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 August 4, 2001


                                       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 14, 2001, there were 10,385,223 shares of common stock, par
value $.01 per share, of the Registrant outstanding.

<PAGE>


                             FINLAY ENTERPRISES, INC

                                    FORM 10-Q

                      QUARTERLY PERIOD ENDED AUGUST 4, 2001

                                      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 July 29, 2000 and August 4, 2001..............1

          Consolidated Balance Sheets as of February 3, 2001 and
          August 4, 2001.......................................................3

          Consolidated Statements of Changes in Stockholders' Equity for
          the year ended February 3, 2001 and twenty-six weeks ended
          August 4, 2001.......................................................4

          Consolidated Statements of Cash Flows for the thirteen weeks and
          twenty-six weeks ended July 29, 2000 and August 4, 2001..............5

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

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations.......................13

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
                                                                    ---------------------------------
                                                                       July 29,            August 4,
                                                                         2000                 2001
                                                                    ------------         ------------
<S>                                                                 <C>                  <C>
Sales.............................................................  $    211,229         $    196,167
Cost of sales.....................................................       105,050               98,480
                                                                    ------------         ------------
    Gross margin..................................................       106,179               97,687
Selling, general and administrative expenses......................        91,759               87,107
Depreciation and amortization.....................................         4,378                5,055
                                                                    ------------         ------------
    Income (loss) from operations.................................        10,042                5,525
Interest expense, net.............................................         7,825                7,031
                                                                    ------------         ------------
    Income (loss) before income taxes.............................         2,217               (1,506)
Provision (benefit) for income taxes..............................         1,145                 (445)
                                                                    ------------         ------------
    Net income (loss).............................................  $      1,072         $     (1,061)
                                                                    ============         ============

Net income (loss) per share applicable to common shares:
       Basic net income (loss) per share..........................  $       0.10         $      (0.10)
                                                                    ============         ============
       Diluted net income (loss) per share........................  $       0.10         $      (0.10)
                                                                    ============         ============
Weighted average shares and share equivalents outstanding.........    10,507,957           10,278,245
                                                                    ============         ============
</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
                                                                    ---------------------------------
                                                                       July 29,            August 4,
                                                                         2000                 2001
                                                                    ------------         ------------
<S>                                                                 <C>                  <C>
Sales............................................................   $    389,843         $    389,416
Cost of sales....................................................        192,386              193,361
                                                                    ------------         ------------
    Gross margin.................................................        197,457              196,055
Selling, general and administrative expenses.....................        174,495              176,522
Depreciation and amortization....................................          8,582                9,883
                                                                    ------------         ------------
    Income (loss) from operations................................         14,380                9,650
Interest expense, net............................................         14,722               13,769
                                                                    ------------         ------------
    Income (loss) before income taxes ...........................           (342)              (4,119)
Provision (benefit) for income taxes.............................            358               (1,339)
                                                                    ------------         ------------
    Net income (loss)............................................   $       (700)        $     (2,780)
                                                                    ============         ============

Net income (loss) per share applicable to common shares:
       Basic net income (loss) per share.........................   $      (0.07)        $      (0.27)
                                                                    ============         ============
       Diluted net income (loss) per share.......................   $      (0.07)        $      (0.27)
                                                                    ============         ============
Weighted average shares and share equivalents outstanding........     10,421,638           10,284,316
                                                                    ============         ============
</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)
                                                                               February 3,         August 4,
                                                                                   2001              2001
                                                                               -----------       -----------
<S>                                                                            <C>               <C>
                                      ASSETS
Current assets
  Cash and cash equivalents..................................................  $    31,662       $     2,621
  Accounts receivable - department stores....................................       23,677            33,881
  Other receivables..........................................................       30,856            31,879
  Merchandise inventories....................................................      326,511           317,108
  Prepaid expenses and other.................................................        2,880             4,108
                                                                               -----------       -----------
     Total current assets....................................................      415,586           389,597
                                                                               -----------       -----------
Fixed assets
  Equipment, fixtures and leasehold improvements.............................      117,871           121,253
  Less - accumulated depreciation and amortization...........................       44,028            49,236
                                                                               -----------       -----------
     Fixed assets, net.......................................................       73,843            72,017
                                                                               -----------       -----------
Deferred charges and other assets............................................       22,161            23,196
Goodwill.....................................................................       94,799            92,922
                                                                               -----------       -----------
     Total assets............................................................  $   606,389       $   577,732
                                                                               ===========       ===========

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Notes payable..............................................................  $      --         $    76,567
  Accounts payable - trade...................................................      162,242            72,198
  Accrued liabilities:
     Accrued salaries and benefits...........................................       20,806            18,098
     Accrued miscellaneous taxes.............................................        4,118             6,270
     Accrued interest........................................................        5,270             5,417
     Other...................................................................       18,203            19,704
  Income taxes payable.......................................................       21,576             7,612
  Deferred income taxes......................................................        3,097             3,230
                                                                               -----------       -----------
     Total current liabilities...............................................      235,312           209,096
Long-term debt...............................................................      225,000           225,000
Other non-current liabilities................................................       11,737            12,482
                                                                               -----------       -----------
     Total liabilities.......................................................      472,049           446,578
                                                                               -----------       -----------
Stockholders' equity
  Common Stock, par value $.01 per share; authorized 25,000,000 shares;
     issued and outstanding 10,336,986 and 10,387,373 shares, respectively...          104               105
  Additional paid-in capital ................................................       77,332            78,728
  Retained earnings..........................................................       58,023            55,243
  Unamortized restricted stock compensation..................................         --              (1,066)
  Accumulated other comprehensive income.....................................         --                 128
  Less treasury stock, at cost...............................................       (1,119)           (1,984)
                                                                               -----------       -----------
     Total stockholders' equity..............................................      134,340           131,154
                                                                               -----------       -----------
     Total liabilities and stockholders' equity..............................  $   606,389       $   577,732
                                                                               ===========       ===========
</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                                Unamortized     Accumulated
                                        -------------------   Additional   Retained     Restricted        Other
                                         Number                 Paid-in    Earnings       Stock       Comprehensive
                                        of shares    Amount     Capital    (Deficit)   Compensation      Income
                                        ----------   ------   ---------    --------    ------------   -------------
<S>                                     <C>          <C>      <C>          <C>          <C>                <C>
Balance, January 29, 2000..........     10,416,353   $ 104    $ 77,194     $ 31,502     $   --             $ --
  Net income (loss)................          --        --         --         26,521         --               --
  Exercise of stock options........         12,633     --          138         --           --               --
  Purchase of treasury stock.......        (92,000)    --         --           --           --               --
                                        ----------   -----    --------     --------     --------           -----
Balance, February 3, 2001..........     10,336,986     104      77,332       58,023         --               --
  Net income (loss)................          --        --         --         (2,780)        --               --
  Fair value of gold forward
     contracts at February 4, 2001.          --        --         --           --           --                24
  Change in fair value of gold
     forward contracts.............          --        --         --           --           --               104
  Exercise of stock options........         16,967     --          178         --           --               --
  Issuance of restricted stock.....        100,000       1       1,218         --         (1,066)            --
  Purchase of treasury stock.......        (66,580)    --         --           --           --               --
                                        ----------   -----    --------     --------     --------           -----
Balance, August 4, 2001
       (unaudited).................     10,387,373   $ 105    $ 78,728     $ 55,243     $ (1,066)          $ 128
                                        ==========   =====    ========     ========     ========           =====
</TABLE>


                                                       Total
                                        Treasury    Stockholders'
                                          Stock       Equity
                                       ---------    ------------
Balance, January 29, 2000..........    $    --      $ 108,800
  Net income (loss)................         --         26,521
  Exercise of stock options........         --            138
  Purchase of treasury stock.......       (1,119)      (1,119)
                                       ---------    ---------
Balance, February 3, 2001..........       (1,119)     134,340
  Net income (loss)................         --         (2,780)
  Fair value of gold forward
     contracts at February 4, 2001.         --             24
  Change in fair value of gold
     forward contracts.............         --            104
  Exercise of stock options........         --            178
  Issuance of restricted stock.....         --            153
  Purchase of treasury stock.......         (865)        (865)
                                       ---------    ---------
Balance, August 4, 2001
       (unaudited).................    $  (1,984)   $ 131,154
                                       =========    =========






       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
                                                                            ----------------------------
                                                                             July 29,         August 4,
                                                                               2000              2001
                                                                            ----------       -----------
<S>                                                                         <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss).......................................................  $    1,072       $    (1,061)
  Adjustments to reconcile net income (loss) to net cash provided
     from (used in) operating activities:
  Depreciation and amortization...........................................       4,378             5,055
  Amortization of deferred financing costs................................         304               309
  Amortization of restricted stock compensation...........................        --                  76
  Other, net..............................................................         229               821
  Changes in operating assets and liabilities:
     Decrease in accounts and other receivables...........................       1,563             3,221
     Decrease in merchandise inventories..................................      10,519            11,747
     Increase in prepaid expenses and other...............................         (36)             (465)
     Decrease in accounts payable and accrued liabilities.................     (18,619)           (3,435)
                                                                            ----------       -----------
        NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES.............        (590)           16,268
                                                                            ----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements.............      (3,908)           (2,366)
  Deferred charges and other, net.........................................        (521)             (933)
  Proceeds from sale of outlet assets.....................................         752               --
                                                                            ----------       -----------
        NET CASH USED IN INVESTING ACTIVITIES.............................      (3,677)           (3,299)
                                                                            ----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility.................................     159,813           141,151
  Principal payments on revolving credit facility.........................    (158,864)         (154,749)
  Stock options exercised.................................................          77               155
                                                                            ----------       -----------
        NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES.............       1,026           (13,443)
                                                                            ----------       -----------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH...........................         133               --
                                                                            ----------       -----------
        DECREASE IN CASH AND CASH EQUIVALENTS.............................      (3,108)             (474)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................       7,961             3,095
                                                                            ----------       -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................  $    4,853       $     2,621
                                                                            ==========       ===========

Supplemental disclosure of cash flow information:
  Interest paid...........................................................  $   12,380       $     1,986
  Income taxes paid.......................................................          83             3,031
</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
                                                                         ----------------------------
                                                                          July 29,         August 4,
                                                                            2000              2001
                                                                         ----------       -----------
<S>                                                                      <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)....................................................  $     (700)      $    (2,780)
  Adjustments to reconcile net income (loss) to net cash used in
     operating activities:
  Depreciation and amortization........................................       8,582             9,883
  Amortization of deferred financing costs.............................         610               618
  Amortization of restricted stock compensation........................         --                153
  Other, net...........................................................       1,056             1,404
  Changes in operating assets and liabilities, net of effect
     from purchase of J.B. Rudolph assets (Note 6):
     Increase in accounts and other receivables........................     (25,287)          (10,448)
     (Increase) decrease in merchandise inventories....................     (14,060)            9,403
     Increase in prepaid expenses and other............................      (2,190)           (1,236)
     Decrease in accounts payable and accrued liabilities..............     (63,626)         (102,594)
                                                                         ----------       -----------
        NET CASH USED IN OPERATING ACTIVITIES..........................     (95,615)          (95,597)
                                                                         ----------       -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements..........      (7,741)           (6,223)
  Deferred charges and other...........................................      (1,075)           (3,101)
  Proceeds from sale of Sonab assets...................................       6,792               --
  Proceeds from sale of outlet assets..................................         752               --
  Payment for purchase of J.B. Rudolph assets..........................     (20,605)              --
                                                                         ----------       -----------
        NET CASH USED IN INVESTING ACTIVITIES..........................     (21,877)           (9,324)
                                                                         ----------       -----------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility..............................     362,732           370,769
  Principal payments on revolving credit facility......................    (275,174)         (294,202)
  Purchase of treasury stock...........................................         --               (865)
  Stock options exercised..............................................         122               178
                                                                         ----------       -----------
        NET CASH PROVIDED FROM FINANCING ACTIVITIES....................      87,680            75,880
                                                                         ----------       -----------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH........................        (442)              --
                                                                         ----------       -----------
        DECREASE IN CASH AND CASH EQUIVALENTS..........................     (30,254)          (29,041)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.........................      35,107            31,662
                                                                         ----------       -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD...............................  $    4,853       $     2,621
                                                                         ==========       ===========

Supplemental disclosure of cash flow information:
  Interest paid........................................................  $   13,607       $    13,004
  Income taxes paid....................................................       2,746            11,895
</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 August 4, 2001, and the results of operations and cash flows for the thirteen
weeks and  twenty-six  weeks ended July 29, 2000 and August 4, 2001.  Due to the
seasonal nature of the business,  results for interim periods are not indicative
of annual results.  The unaudited  consolidated  financial  statements have been
prepared on a basis consistent with that of the audited  consolidated  financial
statements as of February 3, 2001  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 February 3, 2001
("Form 10-K") previously filed with the Commission.

     The  Company's  fiscal  year ends on the  Saturday  closest to January  31.
References  to 1998,  1999,  2000 and 2001  relate to the  fiscal  years  ending
January 30,  1999,  January  29,  2000,  February 3, 2001 and  February 2, 2002,
respectively.  Each of the fiscal years includes 52 weeks,  except 2000 includes
53 weeks.

     The Company  recorded a tax provision  based on an estimated  annual income
tax rate. In addition,  the Company has recognized an intraperiod tax benefit as
it has projected  that there will be a profit in the fourth  quarter and for the
fiscal year.

     Net income (loss) per share has been computed in accordance  with Statement
of Financial  Accounting Standards ("SFAS") No. 128, "Earnings per Share". Basic
and  diluted  net income  (loss) per share were  calculated  using the  weighted
average  number of shares  outstanding  during  each  period,  with  options  to
purchase Common Stock included in diluted net income (loss) per share, using the
treasury  stock method,  to the extent that such options were  dilutive.  As the
Company had a net loss for the thirteen weeks and twenty-six  weeks ended August
4, 2001,  the dilutive  stock  options  outstanding  are not  considered  in the
calculation  of dilutive net income (loss) per share due to their  anti-dilutive
effect. As a result,  the weighted average number of shares outstanding used for
both the basic and dilutive  net income  (loss) per share  calculations  was the
same. The following is an analysis of the differences  between basic and diluted
net income (loss) per share:

<TABLE>
<CAPTION>
                                         Thirteen Weeks Ended                            Twenty-Six Weeks Ended
                             ------------------------------------------     --------------------------------------------
                                 July 29, 2000         August 4, 2001            July 29, 2000         August 4, 2001
                             -------------------   --------------------     --------------------    --------------------
<S>                          <C>          <C>      <C>          <C>         <C>          <C>        <C>          <C>
Weighted average shares
  outstanding...........     10,423,571   $ 0.10   10,278,245   $ (0.10)    10,421,638   $ (0.07)   10,284,316   $ (0.27)
Dilutive stock options..         84,386     --          --         --            --         --           --          --
                             ----------   ------   ----------   -------     ----------   -------    ----------   -------
Weighted average shares
  and share equivalents.     10,507,957   $ 0.10   10,278,245   $ (0.10)    10,421,638   $ (0.07)   10,284,316   $ (0.27)
                             ==========   ======   ==========   =======     ==========   =======    ==========   =======
</TABLE>



                                       7
<PAGE>


                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION (continued)

     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 2000,  there were no such  adjustments  and,  therefore,
comprehensive  income (loss) was the same as the Company's net income (loss). In
2001, the only non-owner change in equity related to the change in fair value of
the  Company's  outstanding  gold forward  contracts  (Refer to Note 3). For the
thirteen weeks and twenty-six weeks ended August 4, 2001, the comprehensive loss
was $1.2 million and $2.9 million, respectively.

     The Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and
Other Intangible Assets" in July 2001, which addresses the financial  accounting
and reporting  standards for the  acquisition of intangible  assets outside of a
business  combination and for goodwill and other intangible assets subsequent to
their acquisition.  This accounting standard requires that goodwill no longer be
amortized over its estimated  useful life but tested for impairment on an annual
basis.  The completion of a transitional  impairment test is required within six
months of adoption. Upon adoption of this statement, the impairment,  if any, is
treated as a cumulative effect of a change in accounting principle. SFAS No. 142
is effective for fiscal years  beginning after December 15, 2001. The Company is
currently evaluating the impact of adopting SFAS No. 142.

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.  Over the past three fiscal years,  the fourth quarter  accounted for an
average of 42% of Finlay's  sales due to the  seasonality  of the retail jewelry
industry.  Approximately  47% of Finlay's sales in 2000 were from  operations in
The May  Department  Stores Company  ("May") and 22% in departments  operated in
store groups owned by Federated Department Stores ("Federated").

NOTE 3 - MERCHANDISE INVENTORIES

     Merchandise inventories consisted of the following:

<TABLE>
<CAPTION>
                                                                                          (unaudited)
                                                                       February 3,          August 4,
                                                                          2001                2001
                                                                      ------------        ------------
                                                                                 (in thousands)
<S>                                                                   <C>                 <C>
   Jewelry goods - rings, watches and other fine jewelry
       (specific identification basis).............................   $    332,693        $    324,283
   Less:  Excess of specific identification cost over LIFO
       inventory value.............................................          6,182               7,175
                                                                      ------------        ------------
                                                                      $    326,511        $    317,108
                                                                      ============        ============
</TABLE>






                                       8
<PAGE>


                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - MERCHANDISE INVENTORIES (continued)

     The LIFO method had the effect of  increasing  the loss before income taxes
for the  thirteen  weeks ended July 29, 2000 and August 4, 2001 by $599,000  and
$803,000,  respectively.  The  effect  of  applying  the  LIFO  method  for  the
twenty-six weeks ended July 29, 2000 and August 4, 2001 was to increase the loss
before income taxes by $687,000 and $994,000,  respectively.  Finlay  determines
its LIFO inventory value by utilizing  selected producer price indices published
for jewelry and watches by the Bureau of Labor Statistics.

     Approximately  $381,724,000 and $370,056,000 at February 3, 2001 and August
4, 2001, 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 an  amended  and  restated  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 Jewelry 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) 130,000 fine
troy  ounces or (ii)  $37.0  million  worth of gold,  subject  to a  formula  as
prescribed  by the Gold  Consignment  Agreement.  At  August  4,  2001,  amounts
outstanding  under the Gold  Consignment  Agreement  totaled  115,726  fine troy
ounces, valued at approximately $30.8 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.  At February 3, 2001 and August 4, 2001, the Company
had several open  positions in futures  contracts for gold  totaling  46,300 and
44,500  fine  troy  ounces,   valued  at  $12.6   million  and  $11.8   million,
respectively, which expire during 2001.

     On February 4, 2001,  the Company  adopted  SFAS  No.133,  "Accounting  for
Derivative Instruments and Hedging Activities". This Statement requires that all
derivative  instruments  be recorded in the balance  sheet as either an asset or
liability  measured at its fair value.  The Company has  designated the 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 other
comprehensive  income,  a separate  component of  stockholders'  equity,  and is
reclassified into earnings when the offsetting effects of the hedged transaction
affects  earnings.  Upon adoption,  the fair value of the gold forward contracts
resulted in the recognition of an asset of $40,800.  At August 4, 2001, the fair
value of the gold forward  contracts  resulted in the recognition of an asset of
$215,300.  The amount recorded in other comprehensive income of $128,000, net of
tax, is expected to be reclassified into earnings during 2001.





                                       9
<PAGE>


                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - MERCHANDISE INVENTORIES (continued)

     The Company has documented all  relationships  between hedging  instruments
and hedged items,  as well as its risk  management  objectives  and strategy for
undertaking various hedge transactions.  The Company also assesses,  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. The Company believes that the designated  hedges will be highly
effective and that the related hedge  accounting will not have a material impact
on the Company's results of operations.

NOTE 4 - LEASE AGREEMENTS

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

     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
                                      ---------------------------           ---------------------------
                                      July 29,          August 4,           July 29,         August 4,
                                        2000              2001                2000              2001
                                     ---------          ---------          ---------         ---------
                                                               (in thousands)
<S>                                  <C>                <C>                <C>               <C>
     Minimum fees..............      $   3,259          $   2,143          $   6,023         $   4,075
     Contingent fees...........         31,667             30,101             58,130            60,103
                                     ---------          ---------          ---------         ---------
       Total...................      $  34,926          $  32,244          $  64,153         $  64,178
                                     =========          =========          =========         =========
</TABLE>




                                       10
<PAGE>


                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5 - SALE AND CLOSURE OF SONAB

     On January 3, 2000,  Societe  Nouvelle  d'Achat de  Bijouterie - S.O.N.A.B.
("Sonab"), the Company's European leased jewelry department subsidiary, sold the
majority  of its assets  for  approximately  $9.9  million.  To date,  Sonab has
received  $8.8  million  and the  balance  remains  subject  to  certain  escrow
arrangements among the parties.  After the sale, the buyer operated more than 80
locations  previously  included  in Sonab's  130-location  base in  France.  The
remaining departments were closed.

NOTE 6 - JAY B. RUDOLPH, INC. ACQUISITION

     On April 3, 2000, Finlay completed the acquisition of certain assets of Jay
B. Rudolph,  Inc. ("J.B.  Rudolph") for $20.6 million,  consisting  primarily of
inventory of approximately  $16.3 million and fixed assets of approximately $4.0
million.  By acquiring J.B.  Rudolph (the "J.B.  Rudolph  Acquisition"),  Finlay
added  57  departments  and  also  added  new  host  store   relationships  with
Bloomingdale's,  Dayton's,  and  Hudson's.  Finlay  financed  the  J.B.  Rudolph
Acquisition  with  borrowings  under Finlay's  revolving  credit  agreement with
General  Electric  Capital  Corporation  and  the  other  lenders  thereto  (the
"Revolving Credit Agreement").

     The  J.B.  Rudolph  Acquisition  was  accounted  for  as a  purchase,  and,
accordingly,  the operating results of the former J.B. Rudolph  departments have
been included in the Company's  consolidated financial statements since the date
of  acquisition.  The Company has recorded  goodwill of $1.7  million,  which is
being amortized over a period of ten years.

NOTE 7 - STOCK REPURCHASE PROGRAM AND RESTRICTED STOCK

     On December 1, 2000, the Company  announced that its Board of Directors had
approved a stock repurchase  program to acquire up to $20 million of outstanding
Common  Stock.  Under  the  program,  the  Company,  from  time to time,  at the
discretion  of  management,  may  purchase  its Common  Stock on the open market
through  September 29, 2001.  The extent and timing of  repurchases  will depend
upon general business and market  conditions,  stock prices,  availability under
Finlay's  revolving credit facility and its cash position and requirements going
forward.  The repurchase program may be modified,  extended or terminated by the
Board of Directors at any time. In fiscal 2000, the Company  repurchased  92,000
shares at a cost of approximately $1,119,000. During the first quarter of fiscal
2001,  the Company  repurchased  an additional  66,580 shares for  approximately
$865,000. There were no repurchases made during the second quarter of 2001.

     On February 4, 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 the thirteen weeks
and the  twenty-six  weeks ended  August 4, 2001 totaled  $76,000 and  $153,000,
respectively.





                                       11
<PAGE>


                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8 - DEPARTMENT CLOSINGS

     On February  8, 2001,  Federated  announced  its plans to close its Stern's
division of which Finlay  operated 23  departments.  During  March 2001,  Finlay
closed two departments and closed the remaining 21 departments during the second
quarter. Finlay recorded a charge of approximately $900,000 for the write-off of
fixed assets and employee severance.

     In addition, Federated recently acquired the Liberty House department store
chain.  Finlay currently  operates in all twelve of the Liberty House department
stores,  representing  approximately 1% of Finlay's locations.  The Company will
operate these departments through  mid-November 2001. Finlay intends to record a
one time charge of  approximately  $400,000  related to the  write-off  of fixed
assets and employee severance.













                                       12
<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
                                                     -----------------------       -----------------------
                                                     July 29,      August 4,       July 29,      August 4,
                                                       2000          2001             2000         2001
                                                     -------       --------        -------       --------
<S>                                                   <C>           <C>              <C>          <C>
Sales............................................     100.0%        100.0%           100.0%       100.0%
Cost of sales....................................      49.7          50.2             49.3         49.7
                                                      -----         -----            -----        -----
    Gross margin.................................      50.3          49.8             50.7         50.3
Selling, general and administrative expenses.....      43.4          44.4             44.8         45.3
Depreciation and amortization....................       2.1           2.6              2.2          2.5
                                                      -----         -----            -----        -----
    Income (loss) from operations................       4.8           2.8              3.7          2.5
Interest expense, net............................       3.7           3.6              3.8          3.5
                                                      -----         -----            -----        -----
    Income (loss) before income taxes............       1.1          (0.8)            (0.1)        (1.0)
Provision (benefit) for income taxes.............       0.6          (0.2)             0.1         (0.3)
                                                      -----         -----            -----        -----
    Net income (loss)............................       0.5%         (0.6)%           (0.2)%       (0.7)%
                                                      =====         =====            =====        =====
</TABLE>


Thirteen Weeks Ended August 4, 2001 Compared with Thirteen Weeks Ended July 29,
2000

     Sales.  Sales for the thirteen weeks ended August 4, 2001  decreased  $15.1
million,  or 7.1%,  over the comparable  period in 2000.  Comparable  department
sales (departments open for the same months during comparable periods) decreased
5.3%.  Management  attributes  this decrease in sales primarily due to a general
softening  in the retail  environment  and,  to a greater  degree,  the  jewelry
sector.  A shift in a Mother's  Day  promotional  event to the first  quarter of
2001,  based on this year's  retail  calendar,  negatively  impacted  comparable
department sales by 2.5%.  Comparable  department sales were positively impacted
by 2.5% as a result of "going-out-of-business" sales at the Stern's store group.
Sales  decreased by $3.7 million as a result of the timing of new store openings
and closings.

     With the  continuing  weak retail  environment,  the Company  continued  to
experience soft sales trends in the month of August 2001.

     During  the  thirteen  weeks  ended  August 4,  2001,  Finlay  opened  four
departments  and  closed  32  departments.  Included  in the  closings  were  21
departments  relating to the  closing of Stern's.  The  remaining  openings  and
closings were all within existing store groups.

     Gross margin. Gross margin for the period decreased by $8.5 million in 2001
compared to 2000 and as a percentage of sales,  gross margin  decreased by 0.5%,
primarily  due  to  (i)  management's   continued  efforts  to  increase  market
penetration and market share through its pricing  strategy,  (ii) the high level
of clearance  merchandise sold off during the closing of the Stern's departments
and (iii) an increase in the LIFO provision of approximately $200,000.




                                       13
<PAGE>


     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses ("SG&A") decreased $4.7 million, or 5.1%, due primarily
to payroll  expense and lease fees associated with the decrease in the Company's
sales.  As a percentage of sales,  SG&A  increased 1.0% due to the severance and
fixed asset write-off of $900,000 associated with the closing of Stern's and the
negative  impact of payroll and other  expenses as a percentage  of sales due to
the  lower  sales  volume.   These  negative  variances  were  offset  by  lower
advertising  expenditures as a result of the earlier Mother's Day on this year's
retail calendar.

     Depreciation and amortization.  Depreciation and amortization  increased by
$0.7 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 $0.8 million primarily
due to a lower weighted average interest rate (7.7% for the 2001 period compared
to 8.5% for the comparable period in 2000) and a decrease in average  borrowings
($321.2  million  for the  period in 2001  compared  to $336.6  million  for the
comparable period in 2000).

     Provision (benefit) for income taxes. The income tax provision for the 2001
and 2000 periods reflects an effective tax rate of 40.5%.

     Net income  (loss).  The net loss of $1.1  million  for the 2001 period was
$2.1 million lower as compared to the net income in the prior period as a result
of the factors discussed above.


Twenty-Six Weeks Ended August 4, 2001 Compared with Twenty-Six Weeks Ended July
29, 2000

     Sales.  Sales for the twenty-six  weeks ended August 4, 2001 decreased $0.4
million,  or 0.1%,  over the comparable  period in 2000.  Comparable  department
sales decreased 1.8%. Management attributes this decrease in sales primarily due
to a general softening in the retail  environment and, to a greater degree,  the
jewelry sector. Sales from the operation of net new departments contributed $6.6
million,  relating  to the net  effect  and  timing  of new store  openings  and
closings.

     During  the  twenty-six  weeks  ended  August  4,  2001,  Finlay  opened 12
departments and closed 47 departments. The openings and closings were all within
existing store groups. The closings included all 23 Stern's departments.

     Gross  margin.  Gross  margin for the  period  decreased  by $1.4  million,
primarily as a result of the sales  decrease.  As a percentage  of sales,  gross
margin  decreased  by 0.4% due to  management's  continued  efforts to  increase
market  penetration  and  market  share  through  its  pricing  strategy  and an
increased LIFO provision of approximately $300,000.

     Selling,  general and administrative expenses. SG&A increased $2.0 million,
or 1.2%.  SG&A as a percentage  of sales  increased by 0.5%.  The one time costs
associated  with  the  closing  of  Stern's  contributed  to a  portion  of this
increase.

     Depreciation and amortization.  Depreciation and amortization  increased by
$1.3 million,  reflecting an increase in capital  expenditures  and  capitalized
software  costs  for the most  recent  twelve  months,  including  fixed  assets
acquired in connection with the J.B. Rudolph  Acquisition in April 2000,  offset
by



                                       14
<PAGE>

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 $1.0 million primarily
due to a lower weighted average interest rate (8.0% for the 2001 period compared
to 8.5% for the comparable period in 2000) and a decrease in average  borrowings
($306.0  million  for the  period in 2001  compared  to $312.6  million  for the
comparable period in 2000).

     Provision (benefit) for income taxes. The income tax provision for the 2001
and 2000 periods reflects an effective tax rate of 40.5%.

     Net income  (loss).  The net loss of $2.8  million  for the 2001 period was
$2.1  million  higher  than the net loss in the prior  period as a result of the
factors discussed above.


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 July 29, 2000 and August 4, 2001, capital  expenditures totaled $7.7
million (exclusive of the fixed assets acquired in the J.B. Rudolph Acquisition,
which totaled $4.0 million) and $6.2 million,  respectively.  For 2000,  capital
expenditures  totaled $14.1 million  (exclusive of the fixed assets  acquired in
the J.B.  Rudolph  Acquisition)  and for 2001 are estimated to be  approximately
$12.0 to $14.0 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  50% of Finlay's  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 $180.5 million at August 4, 2001, an
increase of $0.2 million from February 3, 2001. The increase resulted  primarily
from  the  impact  of the  interim  net  loss,  exclusive  of  depreciation  and
amortization,  capital expenditures and additions to deferred charges.  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,  which  includes a $50.0 million  acquisition  facility.  Amounts
outstanding  under the Revolving  Credit Agreement bear interest at a rate equal
to, at Finlay's  option,  (i) the Index Rate (as defined in the Revolving Credit
Agreement) plus a margin ranging from zero to 1.0% or (ii) adjusted LIBOR plus a
margin  ranging  from 1.0% to 2.0%,  in each  case  depending  on the  financial
performance of the Company.

     In each year, Finlay is required to reduce the outstanding revolving credit
balance and letter of credit  balance  under the Revolving  Credit  Agreement to
$50.0  million  or less  and  $20.0  million  or  less,


                                       15
<PAGE>

respectively,   for  a  30  consecutive  day  period  (the  "Balance   Reduction
Requirement"). Borrowings under the Revolving Credit Agreement at August 4, 2001
were $76.6  million,  compared  to a zero  balance at February 3, 2001 and $87.6
million at July 29, 2000. The average  amounts  outstanding  under the Revolving
Credit  Agreement were $87.6 million and $81.0 million for the twenty-six  weeks
ended  July 29,  2000 and  August 4,  2001,  respectively.  The  maximum  amount
outstanding for the twenty-six weeks ended August 4, 2001 was $113.7 million, at
which point the unused excess  availability  was $107.1  million,  excluding the
acquisition facility.

     On December 1, 2000, the Company  announced that its Board of Directors had
approved a stock repurchase  program to acquire up to $20 million of outstanding
Common  Stock.  Under the program,  the Company may,  from time to time,  at the
discretion of  management,  purchase its Common Stock on the open market through
September  29,  2001.  The extent and timing of  repurchases  will  depend  upon
general  business  and  market  conditions,  stock  prices,  availability  under
Finlay's  revolving credit facility and its cash position and requirements going
forward.

     On April 3, 2000 Finlay completed the acquisition of certain assets of J.B.
Rudolph for $20.6 million,  consisting  primarily of inventory and fixed assets.
During 2000, the J.B. Rudolph Acquisition required additional working capital to
increase the inventory  levels in anticipation  of the year-end  holiday season.
Inventory  purchases for the former J.B. Rudolph  departments are being financed
in  part  by  trade  payables  combined  with  the  utilization  of  consignment
inventory.  Finlay financed the J.B.  Rudolph  Acquisition with borrowings under
its Revolving Credit Agreement.

     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 2000,  Finlay  had an average
balance of  consignment  merchandise of $372.9  million from  approximately  300
vendors as  compared  to an average  balance  of $321.7  million in 1999.  As of
August  4,  2001,  $370.1  million  of  consignment  merchandise  was on hand as
compared to $360.9 million at July 29, 2000.

     A substantial amount of Finlay's operating cash flow has been used or will
be required to pay interest, directly or indirectly, with respect to the
Company's 9% Senior Debentures due May 1, 2008 (the "Senior Debentures"), Finlay
Jewelry's 8 3/8 Senior Notes due May 1, 2008 (the "Senior Notes") and amounts
due under the Revolving Credit Agreement, including the payments required
pursuant to the Balance Reduction Requirement. As of August 4, 2001, Finlay's
outstanding borrowings were $301.6 million, which included a $75.0 million
balance under the Senior Debentures, a $150.0 million balance under the Senior
Notes and a $76.6 million balance under the Revolving Credit Agreement.

     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) 130,000 fine troy ounces or (ii) $37.0  million worth of
gold, subject to a formula as prescribed by the Gold Consignment  Agreement.  At
August 4, 2001, amounts outstanding under the Gold Consignment Agreement totaled
115,726 fine troy ounces,  valued at  approximately  $30.8 million.  The average
amount  outstanding  under the Gold  Consignment  Agreement was $28.0 million in
2000.

     The  Company  is  in  the  process  of  implementing   several  information
technology   initiatives,   including  the  design  and  development  of  a  new
merchandising system and a point-of-sale system for Finlay's departments.  These
projects  will serve to support  future growth of the Company as well as provide
improved analysis and reporting capabilities and more timely sales and inventory
information to


                                       16
<PAGE>

facilitate  merchandising  solutions.  These systems will provide the foundation
for future  productivity and expense control  initiatives.  At August 4, 2001, a
total  of  approximately  $17.6  million  has been  expended  for  software  and
implementation  costs and is included in Deferred charges and other assets.  The
Company  expects these systems to be completed by late 2001 and  anticipates  it
will spend an additional $3.0 to $6.0 million.

     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  February 3, 2001,  the gain or loss on
open futures  contracts  was not  material.  At August 4, 2001,  the Company had
several open positions in futures  contracts for gold totaling  44,500 fine troy
ounces,  valued at $11.8  million,  which expire  during  2001.  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  Jewelry's  interest expense
and required  amortization  payments  totaled $10.2 million and $9.6 million for
the   twenty-six   week  periods  ended  July  29,  2000  and  August  4,  2001,
respectively.  As a result of the  retail  calendar  closing  date for the first
quarter of 2001, the  semi-annual  interest  payments with respect to the Senior
Debentures  and the Senior Notes was paid in the first quarter of 2001,  whereas
the second quarter of 2000 included the interest payments.

     On February  8, 2001,  Federated  announced  its plans to close its Stern's
division of which Finlay  operated 23  departments.  During  March 2001,  Finlay
closed two  departments  and the  remaining 21 Stern's  departments  were closed
during the second  quarter of 2001.  Finlay  recorded a charge of  approximately
$900,000 related to the write-off of fixed assets and employee severance. Finlay
expects the closings to reduce sales in 2001 by an estimated $22.0 million.

     In addition, Federated recently acquired the Liberty House department store
chain.  Finlay currently  operates in all twelve of the Liberty House department
stores,  representing  approximately 1% of Finlay's locations.  The Company will
operate these  departments  through  mid-November  2001 and anticipates that its
2001 fourth  quarter  sales will be reduced by  approximately  $6.0 million as a
result  of these  closings.  Finlay  intends  to  record a one  time  charge  of
approximately  $400,000  related to the  write-off  of fixed assets and employee
severance.





                                       17
<PAGE>


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 78% of its income  from  operations
for 1998,  1999 and 2000.  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.












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<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,  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",  as well as trends in the general economy in the United
States,  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  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 compliance with applicable  contractual  covenants,  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.  Other such factors include the ability of the Company to complete the
repurchases  contemplated  under its stock repurchase  program,  the adequacy of
Finlay's  working  capital to complete the  repurchases,  the  availability  and
liquidity of the Company's Common Stock,  and overall market  conditions for the
Company's Common Stock.

     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  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.  In  addition,  the  Company is exposed to market risk
related to changes in the price of gold, and selectively uses forward  contracts
to manage this risk. The Company enters into forward  contracts for the purchase
of gold to hedge the risk of gold price  fluctuations  for future  sales of gold
consignment  merchandise.  The Company does not enter into forward  contracts or
other financial  instruments for speculation or trading purposes.  The aggregate
amount of forward  contracts was $11.8  million at August 4, 2001,  which expire
during 2001.





                                       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 21,
2001,  pursuant to notice,  at which  Messrs.  Norman S.  Matthews and Warren C.
Smith, Jr. and Ms. Hanne M. Merriman were re-elected directors of the Company to
serve a three-year  term in the class of  directors  whose term expires in 2004.
Such members have been elected to serve until the expiration of their respective
terms of office and until their  successors are duly elected and  qualified.  At
such meeting, votes were cast as follows:

       Name                          Votes For            Votes Withheld
       ----                          ---------            --------------
Norman S. Matthews                   7,944,159                   --
Hanne M. Merriman                    7,943,659                  500
Warren C. Smith, Jr.                 7,944,159                   --

     Messrs.  Rohit  M.  Desai,  Michael  Goldstein,  Thomas  H.  Lee,  David B.
Cornstein,  James Martin Kaplan, John D. Kerin and Arthur E. Reiner 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   Not applicable.

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

     15   Not applicable.

     18   Not applicable.

     19   Not applicable.

     22   Not applicable.

     23   Not applicable.

     24   Not applicable.

     99   Not applicable.




                                       20
<PAGE>


   B.    Reports on Form 8-K

     None.











                                       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 14, 2001             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)













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