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



                       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    November 1, 1997    
                                                 ----------------    

                                       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.)


           521 Fifth Avenue, New York, NY                10175  
      ----------------------------------------        ----------  
      (Address of principal executive offices)        (zip code)

                                         (212) 808-2060                   
                       ------------------------------------------------
                     (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
     
                          Yes   X          No
                              ----            -----
As of December 15, 1997,  there were 9,778,716 shares of common stock, par value
$.01 per share, of the Registrant outstanding.


<PAGE>




                            FINLAY ENTERPRISES, INC.

                                    FORM 10-Q

                     QUARTERLY PERIOD ENDED NOVEMBER 1, 1997

                                      INDEX


                                                                        PAGE(S)

PART I - FINANCIAL INFORMATION

 Item 1.  Consolidated Financial Statements (Unaudited)

          Consolidated Statements of Operations for the thirteen weeks and 
          thirty-nine weeks ended November 2, 1996 and November 1, 1997.......1

          Consolidated Balance Sheets as of February 1, 1997 and 
          November 1, 1997....................................................3

          Consolidated Statements of Changes in Stockholders' Equity for the 
          year ended February 1, 1997 and thirty-nine weeks ended 
          November 1, 1997....................................................4

          Consolidated Statements of Cash Flows for the thirteen weeks and 
          thirty-nine weeks ended November 2, 1996 and November 1, 1997.......5

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

 Item 2.  Management's Discussion and Analysis of
          Financial Condition and Results of Operations......................11


PART II - OTHER INFORMATION

 Item 6.  Exhibits and Reports on Form 8-K...................................17


SIGNATURES  .................................................................19


<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
                                                                 -----------------------------
                                                                  November 2,      November 1,
                                                                     1996             1997
                                                                 ------------     ------------
<S>                                                              <C>               <C>       
Sales......................................................      $   136,140       $  148,770
Cost of sales..............................................           65,780           71,663
                                                                 ------------      -----------
   Gross margin............................................           70,360           77,107
Selling, general and administrative expenses...............           63,255           70,086
Depreciation and amortization..............................            2,739            3,022
                                                                 ------------     ------------
   Income (loss) from operations...........................            4,366            3,999
Interest expense, net......................................            8,177            9,149
                                                                 ------------     ------------
   Income (loss) before income taxes.......................           (3,811)          (5,150)
Provision (credit) for income taxes........................           (1,174)          (1,900)
                                                                 ------------     ------------
   Net income (loss).......................................      $    (2,637)     $    (3,250)
                                                                 ============     ============
Net income (loss) per share applicable to common shares....      $     (0.35)     $     (0.42)
                                                                 ============     ============
Weighted average shares outstanding........................        7,481,375        7,806,614
                                                                 ============     ============
</TABLE>











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





                                              1
<PAGE>


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


<TABLE>
<CAPTION>


                                                                    Thirty-Nine Weeks Ended
                                                                 ------------------------------
                                                                  November 2,      November 1,
                                                                     1996             1997
                                                                 -------------    -------------
<S>                                                              <C>              <C>         
Sales......................................................      $    404,047     $    431,422
Cost of sales..............................................           195,663          209,497
                                                                 -------------    -------------
   Gross margin............................................           208,384          221,925
Selling, general and administrative expenses...............           189,424          201,677
Depreciation and amortization..............................             8,123            8,714
                                                                 -------------    -------------
   Income (loss) from operations...........................            10,837           11,534
Interest expense, net......................................            23,422           25,297
                                                                 -------------    -------------
   Income (loss) before income taxes.......................           (12,585)         (13,763)
Provision (credit) for income taxes........................            (3,981)          (4,909)
                                                                 -------------    -------------
   Net income (loss).......................................      $     (8,604)    $     (8,854)
                                                                 =============    =============
Net income (loss) per share applicable to common shares....      $      (1.15)    $      (1.16)
                                                                 =============    =============
Weighted average shares outstanding........................         7,481,182        7,601,036
                                                                 =============    =============

 
</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 1,      November 1,
                                                                      1997            1997
                                                                 -------------    -------------
                                     ASSETS
        Current assets
<S>                                                              <C>              <C>         
  Cash and cash equivalents...................................   $     20,846     $     11,334
  Accounts receivable department stores.......................         15,362           33,294
  Other receivables...........................................          4,350           10,534
  Merchandise inventories.....................................        222,445          312,832
  Prepaid expenses and other..................................          1,437            2,915
                                                                 -------------    -------------
     Total current assets.....................................        264,440          370,909
                                                                 -------------    -------------
Fixed assets
  Equipment, fixtures and leasehold improvements..............         73,223           92,719
  Less - accumulated depreciation and amortization............         21,423           27,232
                                                                 -------------    -------------   
     Fixed assets, net........................................         51,800           65,487
                                                                 -------------    -------------   
Deferred charges and other assets.............................          9,770           13,866
Goodwill......................................................         95,263          106,299
                                                                 -------------    -------------   
     Total assets.............................................   $    421,273     $    556,561
                                                                 =============    =============   

                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Notes payable...............................................   $      -         $    170,196
  Current portion of long-term debt...........................              2                3
  Accounts payable - trade....................................        133,252           70,963
  Accrued liabilities:
      Accrued salaries and benefits...........................         15,061           12,130
      Accrued miscellaneous taxes.............................          4,148            5,108
      Accrued insurance.......................................            762              791
      Accrued interest........................................          3,833            8,203
      Accrued management transition and consulting............          1,787            1,247
      Other...................................................         15,124           16,352
  Income taxes payable........................................         12,046            2,082
  Deferred income taxes.......................................            809              335
                                                                 -------------    -------------   
      Total current liabilities...............................        186,824          287,410
Long-term debt................................................        211,427          218,483
Other non-current liabilities.................................            517              502
                                                                 -------------    -------------
      Total liabilities.......................................        398,768          506,395
                                                                 -------------    ------------- 
Stockholders' equity
  Common Stock, par value $.01 per share; authorized 
     25,000,000 shares; issued and outstanding 
     7,558,838 and 9,766,449 shares, respectively                          76               98
  Additional paid-in capital..................................         47,725           85,953
  Distributions to investor group in excess of carryover 
     basis....................................................        (24,390)         (24,390)
  Note receivable from stock sale.............................         (1,001)          (1,001)
  Retained earnings (deficit).................................          3,145           (5,709)
  Foreign currency translation adjustment.....................         (3,050)          (4,785)
                                                                 -------------    -------------      
                                                                       22,505           50,166
                                                                 -------------    -------------
      Total liabilities and stockholders' equity..............   $    421,273     $    556,561
                                                                 =============    =============   
</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               Distribution to    Note                   Foreign     
                                     ----------------- Additional  investor group  Receivable   Retained     Currency       Total 
                                       Number           Paid-in     in excess of      from      Earnings   Translation Stockholders'
                                     of shares  Amount  Capital   carryover basis  Stock Sale   (Deficit)   Adjustment    Equiity
                                     ----------  ------ --------- ---------------  ----------- ----------  ------------ ------------
<S>               <C>              <C>        <C>    <C>        <C>              <C>         <C>           <C>          <C>      
Balance, February 3, 1996........     7,524,356  $ 75   $ 47,459   $   (24,390)     $  (1,001)  $  (8,612)    $  (747)    $  12,784
  Net income (loss)..............        -         -        -             -               -        11,757         -          11,757
  Foreign currency translation 
    adjustment...................        -         -        -             -               -          -         (2,303)       (2,303)
  Exercise of stock options......        34,482     1        266          -               -          -            -             267
                                      ---------  ------ --------- ---------------  ----------- ----------  ------------ ------------
Balance, February 1, 1997........     7,558,838    76     47,725       (24,390)        (1,001)      3,145      (3,050)       22,505
  Net income (loss)..............        -         -        -             -               -        (8,854)        -          (8,854)
  Foreign currency translation
      adjustment.................        -         -        -             -               -          -         (1,735)       (1,735)
  Issuance of Common Stock.......     2,196,971    22     38,102          -               -          -            -          38,124
  Exercise of stock options......        10,640    -         126          -               -          -            -             126
                                      ---------  ------ --------- ---------------  ----------- ----------  ------------ ------------
Balance, November 1, 1997 (Unaudited) 9,766,449  $ 98   $ 85,953   $   (24,390)     $  (1,001)  $ (5,709)   $  (4,785)   $   50,166
                                      =========  ====== ========= ===============  =========== ==========  ============ ============

</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
                                                                                 ------------------------------
                                                                                   November 2,     November 1,       
                                                                                     1996             1997          
                                                                                 -------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                              <C>              <C>          
  Net income (loss).......................................................       $     (2,637)    $     (3,250)
  Adjustments to reconcile net income (loss) to net cash used in                                         
      operating activities:                                                                              
  Depreciation and amortization...........................................              3,047            3,336
  Imputed interest on debentures..........................................              2,122            2,385
  Other, net..............................................................               (695)            (510)
  Changes in operating assets and liabilities, net of effects from 
      purchase of Diamond Park assets(Note 6):                                                                   
      Increase in accounts and other receivables..........................               (513)          (6,313)
      Increase in merchandise inventories.................................            (40,535)         (44,811)
      (Increase) decrease in prepaid expenses and other...................              1,298              (49)
      Increase in accounts payable and accrued liabilities................             21,205           26,574
                                                                                 -------------    -------------
        NET CASH USED IN OPERATING ACTIVITIES.............................            (16,708)         (22,638)
                                                                                 -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements.............             (5,254)          (6,829)
  Payment for purchase of Diamond Park assets.............................             -               (57,642)
  Other, net..............................................................               (152)             (90)
                                                                                 -------------    -------------
        NET CASH USED IN INVESTING ACTIVITIES.............................             (5,406)         (64,561)
                                                                                 -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility.................................            116,104          162,478
  Principal payments on revolving credit facility.........................            (94,070)        (103,804)
  Capitalized financing costs.............................................            -                 (1,954)       
  Net proceeds from public offering of common stock.......................            -                 38,124
  Other, net..............................................................                 31               (1)
                                                                                 -------------    -------------
        NET CASH PROVIDED FROM FINANCING ACTIVITIES.......................             22,065           94,843
                                                                                 -------------    -------------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH...........................                (30)             237
                                                                                 -------------    -------------
        INCREASE (DECREASE) IN CASH AND CASH                                                             
          EQUIVALENTS.....................................................                (79)           7,881      
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................              1,731            3,453
                                                                                 -------------    -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD..................................       $      1,652     $     11,334     
                                                                                 =============    =============
Supplemental disclosure of cash flow information:
  Interest paid...........................................................       $      8,934     $      2,462      
  Income taxes paid.......................................................              2,392            1,136
</TABLE>



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

                                              5

<PAGE>


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


<TABLE>
<CAPTION>

                                                                                    Thirty-Nine Weeks Ended
                                                                                 -----------------------------
                                                                                  November 2,     November 1,       
                                                                                     1996             1997          
                                                                                 ------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                              <C>             <C>          
  Net income (loss)........................................................      $    (8,604)    $     (8,854)
  Adjustments to reconcile net income (loss) to net cash used in                                         
      operating activities:                                                                              
  Depreciation and amortization............................................            9,042            9,651
  Imputed interest on debentures...........................................            6,244            7,019
  Other, net...............................................................           (1,211)          (1,461)
  Changes in operating assets and liabilities, net of effects from 
      purchase of Diamond Park assets (Note 6):                                                                    
      Increase in accounts and other receivables...........................          (16,035)         (24,580)
      Increase in merchandise inventories..................................          (53,500)         (46,957)
      Increase in prepaid expenses and other...............................             (344)            (724)
      Decrease in accounts payable and accrued liabilities.................          (47,188)         (75,079)
                                                                                 ------------     ------------
          NET CASH USED IN OPERATING ACTIVITIES............................         (111,596)        (140,985)
                                                                                 ------------     ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements..............          (12,478)         (15,306)
  Payment for purchase of Diamond Park assets..............................            -              (57,642)
  Other, net...............................................................             (251)          (1,808)
                                                                                 ------------     ------------
          NET CASH USED IN INVESTING ACTIVITIES............................          (12,729)         (74,756)
                                                                                 ------------     ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility..................................          376,525          459,587
  Principal payments on revolving credit facility..........................         (276,546)        (289,391)
  Capitalized financing costs..............................................            -               (1,954)
  Net proceeds from public offering of common stock........................            -               38,124
  Other, net...............................................................               35              125
                                                                                 ------------     ------------
          NET CASH PROVIDED FROM FINANCING ACTIVITIES......................          100,014          206,491
                                                                                 ------------     ------------
          EFFECT OF EXCHANGE RATE CHANGES ON CASH..........................              (51)            (262)
                                                                                 ------------     ------------
          DECREASE IN CASH AND CASH EQUIVALENTS............................          (24,362)          (9,512)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............................           26,014           20,846
                                                                                 ------------     ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................................      $     1,652      $    11,334     
                                                                                 ============     ============
Supplemental disclosure of cash flow information:
  Interest paid............................................................      $    19,407      $    13,010
  Income taxes paid........................................................            8,717            9,149

</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,  Finlay Jewelry and all predecessor businesses.
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  November 1, 1997,  and the results of  operations
and cash flows for the thirteen  weeks and  thirty-nine  weeks ended November 2,
1996 and November 1, 1997. 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 1, 1997
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 ("SEC").

     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 1, 1997
("Form 10-K") previously filed with the SEC.

     Finlay's fiscal year ends on the Saturday closest to January 31. References
to 1994,  1995, 1996 and 1997 relate to the fiscal years ended or ending January
28, 1995, February 3, 1996, February 1, 1997 and January 31, 1998, respectively.
Each of the fiscal years includes  fifty-two  weeks except 1995,  which includes
fifty-three weeks.

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting Standards ("SFAS") No. 128, "Earnings per Share." Under
SFAS No. 128, the  presentation of both basic and diluted  earnings per share is
required on the  statements of operations  for periods ending after December 15,
1997, at which time  restatement  for prior  periods will be necessary.  Had the
provisions  of SFAS No. 128 been in effect  during 1997,  the Company would have
reported  basic net  income  (loss)  per share of $(0.36)  and  $(0.42)  for the
thirteen  weeks ended November 2, 1996 and November 1, 1997,  respectively,  and
$(1.16) and $(1.18) for the thirty-nine  week periods then ended,  respectively.
Under SFAS No.  128,  diluted  net  income  (loss) per share is equal to the net
income (loss) per share currently disclosed by the Company.

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.  Finlay also operates leased fine jewelry  departments in the
United  Kingdom and  Germany.  A  significant  portion of Finlay's  revenues are
generated in the fourth quarter due to the  seasonality of the retail  industry.
Approximately  70% of Finlay's  sales in 1996 were from  operations in two major
department  store  groups  of  which  48%  represents  Finlay's  sales  from one
department store group.






                                              7
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - MERCHANDISE INVENTORIES

 Merchandise inventories consisted of the following:

<TABLE>
<CAPTION>
                                                                                   (Unaudited)
                                                                  February 1,      November 1,
                                                                      1997            1997
                                                                 ------------     ------------
                                                                        (in thousands)
  Jewelry goods - rings, watches and other fine jewelry                                  
<S>                                                              <C>              <C>        
     (specific identification basis).........................    $   231,298      $   321,030
  Less:  Excess of specific identification cost over LIFO                               
     inventory value.........................................          8,853            8,198
                                                                 ------------     ------------
                                                                 $   222,445      $   312,832
                                                                 ============     ============
</TABLE>

     The LIFO method had the effect of  decreasing  income  (loss) before income
taxes for the thirteen  weeks ended  November 2, 1996 by $208,000 and increasing
income (loss) before income taxes for the thirteen  weeks ended November 1, 1997
by $655,000.  The effect of applying the LIFO method for the  thirty-nine  weeks
ended November 2, 1996 and November 1, 1997 was to decrease income (loss) before
income taxes by $599,000  and  increase  income  (loss)  before  income taxes by
$655,000, respectively.  Finlay determines its LIFO inventory value by utilizing
selected  producer price indices published for jewelry and watches by the Bureau
of Labor  Statistics.  Due to the  application of APB Opinion No. 16,  inventory
valued at LIFO for income tax reporting  purposes is  approximately  $22,000,000
lower than that for financial reporting purposes at February 1, 1997.

     Approximately  $194,276,000  and  $237,702,000  at  February  1,  1997  and
November 1, 1997, respectively,  of merchandise received on consignment has been
excluded  from  Merchandise  inventories  and  Accounts  payable-  trade  in the
accompanying Consolidated Balance Sheets.

     The cost to Finlay of gold merchandise sold on consignment, which typically
varies  with the price of gold,  is not fixed  until the sale is reported to the
vendor  following the sale of the  merchandise.  Finlay  frequently  enters into
futures  contracts,  based upon the anticipated  sales of gold product,  such as
options or  forwards,  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. At November 2, 1996 and
November 1, 1997, the gain/loss on open futures contracts was not material.

     In August 1995,  Finlay Jewelry  consummated a gold  consignment  agreement
(the "Gold  Consignment  Agreement")  with Rhode Island  Hospital Trust National
Bank  ("RIHT"),  which  expires  on  February  28,  1998.  The Gold  Consignment
Agreement  enables Finlay Jewelry to receive  merchandise by providing  gold, or
otherwise  making payment,  to certain vendors who currently  supply Finlay with
merchandise on consignment.  While the merchandise  involved remains  consigned,
the consignor and title to the gold content of the merchandise  changes from the
vendors to RIHT. As a result,  such vendors have reduced  their working  capital
requirements and associated financing costs. Consequently, Finlay has negotiated
more favorable prices and terms with the participating  vendors.  Finlay Jewelry
can obtain,  pursuant to the Gold Consignment Agreement, up to the lesser of (i)
85,000 fine troy ounces or (ii) $25,000,000 worth of gold,  subject to a formula
as prescribed by the Gold Consignment  Agreement.  At November 1, 1997,  amounts
outstanding  under  the Gold  Consignment  Agreement  totaled  50,398  fine troy
ounces, valued at approximately $15.7 million. For financial statement purposes,
the consigned gold is not included in  Merchandise  inventories on the Company's
consolidated balance sheet and therefore no related liability has been recorded.



                                              8
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.  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 (unaudited):
<TABLE>
<CAPTION>

                                                  Thirteen Weeks Ended              Thirty-Nine Weeks Ended
                                            ------------------------------        -----------------------------
                                              November 2,     November 1,          November 2,     November 1,
                                                  1996           1997                1996            1997
                                            -------------    -------------        -------------   -------------
                                                    (in thousands)                       (in thousands)
<S>                                         <C>              <C>                  <C>             <C>        
     Minimum fees................           $     1,290      $     1,935          $     3,727     $     5,745
     Contingent fees.............                20,476           22,201               60,918          63,906
                                            -------------    -------------        -------------   -------------
          Total..................           $    21,766      $    24,136          $    64,645     $    69,651
                                            =============    =============        =============   =============
</TABLE>

NOTE 5 - STOCKHOLDERS' EQUITY

     On March 5, 1997, a senior  officer of the Company  received  options under
the Company's  Long Term Incentive  Plan (the  "Incentive  Plan") to purchase an
aggregate of 139,719  shares of Common Stock at an exercise  price of $14.00 per
share. Such options vest and become exercisable on January 2, 2001.

     On March 6, 1997,  the Board of Directors  of the Company  adopted the 1997
Long Term  Incentive  Plan ("1997  Plan"),  which was approved by the  Company's
stockholders  in June  1997.  The 1997 Plan,  which is similar to the  Incentive
Plan,  is intended as a successor  to the  Incentive  Plan and  provides for the
grant of the same types of awards as are currently available under the Incentive
Plan.  An aggregate of 350,000  shares of the  Company's  Common Stock have been
reserved  for  issuance  pursuant to the 1997 Plan,  of which a total of 312,815
shares are  subject  to  options  granted  to  certain  senior  management,  key
employees and a director.  The exercise price of such options range from $13.875
per share to $14.875 per share.


                                              9
<PAGE>

                            FINLAY ENTERPRISES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - OTHER TRANSACTIONS

     On September 11, 1997,  Finlay amended its  $135,000,000  Revolving  Credit
Facility by (i)  increasing the line of credit to  $175,000,000,  (ii) including
eligible  international  assets in the borrowing  base formula,  (iii)  reducing
interest  rates,  (iv)  permitting  higher  balances  during the annual  balance
reduction period and (v) extending the maturity date from May 1998 to March 2003
(the "Revolving Credit Facility").

     On October 6, 1997, Finlay completed the previously  announced  acquisition
of certain assets of the Diamond Park Fine Jewelers division of Zale Corporation
("Diamond  Park"),  a leading  operator of departments,  for  approximately  $63
million,  which includes approximately $6 million for the purchase of additional
inventory to be acquired in February 1998 and for the  reimbursement  of certain
expenses to be incurred by the Zale  Corporation.  By  acquiring  Diamond  Park,
Finlay added 139 departments that had total sales of  approximately  $93 million
for the  twelve  months  ended  February  1, 1997 and also  added new host store
relationships  with  Mercantile  Stores,  Marshall  Field's and  Parisian.  Upon
completion of the acquisition of Diamond Park (the "Diamond Park  Acquisition"),
the line of credit was further increased to $225,000,000 and permitted  balances
during the annual  balance  reduction  period  were  further  increased.  Finlay
financed the Diamond Park Acquisition with borrowings under the Revolving Credit
Facility.

     On  October  21,  1997,  the  Company  completed  a  public  offering  (the
"Offering")  of 3,450,000  shares of its Common Stock,  at a price of $19.00 per
share,  of which  2,196,971  shares  were  issued  and sold by the  Company.  An
additional   1,253,029   shares   were  sold  by  existing   stockholders.   The
underwriters'  over-allotment was exercised in full. Net proceeds to the Company
from the Offering,  after deducting the underwriting  discount of $2,300,000 and
expenses of approximately  $1,300,000  incurred in connection with the Offering,
were  $38,100,000.  The Company  purchased  inventory using the net proceeds and
subsequently sold this inventory to Finlay Jewelry.  Upon the receipt of payment
for such inventory,  the Company  expects to use the funds for working  capital,
repayment of indebtedness or other general corporate purposes.








                                              10
<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:

Statement of Operations Data
(Unaudited)

<TABLE>
<CAPTION>

                                                      Thirteen Weeks Ended         Thirty-Nine Weeks Ended
                                                   ---------------------------   ---------------------------
                                                    November 2,    November 1,    November 2,    November 1,
                                                       1996          1997            1996         1997
                                                   ------------   ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>            <C>   
Sales............................................       100.0%         100.0%         100.0%         100.0%
Cost of sales....................................        48.3           48.2           48.4           48.6
                                                   ------------   ------------   ------------   ------------
    Gross margin.................................        51.7           51.8           51.6           51.4
Selling, general and administrative expenses.....        46.5           47.1           46.9           46.7
Depreciation and amortization....................         2.0            2.0            2.0            2.0
                                                   ------------   ------------   ------------   ------------
    Income (loss) from operations................         3.2            2.7            2.7            2.7
Interest expense, net............................         6.0            6.2            5.8            5.9
                                                   ------------   ------------   ------------   ------------
    Income (loss) before income taxes............        (2.8)          (3.5)          (3.1)          (3.2)
Provision (credit) for income taxes..............        (0.9)          (1.3)          (1.0)          (1.1)
                                                   ------------   ------------   ------------   ------------
    Net income (loss)............................        (1.9)%         (2.2)%         (2.1)%         (2.1)%
                                                   ============   ============   ============   ============
</TABLE>


     Thirteen  Weeks Ended  November 1, 1997 Compared with Thirteen  Weeks Ended
November 2, 1996

     Sales.  Sales for the thirteen weeks ended November 1, 1997 increased $12.6
million,  or 9.3%,  over the comparable  period in 1996.  Comparable  department
sales (departments open for the same months during comparable periods) increased
5.2%.  Management attributes this increase in comparable department sales to the
following Company  initiatives:  (i) introducing 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) implementing
project PRISM (Promptly Reduce Inefficiencies and Sales Multiply),  a management
initiative  designed to allow Finlay's sales  associates  more time for customer
sales and service. Sales from the operation of net new departments  (departments
not included in comparable  department  sales)  contributed $5.6 million,  which
included $6.3 million from the Diamond Park departments offset by the net effect
and timing of department openings and closings.  During the thirteen weeks ended
November 1, 1997,  Finlay opened 153 departments  and closed three  departments.
The  openings  included  139 Diamond  Park  departments  which were  acquired on
October 6, 1997.  The  remaining 14 openings and all of the closings were within
existing store groups.

     Gross margin. Gross margin for the period increased by $6.7 million and, as
a percentage of sales,  gross margin increased by 0.1%.  Excluding the effect of
LIFO, gross margin as a percentage of sales decreased by 0.4%. The decrease is a
result of management's  efforts to increase market  penetration and market share
through its "Key Item" and "Best Value"  programs,  which  produce  higher sales
volume and a slightly lower gross margin, on average, than other merchandise.


                                              11
<PAGE>

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative expenses ("SG&A") increased $6.8 million, or 10.8%, due primarily
to payroll  expense and lease fees associated with the increase in the Company's
sales,  as well as certain  duplicative  payroll and other expenses  incurred in
conjunction  with the  commencement  of the initial test phase of the  Company's
distribution  and  warehouse  facility,   which  is  expected  to  become  fully
operational in February 1998. As a percentage of sales,  SG&A increased by 0.6%,
but decreased  slightly  excluding the effect of the  distribution and warehouse
facility.

     Depreciation and amortization.  Depreciation and amortization  increased by
$0.3 million, reflecting an increase in capital expenditures for the most recent
twelve  months,   offset  by  the  effect  of  certain  assets   becoming  fully
depreciated.  This  increase  in fixed  assets  was due to the  addition  of new
departments and the renovation of existing departments.

     Interest   expense,   net.  Interest  expense  increased  by  $1.0  million
reflecting an increase in average  borrowings  ($355.8 million for the period in
1997 compared to $306.6 million for the comparable  period in 1996) primarily as
a result of the timing of inventory receipts during the 1997 period, an increase
in the outstanding  balance of the Company's 12% Senior Discount  Debentures due
2005 (the  "Debentures") due to the accretion of interest,  and the financing of
the Diamond Park Acquisition.  The increase in average  borrowings was partially
offset by a lower  weighted  average  interest  rate  (9.8% for the 1997  period
compared to 10.1% for the comparable period in 1996).

     Provision  (credit) for income taxes. The income tax provision for the 1997
and 1996 periods reflects an effective tax rate of 41.5%.

     Net income  (loss).  The net loss of $3.3  million  for the 1997 period was
$0.6 million higher than the net loss of $2.6 million for the comparable  period
in 1996 as a result of the factors discussed above.

     Thirty-Nine  Weeks Ended November 1, 1997 Compared with  Thirty-Nine  Weeks
Ended November 2, 1996

     Sales.  Sales for the  thirty-nine  weeks ended  November 1, 1997 increased
$27.4  million,  or  6.8%,  over  the  comparable  period  in  1996.  Comparable
department  sales  increased  5.5%.   Management  attributes  this  increase  in
comparable  department  sales  primarily  to the "Key  Item"  and  "Best  Value"
merchandising  programs and to the marketing  initiatives discussed above. Sales
from the  operation  of net new  departments  contributed  $5.2  million,  which
included $6.3 million from the Diamond Park departments offset by the net effect
and timing of department  openings and closings.  During the  thirty-nine  weeks
ended  November  1,  1997,   Finlay  opened  178  departments  and  closed  nine
departments.  The  openings  included 139 Diamond  Park  departments  which were
acquired on October 6, 1997.  The  remaining 39 openings and all of the closings
were within existing store groups.

     Gross margin.  Gross margin for the period  increased by $13.5 million but,
as a percentage of sales,  gross margin decreased by 0.2%.  Excluding the effect
of LIFO, gross margin as a percentage of sales decreased 0.4%. The decrease is a
result of management's  efforts to increase market  penetration and market share
through its "Key Item" and "Best Value"  programs,  which  produce  higher sales
volume and a slightly lower gross margin, on average, than other merchandise.

     Selling, general and administrative expenses. SG&A increased $12.3 million,
or 6.5%,  due primarily to payroll  expense and lease fees  associated  with the
increase in the Company's sales as well as certain duplicative payroll and other
expenses  incurred in conjunction with the Company's  distribution and warehouse
facility  discussed above. As a percentage of sales, SG&A decreased by 0.2% as a
result of the leveraging of these expenses.



                                              12
<PAGE>

     Depreciation and amortization.  Depreciation and amortization  increased by
$0.6 million, reflecting an increase in capital expenditures for the most recent
twelve  months,   offset  by  the  effect  of  certain  assets   becoming  fully
depreciated.  This  increase  in fixed  assets  was due to the  addition  of new
departments and the renovation of existing departments.

     Interest   expense,   net.  Interest  expense  increased  by  $1.9  million
reflecting an increase in average  borrowings  ($325.9 million for the period in
1997 compared to $286.4 million for the comparable  period in 1996) primarily as
a result of the timing of inventory receipts during the 1997 period, an increase
in the  outstanding  balance of the Debentures due to the accretion of interest,
and the  financing  of the Diamond  Park  Acquisition.  The  increase in average
borrowings was partially offset by a lower weighted average interest rate (10.0%
for the 1997 period compared to 10.2% for the comparable period in 1996).

     Provision  (credit) for income taxes. The income tax provision for the 1997
and 1996 periods reflects an effective tax rate of 41.5%.

     Net income  (loss).  The net loss of $8.9  million  for the 1997 period was
$0.3 million higher than the net loss of $8.6 million for the comparable  period
in 1996 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 and renovating
existing  departments.  For the  thirty-nine  weeks  ended  November 2, 1996 and
November 1, 1997, capital expenditures totaled  $12.5 million and $15.3 million,
respectively.  For 1996,  capital  expenditures  totaled  $17.5  million,  which
included initial  construction costs relating to the Company's  distribution and
warehouse facility. Capital expenditures for 1997, in total, are estimated to be
approximately  $19.0 million.  Although capital  expenditures are limited by the
terms  of the  Revolving  Credit  Facility,  to  date  this  limitation  has not
precluded the Company from satisfying its capital expenditure requirements.

     Finlay's  operations  substantially  preclude  consumer  receivables and in
recent years, on average, approximately 50% 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 $83.5 million at November
1, 1997,  an increase  of $5.9  million  from  February  1, 1997.  The  increase
resulted  from the net  proceeds to the  Company  from the  Offering,  which was
partially  offset by an increase in non-current  assets  relating to the Diamond
Park  Acquisition,  capital  expenditures and the impact of the interim net loss
exclusive of  depreciation  and  amortization.  Based on the seasonal  nature of
Finlay's business,  working capital  requirements and therefore borrowings under
the  Revolving  Credit  Facility 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 and November in  anticipation
of the year-end holiday season.  Accordingly,  Finlay experiences  seasonal cash
needs as inventory  levels peak. The Revolving  Credit Facility  provides Finlay
with a line of credit of up to $225.0 million to finance seasonal cash and other
working  capital  needs.  The  Revolving  Credit  Facility will  initially  bear
interest at a rate equal to, at Finlay's option,  (i) the Index Rate (as defined
in the Revolving Credit  Facility) plus 0.5% or  (ii) adjusted  LIBOR plus 1.5%.
Commencing in 1998, the Revolving  Credit  Facility will bear interest at a rate
equal to, at Finlay's option, (i) the Index Rate plus a margin ranging from zero
to 1.00% or (ii) adjusted  LIBOR plus a margin  ranging from 1.00% to 2.00%,  in
each case depending on the financial performance of the Company. Pursuant to the
indenture  relating to the Debentures (the "Debenture  Indenture"),  the Company
has pledged all of the issued and outstanding  shares of capital stock of Finlay
Jewelry  for the benefit of the  Debenture  holders.  Pursuant to the  agreement
relating to the Revolving Credit Facility (the

                                              13
<PAGE>

"Revolving  Credit  Agreement"),  Finlay  Jewelry  has  pledged  or caused to be
pledged  all of the  issued  and  outstanding  capital  stock (or  other  equity
securities)  of each of its direct and indirect  subsidiaries  (including  Sonab
Holdings,  Inc.,  Sonab  International,  Inc.  and Sonab) for the benefit of the
lenders under the Revolving Credit Facility.

     Pursuant to the Revolving  Credit  Agreement,  Finlay is required to reduce
the balance of the  Revolving  Credit  Facility in each year to $50.0 million or
less for a 30  consecutive  day period (the  "Balance  Reduction  Requirement").
However,  the  Debenture  Indenture  and the  indenture  (the "Note  Indenture")
relating to Finlay  Jewelry's 105/8% Senior Notes due 2003 (the "Notes") require
Finlay to reduce the balance of the  Revolving  Credit  Facility in each year to
$10.0  million or less for a specified  25  consecutive  day period.  Borrowings
under the  Revolving  Credit  Facility at November 1, 1997 were $170.2  million,
compared  to a  zero  balance  at  February  1,  1997  in  accordance  with  the
then-applicable  Balance Reduction Requirement and $100.0 million at November 2,
1996. The average amounts  outstanding were $79.6 million and $110.2 million for
the thirty-nine weeks ended November 2, 1996 and November 1, 1997, respectively.
The maximum amount  outstanding for the thirty-nine weeks ended November 1, 1997
was $189.2 million.

     Finlay  financed the Diamond Park  Acquisition  with  borrowings  under the
Revolving  Credit  Facility.  In addition,  the Company expects to use the funds
derived from the  Offering for working  capital,  repayment of  indebtedness  or
other general  corporate  purposes.  The Debenture  Indenture and Note Indenture
restrict  the  Company's  ability to use the net  proceeds  from the Offering to
repay indebtedness under the Revolving Credit Facility.

     Finlay  believes  that,  with the increased  borrowing  capacity  under the
Revolving Credit Facility,  it has sufficient  liquidity to meet its anticipated
working  capital  requirements  for both its  domestic  and foreign  operations.
Finlay does not expect  that  significant  additional  working  capital  will be
required in the  near-term  with  respect to the  operation  of the Diamond Park
departments  because  Finlay  purchased  the  inventory  of those  Diamond  Park
departments  which it acquired.  On a going-forward  basis,  Finlay expects that
inventory purchases for the Diamond Park departments will be financed in part by
trade payables combined with an increased  utilization of consignment  inventory
compared  to the amount of  consignment  merchandise  on hand at the time of the
Diamond Park  Acquisition.  As such,  management  believes  that future  working
capital requirements for the Diamond Park departments may be reduced as compared
to the  amount of  working  capital  required  at the time of the  Diamond  Park
Acquisition.  Finlay expects to incur certain expenditures of approximately $1.0
million associated with the integration of Diamond Park's operations.

     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 1996,  Finlay  had an average
balance of  consignment  merchandise  of $201.8 million from over 200 vendors as
compared  to an average  balance of  $208.5 million  in 1995.  As of November 1,
1997,  $237.7  million of  consignment  merchandise  was on hand as  compared to
$194.3 million at February 1, 1997 and $214.8 million at November 2, 1996.
 
     A substantial amount of Finlay's operating cash flow is or will be required
to pay,  directly  or  indirectly,  interest  with  respect to the Notes and the
Debentures and amounts due under the Revolving  Credit  Facility,  including the
payments required pursuant to the Balance Reduction Requirement.  As of November
1, 1997,  the  Company's  outstanding  borrowings  were  $388.7  million,  which
included a $83.5 million balance under the Debentures,  a $135.0 million balance
under  the  Notes  and a $170.2  million  balance  under  the  Revolving  Credit
Facility. On May 1, 1998, the Company will have a one-time option, in accordance
with the Debenture Indenture, to prepay all or a portion of the $39.0 million of
accreted  interest on the Debentures as of such date. It is the Company's intent
to prepay, subject to satisfaction of certain covenants and conditions, all or a
portion of such accreted interest to reduce outstanding indebtedness and to take
advantage of the resulting tax benefits relating

                                              14
<PAGE>

to the  deductibility  of such  prepayment in 1998. The Company  intends to fund
this prepayment  using  borrowings  under the Revolving Credit Facility or other
available funds including the funds derived from the Offering. The Debentures do
not pay cash interest until November 1, 1998.

     In August 1995, Finlay Jewelry consummated the Gold Consignment  Agreement,
which  expires on February  28, 1998.  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) 85,000 fine troy ounces or (ii)
$25,000,000  worth of gold,  subject  to a  formula  as  prescribed  by the Gold
Consignment  Agreement.  At November 1, 1997, amounts outstanding under the Gold
Consignment  Agreement totaled 50,398 fine troy ounces,  valued at approximately
$15.7  million.  The  average  amount  outstanding  under  the Gold  Consignment
Agreement was $11.9 million in 1996.

     Finlay has  implemented  financial and  distribution  software that is Year
2000 compliant.  Finlay has begun to assess the impact of the Year 2000 issue on
its remaining  operations,  including the  development of cost estimates for and
the extent of programming changes required to address this issue. Although final
cost estimates have yet to be determined, it is anticipated that these Year 2000
costs will result in an increase to Finlay's  expenses  during 1998 and 1999 and
are not expected to have a material impact on its ongoing results of operations.

     Finlay believes that, based upon current  operations,  anticipated  growth,
and availability  under the Revolving Credit Facility,  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.
The Revolving  Credit  Facility,  the Note  Indenture  and the Gold  Consignment
Agreement restrict  distributions from Finlay Jewelry to the Company to 0.25% of
Finlay  Jewelry's net sales for the preceding  fiscal year. The amounts required
to satisfy the  aggregate  of Finlay  Jewelry's  interest  expense and  required
amortization   payments   totaled  $19.7  million  and  $13.0  million  for  the
thirty-nine weeks ended November 2, 1996 and November 1, 1997, respectively.  As
a result of the closing date for the quarter under the retail calendar, the 1997
period  includes one  semiannual  interest  payment with respect to the Notes of
$7.2  million,  whereas the  comparable  period in 1996 included two payments of
$7.2 million each.

     Section 382 of the Internal  Revenue Code of 1986, as amended (the "Code"),
restricts  utilization  of net operating  loss  carryforwards  ("NOLs") after an
ownership  change  exceeding  50%.  As  a  result  of  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,  1996 (the  Company's  tax year
end), a NOL for tax purposes of approximately  $14.0 million which is subject to
an annual limit of approximately $2.0 million per year. For financial  reporting
purposes,  no NOL  existed  as of  February 1,  1997.  An  additional  change in
ownership within the meaning of Section 382 of the Code has occurred as a result
of  the  Offering.  However,  there  are no  additional  restrictions  upon  the
Company's ability to utilize its NOLs or other carryforwards as a result of such
ownership change.

     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 1, 1997 and the  thirty-nine
weeks ended November 1, 1997, 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  February  1, 1997.  In May 1997,  the  Company  entered  into a hedging
arrangement whereby

                                              15
<PAGE>

its exposure to the  fluctuation in the price of gold is limited for the balance
of 1997.  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 condition.

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 86% of its income  from  operations
(excluding  nonrecurring  charges) for 1994, 1995 and 1996. Finlay has typically
experienced  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 Facility.  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.

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 1933 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, trends in the general economy, competition in the retail
jewelry business,  the seasonality of the retail 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  dependence on
key officers,  the  Company's  ability to integrate the Diamond Park assets (and
any 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 place undue reliance 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 SEC pursuant to the Exchange Act.

                                              16
<PAGE>

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

 A.  Exhibits

 2   Not applicable.

 4   Not applicable.

10.1 Amendment  No. 3 dated as of January 31,  1997 to the Amended and  Restated
     Credit  Agreement dated as of March 28, 1995 among General Electric Capital
     Corporation  ("G. E. Capital"),  individually and in its capacity as agent,
     certain other lenders and  financial  institutions,  the Company and Finlay
     Jewelry  (incorporated  by  reference  to  Exhibit  10.1  to the  Company's
     Quarterly Report on Form 10-Q for the period ended August 2, 1997, as filed
     with the Commission on September 16, 1997).

10.2 Amended and Restated Credit  Agreement dated as of September 11, 1997 among
     G. E.  Capital,  individually  and in its capacity as agent,  certain other
     lenders  and  financial  institutions,   the  Company  and  Finlay  Jewelry
     ("Amended  Revolving  Credit  Agreement")  (incorporated  by  reference  to
     Exhibit 10.2 to the Company's  Quarterly Report on Form 10-Q for the period
     ended August 2, 1997, as filed with the Commission on September 16, 1997).

10.3 Amendment  No. 1 dated as of  September  11, 1997 to the Amended  Revolving
     Credit  Agreement  (incorporated  by  reference  to  Exhibit  10.3  to  the
     Company's  Quarterly  Report on Form 10-Q for the  period  ended  August 2,
     1997, as filed with the Commission on September 16, 1997).

10.4 Amendment  No. 2 dated  October  6, 1997 to the  Amended  Revolving  Credit
     Agreement  (incorporated by reference to Exhibit 10.25 (c) to the Company's
     Registration Statement on Form S-1 (Registration No. 333-34949)).

10.5 Amendment  No. 2 and Limited  Consent dated as of September 10, 1997 to the
     Gold Consignment  Agreement dated as of June 15, 1995 , as amended,  by and
     between  Finlay  Jewelry and Rhode  Island  Hospital  Trust  National  Bank
     (incorporated  by  reference  to Exhibit  10.4 to the  Company's  Quarterly
     Report on Form 10-Q for the period ended August 2, 1997,  as filed with the
     Commission on September 16, 1997).

10.6 Amendment  No. 3 and Limited  Consent dated as of September 11, 1997 to the
     Gold  Consignment  Agreement dated as of June 15, 1995, as amended,  by and
     between  Finlay  Jewelry and Rhode  Island  Hospital  Trust  National  Bank
     (incorporated  by  reference  to Exhibit  10.5 to the  Company's  Quarterly
     Report on Form 10-Q for the period ended August  2,1997,  as filed with the
     Commission on September 16, 1997).

10.7 Amendment No. 4 and Limited Consent dated as of October 6, 1997 to the Gold
     Consignment Agreement dated as of June 15, 1995, as amended, by and between
     Finlay Jewelry and Rhode Island Hospital Trust National Bank  (incorporated
     by reference to Exhibit 10.29 (e) to the Company's  Registration  Statement
     on Form S-1 (Registration No. 333-34949)).
 


                                              17
<PAGE>


10.8 Asset Purchase  Agreement dated September 3, 1997 by and among the Company,
     Finlay Jewelry,  Zale Corporation and Zale Delaware,  Inc  (incorporated by
     reference to Exhibit 10.6 to the  Company's  Quarterly  Report on Form 10-Q
     for the period  ended  August 2,  1997,  as filed  with the  Commission  on
     September 16, 1997).

10.9 Amendment to Employment  Agreement  between  David B.  Cornstein and Finlay
     Jewelry.

10.10 Omnibus Amendment to Registration Rights and Stockholder's Agreements.

10.11 Amendment No. 3 to the Company's Restated Retirement Income Plan (401(k)).

11    Computation of earnings per share.

15    Not applicable.

18    Not applicable.

19    Not applicable.

22    Not applicable.

23    Not applicable.

24    Not applicable.

27    Financial Data Schedule.

99    Not applicable.

B.    Reports on Form 8-K

     On September 8, 1997,  the Company filed with the  Securities  and Exchange
Commission  (the  "Commission")  a  Current  Report  on Form 8-K  regarding  the
Company's  announcement  that Finlay had entered  into an  agreement  to acquire
certain assets of the Diamond Park Fine Jewelers division of Zale Corporation.

     On October 17, 1997, the Company filed with the Commission a Current Report
on Form 8-K regarding (i) the consummation on October 6, 1997 of the acquisition
described in the preceding paragraph and (ii) the Company's and Finlay Jewelry's
having  refinanced their revolving credit facility with General Electric Capital
Corporation  and  certain  other  lenders  to  increase  the  amount   available
thereunder to $225 million.
 


                                              18
<PAGE>

                                   SIGNATURES


     Pursuant to the  requirements  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.



                                       FINLAY ENTERPRISES, INC.


 
Date: December 15, 1997                By:/s/ Barry D. Scheckner
                                          -------------------------------------
                                          Barry D. Scheckner, Senior Vice
                                          President and Chief Financial
                                          Officer
                                          (As both a duly authorized officer of
                                          Registrant and as principal financial
                                          officer of Registrant)
 





                                              19