income
                                  ------------  ------  ----------  ----------- ----------  ------------ ------------- -------------
<S>              <C> <C>           <C>        <C>      <C>          <C>         <C>         <C>           <C>
Balance, January 31, 1998........   9,779,050   $  98   $  61,745   $  (1,001)  $  18,340   $   (6,843)  $    72,339
  Net income (loss)..............       -          -        -           -           9,099        -             9,099   $     9,099
  Foreign currency translation
     adjustment..................       -          -        -           -           -            2,054         2,054         2,054
                                                                                                                       -------------
  Comprehensive income (loss)....       -          -        -           -           -            -             -       $    11,153
  Issuance of Common Stock.......     567,310       6      13,753       -           -            -            13,759   =============
  Note receivable repayment......       -          -        -           1,001       -            -             1,001
  Exercise of stock options......      56,993      -        1,559       -           -            -             1,559
                                  ------------  ------  ----------  ----------- ----------  ------------ -------------
Balance, January 30, 1999........  10,403,353     104      77,057       -          27,439       (4,789)       99,811
  Net income (loss)..............       -         -         -           -          (3,731)       -            (3,731)  $    (3,731)
  Foreign currency translation
     adjustment..................       -         -         -           -           -           (2,569)       (2,569)       (2,569)
                                                                                                                       -------------
  Comprehensive income (loss)....       -         -         -           -           -            -             -       $    (6,300)
  Exercise of stock options......      11,400     -           121       -           -            -               121   =============
                                  ------------  ------  ----------  ----------- ----------  ------------ -------------
Balance, July 31, 1999 (unaudited) 10,414,753   $ 104   $  77,178   $   -       $  23,708   $   (7,358)  $    93,632
                                  ============  ======  ==========  =========== ==========  ============ =============

</TABLE>












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









                                       4
<PAGE>

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

<TABLE>
<CAPTION>


                                                                                            Thirteen Weeks Ended
                                                                                        -----------------------------
                                                                                          August 1,         July 31,
                                                                                            1998              1999
                                                                                        ------------     ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                     <C>              <C>
  Net income (loss)..............................................................       $   (9,132)      $     (643)
  Adjustments to reconcile net income (loss) to net cash used in
     operating activities:
  Depreciation and amortization..................................................            4,237            4,575
  Write-off of deferred financing costs and debt discount........................            3,900            -
  Redemption premiums............................................................            7,102            -
  Other, net.....................................................................              271              401
  Changes in operating assets and liabilities:
     Increase in accounts and other receivables..................................           (5,577)          (4,523)
     (Increase) decrease in merchandise inventories..............................           (6,801)          10,469
     (Increase) decrease in prepaid expenses and other...........................              762             (212)
     Decrease in accounts payable and accrued liabilities........................           (4,039)         (36,072)
                                                                                        ------------     ------------
        NET CASH USED IN OPERATING ACTIVITIES....................................           (9,277)         (26,005)
                                                                                        ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements....................           (3,721)          (4,038)
  Deferred charges and other, net................................................               27           (2,932)
                                                                                        ------------     ------------
        NET CASH USED IN INVESTING ACTIVITIES....................................           (3,694)          (6,970)
                                                                                        ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility........................................          295,125          169,030
  Principal payments on revolving credit facility................................         (166,430)        (135,378)
  Prepayment of Old Notes........................................................         (135,000)           -
  Prepayment of Old Debentures...................................................          (50,266)           -
  Payment of redemption premiums.................................................           (7,102)           -
  Capitalized financing costs....................................................             (336)           -
  Stock options exercised and other, net.........................................             (354)              64
                                                                                        ------------     ------------
        NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES....................          (64,363)          33,716
                                                                                        ------------     ------------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH..................................             (171)              48
                                                                                        ------------     ------------
        INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.........................          (77,505)             789
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................           80,395            3,851
                                                                                        ------------     ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.........................................       $    2,890       $    4,640
                                                                                        ============     ============

Supplemental disclosure of cash flow information:
  Interest paid..................................................................       $    3,178       $   11,910
  Income taxes paid..............................................................              197            2,742

</TABLE>


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


                                       5
<PAGE>

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

<TABLE>
<CAPTION>

                                                                                           Twenty-Six Weeks Ended
                                                                                        -----------------------------
                                                                                          August 1,         July 31,
                                                                                            1998              1999
                                                                                        ------------     ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                                     <C>              <C>
  Net income (loss)..............................................................       $  (13,334)      $   (3,731)
  Adjustments to reconcile net income (loss) to net cash used in
     operating activities:
  Depreciation and amortization..................................................            8,359            9,080
  Imputed interest on debentures.................................................            2,527            -
  Write-off of deferred financing costs and debt discount........................            3,900            -
  Redemption premiums............................................................            7,102            -
  Other, net.....................................................................              315              957
  Changes in operating assets and liabilities:
     Increase in accounts and other receivables..................................          (30,388)         (23,824)
     (Increase) decrease in merchandise inventories..............................          (26,824)             507
     Increase in prepaid expenses and other......................................           (1,876)          (1,322)
     Decrease in accounts payable and accrued liabilities........................          (84,107)         (94,196)
                                                                                        ------------     ------------
        NET CASH USED IN OPERATING ACTIVITIES....................................         (134,326)        (112,529)
                                                                                        ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements....................           (7,178)          (7,915)
  Deferred charges and other, net................................................             (742)          (5,213)
                                                                                        ------------     ------------
        NET CASH USED IN INVESTING ACTIVITIES....................................           (7,920)         (13,128)
                                                                                        ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility........................................          503,542          355,006
  Principal payments on revolving credit facility................................         (374,847)        (242,069)
  Prepayment of Old Notes........................................................         (135,000)           -
  Prepayment of Old Debentures...................................................          (89,293)           -
  Payment of redemption premiums.................................................           (7,102)           -
  Net proceeds from public offering of Common Stock..............................           13,759            -
  Proceeds from senior note offering.............................................          150,000            -
  Proceeds from senior debenture offering........................................           75,000            -
  Proceeds from repayment of note receivable.....................................            1,001            -
  Capitalized financing costs....................................................           (6,144)           -
  Stock options exercised and other, net.........................................              781              121
                                                                                        ------------     ------------
        NET CASH PROVIDED FROM FINANCING ACTIVITIES..............................          131,697          113,058
                                                                                        ------------     ------------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH..................................             (149)             (89)
                                                                                        ------------     ------------
        DECREASE IN CASH AND CASH EQUIVALENTS....................................          (10,698)         (12,688)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................................           13,588           17,328
                                                                                        ------------     ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.........................................       $    2,890       $    4,640
                                                                                        ============     ============

Supplemental disclosure of cash flow information:
  Interest paid..................................................................       $   12,746       $   13,584
  Income taxes paid..............................................................            1,111             (527)

</TABLE>

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


                                       6
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements of Finlay
Enterprises,  Inc.  (the  "Company" or the  "Registrant"),  and its wholly owned
subsidiary,  Finlay Fine Jewelry  Corporation and its wholly owned  subsidiaries
("Finlay  Jewelry"),  have been prepared in accordance  with generally  accepted
accounting principles for interim financial information.  References to "Finlay"
mean collectively, the Company and Finlay Jewelry. In the opinion of management,
the  accompanying   unaudited  consolidated  financial  statements  contain  all
adjustments necessary to present fairly the financial position of the Company as
of July 31, 1999,  and the results of operations and cash flows for the thirteen
weeks and  twenty-six  weeks ended August 1, 1998 and July 31, 1999.  Due to the
seasonal nature of the business,  results for interim periods are not indicative
of annual results.  The unaudited  consolidated  financial  statements have been
prepared on a basis consistent with that of the audited  consolidated  financial
statements as of January 30, 1999  referred to below.  Certain  information  and
footnote  disclosures  normally  included in  financial  statements  prepared in
accordance with generally accepted accounting  principles have been condensed or
omitted  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission (the "Commission").

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

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

     Net  income  (loss)  per share has been  computed  in  accordance  with the
Statement of Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings  per
Share".  Basic and diluted net income (loss) per share were calculated using the
weighted average number of shares outstanding  during each period,  with options
to purchase Common Stock included in diluted net income (loss) per share,  using
the treasury stock method,  to the extent that such options were  dilutive.  For
the thirteen weeks and twenty-six  weeks ended August 1, 1998 and July 31, 1999,
there were no dilutive  stock  options  outstanding.  As a result,  the weighted
average  number of shares  outstanding  used for both the basic and dilutive net
income (loss) per share calculations was the same.

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





                                       7
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION (continued)

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

                                                                Thirteen Weeks Ended             Twenty-Six Weeks Ended
                                                             ----------------------------     ------------------------------
                                                               August 1,       July 31,         August 1,         July 31,
                                                                 1998            1999              1998             1999
                                                             ------------    ------------     -------------    -------------
<S>                                                          <C>             <C>              <C>              <C>
Net income (loss).......................................     $   (9,132)     $     (643)      $   (13,334)     $    (3,731)
Foreign currency translation adjustment.................           (587)            319               358           (2,569)
                                                             ------------    ------------     -------------    -------------
Comprehensive income (loss).............................     $   (9,719)     $     (324)      $   (12,976)     $    (6,300)
                                                             ============    ============     =============    =============
</TABLE>

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

NOTE 2 - DESCRIPTION OF BUSINESS

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

NOTE 3 - MERCHANDISE INVENTORIES

     Merchandise inventories consisted of the following:
<TABLE>
<CAPTION>

                                                                                                (unaudited)
                                                                            January 30,           July 31,
                                                                               1999                 1999
                                                                          --------------       --------------
                                                                                       (in thousands)
   Jewelry goods - rings, watches and other fine jewelry
<S>                                                                        <C>                 <C>
       (specific identification basis)...............................      $    300,777        $     298,742
   Less:  Excess of specific identification cost over LIFO
       inventory value...............................................             5,512                5,701
                                                                          --------------       --------------
                                                                           $    295,265        $     293,041
                                                                          ==============       ==============
</TABLE>

     The LIFO method had the effect of  decreasing  the loss before income taxes
for the thirteen weeks and twenty-six weeks ended August 1, 1998 by $439,000 and
$346,000,  respectively. The effect of applying the LIFO method for the thirteen
weeks and  twenty-six  weeks ended July 31, 1999 was to increase the loss before
income taxes by $98,000 and $191,000, respectively. Finlay determines its LIFO



                                       8
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - MERCHANDISE INVENTORIES (continued)

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

     Approximately  $283,793,000  and  $308,353,000 at January 30, 1999 and July
31, 1999, respectively, of merchandise received on consignment has been excluded
from  Merchandise  inventories and Accounts  payable-trade  in the  accompanying
Consolidated Balance Sheets.

     Finlay  Jewelry  is  party  to a  gold  consignment  agreement  (the  "Gold
Consignment   Agreement"),   which  expires  on  December  31,  2001.  The  Gold
Consignment Agreement enables Finlay Jewelry to receive merchandise by providing
gold, or otherwise  making  payment,  to certain  vendors who supply Finlay with
merchandise on consignment.  While the merchandise  involved remains  consigned,
title to the gold content of the  merchandise  transfers from the vendors to the
gold  consignor.  Finlay  Jewelry can obtain,  pursuant to the Gold  Consignment
Agreement,  up to the lesser of (i) 95,000 fine troy ounces or (ii)  $32,000,000
worth of gold,  subject  to a  formula  as  prescribed  by the Gold  Consignment
Agreement.  At July 31, 1999,  amounts  outstanding  under the Gold  Consignment
Agreement  totaled  77,049  fine  troy  ounces,  valued at  approximately  $19.7
million. For financial statement purposes, the consigned gold is not included in
Merchandise  inventories  on the  Company's  Consolidated  Balance  Sheets  and,
therefore, no related liability has been recorded.

     The cost to Finlay of gold merchandise sold on consignment in some cases is
not fixed until the sale is reported to the vendor or to the gold  consignor  in
the case of merchandise sold pursuant to the Gold Consignment Agreement.  Finlay
at times enters into futures contracts,  such as options or forwards, based upon
the  anticipated  sales of gold product,  to hedge against the risk arising from
those payment arrangements. Changes in the market value of futures contracts are
accounted  for as an addition  to or  reduction  from the  inventory  cost.  The
Company did not have any open positions in futures contracts for gold at January
30, 1999 or July 31, 1999.

NOTE 4 - LEASE AGREEMENTS

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

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



                                       9
<PAGE>


                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - LEASE AGREEMENTS (continued)

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

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

                                         Thirteen Weeks Ended              Twenty-Six Weeks Ended
                                   -------------------------------    ------------------------------
                                     August 1,          July 31,        August 1,         July 31,
                                        1998              1999            1998              1999
                                   -------------    -------------     -------------    -------------
                                                               (in thousands)
<S>                                <C>              <C>               <C>              <C>
     Minimum fees..............    $      5,088     $      4,475      $      9,656     $      8,638
     Contingent fees...........          23,853           25,576            45,251           49,009
                                   -------------    -------------     -------------    -------------
       Total...................    $     28,941     $     30,051      $     54,907     $     57,647
                                   =============    =============     =============    =============
</TABLE>

NOTE 5 - 1998 TRANSACTIONS

     On April 24,  1998,  the Company  completed a public  offering of 1,800,000
shares of its Common Stock at a price of $27.50 per share (the "1998 Offering"),
of which 567,310 shares were sold by the Company and 1,232,690  shares were sold
by  certain  selling  stockholders.  Concurrently  with the 1998  Offering,  the
Company  and Finlay  Jewelry  completed  the public  offering  of $75.0  million
aggregate  principal amount of 9% Senior Debentures due May 1, 2008 (the "Senior
Debentures")  and $150.0 million  aggregate  principal amount of 8-3/8% Senior
Notes due May 1, 2008 (the "Senior Notes"),  respectively. In addition, on April
24, 1998, Finlay's revolving credit agreement (the "Revolving Credit Agreement")
was amended to increase the line of credit  thereunder to $275.0  million and to
make certain other changes. On May 1, 1998, the Company prepaid all of the $39.0
million of accreted interest on the Company's 12% Senior Discount Debentures due
2005 (the "Old Debentures") as of such date.

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







                                       10
<PAGE>
                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - UNAUDITED PRO FORMA FINANCIAL INFORMATION

     The following  table  presents the  calculation  of pro forma  earnings per
share data for the thirteen weeks and twenty-six weeks ended August 1, 1998. The
pro forma consolidated  financial  information excludes the extraordinary charge
of $12.2  million,  on a pre-tax  basis,  including  $7.1 million for redemption
premiums and  approximately  $3.9 million to write off deferred  financing costs
and debt discount  associated  with the Old  Debentures  and the Old Notes.  The
income  tax  benefit on the  extraordinary  charges  totaled  $4.8  million.  In
addition,   the  pro  forma  consolidated  financial  information  excludes  the
nonrecurring  interest  associated with  refinancing as a result of certain call
requirements on the debt retired.

In thousands, except share and
per share amounts
<TABLE>
<CAPTION>
                                                                                       (unaudited)
                                                                                     August 1, 1998
                                                                          -----------------------------------
                                                                             Thirteen            Twenty-Six
                                                                            Weeks Ended          Weeks Ended
                                                                          --------------       --------------
<S>                                                                       <C>                  <C>
Net income (loss) per Consolidated Statements of Operations.........      $     (9,132)        $    (13,334)
Add:   Extraordinary charges from early extinguishment of
       debt, net of income tax benefit..............................             7,415                7,415
Add:   Nonrecurring interest associated with refinancing,
       net of income tax benefit....................................               400                  400
                                                                          --------------       --------------
Pro Forma net income (loss).........................................      $     (1,317)        $     (5,519)
                                                                          ==============       ==============

Pro Forma net income (loss) per share applicable to
    common shares:
    Basic net income (loss) per share...............................      $      (0.13)        $      (0.55)
                                                                          ==============       ==============
    Diluted net income (loss) per share.............................      $      (0.13)        $      (0.55)
                                                                          ==============       ==============
Weighted average shares and share equivalents outstanding...........        10,393,086           10,057,033
                                                                          ==============       ==============
</TABLE>









                                       11
<PAGE>

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

Results of Operations

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

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

                                                                    Thirteen Weeks Ended             Twenty-Six Weeks Ended
                                                                 ----------------------------     -----------------------------
                                                                 August 1,         July 31,       August 1,          July 31,
                                                                    1998             1999            1998              1999
                                                                 -----------      -----------     -----------       -----------
<S>                                                                <C>              <C>             <C>               <C>
Sales......................................................        100.0%           100.0%          100.0%            100.0%
Cost of sales..............................................         49.2             49.3            48.9              49.0
                                                                 -----------      -----------     -----------       -----------
    Gross margin...........................................         50.8             50.7            51.1              51.0
Selling, general and administrative expenses...............         45.1             44.6            46.4              46.0
Depreciation and amortization..............................          2.2              2.3             2.3               2.4
                                                                 -----------      -----------     -----------       -----------
    Income (loss) from operations..........................          3.5              3.8             2.4               2.6
Interest expense, net......................................          4.5              4.1             5.0               4.1
Nonrecurring interest associated with refinancing..........          0.4              -               0.2               -
                                                                 -----------      -----------     -----------       -----------
    Income (loss) before income taxes and
      extraordinary charges................................         (1.4)            (0.3)           (2.8)             (1.5)
Provision (benefit) for income taxes.......................         (0.5)             0.1            (1.0)             (0.4)
                                                                 -----------      -----------     -----------       -----------
    Income (loss) before extraordinary charges.............         (0.9)            (0.4)           (1.8)             (1.1)
Extraordinary charges from early extinguishment
      of debt, net of income tax benefit...................          4.2              -               2.2               -
                                                                 -----------      -----------     -----------       -----------
    Net income (loss)......................................         (5.1)%           (0.4)%          (4.0)%            (1.1)%
                                                                 ===========      ===========     ===========       ===========
</TABLE>

Thirteen  Weeks Ended July 31, 1999 Compared with Thirteen Weeks Ended August 1,
1998

     Sales.  Sales for the  thirteen  weeks ended July 31, 1999  increased  $6.0
million,  or 3.4%, over the comparable period in 1998.  Consolidated  comparable
department  sales  (departments  open  for the  same  months  during  comparable
periods) increased 6.4% and domestic comparable department sales increased 9.5%.
Management  attributes this increase in the comparable  department  sales to the
following  initiatives:   (i)  emphasizing  its  "Key  Item"  and  "Best  Value"
merchandising  programs,  which  provide  a  targeted  assortment  of  items  at
competitive prices; (ii) increasing focus on holiday and event-driven promotions
as well as host  store  marketing  programs;  (iii)  positioning  the  Company's
departments as a "destination  location" for fine jewelry;  and (iv)  continuing
project PRISM (Promptly Reduce  Inefficiencies  and Sales  Multiply),  a program
designed to allow  Finlay's  sales  associates  more time for customer sales and
service.  Total  consolidated  sales were  negatively  impacted by $5.4  million
primarily relating to Dillard's purchase of the Mercantile Stores and the change
to an  everyday  low  price  strategy  as well as the net  effect  of new  store
openings offset by store closings.

     In the second quarter of 1998, Sonab began to experience lower sales trends
due to the  transition  from a promotional  pricing  strategy to an everyday low
price  strategy.  The adverse impact of such change  continued  through July 31,
1999 and is expected to continue at least through the third quarter of


                                       12
<PAGE>

1999. The Company is presently  exploring  various  alternatives to address this
continuing adverse impact.

     During  the  thirteen  weeks  ended  July  31,  1999,  Finlay  opened  four
departments  and closed six  departments.  The openings were all within existing
store groups, with the exception of one department in Herberger's, a division of
Saks Incorporated. The closings were within existing store groups.

     Gross  margin.  Gross  margin for the  period  increased  by $2.9  million,
primarily as a result of the sales  increase.  As a percentage  of sales,  gross
margin  decreased by 0.1%.  Gross margin for the Company's  domestic  operations
improved  over  the  prior  year  but  was  offset  by the  effect  of the  LIFO
adjustment.  For the thirteen weeks ended July 31, 1999, there was a LIFO charge
of $0.1 million as compared to a LIFO benefit of $0.4 million in the prior year.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses ("SG&A") increased $1.8 million, or 2.2%, due primarily
to payroll  expense and lease fees associated with the increase in the Company's
domestic  sales  as  well  as  expenses  relating  to the  Company's  year  2000
remediation  project,  which totaled  approximately  $1.2 million in the current
quarter.  There were no charges relating to the year 2000 remediation project in
the prior year.  SG&A as a percentage of sales  decreased by 0.5% as a result of
the  leveraging of these  expenses and lower  advertising  expenditures,  net of
increased vendor  participation.  The slowdown of sales in France had a negative
impact on SG&A as a percentage of sales.

     Depreciation and amortization.  Depreciation and amortization  increased by
$0.4 million,  reflecting an increase in capital  expenditures  and  capitalized
software  costs for the most  recent  twelve  months,  offset  by the  effect of
certain assets becoming fully depreciated.  The increase in fixed assets was due
to the addition of new departments and the renovation of existing departments.

     Interest expense, net. Interest expense decreased by $0.6 million primarily
due to a decrease in average  borrowings  ($339.0 million for the period in 1999
compared to $379.0 million for the comparable period in 1998) as well as a lower
weighted  average  interest rate (8.0% for the 1999 period  compared to 8.2% for
the comparable  period in 1998).  The 1998 average  borrowings  were adjusted to
exclude the timing impact of the call requirements on the Old Debentures and the
Old Notes, discussed below.

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

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

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


                                       13
<PAGE>

discount  associated  with the Old Debentures and the Old Notes.  The income tax
benefit on the extraordinary charges totaled $4.8 million.

     Net income  (loss).  The net loss of $0.6  million  for the 1999 period was
$8.5 million lower than the net loss of $9.1 million for the  comparable  period
as a result of the factors discussed above.  Excluding the extraordinary  charge
in 1998, the net loss for 1999 was $1.1 million lower than the prior year.

Twenty-Six Weeks Ended July 31, 1999 Compared with Twenty-Six Weeks Ended August
1, 1998

     Sales.  Sales for the twenty-six  weeks ended July 31, 1999 increased $13.4
million,  or 4.0%, over the comparable period in 1998.  Consolidated  comparable
department  sales  increased  6.6%  and  domestic  comparable  department  sales
increased 9.2%. Management attributes this increase in the comparable department
sales primarily to the "Key Item" and "Best Value" merchandising programs and to
the  marketing  initiatives  discussed  above.  Total  consolidated  sales  were
negatively  impacted by $8.9 million primarily relating to Dillard's purchase of
the  Mercantile  Stores and the change to an everyday low price strategy as well
as the net effect of new store openings  offset by store  closings.  The adverse
impact of Sonab's  change to an everyday low price  strategy  continued  through
July 31, 1999 and is expected to continue at least  through the third quarter of
1999. The Company is presently  exploring  various  alternatives to address this
continuing adverse impact.

     During  the  twenty-six  weeks  ended  July  31,  1999,  Finlay  opened  27
departments  and closed 44  departments.  The openings were all within  existing
store groups, with the exception of one department in Herberger's, a division of
Saks  Incorporated.  The  closings  included 14  departments  in  Crowley's  and
Steinbach  due to the  bankruptcy  of  the  host  store  and 13  smaller  volume
departments  in Monoprix in France,  with the  remaining 17  departments  closed
within existing store groups.

     Gross  margin.  Gross  margin for the  period  increased  by $6.4  million,
primarily as a result of the sales  increase.  As a percentage  of sales,  gross
margin  decreased by 0.1%. For the twenty-six  weeks ended July 31, 1999,  there
was a LIFO charge of $0.2  million as compared to a LIFO benefit of $0.3 million
in the prior year.

     Selling,  general and administrative expenses. SG&A increased $4.7 million,
or 3.0%,  due primarily to payroll  expense and lease fees  associated  with the
increase in the  Company's  domestic  sales as well as expenses  relating to the
Company's  year 2000  remediation  project,  which  totaled  approximately  $1.7
million in 1999.  There were no charges  relating  to the year 2000  remediation
project in the prior year.  SG&A as a percentage of sales decreased by 0.4% as a
result of the leveraging of these expenses and lower  advertising  expenditures,
net of  increased  vendor  participation.  The slowdown of sales in France had a
negative impact on SG&A as a percentage of sales.

     Depreciation and amortization.  Depreciation and amortization  increased by
$0.8 million,  reflecting an increase in capital  expenditures  and  capitalized
software  costs for the most  recent  twelve  months,  offset  by the  effect of
certain assets becoming fully depreciated.  The increase in fixed assets was due
to the addition of new departments and the renovation of existing departments.

     Interest   expense,   net.  Interest  expense  decreased  by  $2.6  million
reflecting  a lower  weighted  average  interest  rate (8.1% for the 1999 period
compared  to 9.1% for the  comparable  period  in 1998)  relating  to the  lower
interest rates on the Senior  Debentures and the Senior Notes as compared to the
Old Debentures and the Old Notes,  which were  outstanding  for a portion of the
1998 period.  In addition,  there was a decrease in average  borrowings  ($322.0
million  for the period in 1999  compared to $353.7


                                       14
<PAGE>

million for the comparable  period in 1998).  The 1998 average  borrowings  were
adjusted  to  exclude  the  timing  impact of the call  requirements  on the Old
Debentures and the Old Notes, discussed above.

     Nonrecurring   interest  associated  with  refinancing.   For  the  reasons
discussed  above,  the Company  incurred  nonrecurring  interest expense of $0.7
million,  in the second quarter of 1998,  relating to the net effect of carrying
the new and old debt,  offset  by  reduced  interest  expense  on the  Company's
revolving credit facility and interest income on excess cash balances.

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

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

     Net income  (loss).  The net loss of $3.7  million  for the 1999 period was
$9.6 million lower than the net loss of $13.3 million for the comparable  period
as a result of the factors discussed above.  Excluding the extraordinary  charge
in 1998, the net loss for 1999 was $2.2 million lower than the prior year.

Liquidity and Capital Resources

     Finlay's  primary capital  requirements are for funding working capital for
new departments and for working capital growth of existing departments and, to a
lesser extent,  capital  expenditures  for opening new  departments,  renovating
existing departments and information technology investments.  For the twenty-six
weeks ended August 1, 1998 and July 31, 1999, capital  expenditures totaled $7.2
million and $7.9 million,  respectively.  For 1998, capital expenditures totaled
$14.9  million and for 1999 are  estimated to be  approximately  $15.0  million.
Although  capital  expenditures are limited by the terms of the Revolving Credit
Agreement, to date this limitation has not precluded the Company from satisfying
its capital expenditure requirements.

     Finlay's  operations  substantially  preclude  customer  receivables and in
recent years, on average, approximately 49% of Finlay's domestic merchandise has
been carried on consignment.  Accordingly,  management  believes that relatively
modest  levels of working  capital  are  required  in  comparison  to many other
retailers.  The Company's working capital balance was $138.4 million at July 31,
1999, a decrease of $9.0 million  from January 30, 1999.  The decrease  resulted
primarily from the impact of the interim net loss exclusive of depreciation  and
amortization,  capital  expenditures,  an increase  in deferred  charges and the
movement in the foreign exchange rate with France.  Based on the seasonal nature
of Finlay's  business,  working capital  requirements  and therefore  borrowings
under the Revolving  Credit  Agreement can be expected to increase on an interim
basis  during  the  first  three   quarters  of  any  given  fiscal  year.   See
"--Seasonality".

     The seasonality of Finlay's business causes working capital requirements to
reach their  highest  level in the months of October,  November  and December in
anticipation of the year-end  holiday season.  Accordingly,  Finlay  experiences
seasonal cash needs as inventory  levels peak.  The Revolving  Credit  Agreement
provides Finlay with a line of credit of up to $275.0 million to finance working
capital needs.  Amounts  outstanding  under the Revolving  Credit Agreement bear
interest at a rate equal to, at Finlay's


                                       15
<PAGE>

option, (i) the Index Rate (as defined in the Revolving Credit Agreement) plus a
margin  ranging from zero to 1.0% or (ii) adjusted  LIBOR plus a margin  ranging
from 1.0% to 2.0%, in each case  depending on the financial  performance  of the
Company.

     In each year, Finlay is required to reduce the outstanding revolving credit
balance and letter of credit  balance  under the Revolving  Credit  Agreement to
$50.0  million  or less  and  $20.0  million  or  less,  respectively,  for a 30
consecutive day period (the "Balance Reduction  Requirement").  Borrowings under
the Revolving Credit Agreement at July 31, 1999 were $112.9 million, compared to
a zero  balance at January  30, 1999 and $128.7  million at August 1, 1998.  The
average amounts  outstanding  under the Revolving  Credit  Agreement were $122.2
million  (adjusted  for the impact of the  temporary  paydown  of the  revolving
credit  facility  due to  certain  call  requirements  associated  with  the Old
Debentures and the Old Notes) and $97.0 million for the  twenty-six  weeks ended
August 1, 1998 and July 31, 1999,  respectively.  The maximum amount outstanding
for the twenty-six weeks ended July 31, 1999 was $132.6 million.

     Finlay's  long-term needs for external financing will depend on its rate of
growth,  the level of  internally  generated  funds and the  ability to continue
obtaining  substantial amounts of merchandise on advantageous  terms,  including
consignment  arrangements  with its  vendors.  For 1998,  Finlay  had an average
balance of  consignment  merchandise of $268.5  million from  approximately  300
vendors as compared to an average  balance of $216.5 million in 1997. As of July
31, 1999,  $308.4 million of consignment  merchandise was on hand as compared to
$283.8 million at January 30, 1999 and $247.9 million at August 1, 1998.

     A substantial  amount of Finlay's operating cash flow has been used or will
be required to pay interest  with respect to the Senior  Debentures,  the Senior
Notes and  amounts  due under the  Revolving  Credit  Agreement,  including  the
payments required pursuant to the Balance Reduction Requirement.  As of July 31,
1999,  Finlay's  outstanding  borrowings were $337.9  million,  which included a
$75.0 million  balance under the Senior  Debentures,  a $150.0  million  balance
under the Senior Notes and a $112.9 million  balance under the Revolving  Credit
Facility.

     Finlay Jewelry is party to the Gold Consignment Agreement, which expires on
December 31, 2001.  The Gold  Consignment  Agreement  enables  Finlay Jewelry to
receive  merchandise by providing gold, or otherwise making payment,  to certain
vendors.  Finlay Jewelry can obtain, pursuant to the Gold Consignment Agreement,
up to the lesser of (i) 95,000 fine troy ounces or (ii) $32.0  million  worth of
gold, subject to a formula as prescribed by the Gold Consignment  Agreement.  At
July 31, 1999, amounts outstanding under the Gold Consignment  Agreement totaled
77,049 fine troy ounces,  valued at  approximately  $19.7  million.  The average
amount  outstanding  under the Gold  Consignment  Agreement was $15.6 million in
1998.

     During 1998, the Company began several information technology  initiatives,
including  the  design and  development  of a new  merchandising  system and the
upgrade of  point-of-sale  systems  and  related  hardware  in the  majority  of
Finlay's departments.  These projects will serve to support future growth of the
Company as well as provide improved analysis and reporting  capabilities and are
expected to be completed in mid-2000. The cost associated with these projects is
estimated  to be $12.0  million for  software and  implementation  costs,  to be
included in Deferred charges and other assets,  and  approximately  $4.0 million
for  hardware  and related  equipment,  to be  included  as a  component  of the
Company's capital  expenditures and reflected in Fixed assets. At July 31, 1999,
a total of approximately $9.8 million has been expended.


                                       16
<PAGE>

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

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

     Finlay believes that, based upon current  operations,  anticipated  growth,
and availability under the Revolving Credit Agreement,  Finlay Jewelry will, for
the foreseeable future, be able to meet its debt service and anticipated working
capital  obligations,  and to make  distributions  to the Company  sufficient to
permit the Company to meet its debt service obligations and to pay certain other
expenses  as they come due.  No  assurances,  however,  can be given that Finlay
Jewelry's  current  level of operating  results will continue or improve or that
Finlay Jewelry's income from operations will continue to be sufficient to permit
Finlay Jewelry and the Company to meet their debt service and other obligations.
Currently,  Finlay Jewelry's  principal financing  arrangements  restrict annual
distributions  from Finlay  Jewelry to the Company to 0.25% of Finlay  Jewelry's
net sales for the  preceding  fiscal  year and also allow  distributions  to the
Company to enable it to make  interest  payments on the Senior  Debentures.  The
amounts  required to satisfy the  aggregate  of  Finlay's  interest  expense and
required  amortization  payments totaled $12.7 million and $13.6 million for the
twenty-six weeks ended August 1, 1998 and July 31, 1999, respectively.

Year 2000

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

     A comprehensive  plan is being executed to ensure that all systems critical
to the operation of the Company are year 2000 compliant. The plan was structured
into five primary phases: identification,  assessment,  remediation, testing and
implementation.  The  Company  has  completed  the  identification,  assessment,
remediation  and testing  phases of all critical  components and is currently in
the process of implementing all remediated applications.



                                       17
<PAGE>

     Finlay is using,  and will continue to use, a  combination  of internal and
external  resources  to execute  its year 2000  project  plan.  The  Company has
estimated   that  the  costs  related  to  its  year  2000  efforts  will  total
approximately  $4.0 million,  of which a total of approximately $3.6 million has
been spent  through July 31, 1999 ($1.9  million in fiscal 1998 and $1.7 million
to date in fiscal  1999).  The Company will fund the  remaining  year 2000 costs
through operating cash flows.

     The Company has been  formally  communicating  with all of its host stores,
vendors and other third  parties in an effort to  determine  the extent to which
the Company may be vulnerable to the failure of their systems and to obtain year
2000  compliance  certification.  To date,  none of the third  parties that have
responded have raised any year 2000 issues which the Company believes would have
a material adverse effect on Finlay.

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

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

Seasonality

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

Inflation

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




                                       18
<PAGE>

Special Note Regarding Forward-Looking Statements

     This Quarterly  Report on Form 10-Q includes  "forward-looking  statements"
within the meaning of Section 27A of the  Securities Act of 1993 and Section 21E
of the  Securities  Exchange Act of 1934 (the  "Exchange  Act").  All statements
other  than   statements  of   historical   information   provided   herein  are
forward-looking  statements and may contain information about financial results,
economic  conditions,  trends  and  known  uncertainties.   The  forward-looking
statements  contained herein are subject to certain risks and uncertainties that
could cause  actual  results to differ  materially  from those  reflected in the
forward-looking statements.  Factors that might cause such a difference include,
but are not limited to,  those  discussed  under  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations", as well as trends in
the general  economy in the United States and France,  competition in the retail
jewelry business,  the seasonality of the retail jewelry business, the Company's
ability to increase comparable department sales and to open new departments, the
Company's  estimate of the cost to address year 2000  compliance  issues and the
impact  on the  Company's  operations  of a year  2000  failure,  the  Company's
dependence on certain host store relationships due to the concentration of sales
generated  by such host  stores,  the  availability  to the Company of alternate
sources of merchandise  supply in the case of an abrupt loss of any  significant
supplier,  the Company's  ability to continue to obtain  substantial  amounts of
merchandise  on  consignment,  the Company's  dependence  on key  officers,  the
Company's ability to integrate future  acquisitions into its existing  business,
the  Company's  high degree of leverage and the  availability  to the Company of
financing and credit on favorable  terms and changes in regulatory  requirements
which are applicable to the Company's business.

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     The Company is exposed to market risk  primarily  through the interest rate
on its borrowings  under the Revolving  Credit  Agreement,  which has a variable
interest rate. In seeking to minimize the risks from interest rate fluctuations,
the  Company  manages  exposures  through its regular  operating  and  financing
activities.  In addition,  the majority of the  Company's  borrowings  are under
fixed rate arrangements, and as such, there was no material market risk exposure
to the Company's financial  position,  results of operations or cash flows as of
January 30, 1999 or July 31, 1999.





                                       19
<PAGE>

PART II - OTHER INFORMATION

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

     The Annual Meeting of the  Stockholders of the Company was held on June 22,
1999, pursuant to notice, at which Messrs. Rohit M. Desai, Michael Goldstein and
Thomas H. Lee were  re-elected  directors  of the Company to serve a  three-year
term in the class of  directors  whose term  expires in 2002.  Such members have
been elected to serve until the expiration of their  respective  terms of office
and until their  successors  are dully elected and  qualified.  At such meeting,
votes were cast as follows:

      Name                       Votes for                    Votes Withheld
     -----                      -----------                  ----------------

Rohit M. Desai                   6,583,611                      968,900

Michael Goldstein                7,570,011                        -0-

Thomas H. Lee                    7,570,011                        -0-

     Messrs. David B. Cornstein,  James Martin Kaplan,  Arthur E. Reiner, Norman
S. Matthews and Warren C. Smith and Ms. Hanne M. Merriman  continued to serve as
members of the Board of Directors after the meeting.

Item 6.           Exhibits and Reports on Form 8-K

     A.    Exhibits

        2         Not applicable.

        3         Not applicable.

        4         Not applicable.

       10.1       Separation  Agreement and  Release dated June 6, 1999  between
                  Barry D. Scheckner and Finlay Jewelry.

       10.2       Consulting  Agreement  dated as of July 31, 1999  between  BFM
                  Advisors LLC and Finlay Jewelry.

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

       15         Not applicable.

       18         Not applicable.

       19         Not applicable.

       22         Not applicable.


                                       20
<PAGE>

       23         Not applicable.

       24         Not applicable.

       27         Financial Data Schedule.

       99         Not applicable.

     B.       Reports on Form 8-K

     On June 16, 1999, the Company filed with the Commission a Current Report on
Form 8-K regarding the resignation of Barry D. Scheckner,  Senior Vice President
and Chief Financial Officer of the Company, effective July 31, 1999.
























                                       21
<PAGE>

                                   SIGNATURES


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




Date: September 10, 1999             FINLAY ENTERPRISES, INC.

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





















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