<PAGE>   1
==============================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ---------

                                   FORM 10-K

                                   ---------

(MARK ONE)

      [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 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 0-22356

                                FRIEDMAN'S INC.
             (Exact name of registrant as specified in its charter)

 
                 DELAWARE                                    58-2058362
            (State or other                              (I.R.S. Employer
      jurisdiction of incorporation)                     Identification No.)


                              4 WEST STATE STREET
                            SAVANNAH, GEORGIA 31401
                    (Address of principal executive offices)
                                 (912) 233-9333
              (Registrant's telephone number, including area code)

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                      CLASS A COMMON STOCK, $.01 PAR VALUE
                                (Title of class)

         Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X   No
                                             ----   ----

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant (assuming, for purposes of this calculation,
without conceding, that all executive officers and directors are "affiliates")
was $186,864,687 at December 15, 1997, based on the closing sale price of
$14.3125 per share for the Class A Common Stock on such date on the Nasdaq
National Market.

         The number of shares of the registrant's Class A Common Stock
outstanding at December 15, 1997 was 13,116,037. The number of shares of the
registrants Class B Common Stock outstanding at December 15, 1997 was
1,492,402.
                      DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Proxy Statement for the Annual Meeting of Stockholders
to be held on February 26, 1998 are incorporated by reference in Part III.
===============================================================================

<PAGE>   2


                                FRIEDMAN'S INC.
                           ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                                                      PAGE    
NUMBER                                                                                    NUMBER 
------                                                                                    ------
<S>      <C>                                                                              <C>
                                     PART I

1.       BUSINESS                                                                           1

2.       PROPERTIES                                                                         7

3.       LEGAL PROCEEDINGS                                                                  8

4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                8

                                    PART II

5.       MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
         MATTERS                                                                            9

6.       SELECTED FINANCIAL DATA                                                           11

7.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS                                                             12

7(A).    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        20

8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                       20

9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE                                                              20

                                    PART III

10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                20

11.      EXECUTIVE COMPENSATION                                                            20

12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                    20

13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                    20

                                    PART IV

14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K                    21

SIGNATURES

EXHIBIT INDEX
</TABLE>
<PAGE>   3


                                    PART I.

ITEM 1.  BUSINESS.

         SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

         Certain of the matters discussed in this document and in documents
incorporated by reference herein, including matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may constitute forward-looking statements for purposes of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, and as such may involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
Friedman's Inc. ("Friedman's" or the "Company") to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements. The words "expect," "anticipate," "intend," "plan,"
"believe," "seek," "estimate," and similar expressions are intended to identify
such forward-looking statements. The Company's actual results may differ
materially from the results anticipated in these forward-looking statements due
to a variety of factors, including without limitation those discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Performance." All written or oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by these cautionary statements.

GENERAL

         Friedman's is a rapidly growing specialty retailer of fine jewelry
operating 425 stores in 22 states as of the 1997 Christmas selling season, which
are located primarily in the southern United States. The Company positions
itself as "The Value Leader(R)" by offering competitive prices, a broad
merchandise selection and a high level of customer service that appeals to its
target customer of low to middle income consumers aged 18 to 45 years old. The
Company's real estate expansion strategy focuses primarily on opening new stores
in power strip centers in small cities and towns. Friedman's believes it has
developed a distinctive franchise based on, among other things, its value
orientation, loyal customer base and strong name recognition having served the
southeast since 1925.

STORE LOCATIONS

         The Company plans to continue its store expansion by opening new
stores in both existing and new markets, focusing primarily on power strip
centers with selective expansion into regional malls. The Company typically
expands from existing markets into contiguous new markets and attempts to
concentrate its stores within a market in order to leverage advertising and
supervisory costs. As defined by the Company, power strip centers are shopping
centers which are anchored by major discount retailers such as Wal-Mart Stores,
Inc. or K-Mart Corporation and often include other mass merchandisers.

         The following table sets forth the Company's store openings and
closings for its last five full fiscal years:

                                     - 1 -
<PAGE>   4

<TABLE>
<CAPTION>

                                                            FISCAL YEAR ENDED
                                                              SEPTEMBER 30,
                                            1997     1996     1995     1994     1993
                                            ----     ----     ----     ----     ----
      <S>                                   <C>      <C>      <C>      <C>      <C>
      Number of Stores
         Beginning of Period ..........      301      215      141       85       55
         Opened .......................       90       90       77       56       33
         Closed .......................        7        4        3        0        3
                                            ----     ----     ----     ----     ----
         Total at Period End ..........      384      301      215      141       85
                                            ====     ====     ====     ====     ====
      Percentage growth over
         prior period end .............     27.6%    40.0%    52.5%    65.9%    54.5%
</TABLE>


         It is the Company's policy, generally, to allow a new store two
Christmas seasons to attain the profitability and sales goals set by the
Company before considering closing a store.

         As of September 30, 1997, the Company operated 384 stores in 21
states. The following table provides information regarding the location and
number of stores operated by the Company as of September 30, 1997, 1996, 1995,
1994 and 1993.

<TABLE>
<CAPTION>


                                                            SEPTEMBER 30,
                                                            -------------
STATE                                     1997           1996          1995          1994            1993
-----                                     ----           ----          ----          ----            ----
<S>                                       <C>            <C>           <C>           <C>             <C>           
Georgia....................                 61             58            53            43              32
North Carolina.............                 54             50            40            33              18
South Carolina.............                 38             34            29            28              21
Tennessee..................                 23             16            10             2               1
Texas......................                 22              8             1             0               0
Louisiana..................                 22             21            13             0               3
Virginia...................                 22             14             7             3               2
Florida....................                 21             19            19            15               7
Mississippi................                 21             21            19             7               0
Alabama....................                 18             17            11             7               0
Kentucky...................                 16             12             5             3               1
Arkansas...................                 13              8             4             0               0
Oklahoma...................                 13              6             0             0               0
Maryland...................                 11              1             0             0               0
Missouri...................                  9              6             1             0               0
Ohio.......................                  7              5             3             0               0
Indiana....................                  5              2             0             0               0
Illinois...................                  4              1             0             0               0
Delaware...................                  2              0             0             0               0
Iowa.......................                  1              1             0             0               0
West Virginia..............                  1              1             0             0               0
                                          ----           ----          ----          ----            ----

         Total.............                384            301           215           141              85
                                          ====           ====          ====          ====            ====  
</TABLE>

         For the 1997 Christmas selling season, the Company operated 425 stores
of which 250 stores were in power strip centers and 175 stores were in regional
malls.

CUSTOMER SERVICE

         Friedman's has been dedicated to providing quality customer service to
its customer base, comprised primarily of low to middle income consumers in the
18 to 45 year-old age group, for 

                                     - 2 -
<PAGE>   5


approximately 70 years. Pursuant to Company guidelines, the Company features a
flexible trade-in and 30-day return policy, a credit program for qualified
purchasers, guaranteed trade-ins on all diamond merchandise and numerous
customer appreciation events throughout each year. Pursuant to Company
guidelines, "Store Partners" (a title that reflects the Company's philosophy
that each store should be operated to the greatest extent possible as an
independent business) are primarily responsible for cultivating and maintaining
relationships with customers. Friedman's believes that in the highly
competitive retail jewelry industry, customer satisfaction cannot be emphasized
enough and further believes that its customer satisfaction program is important
in order to continue to create and maintain successful relationships with its
customers.

CREDIT OPERATIONS

         The Company's credit programs are an integral part of its business
strategy. Opening a credit account allows Friedman's sales personnel to build
relationships with customers that the Company believes engender customer
loyalty and facilitate repeat purchases. To support this strategy, the Company
has developed a standardized system for extending credit and collecting
accounts receivable according to its strict credit disciplines. Credit
applications can be processed at each store, which provides customers with
access to convenient credit. The Company encourages its credit customers to
make monthly payments in person at a store and the majority do so, generating
additional store traffic and potential purchases. The Company also accepts
major credit cards and accounts for credit card purchases as cash sales.

         Consistent with industry practice, Friedman's encourages the purchase
of credit insurance products in connection with sales of merchandise on credit.
The Company sells such products as an agent for a third-party insurance company
and maintains a reinsurance contract with the insurance company ("Insurance
Company").

         As of September 30, 1997, the Company had approximately 226,000 credit
accounts with an average net principal balance per account of approximately
$340.

         Credit Extension. As a customer service and control measure, credit
applications, references and credit bureau reports are evaluated by store
personnel using the Company's proprietary computer-based credit analysis
system. The system allows the Store Partner to assess the risk level for each
customer on a statistically objective basis and assists the Company in
determining the appropriate credit limit as well as stipulations regarding the
type of credit contract, suggested down payment and terms for which the
customer is eligible.

         Collections. Collection of accounts is, to a large extent, managed at
the store level. Accounts are processed five times each month in the Company's
central office, with the first three past due notices being sent from the
central office. An installment contract is considered delinquent if the
customer is seven days past due, at which time the customer receives the first
of three notices from the central office. When an account is 14 days past due,
the customer incurs a late charge, which is generally the lesser of 5% of the
amount due or $5.00. If a payment is not received within 21 days after the due
date, a more forceful reminder is sent to the customer, which is the third and
last notice sent from the central office. If a payment has not been received
within 30 days after the due date, a report known as the delinquency report is
generated at the central office and distributed to the appropriate store, and
the store then takes over all collection activity. This collection activity
consists of phone calls and further notices being sent seven days apart.  When
the Company deems it appropriate, legal action, such as pursuing remedies in
small claims or other courts, may be approved by the supervisor.

         The Company's policy is to write-off in full any credit account
receivable if no payments have been received for 120 days, and any other credit
accounts receivable, regardless of payment history, if judged uncollectible
(for example, in the event of fraud in the credit application or bankruptcy).
Once the 

                                     - 3 -
<PAGE>   6

account has been written off, it is referred to an outside collection agency.
The Company maintains an allowance for uncollectible accounts based in part on
historical experience. In fiscal 1997, the allowance was maintained at 10.0% of
the accounts receivable balance. The Company expects that any downturn in
general economic conditions in the markets in which it operates would adversely
affect its collection of outstanding credit accounts receivable.

         The following table presents certain information related to the
Company's credit operations for the last five fiscal years:

<TABLE>
<CAPTION>

                                                    FISCAL YEAR ENDED SEPTEMBER 30,
                                                    -------------------------------
                                                1997           1996          1995         1994          1993
                                                ----           ----          ----         ----          ----
                                                            (IN THOUSANDS)
<S>                                         <C>            <C>           <C>         <C>           <C>        
Total revenues..................            $237,292       $192,177      $137,599    $  85,299     $  53,143
Revenues attributable to credit
         sales(1)...............             145,127        120,261        85,524       53,495        32,614
Accounts receivable(2)..........              85,361         70,277        50,044       32,283        19,561
Allowance for doubtful
    accounts as a percentage
    of accounts receivable......                10.0%          10.0%         10.0%        10.0%         10.1%
Net charge-offs as a percentage
    of credit sales revenue.....                14.8%          11.4%          8.8%         6.7%          4.9%
</TABLE>


--------------------
(1)      Revenues attributable to credit sales constitute merchandise and 
         product warranties sold pursuant to Company's proprietary credit 
         program as well as earned finance charges and credit insurance.
(2)      Accounts receivable are stated net of unearned finance charges and 
         credit insurance.

         The Company's policy is to review delinquency and net write-offs on 
a monthly basis and adjust the provision for doubtful accounts so that the 
accounts are stated at estimated net realizable value.

STORE MANAGEMENT

         Each of the Company's stores is operated under the direction of a
Store Partner, a title which reflects the Company's philosophy that each store
should be operated to the greatest extent possible as an independent business
unit. Store Partners are responsible for management of all store-level
operations including sales, credit extension and collection and payroll and
personnel matters. Store Partners are assisted by a staff which includes an
assistant manager, and two to five sales associates. The Company's manager
trainees complete a manager training and development program, and are one of the
principal sources for future Store Partners. Sales associates are provided with
written manuals containing Company policies and procedures and other training
materials and are also trained on-site by supervisory personnel. Twenty-Six
"Senior Partners," each responsible for approximately 13 stores, and 13
"District Partners," each responsible for approximately 4 stores including their
own, oversee the operations of the Company's stores and evaluate the performance
of the Store Partners. Senior Partners report to 6 Regional Vice Presidents,
each responsible for approximately 20 to 70 stores and two Division Presidents,
each responsible for approximately 95 to 105 stores. Senior Partners, Regional
Vice Presidents and Division Presidents interact on a daily basis with the
Company's senior management to review individual store performance. The Company
believes that its decentralized store management structure enables senior
management as well as Senior Partners, Regional Vice Presidents and Division
Presidents to maintain a focus on the Company's daily operating disciplines and
the needs of the Company's target customers while allowing the Company to
continue its expansion.

         The Company believes that the quality of its sales personnel is a key
to its success in the highly competitive jewelry industry. The Company seeks to
motivate its store employees by linking a substantial 

                                     - 4 -
<PAGE>   7

percentage of their compensation to store performance, specifically sales and
cash flow, as well as by offering opportunities for promotion within the
Company. In addition, the Company has granted stock option awards under the
Company's stock option plans to each of the Store Partners on an annual basis
in order to relate the Store Partners' and the stockholders' long-term interest
by creating a strong and direct link to compensation and stockholder return.
Friedman's also offers an employee stock purchase plan.

ADVERTISING AND PROMOTIONS

         Friedman's advertising seeks to position the Company as "The Value
Leader(R)" in the specialty retail fine jewelry business in the markets that it
serves. Frequent special promotions such as diamond remount events and
clearance sales are designed to boost traffic through the Company's stores and
generate an urgency for customers to make purchases. Store grand openings are
an important aspect of the Company's overall advertising plan. The Company has
formulated a unique "work the town" advertising effort around the grand opening
and Store Partners personally invite key local residents and businesses to
attend.

         The Company's principal advertising vehicles consist of direct
mailings, promotions within stores, television and radio commercials, local and
regional newspaper advertisements and advertising circulars. The Company
believes the efficiency of its advertising activities is enhanced as store
density continues to increase in the Company's major advertising markets.

MERCHANDISING

         Each Friedman's store offers a wide variety of affordable jewelry
products, including diamonds, gemstones, rings, gold jewelry and chains,
watches and other fine jewelry. The Company principally sells diamonds and
gemstones, and for fiscal 1997, 1996 and 1995, these products represented
approximately 66.7%, 64.6% and 64.4%, respectively, of the Company's net
merchandise sales. Friedman's stores offer a broad range of diamonds up to one
carat and occasionally place special orders for larger diamonds.

         The gold jewelry sold in the Company's stores are primarily 10 and 14
karat, and for fiscal 1997, 1996 and 1995, these products represented
approximately 24.0%, 26.9% and 27.4% of the Company's net merchandise sales.

         Sales of wedding-related products accounted for approximately 30.7%
and 29.6% of the Company's sales in fiscal 1997 and fiscal 1996, respectively.
Although the Company's wide range of products and prices is designed to appeal
to a broad customer base, its wedding-related and other products particularly
attract young adults.

PURCHASING

         The Company does not manufacture its merchandise. The Company
purchases complete diamond and other gemstone jewelry, watches and gold jewelry
from vendors, in the United States and abroad. The Company also subcontracts
with jewelry finishers to set loose gems into rings and jewelry, using
styles selected by Friedman's. The Company maintains a quality control program,
with all items being inspected upon receipt at the Company's offices after
setting. The Company believes that it is not reliant upon any one supplier or
subcontractor, in that it could replace without material difficulty any single
supplier or subcontractor with a competing firm.

         The jewelry industry generally is affected by fluctuations in the
prices of gold and diamonds and, to a lesser extent, other precious and
semi-precious metals and stones. The Company does not maintain long-term
inventories or otherwise hedge against fluctuations in the cost of diamonds and
gold. A significant increase in prices or decrease in the availability of gold
or diamonds could have a material

                                     - 5 -
<PAGE>   8


adverse effect on the Company's business. The recent drop in gold prices has not
had a significant impact on the Company's pricing and profitability. The supply
and price of diamonds in the principal world markets are influenced by a single
entity, the Central Selling Organization (the "CSO"), a marketing arm of DeBeers
Consolidated Mines Ltd. of South Africa. The availability of diamonds to the CSO
and the Company's suppliers is to some extent dependent on the political
situation in diamond producing countries, such as South Africa, Botswana, Zaire,
the Russian republics and Australia, and on the continuance of the prevailing
supply and marketing arrangements for raw diamonds. Until alternate sources
could be developed, any sustained interruption in the supply of diamonds from
the producing countries could adversely affect the Company and the retail
jewelry industry as a whole.

SYSTEMS AND CONTROLS

         The Company's management information system utilizes an IBM
AS/400-based system. The management information system uses customized software
which was specifically designed for the retail jewelry industry. Utilizing the
system, the Company can monitor sales, gross margin and inventory performance
by location, merchandise category and individual item.

         The Company uses the management information system to closely monitor
inventory levels, shifting inventory among stores when necessary, and identify
slow moving inventory which the Company then disposes of through discount
sales. The system also enables management to monitor the Company's credit
operations. Supervisors and senior management can review and analyze credit
activity by store, amount of sale, terms of sale or employees who approved the
sale. The entire credit extension and collection process is automated and the
system maintains all customer data to facilitate future credit transactions.
Credit collections are simplified by the system which automatically prints
reminder letters to customers with past due accounts.

         Utilizing the management information system, senior management and
regional supervisors can monitor each store's and each employee's productivity
and performance. The system automatically provides a daily reconciliation of
such store's transactions so that Store Partners can investigate discrepancies
on a timely basis. Overall, the system provides information that enables the
Company to monitor merchandise trends and variances in performance and improve
the efficiency of its inventory and personnel management.

COMPETITION

         The retail jewelry industry is highly competitive. Management believes
that the primary elements of competition in the industry are breadth and depth
of merchandise offered, pricing, quality of sales personnel, advertising, the
ability to offer in-house credit, store location and reputation. The ability to
compete effectively is also dependent on volume purchasing capability, regional
market focus and credit control and information systems.

         The Company is the sole retail jewelry store in the majority of the
power strip centers in which it operates. However, Friedman's power strip
center stores face competition from small independent jewelers in the local
area, many of which are family owned. The Company believes that its ability to
offer greater breadth and depth of product selection, generally lower prices,
more extensive advertising and promotion and proprietary customer credit
programs provides Friedman's with a competitive advantage over these local
jewelers.

         The Company's mall stores compete with major national jewelry chains,
such as Zale Corporation, which includes the Zale's and Gordon's operations,
Sterling, Inc., which includes Kay Jewelers, Marks Bros. Jewelers, Inc. and
Helzberg's Diamond Shops, Inc., regional jewelry chains, independent jewelers
and major department stores.

                                     - 6 -
<PAGE>   9


Typically, one or more of these competitors are located in the same regional
mall as the Company's mall stores, including jewelry kiosks such as Piercing
Pagoda. In addition, recently some of the Company's competitors have established
non-mall based stores in major metropolitan areas which offer a large selection
of jewelry products. The Company also competes with catalog showrooms, discount
stores, direct suppliers and home-shopping television programs, as well as
credit card companies and other providers of consumer credit. Certain of the
Company's competitors are substantially larger and have greater financial
resources than the Company. The Company also believes that it competes for
consumers' discretionary spending dollars with retailers that offer merchandise
other than fine jewelry. The foregoing competitive conditions may adversely
affect the Company's revenues, profitability and ability to expand.

TRADENAME

         The Company has been doing business under the "Friedman's Jewelers"
tradename for approximately 70 years. The Company also uses the "Regency
Jewelers" tradename in 27 locations as of September 30, 1997. The Company first
began use of this tradename in 1979 when the Company opened a second retail
jewelry store in the same mall, but decided it did not want to operate both
stores under the same tradename and continued the use of the name where
advantageous for advertising or marketing purposes. With the acquisition of all
the rights of A. A. Friedman Co., Inc. of Augusta, Georgia ("AAFCO") to the
Friedman's Jewelers tradename, the Company plans to change substantially all of
the Regency Jewelers stores to Friedman's Jewelers stores.

EMPLOYEES

         As of September 30, 1997, the Company had 2,550 employees. None of the
Company's employees are members of unions. The Company believes that its
relations with its employees are good.

GOVERNMENT REGULATIONS

         The extension of credit to consumers is a highly regulated area of the
Company's business. Numerous federal and state laws impose disclosure and other
requirements upon the Company's origination, servicing and enforcement of credit
accounts. These laws include the Federal Truth in Lending Act, Equal Credit
Opportunity Act and Federal Trade Commission Act. State laws can impose
limitations on the maximum amount of finance charges that may be charged by a
credit provider, such as Friedman's, and also impose other restrictions on
creditors (including restrictions on collection and enforcement) in consumer
credit transactions. Friedman's periodically reviews its contracts and
procedures for compliance with consumer credit laws with a view to making any
changes therein required to comply with such laws. Failure on the part of the
Company to comply with such laws could expose it to substantial penalties and
claims for damages and, in certain circumstances, may require the Company to
refund finance charges already paid, and to forego finance charges not yet paid
under non-complying contracts. Management believes that the Company is in
material compliance with such laws, and to date the Company has not experienced
any penalties or losses associated with such laws.

         The sale of credit life, health and property and casualty insurance
products by the Company is also highly regulated. State laws currently impose
disclosure obligations with respect to the Company's sale of credit and other
insurance products similar to those required by the Federal Truth in Lending
Act, impose restrictions on the amount of premiums that may be charged, and
also require licensing of certain Company employees. The Company believes it is
in compliance in all material respects with all applicable laws and regulations
relating to its insurance business.

ITEM 2.  PROPERTIES.

         The Company leases all of its stores. The Company's typical mall lease
is for a period of 7 to 10 years and includes a minimum base rent, a percentage
rent based on store sales and a significant common area maintenance charge. The
Company's power strip store leases typically have a three-year lease term with
several three-year options to renew the lease and have lower occupancy costs
than the mall store leases. Generally, under the terms of all of its leases,
the Company is required to maintain and conform

                                     - 7 -
<PAGE>   10


its usage of the premises to agreed standards, often including required
advertising expenditures as a percentage of sales.

         An affiliate owns the buildings in which the Company's headquarters
and one store are located in Savannah, Georgia. The Company paid rent of
approximately $92,000 to the affiliate in fiscal 1997 for use of the space it
occupies in these buildings. The building in which the Company's headquarters is
located contains approximately 19,000 square feet of office and administrative
space. The lease on this building expires in May 1998, with one option to renew
for an additional two-year term.

ITEM 3.  LEGAL PROCEEDINGS.

         The Company is involved in certain legal actions arising in the
ordinary course of business, but management believes that none of these
actions, either individually or in the aggregate, will have a material adverse
effect on Friedman's business, financial condition or results of operations.

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

         No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of the fiscal year ended September 30, 1997.

                                     - 8 -

<PAGE>   11



                                    PART II.

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS.

COMMON STOCK PRICE

         The Company has two classes of Common Stock -- Class A Common Stock and
Class B Common Stock. The Company's Class A Common Stock is traded on the Nasdaq
National Market (trading symbol "FRDM") and began trading publicly on October
14, 1993. There is no established public trading market for the Class B Common
Stock. The following table sets forth the quarterly high and low last sale
prices per share of the Class A Common Stock as reported by The Nasdaq Stock
Market for the latest two full fiscal years.

<TABLE>
<CAPTION>

                                                                                   HIGH              LOW
                                                                                   ----              ---  
 <S>                                                                              <C>               <C>
 FISCAL YEAR ENDED SEPTEMBER 30, 1997
 ------------------------------------
          First Quarter.................................................          $19.25            $13.25
          Second Quarter ...............................................          $17.88            $12.63
          Third Quarter ................................................          $23.00            $15.63
          Fourth Quarter ...............................................          $22.75            $15.00


                                                                                   HIGH              LOW
                                                                                   ----              ---
 FISCAL YEAR ENDED SEPTEMBER 30, 1996
 ------------------------------------
          First Quarter.................................................          $23.25            $18.88
          Second Quarter ...............................................          $20.00            $16.25
          Third Quarter.................................................          $29.38            $19.00
          Fourth Quarter ...............................................          $26.00            $18.50
</TABLE>

          
HOLDERS

         As of December 15, 1997, there were 103 record holders of the Class A 
Common Stock and two record holders of the Class B Common Stock. The Company
estimates that there are approximately 2,600 beneficial owners of the Class A
Common Stock.

DIVIDEND POLICY

         The policy of the Company's Board of Directors is to retain earnings
to provide funds for the operation and expansion of the Company's business and,
therefore, the Board of Directors has not paid any cash dividends on the Class
A Common Stock or the Class B Common Stock in the past and does not anticipate
paying any cash dividends in the foreseeable future. Future dividends, if any,
will be determined by the Board of Directors and will be based upon the
earnings, capital requirements and operating and financial condition of the
Company, among other factors, at the time any such dividends are considered. In
addition, the Company's ability to pay dividends is restricted by its credit
facilities, which prescribe certain income and asset tests that affect the
amount of any dividend payments. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and Note 2 of Notes to Consolidated Financial Statements.

                                     - 9 -
<PAGE>   12


RECENT STOCK SALES

         Set forth below is information regarding all sales of securities by
the Company during the fiscal year ended September 30, 1997 which were not
registered under the Securities Act of 1933, as amended:

<TABLE>
                  <S>      <C>
                  (a)      Securities Sold:  May 16, 1997, 250,000 shares of Class A Common Stock

                  (b)      Underwriters and other Purchasers:

                           Underwriters:    None.
                           Purchaser:       A.A. Friedman Co., Inc. ("AAFCO")

                  (c)      Consideration:  Shares issued as consideration for the Company's acquisition of
                                           all the rights of AAFCO to the Friedman's Jewelers tradename.

                  (d)      Exemption:  Section 4(6) of the Securities Act of 1933.

                  (e)      Terms of Conversion or Exercise:  None.
</TABLE>

                                    - 10 -

<PAGE>   13


ITEM 6.  SELECTED FINANCIAL DATA.

         The following statement of income and balance sheet data for
fiscal years ended September 30, 1993 through September 30, 1997 were derived
from the audited Consolidated Financial Statements of the Company. This data
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere herein.

<TABLE>
<CAPTION>

                                                                        FISCAL YEAR ENDED SEPTEMBER 30,
                                              ---------------------------------------------------------------------------
                                                      1997             1996            1995           1994        1993(1)
                                                      ----             ----            ----           ----        -------    
                                                   (Dollars in thousands except per share amounts)
<S>                                           <C>              <C>             <C>             <C>            <C>          
STATEMENT OF INCOME DATA:

Net merchandise sales ......................  $   208,304      $    169,407    $    122,350    $    75,534    $    47,396
Finance charges and other ..................       28,988            22,770          15,249          9,765          5,747
                                              ------------     ------------    ------------    -----------    -----------
Total revenues .............................      237,292           192,177         137,599         85,299         53,143
Cost of goods sold, including occupancy,
 distribution and buying....................      106,778            86,068          61,840         37,373         23,426   
Selling, general and administrative
 expenses...................................       72,949            59,871          46,338         27,739         17,791
Depreciation and amortization ..............        4,177             3,321           2,516          2,137          1,599
Provision for doubtful accounts ............       22,981            15,643           9,311          4,611          2,484
Interest (income) expense ..................         (665)            2,197           4,102          3,998          5,800
                                              -----------      ------------    ------------    -----------    -----------
Income before extraordinary item
 and income taxes(2)........................       31,072            25,077          13,492          9,441          2,043
Income tax expense .........................       11,805             9,548           3,065          3,586             --
                                             ------------      ------------    ------------    -----------    -----------
Income before extraordinary item ...........       19,267            15,529          10,427          5,855          2,043
Extraordinary item (net of taxes)(2)........           --            (1,696)             --             --             --
                                             ------------      ------------    ------------    -----------    -----------
Net income .................................       19,267      $     13,833    $     10,427    $     5,855    $     2,043
                                             ============      ============    ============    ===========    ===========
Net income  as reported ....................                                                                  $     2,043
Pro forma income tax provision(3) ..........                                                                          776
                                                                                                              -----------
Pro forma net income (4) ...................                                                                  $     1,267
                                                                                                              ===========
Earnings per share before extraordinary
 item(4).................................... $       1.33      $       1.19    $       0.97    $      0.63    $      0.23   
Weighted average common shares
 outstanding................................   14,539,000        13,031,000      10,722,000      9,292,000      5,606,700

OTHER OPERATING DATA:

Number of stores (end of periods) ..........          384               301             215            141             85
Percentage increase in number of stores
 (end of periods)...........................         27.6%             40.0%           52.5%          65.9%          54.5%
Percentage increase (decrease) in comparable
 store sales(5).............................         (1.5%)             2.9%           13.3%           8.2%          10.0%
</TABLE>

  

<TABLE>
<CAPTION>

                                                                    SEPTEMBER 30,
                                          -----------------------------------------------------------------
                                              1997         1996         1995          1994         1993
                                              ----         ----         ----          ----         ----
   <S>                                      <C>          <C>          <C>           <C>          <C>          
   BALANCE SHEET DATA:

   Accounts receivable, net............     $76,825      $63,221      $45,020       $29,052      $17,585
   Inventories.........................      78,683       64,307       45,175        27,207       17,308
   Working capital.....................     126,460      122,241       77,779        43,708        9,272
   Total assets........................     223,351      175,614      121,738        67,119       43,548
   Long-term debt......................      19,397           --       22,369        34,624       37,083
   Stockholders' equity (deficit)......     171,548      147,354       74,963        19,121      (20,231)
</TABLE>

                                                       (Footnotes on next page)

                                    - 11 -

<PAGE>   14


-----------------------------
(1)  In May 1990, certain assets currently held by the Company were purchased
     from Friedman's Jewelers, Inc. and its affiliates ("FJI") by MS Jewelers
     Limited Partnership (the "Partnership"). The Company was incorporated in
     July 1993 and substantially all of the assets and liabilities of the
     Partnership were transferred to the Company in October 1993 in exchange
     for 5,606,700 shares of the Class B Common Stock of the Company.
(2)  Extraordinary item in fiscal 1996 of $1,696,000 net of applicable income
     taxes reflects the payment of a make whole amount of $2,800,000 relating
     to the early repayment of the Company's 14.25% Senior Subordinated Debt.
(3)  Pro forma income taxes reflect the Company's projected provision for
     income taxes for fiscal 1993 as if it had been a corporation for the
     entire period, without consideration of net operating loss carryforwards
     which would not be available to the corporation for periods subsequent to
     June 30, 1993.
(4)  Earnings per share before extraordinary item for the year ended September 
     30, 1993 is computed on a pro forma basis based on the weighted average
     number of shares of Common Stock outstanding assuming substantially all of
     the assets and liabilities of the Partnership had been exchanged for
     5,606,700 shares of Class B Common Stock on October 1, 1991. Additionally,
     pro forma taxes of $776,000 are subtracted from net income for fiscal 
     1993. 
(5)  A new store becomes a comparable store in the first full
     month following the anniversary of the opening of such store.


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

         As used herein, the terms "fiscal 1997," "fiscal 1996" and "fiscal
1995" refer to the Company's fiscal years ended September 30, 1997, 1996, and
1995, respectively.


RESULTS OF OPERATIONS

         The following table sets forth certain percentage relationships based
on the Company's Consolidated Income Statements for the periods indicated.

<TABLE>
<CAPTION>
                                                                       FISCAL YEAR ENDED SEPTEMBER 30,
                                                             ----------------------------------------------------
                                                                   1997             1996              1995
                                                               ------------     ------------        --------
         <S>                                                   <C>              <C>                 <C>               
         Net merchandise sales..............................        87.8%            88.2%             88.9%
         Finance charges and other..........................        12.2             11.8              11.1
                                                                   -----            -----             -----
         Total revenues.....................................       100.0            100.0             100.0
         Cost of goods sold including occupancy,
             distribution and buying (1)....................        51.3             50.8              50.5
         Selling, general and administrative expenses.......        30.7             31.2 (2)          33.7 (3)
         Depreciation and amortization......................         1.8              1.7               1.8
         Provision for doubtful accounts....................         9.7              8.1               6.8
         Interest (income) expense..........................        (0.3)             1.1               3.0
                                                                   -----            -----             -----
         Income before extraordinary item and income taxes..        13.1             13.0               9.8
         Income tax expense.................................         5.0              5.0               2.2
                                                                   -----            -----             -----
         Income before extraordinary item                            8.1              8.1               7.6
         Extraordinary item (net of taxes)..................       -----              (.9)            -----
         Net income.........................................         8.1%             7.2%              7.6%
                                                                   =====            =====             =====
</TABLE>
         -----------------------------
         (1)   Cost of goods sold, including occupancy, distribution and
               buying, is expressed as a percentage of net merchandise sales.
               All other percentages are expressed as a percentage of total
               revenues.

                                    - 12 -

<PAGE>   15


         (2)   Selling, general and administrative expenses for the year ended
               September 30, 1996 include $2.1 million of compensation expense
               related to the Company's long-term incentive program. Excluding
               this charge, selling, general and administrative expenses as a
               percentage of total revenues would have been 30.1%.
         (3)   Selling, general and administrative expenses for the year ended
               September 30, 1995 include a $3.2 million provision for legal
               costs and $900,000 of compensation expense related to the
               Company's long-term incentive program. Excluding these two
               charges, selling, general and administrative expenses as a
               percentage of total revenues would have been 30.7%.


FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

     Total revenues increased 23.5% to $237.3 million in the fiscal year ended
September 30, 1997, from $192.2 million in the fiscal year ended September 30,
1996. Net merchandise sales in fiscal 1997 increased 23.0%, or approximately
$38.9 million, compared to fiscal 1996. Of the $38.9 million increase in net
merchandise sales, $41.4 million, or 106.4% of the increase resulted from
additional sales contributions from 83 net new stores opened during fiscal 1997,
offset by a decrease of $2.5 million, or 1.5% in comparable store sales in
fiscal 1997. Finance charges and other revenue increased 27.3% to $29.0 million
in fiscal 1997 from $22.8 million in fiscal 1996 due to increased credit sales
and increased accounts receivable, which are primary factors for determining
finance charge revenues.

         Cost of goods sold, including occupancy, distribution and buying,
increased 24.1% to $106.8 million, or 51.3% of net merchandise sales, for
fiscal 1997 versus $86.1 million, or 50.8% of net merchandise sales, in fiscal
1996. The fiscal 1997 increase as a percentage of net merchandise sales is the
result of higher store occupancy costs primarily due to the increase in new
stores.

         Selling, general and administrative expenses increased 21.7% to $72.9
million for fiscal 1997 from $59.9 million in fiscal 1996. As a percentage of
total revenues, these expenses decreased to 30.7% during fiscal 1997 from 31.2%
in fiscal 1996. Selling, general and administrative expenses in fiscal 1996
include a $2.1 million charge related to the Company's long-term incentive
program. Excluding this charge, selling, general and administrative expenses as
a percentage of total revenues increased to 30.7% in fiscal 1997 from 30.1% in
fiscal 1996. The fiscal 1997 increase as a percentage of total revenues is due
primarily to reduced expense leverage associated with the reduction in
comparable store sales and increased advertising and marketing expenses.

         The provision for doubtful accounts increased 46.9% to $23.0 million in
fiscal 1997 from $15.6 million in fiscal 1996. The provision for doubtful
accounts as a percentage of total revenues increased to 9.7% in fiscal 1997 from
8.1% in fiscal 1996. The increase in provision for doubtful accounts is due to
an increase in the accounts receivable balance to $85.4 million at September 30,
1997 from $70.3 million at September 30, 1996 and increased charge-offs of
uncollectible accounts as a percentage of accounts receivable during fiscal 1997
as compared to fiscal 1996.  At September 30, 1997, delinquencies greater than
90 days on a recency basis represented 7.7% of total accounts receivable as
compared to 9.0% at September 30, 1996.

         Depreciation and amortization expenses increased 25.8% to $4.2 million
in fiscal 1997 from $3.3 million in fiscal 1996. Depreciation and amortization
expense as a percentage of total revenues increased to 1.8% in fiscal 1997 from
1.7% in fiscal 1996. The increase in amortization is due to expenses associated
with the acquisition of all the rights to the "Friedman's Jewelers" tradename
and the increase in depreciation is due to capital expenditures and
improvements to new and existing stores in operation.

                                    - 13 -
<PAGE>   16



         Interest income was $0.7 million in fiscal 1997 compared to interest
expense of $2.2 million in fiscal 1996. As a percentage of total revenues,
interest income was 0.3% in fiscal 1997 compared to interest expense of 1.1% in
fiscal 1996. The fiscal 1997 change in interest is due primarily to interest
earned on the Company's investments in Crescent Jewelers (See "Liquidity and
Capital Resources"). The investments are in the form of a $20 million
convertible senior subordinated secured loan and the purchase of a $5 million,
10% senior subordinated convertible note.

         Income tax expense increased 23.6% to $11.8 million in fiscal 1997
from $9.5 million in fiscal 1996. The Company's effective income tax rate
decreased to 38.0% in fiscal 1997 from 38.1% in fiscal 1996. 

         Increased sales volume, finance charges, other revenue, and interest
income, offset by increases in cost of goods sold, selling, general and
administrative expenses, provision for doubtful accounts and depreciation and
amortization expense, combined to increase net income before extraordinary item
by 24.1% to $19.3 million in fiscal 1997 compared to $15.5 million in fiscal
1996.

         Earnings per share before extraordinary item increased 11.8% to $1.33
in fiscal 1997 from $1.19 in fiscal 1996 on weighted average common shares and
share equivalents of 14,539,000 and 13,031,000 respectively.

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

         Total revenues increased 39.7% to $192.2 million in the fiscal year
ended September 30, 1996, from $137.6 million in the fiscal year ended
September 30, 1995. Net merchandise sales in fiscal 1996 increased 38.5%, or
approximately $47.1 million, compared to fiscal 1995. Of the $47.1 million
increase in net merchandise sales, $43.6 million, or 92.6% of the increase
resulted from additional sales in fiscal 1996, contributions from 86 net new
stores opened, and $3.5 million, or 7.4% of the increase, resulted from a 2.9%
increase in comparable store sales. Finance charges and other revenue increased
49.3% to $22.8 million in fiscal 1996 from $15.2 million in fiscal 1995 due to
increased credit sales and increased accounts receivable, which are the primary
factors for determining finance charge revenues.

         Costs of goods sold, including occupancy, distribution and buying,
increased 39.2% to $86.1 million, or 50.8% of net merchandise sales, in fiscal
1996 versus $61.8 million, or 50.5% of net merchandise sales, in fiscal 1995.
The fiscal 1996 increase as a percentage of net merchandise sales reflects more
aggressive merchandising pricing.

         Selling, general and administrative expenses increased 29.2% to $59.9
million for fiscal 1996 from $46.3 million in fiscal 1995. As a percentage of
total revenues, these expenses decreased to 31.2% during fiscal 1996 from 33.7%
in fiscal 1995. Selling, general, and administrative expenses in fiscal 1996
and fiscal 1995 include a $2.1 million and a $900,000 charge, respectively,
related to the Company's long-term incentive program. Additionally, the fiscal
1995 expense includes a $3.2 million provision for anticipated legal costs
related to the Company's trademark litigation. Excluding these charges,
selling, general and administrative expenses as a percentage of total revenues
decreased to 30.1% in fiscal 1996 from 30.7% in fiscal 1995, due primarily to
increased leverage in corporate overhead and to advertising efficiencies
resulting from an increase in the number of stores in existing advertising
markets.

         The provision for doubtful accounts increased 68.0% to $15.6 million
in fiscal 1996 from $9.3 million in fiscal 1995. The provision for doubtful
accounts as a percentage of total revenues increased to 8.1% in fiscal 1996
from 6.8% in fiscal 1995. The increase in the provision for doubtful accounts
is due to the 40.4% increase in the accounts receivable balance to $70.3
million at September 30, 1996 from $50.0 million at September 30, 1995 and the
corresponding 40.4% increase in the allowance for doubtful accounts to $7.1
million at September 30, 1996 from $5.0 million at September 30, 1995.
Additionally, 

                                    - 14 -
<PAGE>   17

the Company experienced increased charge-offs of uncollectible accounts as a
percentage of accounts receivable during fiscal 1996 as compared to fiscal
1995.

         Depreciation and amortization expenses increased 32.0% to $3.3 million
in fiscal 1996 compared to $2.5 million in fiscal 1995. The increase of
$805,000 in depreciation and amortization expenses in fiscal 1996 resulted
primarily from depreciation expenses related to increases in depreciable
equipment and improvements due to more stores in operation.

         Interest expense decreased to $2.2 million in fiscal 1996 from $4.1
million in fiscal 1995. As a percentage of total revenues, interest expense
decreased to 1.1% in fiscal 1996 from 3.0% in fiscal 1995. This decrease
resulted from the repayment of bank borrowings and high coupon subordinated
debt with proceeds from the Company's June 1996 equity offering and investment
income from the net proceeds of the offering. The prepayment of high coupon
subordinated debt resulted in the payment of a make whole amount of $2.8
million reflected, net of applicable income taxes, as an extraordinary item.

         The Company's effective income tax rate increased to 38.1% in fiscal
1996 from 22.7% in 1995, principally due to the reversal of a deferred tax
asset valuation reserve account, in fiscal 1995, upon determination that
realizability of the deferred tax asset was more likely than not.

         Increased sales volume, finance charges and other revenue, combined
with decreased selling, general and administrative expenses, offset by
increased provision for doubtful accounts and income tax expense, combined to
increase net income before extraordinary item by 48.9% to $15.5 million in
fiscal 1996 compared to $10.4 million in fiscal 1995. Net income in fiscal 1996
was $13.8 million, an increase of 32.7% over the prior year.

         Earnings per share before extraordinary item increased 22.7% to $1.19
in fiscal 1996 from $0.97 in fiscal 1995 on weighted average common shares and
share equivalents outstanding of 13,031,000 and 10,722,000, respectively.

LIQUIDITY AND CAPITAL RESOURCES

         During fiscal 1997, net cash used in the Company's operating
activities was $341,000 compared to $14.7 million and $15.5 million during the
comparable periods in 1996 and 1995. Although the Company experienced a
significant increase in earnings in all three fiscal years, the Company
continued to use cash in its operations. Cash used in operations was the result
of the growth in accounts receivable and inventories, both principally from the
net addition of 83 stores in fiscal 1997, 86 stores in fiscal 1996 and 74
stores in fiscal 1995. Cash used in operations was also affected by increases
in accounts payable in each of the three years, respectively. To the extent
that the Company continues to expand rapidly, it will continue to experience
significant increases in credit sales and related increases in customer
accounts as well as increases in inventories and accounts payable which will
likely result in a use of cash from operations.

         Investing activities used cash of $34.9 million, $9.8 million and $9.6
million in fiscal 1997, 1996 and 1995, respectively. During fiscal 1997, the
Company invested $25 million in Crescent Jewelers Inc., and its wholly owned
subsidiary Crescent Jewelers (together 'Crescent'), a privately-owned
West-coast based specialty retailer of fine jewelry currently operating 130
stores. The investment is in the form of a $20 million convertible senior
subordinated secured loan. The three-year loan is junior to Crescent's $50
million bank-provided credit facility, bears a similar rate of interest to such
facility and is secured, after the credit facility, by all of Crescent's
assets. The loan is convertible into a minority equity position. Additionally,
during fiscal 1997, the Company purchased $5 million principal amount of 10%
senior subordinated convertible notes issued by Crescent pursuant to a
previously entered into standby purchase commitment. 

                                    - 15 -
<PAGE>   18


In addition to the above, the Company added 83 net new stores in fiscal 1997 of
which, capital spending approximated $9.9 million. Capital spending in fiscal
1996 and 1995 was primarily for the net addition of 86 stores and 74 stores,
respectively.

         Financing activities provided $16.1 million in fiscal 1997, $36.2
million in fiscal 1996 and $33.2 million in fiscal 1995. During fiscal 1997, the
Company had bank borrowings of $19.4 million and at September 30, 1997, had
$60.6 million available under its $80.0 million revolving credit facility.
During fiscal 1996 and 1995, net cash provided by financing activities resulted
from net proceeds of $58.0 million and $44.8 million from the Company's public
equity offerings in June 1996 and May 1995, respectively. The net proceeds from
these offerings were used, in part, to repay $22.4 million in subordinated debt
and $10.5 million in bank debt during fiscal 1996, and $32.3 million in bank
debt in fiscal 1995. On May 19, 1997, the Company acquired all the rights of
A.A. Friedman Co., Inc. of Augusta, Georgia ("AAFCO") to the 'Friedman's
Jewelers' tradename. The agreement provides that the Company pay AAFCO 250,000
shares of its Class A Common Stock and that AAFCO will realize a minimum of
$7,062,500 upon the sale of such shares during or prior to June 1999. Prior to
the sale of the shares, the Company has agreed to make cash advance payments to
AAFCO through an escrow arrangement which would pre-fund the minimum sale
proceeds. During fiscal 1997, the Company advanced $4.0 million in accordance
with the agreement. 

         On July 14, 1997, the Company completed a new $80.0 million, two year
revolving credit facility maturing on April 30, 1999, with its existing banks
and includes the addition of a third institution. The borrowing rate for the
new credit facility is either the bank's offered rate plus 0.875% or at the
Company's option, LIBOR plus 0.875%. The new facility contains certain
financial covenants and is secured by inventory and accounts receivable. At
September 30, 1997, $19.8 million was outstanding under the lines, with
interest payable ranging from 6.51% to 6.93%. Management believes that the
Company's line of credit will be sufficient to fund the Company's working
capital requirements through fiscal 1998.

         The Company expects to have between 460 and 510 stores in operation for
the 1998 Christmas season. The capital required to fund this expansion,
principally to finance inventory, fixtures and leasehold improvements, is
estimated to be between $7.0 million and $12.0 million and is intended to be 
provided by the Company's line of credit.

SEASONALITY

         The Company has in the past experienced a well-defined seasonality in
its business with respect to both total revenues and profitability. Generally,
the Company experiences substantially increased sales volume in the days
preceding major holidays, including Christmas, Valentine's Day and Mother's
Day. Due to the impact of the Christmas shopping season, the Company
experiences the strongest results of operations in the first quarter of its
fiscal year. If for any reason the Company's sales were below those normally
expected for the first quarter, the Company's annual results could be
materially adversely affected. The seasonality of the Company's business puts a
significant demand on working capital resources to provide for an inventory
buildup for the Christmas season. Furthermore, the Christmas season typically
leads to a seasonal buildup of customer receivables that are paid down during
subsequent months. However, to the extent that the Company's expansion program
continues, it can be expected that increased levels of accounts receivable
related to such expansion may affect the historical seasonal decline in
customer receivables.

INFLATION

         The impact of inflation on the Company's operating results has been
moderate in recent years, reflecting generally lower rates of inflation in the
economy and relative stability in the prices of diamonds, gemstones and gold.
Substantially all of the leases for the Company's retail stores located in
malls provide for contingent or volume-related rental increases. In prior
years, the Company has been able to adjust its selling prices to substantially
recover increased costs. While inflation has not had, and the Company does 

                                    - 16 -
<PAGE>   19

not expect that it will have, a material impact upon operating results, there
is no assurance that the Company's business will not be affected by inflation
in the future.

NEW ACCOUNTING STANDARDS

         In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share (EPS)
(SFAS No. 128), which simplifies the calculation of EPS by excluding common
stock equivalents from the calculation of basic EPS.  The new EPS rules are
effective for both interim and annual periods ending after December 15, 1997.
The Company will adopt SFAS No. 128 in the First Quarter of 1998 as early
adoption is not permitted.  Management does not expect the impact of adopting
SFAS NO. 128 to be material.

                      FACTORS AFFECTING FUTURE PERFORMANCE

         Expansion Program. The success of the Company's growth strategy will
depend on its ability to expand its operations through the opening of new stores
in existing and new markets and to operate these stores on a profitable basis.
The Company opened approximately 100 stores from December 1996 through December
1997 and intends to continue to expand its store base rapidly. Accomplishing the
Company's expansion goals will depend on a number of factors, including general
economic conditions and the Company's ability to identify and secure suitable
locations on acceptable terms, open new stores in a timely manner, hire and
train additional store personnel and integrate new stores into its operations.
The Company anticipates that there will be significant competition among
specialty retailers for desirable store sites. Accordingly, there can be no
assurance that the Company will be able to open and operate new stores on a
timely and profitable basis. If the Company expands more rapidly than its
current plans anticipate or if the Company fails to generate sufficient cash
flow, the Company may require additional capital in order to finance such
expansion. The Company is also likely to require additional capital to finance
its expansion after 1998. Furthermore, the Company will need to continually
evaluate the adequacy of its management information and distribution systems to
manage its planned expansion. There can be no assurance that the Company will
anticipate all of the changing demands that its expanding operations will impose
on such systems and the failure to adapt its systems and procedures could have a
material adverse effect on the Company's business. In addition, as the Company
enters new markets or expands its presence in certain markets, the Company may
experience initial uncertainty in its credit portfolio as the Company evaluates
the credit characteristics of the new customer base. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

         Competition. The retail jewelry business is highly competitive. The
Company competes with national and regional jewelry chains, department stores,
kiosks, local independently owned jewelry stores and chains, catalog showrooms,
discounters, direct mail suppliers and televised home shopping networks, credit
card companies and other providers of consumer credit. Certain of the Company's
competitors are substantially larger and have greater financial resources than
the Company. The Company also believes that it competes for consumers'
discretionary spending dollars with retailers that offer merchandise other than
fine jewelry. The foregoing competitive conditions may adversely affect the
Company's revenues, profitability and ability to expand. See "Business
-Competition."

         Sensitivity to General Economic Conditions. Jewelry purchases are
discretionary for customers. As a result, sales of merchandise such as that
offered by the Company are likely to be particularly affected by adverse trends
in the general economy. Sales of jewelry products may also be affected
adversely by negative developments in local economic conditions such as plant
closings, industry slowdown and government employment cutbacks.

         In addition, because a majority of the Company's sales are made on
credit, any downturn in general economic conditions or increases in interest
rates may have a material adverse effect on the Company's revenues and
profitability. Furthermore, the Company expects that any downturn in general or
local economic conditions in the markets in which it operates would adversely
affect its collection of 

                                    - 17 -
<PAGE>   20

outstanding credit accounts receivable. The Company maintains an allowance for
uncollectible accounts based on historical experience. At September 30, 1997,
the Company's allowance for uncollectible accounts was 10.0% of accounts
receivable, and net charge-offs as a percentage of credit revenues increased to
14.8% for fiscal 1997 from 11.4% for fiscal 1996. See "Selected Financial and
Operating Data" and "Business -- Credit Operations."

         Seasonality. The Company's business is highly seasonal. Historically,
the Company's first fiscal quarter (ending December 31) has accounted for
significant percentages of the Company's annual net sales and net income. Any
substantial decrease in first fiscal quarter sales could have a material
adverse effect on the Company's profitability for the entirety of such fiscal
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Seasonality."

         Dependence on Key Personnel. The Company is substantially dependent on
the continued services of its executive officers, including Bradley J. Stinn,
Chairman of the Board of Directors and Chief Executive Officer, and Robert S.
Morris, President and Chief Operating Officer. Mr. Stinn is also Chairman of
the Board of Directors and Chief Executive Officer of Crescent Jewelers Inc.
("Crescent Jewelers"), a retail jewelry chain which is an affiliate of the
Company. Should Mr. Stinn, Mr. Morris or any of the Company's other executive
officers not continue as an officer of the Company, the Company's prospects
might be adversely affected. The Company does not have and is not contemplating
obtaining key-man life insurance for any executive officer of the Company. 

         Incentive Compensation Program. In October 1994, when the price of the
Class A Common Stock was approximately $16.38 per share, Mr. Stinn and Sterling
B. Brinkley, Chairman of the Executive Committee of the Board of Directors,
were each advanced $1.5 million, the repayment of which will be forgiven upon
the attainment of specific targets for the price of the Company's Class A
Common Stock. Upon forgiveness of principal and interest, the Company will
incur compensation expense as of the date of the respective forgiveness. The
first stock price target ($22.50 per share) was attained in July 1995 and
compensation expense totaling $900,000, which represents forgiveness of
principal and related income tax costs, was charged to operations during that
period. The second stock price target ($25.00 per share) and the third stock
price target ($27.50 per share) were attained in April 1996 and May 1996,
respectively, and compensation expense totaling $2.1 million was charged to
operations in the quarter ending June 30, 1996. If additional stock price
targets are achieved, the Company will incur up to an additional $3.0 million
of compensation expense as a result of the forgiveness of these advances. The
incurrence of such amounts of compensation expense will negatively impact the
earnings per share of the Class A Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

         Fluctuations in Comparable Store Sales Results. A variety of factors
affect the Company's comparable store sales results including, among others,
economic conditions, the retail sales environment and the Company's ability to
execute its business strategy efficiently. The Company experienced a 1.5%
decrease in comparable store sales in fiscal 1997. The Company expects
comparable store sales to be flat to slightly lower in the future and there can
be no assurance that the Company will achieve comparable store sales gains in
any period. Variations in the Company's comparable store sales results could
cause the price of the Class A Common Stock to fluctuate substantially. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

         Merchandise Supply. The Company does not manufacture its own
merchandise. The jewelry industry generally is affected by fluctuations in the
prices of gold and diamonds and, to a lesser extent, other precious and
semi-precious metals and stones. The Company does not maintain long-term
inventories or otherwise hedge against fluctuations in the cost of diamonds or
gold. A significant increase in prices or decrease in the availability of gold
or diamonds could have a material adverse effect on the Company's business. The
supply and price of diamonds in the principal world markets are significantly

                                    - 18 -
<PAGE>   21


influenced by a single entity, the Central Selling Organization (the "CSO"), a
marketing arm of DeBeers Consolidated Mines Ltd. of South Africa. The CSO has
traditionally controlled the marketing of a substantial majority of the world's
supply of diamonds and sells rough diamonds to worldwide diamond cutters from
its London office in quantities and at prices determined in its sole
discretion. The availability of diamonds to the CSO and the Company's suppliers
is to some extent dependent on the political situation in diamond producing
countries, such as South Africa, Botswana, Zaire, the Russian republics and
Australia, and on the continuation of the prevailing supply and marketing
arrangements for raw diamonds. Until alternate sources could be developed, any
sustained interruption in the supply of diamonds from the producing countries
could adversely affect the Company and the retail jewelry industry as a whole.
See "Business -- Purchasing."

         Control of Company. Mr. Phillip E. Cohen owns 100% of the issued and
outstanding stock of MS Jewelers Corporation ("MS Jewelers"), a Delaware
corporation, which is the sole general partner of MS Jewelers Limited
Partnership (the "Partnership"). The Partnership owns 100% of the Class B
Common Stock of the Company. Through MS Jewelers, Mr. Cohen alone controls
virtually all of the decisions made with respect to the Partnership, including
the disposition and voting of the Class B Common Stock held by the Partnership.
As a result of his control of the Class B Common Stock, Mr. Cohen can, without
the concurrence of the remaining stockholders of the Company, elect 75% of the
directors of the Company and control the outcome of votes by the Company's
stockholders on major corporate transactions, including mergers, sales of
substantial assets and going-private transactions. Mr. Cohen could also,
subject to certain limitations, unilaterally transfer such voting power to a
third party by transferring such shares of Class B Common Stock or the stock of
MS Jewelers. There also is no prohibition or limitation on Mr. Cohen's
ownership of Class A Common Stock. If all of the outstanding shares of Class B
Common Stock were converted into shares of Class A Common Stock, the
Partnership would own approximately 10.2% of the Class A Common Stock. Mr.
Cohen also owns 100% of Morgan Schiff & Co., Inc. ("Morgan Schiff"). Morgan
Schiff has acted, and continues to act, as financial advisor to the Company for
which it has received and continues to receive significant fees of a minimum of
$400,000 per year on a non-accountable basis.

         Limited Voting Rights of Class A Common Stock. Holders of the Class A
Common Stock, voting as a class, have the right to elect a minimum of 25% of
the Company's Board of Directors (rounding the number of directors to the next
highest whole number if the application of such percentage does not result in a
whole number), currently two of six. Other than the right to elect directors,
unless all of the shares of Class B Common Stock are converted into Class A
Common Stock and except as may be required by the laws of the State of
Delaware, holders of Class A Common Stock have no voting rights. The
Partnership owns 100% of the outstanding shares of the Company's Class B Common
Stock. Consequently, the Partnership controls the outcome of substantially all
matters submitted to a vote of the stockholders.

         The disproportionate voting rights between the Class A Common Stock
and the Class B Common Stock could have an adverse effect on the market price
of the Class A Common Stock. Such disproportionate voting rights may make the
Company a less attractive target for a takeover than it otherwise might be, or
render more difficult or discourage a merger proposal, a tender offer or a
proxy contest, even if such actions were favored by holders of the Company's
Class A Common Stock. Such disproportionate voting rights may also deprive
holders of Class A Common Stock of an opportunity to sell their shares at a
premium over then prevailing market prices for the Class A Common Stock. In
addition, holders of Class B Common Stock may be able to transfer voting
control to a third party at a premium without obtaining such premium for
holders of Class A Common Stock.

         Government Regulation. The extension of credit by the Company, as well
as its sale of insurance products, is highly regulated by Federal and state
authorities. A failure on the part of the Company to comply with such
regulations would expose it to potentially substantial penalties. In addition,
any restrictive change in such regulation, including the imposition of interest
rate ceilings or restrictions on the sale of insurance products by the Company,
could have a material adverse effect on the Company.

                                    - 19 -
<PAGE>   22



ITEM 7(A).  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The consolidated financial statements and financial statement schedule
in Part IV, Item 14(a)1 and 2 of this report are incorporated by reference into
this Item 8.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         Not Applicable.

                                   PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information under the captions "Election of Directors -- General,"
"Election of Directors -- Certain Information Concerning Nominees," "Election
of Directors -- Executive Officers of the Company" and "Other Matters -Filings
Under Section 16(a)" in the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on February 26, 1998 (the "1998 Proxy Statement") is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

         The information under the captions "Election of Directors Compensation
of Directors" and "Election of Directors - Executive Compensation" in the
Company's 1998 Proxy Statement is incorporated herein by reference. In no event
shall the information contained in the 1998 Proxy Statement under the captions
"Election of Directors -- Executive Compensation -- Compensation Committee
Report on Executive Compensation" and "Stockholder Return Comparison" be
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information under the caption "Election of Directors -- Stock
Ownership" in the Company's 1998 Proxy Statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information under the caption "Election of Directors -- Executive
Compensation -Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions" in the Company's 1998 Proxy Statement is incorporated
herein by reference.

                                    - 20 -
<PAGE>   23


                                    PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(A)      1.  CONSOLIDATED FINANCIAL STATEMENTS

         The following consolidated financial statements of Friedman's Inc.,
incorporated by reference into Item 8, are attached hereto:


Consolidated Income Statements for the Years Ended September 30, 1997, 1996 and 
1995

Consolidated Balance Sheets at September 30, 1997 and 1996

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
September 30, 1997, 1996 and 1995

Consolidated Statements of Cash Flows for the Years Ended September 30, 1997, 
1996 and 1995

Notes to Consolidated Financial Statements

Report of Independent Certified Public Accountants


         2.  CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

         The following consolidated financial statement schedule of Friedman's 
Inc. is attached hereto:


Schedule II        -- Valuation and Qualifying Accounts


         All other schedules have been omitted, as they are not required under
the related instructions or are inapplicable, or because the information
required is included in the consolidated financial statements.

         3.  EXHIBITS

         The exhibits indicated below are either included or incorporated by
reference herein, as indicated.  Copies of such exhibits will be furnished to 
any requesting stockholder of the Company upon request to Mr. Victor M. Suglia,
Secretary, Friedman's Inc., 4 West State Street, Savannah, Georgia 31401. There
is a charge of $.50 per page to cover expenses for copying and mailing.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           EXHIBIT DESCRIPTION
-------                          -------------------
<S>               <C>  
3.1               Registrant's Certificate of Incorporation, as amended
                  (incorporated by reference from Exhibit 4(a) to the
                  Registrant's Registration Statement on Form S-8 (File No.
                  333-17755) dated March 21, 1997).
</TABLE>
                                    - 21 -
<PAGE>   24
<TABLE>
<S>               <C>
3.2               Bylaws of the Registrant (incorporated by reference from
                  Exhibit 3.2 to the Registrant's Registration Statement on
                  Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).

4.1               See Exhibits 3.1 and 3.2 for provisions of the Certificate of
                  Incorporation and Bylaws of the Registrant defining rights of
                  holders of Class A and Class B Common Stock of the
                  Registrant.

4.2               Form of Class A Common Stock certificate of the Registrant
                  (incorporated by reference from Exhibit 4.2 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.1              Amended and Restated Agreement of Limited Partnership, dated
                  as of May 24, 1990, among MS Jewelers Corporation and the
                  limited partners listed in Annex A thereto (incorporated by
                  reference from Exhibit 10.1 to the Registrant's Registration
                  Statement on Form S-1 (File No. 33-67662), and amendments
                  thereto, originally filed on August 19, 1993).

10.2              Lease Agreement, dated as of May 24, 1990, by and between
                  Friedman's Jewelers, Inc. and MS Jewelers Limited Partnership
                  (incorporated by reference from Exhibit 10.5 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.2.1            Addendum to Lease between Friedman's Jewelers, Inc., Lessor
                  and Friedman's Inc. dated August 17, 1995.  (incorporated by
                  reference from Exhibit 10.5.1 to the Registrant's Annual
                  Report on Form 10-K for the Year Ended September 30, 1997.

10.3              Letter Agreement regarding sales of equity interests in MS
                  Jewelers Limited Partnership, dated as of February 15, 1990,
                  among Morgan Schiff & Co., Inc., Sterling Brinkley, Philip E.
                  Cohen, Bradley J. Stinn, Friedman's Jewelers, Inc.,
                  Friedman's Jewelers, Inc., Anniston, Friedman's Jewelers,
                  Inc., Columbia, Friedman's Jewelers, Inc., Greenville,
                  Friedman's Jewelers, Inc., Main, Friedman's Jewelers, Inc.,
                  Marietta, Friedman's Jewelers, Inc., Oglethorpe, Friedman's
                  Jewelers, Inc., Westside and Stanley Jewelers, Inc.
                  (incorporated by reference from Exhibit 10.6 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.4              Loan Agreement, dated October 26, 1993, by and between
                  NationsBank of Georgia, N.A. and Friedman's Inc.
                  (incorporated by reference from Exhibit (10) to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended December 31, 1993).

10.5              Amendment, dated November 17, 1994, to Loan Agreement, dated
                  October 26, 1993, by and between NationsBank of Georgia, N.A.
                  and Friedman's Inc. (incorporated by reference from Exhibit
                  10.9 to the Registrant's Annual Report on Form 10-K for the
                  fiscal year ended September 30, 1994).

10.5.1            Amended and Restated Loan Agreement, dated December 14, 1995,
                  by and between NationsBank of Georgia, N.A. and Friedman's
                  Inc.  (incorporated by reference from Exhibit 10.9.1 to the 
                  Registrant's Annual Report on Form 10-K for the Year Ended
                  September 30, 1995).
</TABLE>

                                    - 22 -
<PAGE>   25
<TABLE>
<S>               <C>
10.6              Loan Agreement, dated as of May 27, 1994, by and between
                  First Union National Bank of Georgia and Friedman's Inc.
                  (incorporated by reference from Exhibit 10.10 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended September 30, 1994).

10.7              Amendment, dated November 17, 1994, to Loan Agreement dated
                  May 27, 1994, by and between First Union National Bank and
                  Friedman's Inc. (incorporated by reference from Exhibit 10.11
                  to the Registrant's Annual Report on Form 10-K for the fiscal
                  year ended September 30, 1994).

10.7.1            Amended and Restated Loan Agreement, dated December 14, 1995,
                  by and between First Union National Bank and Friedman's Inc.
                  (incorporated by reference from Exhibit 10.11.1 to the
                  Registrant's Annual Report on Form 10-K for the Year Ended
                  September 30, 1995).

10.8              Registration Rights Agreement, dated as of August 19, 1993,
                  by and between Friedman's Inc. and Teachers Insurance and
                  Annuity Association of America (incorporated by reference
                  from Exhibit 10.16 to the Registrant's Registration Statement
                  on Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).

10.9              Letter Agreement regarding Section 6.02(b) of MS Jewelers
                  Limited Partnership's Amended and Restated Agreement of
                  Limited Partnership, dated as of May 24, 1990, between MS
                  Jewelers Corporation and Crescent Jewelers (incorporated by
                  reference from Exhibit 10.17 to the Registrant's Registration
                  Statement on Form S-1 (File No. 33-67662), and amendments
                  thereto, originally filed on August 19, 1993).

10.10             Letter Agreement regarding Section 6.02(b) of MS Jewelers
                  Limited Partnership's Amended and Restated Agreement of
                  Limited Partnership, dated as of May 24, 1990, between MS
                  Jewelers Corporation and Steven C. Graber (incorporated by
                  reference from Exhibit 10.18 to the Registrant's Registration
                  Statement on Form S-1 (File No. 33-67662), and amendments
                  thereto, originally filed on August 19, 1993).

10.11             Option Transfer and Consent Agreement, dated as of March 16,
                  1992, by and among Sterling B. Brinkley, Steven C. Graber and
                  MS Jewelers Limited Partnership (incorporated by reference
                  from Exhibit 10.26 to the Registrant's Registration Statement
                  on Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).

10.12             Amended and Restated Partnership Purchase Option Agreement,
                  dated as of March 16, 1992, between MS Jewelers Limited
                  Partnership and Steven C. Graber (incorporated by reference
                  from Exhibit 10.27 to the Registrant's Registration Statement
                  on Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).

10.13             Partnership Purchase Option Agreement, dated as of March 16,
                  1992, between MS Jewelers Limited Partnership and Sterling B.
                  Brinkley (incorporated by reference from Exhibit 10.28 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).
</TABLE>

                                    - 23 -
<PAGE>   26
<TABLE>
<S>               <C>
10.14             MS Jewelers Limited Partnership 1993 Incentive Plan
                  (incorporated by reference from Exhibit 10.29 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.15             Representative sample of MS Jewelers Limited Partnership's
                  form of Installment Credit Agreement for self-financed sales
                  to customers (incorporated by reference from Exhibit 10.41 to
                  the Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.16             Representative sample of MS Jewelers Limited Partnership's
                  form of Limited Diamond Warranty (incorporated by reference
                  from Exhibit 10.42 to the Registrant's Registration Statement
                  on Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).

10.17             Agreement and Understanding, dated December 14, 1994, between
                  Friedman's, Inc. and Morgan Schiff & Co., Inc. regarding
                  financial advisory services (incorporated by reference from
                  Exhibit 10.32 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended September 30, 1994).

10.18             Loan and Security Agreement, dated as of October 15, 1996, by
                  and between Friedman's Inc. and Crescent Jewelers
                  (incorporated by reference from Exhibit 10.1 to the
                  Registrant's Current Report on Form 8-K (File No. 000-22356)
                  originally filed on October 28, 1996).

10.18.1           Amendment dated June 30, 1997, to that certain Loan and 
                  Security Agreement, dated as of October 15, 1996, by and
                  between Friedman's, Inc. and Crescent Jewelers.

10.19             Promissory Note dated, as of October 15, 1996, in the
                  original principal amount of $20,000,000 executed by Crescent
                  Jewelers in favor of Friedman's, Inc. (incorporated by
                  reference from Exhibit 10.2 to the Registrant's Current
                  Report on Form 8-K (File No. 000-22356) originally filed on
                  October 28, 1996).

10.20             Subordination Agreement, dated as of October 15, 1996, by and
                  among the financial institutions party thereto, LaSalle
                  National Bank, as Agent and Friedman's Inc. (incorporated by
                  reference from Exhibit 10.3 to the Registrant's Current
                  Report on Form 8-K (File No. 000-22356) originally filed on
                  October 28, 1996).

10.21             Standby Purchase Agreement, dated as of October 15, 1996, by
                  and between Friedman's Inc. and Crescent Jewelers, including,
                  as an exhibit thereto, the Form of Note Purchase Agreement
                  (incorporated by reference from Exhibit 10.4 to the
                  Registrant's Current Report on Form 8-K (File No. 000-22356)
                  originally filed on October 28, 1996).

10.22             Conversion Agreement, dated as of October 15, 1996, by and
                  among Friedman's Inc., Crescent Jewelers, Inc. and Crescent
                  Jewelers (incorporated by reference from Exhibit 10.5 to the
                  Registrant's Current Report on Form 8-K (File No. 000-22356)
                  originally filed on October 28, 1996).
</TABLE>
                                    - 24 -
<PAGE>   27
<TABLE>
<S>               <C>
10.23             Registration Rights Agreement made as of the 16th day of
                  October, 1996, by and between Crescent Jewelers, Inc. and the
                  investors listed from time to time on Schedule A thereto
                  (incorporated by reference from Exhibit 10.6 to the
                  Registrant's Current Report on Form 8-K (File No. 000-22356)
                  originally filed on October 28, 1996).

10.24             Agreement by and between A.A. Friedman Co., Inc., and its
                  Affiliates and the Company (incorporated by reference from
                  Exhibit 10.1 to the Registrant's Quarterly Report on Form
                  10-Q for the Quarter Ended June 30, 1997 (File No. 000-22356)
                  originally filed on August 14, 1997).

10.25             Note Purchase Agreement, dated as of June 12, 1997, by and
                  among Crescent Jewelers and each of the Purchasers named on
                  Schedule I thereto (which includes the Company), relating to
                  the issuance $8 million in aggregate principal amount of 10%
                  Convertible Senior Subordinated Notes due October 15, 2006
                  (incorporated by reference from Exhibit 10.2 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1997 (File No. 000-22356) originally filed on
                  August 14, 1997).

10.25.1           First Amendment dated June 30, 1997 to that certain Note 
                  Purchase Agreement, dated as of June 30, 1997, by and between
                  Crescent Jewelers and the Company, relating to the issuance of
                  $8,000,000, in aggregate principal amount of the Company's 10%
                  Convertible Senior Subordinated Notes due October 15, 2006.

10.26             10% Convertible Senior Subordinated Note due October 15,
                  2006, dated June 12, 1997, made by Crescent Jewelers in favor
                  of the Company in the original principal amount of $5
                  million.(incorporated by reference from Exhibit 10.3 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1997 (File No. 000-22356) originally filed on
                  August 14, 1997).

10.27             Second Amended and Restated Loan Agreement, dated July 14,
                  1997, by and between First Union National Bank and the
                  Company (incorporated by reference from Exhibit 10.4 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1997 (File No. 000-22356) originally filed on
                  August 14, 1997).

10.28             Second Amended and Restated Loan Agreement, dated July 14,
                  1997, by and between NationsBank, N.A. and the Company
                  (incorporated by reference from Exhibit 10.5 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1997 (File No. 000-22356) originally filed on
                  August 14, 1997).

10.29             Loan Agreement, dated as of July 14, 1997, by and between ABN
                  AMRO Bank N.V. and the Company (incorporated by reference
                  from Exhibit 10.6 to the Registrant's Quarterly Report on
                  Form 10-Q for the Quarter Ended June 30, 1997 (File No.
                  000-22356) originally filed on August 14, 1997).
</TABLE>
                                    - 25 -
<PAGE>   28
<TABLE>
<S>               <C>
10.30             Second Amendment and Restated Intercreditor and Security
                  Agreement, dated July 14, 1997, among NationsBank, N.A. as
                  collateral agent, First Union National Bank, NationsBank,
                  N.A. ABN AMRO Bank N.V. and the Company (incorporated by
                  reference from Exhibit 10.7 to the Registrant's Quarterly
                  Report on Form 10-Q for the Quarter Ended June 30, 1997 (File
                  No. 000-22356) originally filed on August 14, 1997).

10.31             Security Agreement, dated July 14, 1997, between the Company
                  and ABN AMRO Bank N.V (incorporated by reference from Exhibit
                  10.8 to the Registrant's Quarterly Report on Form 10-Q for
                  the Quarter Ended June 30, 1997 (File No. 000-22356)
                  originally filed on August 14, 1997).

                  EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

10.32             Friedman's Inc. 1993 Stock Option Plan (incorporated by
                  reference from Exhibit 4(c) to the Registrant's Registration
                  Statement on Form S-8 (File No. 33-85216) dated October 17,
                  1994).

10.33             Form of Indemnity Agreement executed by the Registrant and
                  each of Sterling B. Brinkley, Bradley J. Stinn, Robert S.
                  Morris, John Smirnoff, Robert W. Cruickshank and Mark C.
                  Pickup (incorporated by reference from Exhibit 10.44 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.34             Friedman's Inc. 1994 Stock Option Plan for Outside Directors
                  (incorporated by reference from Exhibit 10.37 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended September 30, 1994).

10.35             Friedman's Inc. 1994 Qualified Employee Stock Purchase Plan
                  (incorporated by reference from Exhibit 4(c) to the
                  Registrant's Registration Statement on Form S-8 (File No.
                  33-78820) dated May 11, 1994).

10.35.1           Amendment Number One to the Friedman's Inc. 1994 Qualified
                  Employee Stock Purchase Plan (incorporated by reference from
                  Exhibit 10.28.1 to the Registrants Annual Report on Form 10-K
                  for FY 1996).

10.36             Loan Agreement, dated November 17, 1994, between Friedman's
                  Inc. and Sterling B. Brinkley (incorporated by reference from
                  Exhibit 10.39 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended September 30, 1994).

10.36.1           Amendment to Loan Agreement and Promissory Note between
                  Friedman's Inc. and Sterling B. Brinkley dated February 2,
                  1995 (incorporated by reference from Exhibit 10.39.1 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1995).

10.37             Loan Agreement, dated November 17, 1994, between Friedman's
                  Inc. and Bradley J. Stinn (incorporated by reference from
                  Exhibit 10.40 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended September 30, 1994).
</TABLE>
                                    - 26 -

<PAGE>   29
<TABLE>
<S>               <C>
10.37.1           Amendment to Loan Agreement and Promissory Note between
                  Friedman's Inc. and Bradley J. Stinn dated February 2, 1995
                  (incorporated by reference from Exhibit 10.40.1 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1995).

10.38             Friedman's Inc. 1994 Stock Option Plan (incorporated by
                  reference from Exhibit 4(d) to the Registrant's Registration
                  Statement on Form S-8 (File No. 33-95584) originally filed on
                  August 11, 1995).

10.39             Friedman's Inc. 1995 Stock Option Plan (incorporated by
                  reference from Exhibit 4(d) to Registrant's Registration
                  Statement on Form S-8 (File No. 333-06221) originally filed
                  on June 18, 1996).

10.40             Friedman's Inc. 1996 Stock Option Plan (incorporated by
                  reference from Exhibit 4(c) to Registrant's Registration
                  Statement on Form S-8 (file No. 333-23757) originally filed
                  on March 21, 1997).

11                Statement Re: Computation of Per Share Earnings

21                Subsidiaries of the Registrant (incorporated by reference
                  from Exhibit 21 to the Registrant's Annual Report on Form
                  10-K for its fiscal year 1995.)

23                Consent of Ernst & Young LLP

27                Financial Data Schedule

</TABLE>

(B)      REPORTS ON FORM 8-K

         The Registrant filed no Current Reports on Form 8-K during the last
quarter of the fiscal year ended September 30, 1997.

(C)      SEE ITEM 14(A)(3) ABOVE.

(D)      SEE ITEM 14(A)(2) ABOVE.

                                    - 27 -

<PAGE>   30



                           ANNUAL REPORT ON FORM 10-K

                             ITEM 14 (A) 1. AND 2.

             FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                 YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995




<PAGE>   31
                                Friedman's Inc.
                                        
                   Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
<S>                                                                                                             <C>
Consolidated Income Statements for the Years Ended
   September 30, 1997, 1996 and 1995............................................................................F-1
Consolidated Balance Sheets at September 30, 1997 and 1996......................................................F-2
Consolidated Statements of Stockholders' Equity for the Years Ended
   September 30, 1997, 1996 and 1995............................................................................F-3
Consolidated Statements of Cash Flows for the Years Ended
   September 30, 1997, 1996 and 1995............................................................................F-4
Notes to Consolidated Financial Statements......................................................................F-5
Report of Independent Certified Public Accountants..............................................................F-18

FINANCIAL STATEMENT SCHEDULE

Schedule II     --   Valuation and Qualifying Accounts..........................................................F-19
</TABLE>





     All other schedules have been omitted, as they are not required under the
     related instructions, are inapplicable, or because the information
     required is included in the financial statements.


<PAGE>   32


                                Friedman's Inc.

                         Consolidated Income Statements

<TABLE>
<CAPTION>
                                                                   YEARS ENDED SEPTEMBER 30,
                                                      ------------------------------------------------
                                                         1997               1996                1995
                                                      ---------           ---------           --------
                                                        (Amounts in thousands except per share data)
                                             
<S>                                                                       <C>                 <C>
Revenues:
   Net merchandise sales                              $ 208,304           $ 169,407           $122,350
   Finance charges and other                             28,988              22,770             15,249
                                                      ---------           ---------           --------       
         Total revenues                                 237,292             192,177            137,599
                                                      
Costs and Expenses:                                   
   Cost of goods sold, including occupancy,           
     distribution and buying                            106,778              86,068             61,840
                                                                                               106,778
   Selling, general and administrative                   72,949              59,871             46,338
   Provision for doubtful accounts                       22,981              15,643              9,311
   Depreciation and amortization                          4,177               3,321              2,516
                                                      ---------           ---------           --------       
Income from operations                                   30,407              27,274             17,594
   Interest income from related party                    (1,817)                 --                 --
   Interest expense                                       1,152               2,197              4,102
                                                      ---------           ---------           --------       
                                                      
Income before extraordinary item and                  
       income taxes                                      31,072              25,077             13,492
                                                      
Income tax expense                                       11,805               9,548              3,065
                                                      ---------           ---------           --------       
Income before extraordinary item                         19,267              15,529             10,427
                                                      
Extraordinary item (net of tax)                              --              (1,696)                --
                                                      ---------           ---------           --------       
Net income                                            $  19,267           $  13,833           $ 10,427
                                                      =========           =========           ========
                                                      
Earnings per share before extraordinary item          $    1.33           $    1.19           $   0.97
Extraordinary item per share (net of tax)                    --               (0.13)                --
                                                      ---------           ---------           --------       
Net earnings per share                                $    1.33           $    1.06           $   0.97
                                                      =========           =========           ========
Weighted average common shares outstanding               14,539              13,031             10,722
                                                      =========           =========           ========
</TABLE>



                            See accompanying notes.

                                      F-1
<PAGE>   33



                                Friedman's Inc.

                          Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                          SEPTEMBER 30,
                                                                                     1997                 1996
                                                                                --------------        ------------
                                                                                    (Amounts in thousands except
                                                                                      share and per share data)
<S>                                                                             <C>                   <C>
ASSETS                                                                                 
Current Assets:
   Cash and cash equivalents                                                      $        776        $     19,962
   Accounts receivable, net of allowance for doubtful accounts
     of $8,536 in 1997 and $7,056 in 1996                                               76,825              63,221
   Inventories                                                                          78,683              64,307
   Other current assets                                                                  2,582               3,011
                                                                                  ------------        ------------
         Total current assets                                                          158,866             150,501

Equipment and improvements, net                                                         29,380              23,481
Notes receivable from related party                                                     25,000                   -
Tradename rights, net                                                                    6,906                   -
Other receivable, net (see Note 4)                                                       1,187                   -
Other assets                                                                             2,012               1,632
                                                                                  ------------        ------------
         Total assets                                                             $    223,351        $    175,614
                                                                                  ============        ============   
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                                                               $     26,349        $     21,052
   Accrued and other liabilities                                                         6,057               7,208
                                                                                  ------------        ------------
         Total current liabilities                                                      32,406              28,260

Long-term Liabilities:
   Long-term debt                                                                       19,397                   -

Stockholders' Equity:
   Preferred stock, par value $.01, 10,000,000 shares authorized 
     and none issued                                                                         -                   -
   Class A common stock, par value $.01, 25,000,000 shares authorized,
     13,107,343 shares issued and outstanding                                              131                 125
   Class B common stock, par value $.01, 7,000,000 shares authorized,
     1,492,401 shares issued and outstanding                                                15                  18
   Additional paid-in capital                                                          122,020             117,096
   Retained earnings                                                                    49,382              30,115
                                                                                  ------------        ------------
         Total stockholders' equity                                                    171,548             147,354
                                                                                  ------------        ------------
         Total liabilities and stockholders' equity                               $    223,351        $    175,614
                                                                                  ============        ============
</TABLE>


                            See accompanying notes.

                                      F-2
<PAGE>   34


                                Friedman's Inc.
                Consolidated Statements of Stockholders' Equity
                             (Dollars In Thousands)

<TABLE>
<CAPTION>
                                           Class A Common Stock    Class B Common Stock      
                                           --------------------    --------------------      Additional      Retained
                                           Shares     Amount      Shares        Amount     Paid-in Capital   Earnings      Total
                                        -------------------------------------------------------------------------------------------
<S>                                     <C>           <C>         <C>           <C>        <C>               <C>        <C>  
Balance at September 30, 1994             3,805,019     $  38     5,606,700       $56        $  13,172       $  5,855   $  19,121

Public offering of Class A common
  stock and conversion of Class A
  common warrants                         2,600,000        26             -         -           44,811              -      44,837
Issuance of Class A common stock
  pursuant to the Employee Stock
  Purchase Plan                              31,854         1             -         -              510              -         511
Conversion of Class B common stock
  into Class A common stock by an           
  Affiliate                                 629,323         6      (629,323)       (6)               -              -           -
Employee stock options exercised              6,720         -             -         -               67              -          67
Net income                                        -         -             -         -                -         10,427      10,427
                                        -----------------------------------------------------------------------------------------
Balance at September 30, 1995             7,072,916        71     4,977,377        50           58,560         16,282      74,963

Public offering of Class A common
  stock and conversion of Class A
  common warrants                         2,200,000        22             -         -           57,932              -      57,954
Issuance of Class A common stock
  pursuant to the Employee Stock
  Purchase Plan                              24,009         -             -         -              420              -         420
Conversion of Class B common stock
  into Class A common stock by an                                                                                                
  Affiliate                               3,203,795        32    (3,203,795)      (32)               -              -           -
Employee stock options exercised             16,840         -             -         -              184              -         184
Net income                                        -         -             -         -                -         13,833      13,833
                                        -----------------------------------------------------------------------------------------
Balance at September 30, 1996            12,517,560       125     1,773,582        18          117,096         30,115     147,354

Issuance of Class A common stock
  pursuant to tradename acquisition
  agreement                                 250,000         3             -         -            4,247              -       4,250
Issuance of Class A common stock
  pursuant to the Employee Stock
  Purchase Plan                              20,580         -             -         -              265              -         265
Conversion of Class B common stock
  into Class A common stock by an           
  Affiliate                                 281,181         3      (281,181)       (3)               -              -           -
Employee stock options exercised             38,022         -             -         -              412              -         412
Net income                                        -         -             -         -                -         19,267      19,267
                                        -----------------------------------------------------------------------------------------
Balance at September 30, 1997            13,107,343      $131     1,492,401       $15         $122,020        $49,382    $171,548
                                        =========================================================================================
</TABLE>

                                      F-3
<PAGE>   35

                                Friedman's Inc.

                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED SEPTEMBER 30,
                                                                          --------------------------------------
                                                                            1997           1996           1995
                                                                          --------        -------      ---------
                                                                                     (In thousands)
<S>                                                                       <C>        <C>               <C>
Operating Activities:                                                      
Net income                                                                $ 19,267       $ 13,833       $ 10,427
Adjustments to reconcile net income to cash used in operating              
   activities:                                                             
     Provision for doubtful accounts                                        22,981         15,643          9,311
     Depreciation and amortization                                           4,177          3,321          2,516
     Deferred taxes                                                            418          1,870           (237)
     Changes in assets and liabilities:                                    
       Increase in accounts receivable                                     (36,585)       (33,844)       (25,279)
       Increase in inventories                                             (14,376)       (19,132)       (17,968)
       Decrease (increase) in other assets                                      49          1,661         (5,546)
       Increase in accounts payable and accrued and other liabilities        3,728          1,984         11,269
                                                                          --------        -------       --------               
     Net cash used in operating activities                                    (341)       (14,664)       (15,507)
Investing Activities:                                                      
   Additions to equipment and improvements                                  (9,919)        (9,841)        (9,577)
   Notes receivable from related party                                     (25,000)             -              -
                                                                          --------        -------       --------
Net cash used by investing activities                                      (34,919)        (9,841)        (9,577)
                                                                          --------        -------       --------
Financing Activities:                                                      
   Bank advances (repayments) under credit agreements                       19,397              -        (12,255)
   Advances related to acquisition of tradename rights                      (4,000)             -              -
   Proceeds from employee stock purchases                                      677            604            578
   Proceeds from public stock offerings                                          -         57,954         44,837
   Repayments of bank borrowings and subordinated debt                           -        (22,369)             -
                                                                          --------        -------       --------
     Net cash provided by financing activities                              16,074         36,189         33,160
                                                                          --------        -------      ---------
                                                                           
Increase (decrease) in cash and cash equivalents                           (19,186)        11,684          8,076
Cash and cash equivalents, beginning of year                                19,962          8,278            202
                                                                          --------        -------       --------
Cash and cash equivalents, end of year                                    $    776       $ 19,962       $  8,278
                                                                          ========       ========       ========
Supplemental cash flow information:                                        
     Cash paid for:                                                        
       Interest                                                           $    902       $  2,410       $  4,224
                                                                          ========       ========       ========
       Income taxes                                                       $  9,626       $  6,108       $  5,228
                                                                          ========       ========       ========
</TABLE>



                            See accompanying notes.

                                      F-4
<PAGE>   36


                                Friedman's Inc.

                   Notes to Consolidated Financial Statements

                               September 30, 1997

1.     THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

   Basis of Presentation

     Friedman's Inc. (the "Company") is a retailer of fine jewelry operating
384 stores in 21 states. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary. All significant
intercompany accounts have been eliminated.

   Cash and Cash Equivalents

     Cash and cash equivalents include demand deposits with banks.

   Revenue Recognition

     Revenue related to merchandise sales is recognized at the time of sale,
reduced by a provision for returns. Finance charges and credit insurance
revenue are recognized principally over the term of the related installment
contract.

   Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

   Accounts Receivable

     A substantial portion of merchandise sales are made under installment
contracts due in periodic payments over periods generally ranging from three to
24 months. The accounts are stated net of unearned finance charges and credit
insurance of $9,596,000 and $7,903,000 at September 30, 1997 and 1996,
respectively. Consistent with industry practice, amounts which are due after
one year are included in current assets and totaled $6,641,000 and $5,033,000
at September 30, 1997 and 1996, respectively.

     Credit operations are maintained at each store, under Company guidelines,
to evaluate the credit worthiness of the Company's customers and to manage the
collection process. The Company generally requires down payments on credit
sales and offers credit insurance to its customers, both of which help to
minimize credit risk. The Company believes it is not dependent on a given
industry or business for its customer base and, therefore, has no significant
concentration of credit risk.


                                      F-5
<PAGE>   37


                                Friedman's Inc.

             Notes to Consolidated Financial Statements (continued)

1.     THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     The Company maintains allowances for uncollectible accounts. These
reserves are estimated based on historical experience, the composition of
outstanding balances, trends at specific stores and other relevant information.
Generally, accounts on which payments have not been made for four months are
charged to the allowance for doubtful accounts. The Company does not require
collateral.

   Merchandise Inventories

     Inventories are stated at the lower of weighted average cost or estimated
market value.

   Advertising Costs

     Advertising costs are charged against operations when the corresponding
advertising is first run. Amounts expensed were $9,964,410, $6,977,269 and
$5,116,670 for the years ended September 30, 1997, 1996 and 1995, respectively.
The amount of prepaid advertising at September 30, 1997 and 1996 is $647,772
and $942,559, respectively.

   Depreciation and Amortization

     Depreciation of equipment is provided using the straight-line method over
the estimated useful lives ranging from five to ten years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the estimated useful lives of the assets. Acquired tradename
rights are amortized using the straight-line method over fifteen years.

   Retirement Savings Plan

   In March 1996, the Company adopted a defined contribution Retirement Savings
Plan (the Plan) under Section 401(k) of the Internal Revenue Code. Employees at
least 21 years of age who have completed one year of service with 1,000 hours
or more are eligible to participate in the plan. Employees elect contribution
percentages between 1% and 15% of annual compensation, as well as the
investment options for their contributions. The Company makes matching
contributions on behalf of each participant equal to 50% of the first 4% of
each participant's contribution to the Plan. Company matching contributions to
the Plan for the fiscal year ended September 30, 1997 and 1996 were $152,166
and $102,555, respectively. Employee contributions are 100% vested while
Company contributions are vested according to a specified scale based on years
of service.

                                      F-6
<PAGE>   38
                                Friedman's Inc.

             Notes to Consolidated Financial Statements (continued)

1.     THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   Stock-Based Compensation

     In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), which the Company adopted in fiscal year 1997. As
permitted by SFAS No. 123, the Company accounts for employee stock options
under the provisions of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. Accordingly, the Company does not record
compensation expense for stock option grants when the exercise price equals or
exceeds the market price of the Company's common stock on the date of grant.

   Income Taxes

   Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting and
income tax purposes, both as measured by applying tax rates expected to be in
place when the differences reverse. Deferred tax assets are recognized if it is
more likely than not that a benefit will be realized.

   Fair Values of Financial Instruments

     The reported amounts in the balance sheets at September 30, 1997 and 1996,
respectively, for cash and cash equivalents, accounts receivable, accounts
payable, and long-term debt approximate fair value.

   Earnings Per Share

     Earnings per share are based on the weighted average number of common and
common equivalent shares outstanding during the year. In March 1997, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 128, Earnings Per Share (EPS)(SFAS No. 128), which simplifies the
calculation of earnings per share by excluding common stock equivalents from
the calculation of basic EPS. The new EPS rules are effective for both interim
and annual periods ending after December 15, 1997. The Company will adopt SFAS
128 in the first quarter of 1998 as early adoption is not permitted. Management
does not expect the impact of adopting SFAS 128 will be material.

                                      F-7
<PAGE>   39
                                Friedman's Inc.

             Notes to Consolidated Financial Statements (continued)

2.     FINANCING ARRANGEMENTS

   Common Stock

     In June 1996, the Company issued 2,200,000 shares of Class A common stock
and a selling shareholder sold an additional 200,000 shares for $28.25 per
share. Net proceeds to the Company totaled approximately $58,000,000 and were
used to prepay $15,000,000 of 14.25% senior subordinated indebtedness and
$7,400,000 of 13% junior subordinated indebtedness, and to repay $10,500,000
outstanding under the Company's lines of credit. The prepayment of the 14.25%
senior subordinated indebtedness resulted in the payment of a make whole amount
of $2,800,000, which was recorded net of applicable income taxes, as an
extraordinary item.

     The Company has two classes of common stock designated Class A and Class
B. The Class B shares elect 75% of the directors and vote without Class A
participation on all other matters required to be submitted to a vote of the
stockholders. Each Class B share is convertible, at any time, at the option of
the holder into one Class A share and once all Class B shares have been
converted, each Class A share is entitled to one vote on all matters submitted
to the stockholders.

   Bank Line of Credit Agreement

     In July 1997, the Company negotiated a new bank loan and security
agreement with a group of banks (New Agreement) which provides for borrowings
of up to $80,000,000 through April 30, 1999. Borrowings under the New Agreement
are further limited to 75% of eligible accounts receivable and 50% of eligible
inventories. Borrowings under the New Agreement bear interest at either the
bank's offered rate (similar to a money market rate) plus 0.875% or at the
Company's option, LIBOR plus 0.875%. Interest charged under the New Agreement
ranged from 6.5% to 6.9% for the year ended September 30, 1997.

     Borrowings under the New Agreement are $19,397,000 at September 30, 1997
and are secured by substantially all Company assets. The agreement contains
certain financial covenants, prohibits cash dividends, and limits mergers and
acquisitions, certain capital transactions and borrowings.

3.     EQUIPMENT AND IMPROVEMENTS

     Equipment and improvements, at cost, consist of the following (in
thousands):

<TABLE>
<CAPTION>
                                                             SEPTEMBER 30
                                                            1997      1996
                                                          -------   -------  
     <S>                                                  <C>       <C>
     Store and office equipment                           $20,261   $14,310
     Leasehold improvements                                17,267    14,141
     Computer equipment and implementation costs            5,003     4,302
                                                          -------   -------  
                                                           42,531    32,753
     Less accumulated depreciation and amortization       (13,151)   (9,272)
                                                          -------   -------  
                                                          $29,380   $23,481
                                                          =======   =======
</TABLE>

4.   PURCHASE OF TRADE NAME

     During 1997, the Company acquired all the rights of A. A. Friedman's Co.,
Inc. of Augusta, Georgia ("AAFCO") to the "Friedman's Jewelers" tradename and
AAFCO changed its corporate name to "Marks & Morgan". In connection with the
tradename rights acquisition, the Company issued to AAFCO 250,000 shares of its
Class A common stock on May 16, 1997. The shares were placed in escrow and
became vested incrementally as AAFCO changed the names of its store locations
between May 16, 1997 and September 30, 1997. The Company also agreed that for
each share placed in escrow, the Company would pay AAFCO an amount by which the
actual stock price at June 30, 1999 (the date of settlement for the escrow) is
lower than a guaranteed stock price of $28.25 per share (guaranteed price). The
Company has agreed to make certain advance payments to AAFCO of approximately $7
million through an escrow arrangement which would pre-fund the minimum sales
proceeds. As of September 30, 1997, $4 million has been advanced to AAFCO under
this arrangement. The Company recorded an asset related to the tradename rights
acquisition of approximately $7.1 million (guaranteed amount) with additions to
paid in capital of $4.2 million (which represents the quoted market price of the
stock on the date of issue) and to a long-term obligation of $2.9 million. The
$2.9 million obligation will be adjusted based on changes in the Company's stock
price between the date of issuance, May 16, 1997, and the final settlement date,
June 30, 1999. At June 30, 1999, any remaining amount of this obligation will be
paid in cash by the Company.

                                      F-8
<PAGE>   40
                                Friedman's Inc.

             Notes to Consolidated Financial Statements (continued)

5.   ACCRUED AND OTHER LIABILITIES

     Accrued and other liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                          SEPTEMBER 30
                                                     1997              1996
                                                    ------            ------
     <S>                                            <C>               <C>
     Accrued compensation and related expenses      $2,271            $3,314
     Sales taxes payable                             1,592             1,614
     Customer deposits for layaways                  1,428             1,536
     Accrued legal costs                               107             1,139
     Other                                             659              (395)
                                                    ------            ------
                                                    $6,057            $7,208
                                                    ======            ======
</TABLE>

6.   LONG-TERM INCENTIVE PROGRAM

     During fiscal 1995, the Board of Directors approved agreements which
provide incentive compensation to the Chairman of the Board and Chief Executive
Officer and the Chairman of the Executive Committee (Executives) based on
growth in the price of the Company's publicly traded common stock. Both of the
Executives were advanced $1,500,000 evidenced by a recourse promissory note,
due in 2004 and bearing interest at the minimum rate allowable for federal
income tax purposes. The incentive features of the loans provide that: (i) as
long as the Executives are employed by the Company on the date on which
interest is due on the loans, such interest will be forgiven; (ii) a percentage
of the outstanding principal of the loans will be forgiven upon the attainment
of certain targets for the price of the Company's Class A common stock, as
indicated below, provided that the Executives are employed by the Company on
the date that the stock price target is attained; and (iii) the Company will
pay any personal tax effects due as the result of such forgiveness of interest
and principal.

     The stock price targets and related forgiveness percentages are noted in
the following table:

<TABLE>
<CAPTION>
                 YEARS 1-5                           YEARS 6-10
-------------------------------------------------------------------------------
                      % OF ORIGINAL                           % OF ORIGINAL 
                    PRINCIPAL BALANCE                       PRINCIPAL BALANCE
STOCK PRICE TARGET       FORGIVEN      STOCK PRICE TARGET        FORGIVEN
------------------- -----------------  ------------------   -----------------
<S>                 <C>                <C>                  <C>
       $22.50               15%             $32.50                  50%
        25.00               30%              37.50                  60%
        27.50               50%              45.00                  70%
        30.00               75%              52.50                  80%
        32.50              100%              60.00                 100%
</TABLE>


                                      F-9
<PAGE>   41
                                Friedman's Inc.

             Notes to Consolidated Financial Statements (continued)


6.   LONG-TERM INCENTIVE PROGRAM (CONTINUED)

     The stock price target is based on the average closing price of the Class
A common stock on the Nasdaq National Market for ten consecutive trading days.
The stock price targets specified will be adjusted proportionally to reflect
any stock split, reverse stock split, recapitalization or other similar event.
In addition, in the event of the death or disability of the Executives, or a
Change in Control of the Company (as defined in the loan agreements), the
remaining principal amount and accrued interest will be forgiven. Upon
forgiveness of principal under either such loan, the Company incurs
compensation expense as of the date of the respective forgiveness.

     In the fourth quarter of fiscal 1995, the first stock price target was met
and the initial principal of each loan was reduced by $225,000. Compensation
expense totaling $900,000 was charged to operations, which represents
forgiveness of principal and related income tax costs. In the third quarter of
fiscal 1996, the second and third stock price targets were met and the
remaining principal of each loan was reduced by $525,000. Compensation expense
totaling approximately $2,100,000 was charged to operations, which represents
forgiveness of principal and related income tax costs.

7.     RELATED PARTY TRANSACTIONS

     During fiscal 1997, the Company paid $400,000 plus expenses to an
affiliated entity pursuant to a Financial Advisory Services Agreement (the
"Agreement"). Pursuant to the Agreement, the affiliate will provide the Company
with certain financial advisory services with respect to capital structure,
business strategy and operations, budgeting and financial controls, and
mergers, acquisitions and other similar transactions. The Agreement has a term
of one year with an automatic renewal unless either party terminates by written
notice. The Company agreed to indemnify the affiliate against any losses
associated with the Agreement.

     Lease commitments include $30,000 related to office and store space leased
from related parties. Rent expense for each of the three years in the period
ended September 30, 1997, related to these leases amounted to approximately
$92,000.

     In October 1996, the Company made a convertible senior subordinated term
loan to Crescent Jewelers ("Crescent") in the principal amount of $20 million
(the "Term Loan"). The Term Loan is due in October 1999, is secured by
substantially all of the assets of Crescent, and is subordinate to Crescent's
senior secured bank credit facility.

     Also in October 1996, the Company entered into a Standby Purchase
Agreement with Crescent (the "Standby Purchase Agreement") which provided for
the Company to purchase, upon Crescent's request, up to $5,000,000 of
Crescent's 10% Convertible Senior Subordinated Notes due 2006 (the "10% Notes).
The Company purchased $5 million of the 10% Notes in June 1997.

                                     F-10
<PAGE>   42
                                Friedman's Inc.

             Notes to Consolidated Financial Statements (continued)


7.     RELATED PARTY TRANSACTIONS (CONTINUED)

     Pursuant to a Conversion Agreement (the "Conversion Agreement") by and
among the Company, Crescent and Crescent Jewelers, Inc., a Delaware corporation
("CJI") which owns 100% of the outstanding capital stock of Crescent, up to
one-half of the unpaid principal amount of the Term Loan and the entire unpaid
principal amount of the 10% Notes held by the Company, if any, are convertible
into shares of Class A common stock of CJI ("Stock") in accordance with
conditions specified in the agreement. In addition, pursuant to the Conversion
Agreement, up to one-half of the remaining unpaid principal amount of the Term
Loan, if any, is convertible into Stock, on or after an initial public offering
of Crescent, at the initial public offering price.

     The shares of Stock received upon the conversion of the Term Loan or the
10% Notes are subject to a Registration Agreement by and among CJI and certain
investors, which include the Company (the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company has the right, under
certain circumstances, to demand two registrations of shares of Stock received
in conversion of the Term Loan and 10% Notes, and to participate in certain
offerings by CJI of Stock.

     In September 1995, Crescent, an affiliate, fully converted 629,323 shares
of Class B common stock into 629,323 shares of Class A common stock.
Simultaneously, Crescent sold all of the Class A Common shares through a public
offering facilitated by the Company. The sole shareholder of the general
partner of the partnership which controls the Company's Class B common stock is
also the sole shareholder of a partnership which has controlling interest in
Crescent. The Chairman and Chief Executive Officer of the Company is also the
Chairman and Chief Executive Officer of Crescent.

     During part of fiscal 1995, Crescent provided the Company with use and
maintenance of certain computer hardware and software related to the Company's
automated management information system. Amounts billed for such services
totaled $83,055 for the year ended September 30, 1995. In fiscal 1995, the
Company entered into a lease agreement with a third party for computer hardware
which was installed at the Company's headquarters and the Company then assumed
full control of its automated management information system.

                                     F-11
<PAGE>   43
                                Friedman's Inc.

             Notes to Consolidated Financial Statements (continued)


8.   STOCK PLANS

   Stock Option Plan

     The Company has a stock option plan which provides for the granting of
incentive stock options to officers and key employees up to a maximum of
760,000 Class A shares. All incentive stock options are granted at the common
stock's fair market value at the grant date, as determined by the Board of
Directors. All options have a 10-year term and become exercisable with
continued employment as follows:

<TABLE>
<CAPTION>
    FULL YEARS ELAPSED SINCE DATE OF       PERCENTAGE OF SHARES WHICH MAY BE
                  GRANT                                EXERCISED
    ----------------------------------     -----------------------------------
    <S>                                    <C>
                    1                                     40%
                    2                                     70%
                    3                                     100%
</TABLE>

     The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related interpretations which
measures compensation cost using the intrinsic value method of accounting for
its stock options. Accordingly, the Company does not recognize compensation cost
based upon the fair value method of accounting as provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). If
the Company had elected to recognize compensation cost based on the fair value
of the options granted beginning in fiscal year 1996, as prescribed by SFAS No.
123, net income would have been reduced to the pro forma amounts indicated in
the table below:

<TABLE>
<CAPTION>
                                                      1997              1996
                                                    -------           -------
          <S>                                       <C>               <C>
          Net income - as reported                  $19,267           $13,833
          Net income - pro forma                     18,503            13,536
</TABLE>

     Because the above pro forma amounts only include options granted beginning
in fiscal year 1996, the effects of these hypothetical calculations are not
likely to be representative of similar future calculations.

     The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option valuation method with the following assumptions:

<TABLE>
         <S>                                                <C>
         Expected dividend yield                               0.00%
         Risk-free interest rate                               6.22%
         Expected life of options                           10 years
         Expected stock price volatility                       0.431
</TABLE>


                                     F-12
<PAGE>   44
                                Friedman's Inc.

             Notes to Consolidated Financial Statements (continued)

8.   STOCK PLANS (CONTINUED)

     A summary of the activity under the stock option plan is as follows:

<TABLE>
<CAPTION>
                                                                                         
                                                                    WEIGHTED 
                                  SHARES            SHARES          AVERAGE   
                               AVAILABLE FOR    AVAILABLE FOR   EXERCISE PRICE
                                  GRANT            EXERCISE        PER SHARE 
                               -------------    --------------  --------------
<S>                            <C>              <C>             <C>
September 30, 1994                 9,300           340,700          $10.00
   Reserved for issuance         260,000                 -               -
   Granted                      (254,950)          254,950           15.80
   Canceled                        5,070            (5,070)         (11.49)
   Exercised                      (6,720)           (6,720)          10.00
                                --------           -------          ------
September 30, 1995                12,700           583,860           12.52
   Reserved for issuance         120,000                 -               -
   Granted                      (105,050)          105,050           19.47
   Canceled                       13,540           (13,540)         (17.42)
   Exercised                     (16,840)          (16,840)         (10.97)
                                --------           -------          ------
September 30, 1996                24,350           658,530           13.57
   Reserved for issuance         150,000                 -               -
   Granted                      (151,950)          151,950           17.90
   Canceled                       35,440           (35,440)         (17.88)
   Exercised                     (38,022)          (38,022)         (10.93)
                                --------           -------          ------
September 30, 1997                19,818           737,018          $14.39
                                ========           =======          ======    
</TABLE>

     The weighted average fair value per share of options granted during the
year ended September 30, 1997, 1996 and 1995 was $11.64, $12.54 and $10.68,
respectively.

     Exercise prices for options outstanding at September 30, 1997 ranged from
$10.00 to $19.50 per share. At September 30, 1997, the weighted average
contractual life of options outstanding is 7.2 years and options to purchase
480,511 shares are exercisable.

   Employee Stock Purchase Plan

     The Company maintains an Employee Stock Purchase Plan (the "Plan") in
accordance with Section 423 of the Internal Revenue Code. Substantially all
employees are eligible to participate in the Plan and each employee may
purchase up to $25,000 of Class A Common Shares during each calendar year at
market price less a discount of approximately 15%.

                                     F-13
<PAGE>   45
                                Friedman's Inc.

             Notes to Consolidated Financial Statements (continued)


9.     INCOME TAXES

     The provision for income taxes before extraordinary item for the year
ended September 30 consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                    1997       1996      1995
                                                  -------     ------    ------    
         <S>                                      <C>         <C>       <C>
         Current:
            Federal                                $9,729     $6,696    $4,758
            State                                   1,658        982       836
                                                  -------     ------    ------    
                                                   11,387      7,678     5,594

         Deferred expense(benefit)                    418      1,870      (237)
         Valuation allowance (benefit)                  -          -    (2,292)
                                                  -------     ------    ------    
                                                  $11,805     $9,548    $3,065
                                                  =======     ======    ======
</TABLE>

     Income tax expense reconciled to the amount computed at statutory rates is
as follows:


<TABLE>
<CAPTION>
                                                                         1997     1996     1995
                                                                       -------   ------   ------
         <S>                                                           <C>       <C>      <C>
         Federal tax at statutory rate                                 $10,875   $8,777   $4,722
         State income taxes (net of federal income tax benefit)          1,271      829      500
         Valuation allowance (benefit)                                       -        -   (2,292)
         Other, net                                                       (341)     (58)     135
                                                                       -------   ------   ------
                                                                       $11,805   $9,548   $3,065
                                                                       =======   ======   ======
</TABLE>


     Significant components of the Company's deferred tax assets at September
30 are as follows (in thousands):


<TABLE>
<CAPTION>
                                                     1997     1996      1995
                                                    ------   -------   ------
         <S>                                        <C>      <C>       <C>
         Deferred tax assets:
              Allowance for doubtful accounts       $1,283   $   936   $1,569
              Reserve for legal costs                   41       527      964
              Other                                    206       298      324
                                                    ------   -------   ------
                                                     1,530     1,761    2,857
         Deferred tax liabilities:

              Inventory                                635       645      341
              Equipment and improvements               379       427      224
              Property tax expense                     304       267        -
              Customer loyalty program                 125         -        -
              Other                                     83         -        -
                                                    ------   -------   ------
                                                     1,526     1,339      565
                                                    ------   -------   ------
         Net deferred tax assets                    $    4   $   422   $2,292
                                                    ======   =======   ======
</TABLE>

                                     F-14
<PAGE>   46

                                Friedman's Inc.

            Notes to Consolidated Financial Statements (continued)

9.   INCOME TAXES (CONTINUED)

     Upon the adoption in fiscal year 1994 of Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, a valuation allowance was
recorded for the entire deferred tax asset of approximately $2.8 million as the
realizability of this asset was not deemed to be more likely than not. In fiscal
1995, management deemed the realizability of the deferred tax assets to be more
likely than not and the valuation reserve was reversed.

10.  COMMITMENTS AND CONTINGENCIES

     The Company's principal leases are for store facilities and expire at
varying dates during the next 10 years. In addition to fixed minimum rentals,
many of the leases provide for contingent rentals based upon a percentage of
store sales above stipulated amounts. Future minimum lease payments under
noncancelable operating leases are as follows (in thousands):

<TABLE>
<CAPTION>
     YEAR ENDED SEPTEMBER 30
     -----------------------
     <S>                                 <C>
     1998                                $11,631
     1999                                 10,178
     2000                                  8,218
     2001                                  6,823
     2002                                  6,008
     Subsequent years                     10,512
                                         -------
                                         $53,370
                                         =======
</TABLE>

     Total rent expense for all leases is as follows (in thousands):


<TABLE>
<CAPTION>
                                                  YEAR ENDED SEPTEMBER 30
                                            1997           1996           1995
                                          -------         ------         ------
      <S>                                 <C>             <C>            <C>
      Minimum rentals                     $12,597         $8,860         $6,229
      Contingent rentals                      529            897            706
                                          -------         ------         ------
      Total rent                          $13,126         $9,757         $6,935
                                          =======         ======         ======
</TABLE>

     Under several agreements with an insurance company, the Company sells
various types of credit insurance to its customers. Through a wholly-owned
subsidiary, the Company maintains a reinsurance contract with the insurance
company.

                                     F-15
<PAGE>   47
                                Friedman's Inc.

            Notes to Consolidated Financial Statements (continued)

10.    COMMITMENTS AND CONTINGENCIES (CONTINUED)

     The Company is involved in certain legal actions arising in the ordinary
course of business. Management believes none of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's business, financial condition or results of operations.

11.    QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the quarterly results of operations for the years
ended September 30, 1997 and 1996 (in thousands except per share data):

<TABLE>
<CAPTION>
                                                         Quarters Ended
                                        ----------------------------------------------------     
            Fiscal 1997                 December 31     March 31     June 30    September 30
-------------------------------         -----------     --------     -------    ------------
<S>                                     <C>             <C>          <C>        <C>
Total revenues                              $97,048     $43,231      $53,542       $43,471
Cost of goods sold, including
   occupancy, distribution and 
   buying                                    43,589      19,345       24,191        19,653
Income before income taxes                   21,087       4,169        3,068         2,743
Net income                                   12,968       2,563        1,887         1,844
Earnings per share                             0.90        0.18         0.13          0.13
</TABLE>

                                     F-16
<PAGE>   48
                            Friedman's Inc.

            Notes to Consolidated Financial Statements (continued)


11.    QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                               Quarters Ended
                                          -------------------------------------------------
            Fiscal 1996                   December 31    March 31    June 30   September 30
----------------------------------        -----------    --------    -------   ------------
<S>                                       <C>            <C>         <C>       <C>
Total revenues                              $76,180      $33,725     $44,646     $37,626
Cost of goods sold, including
   occupancy, distribution and                                     
   buying                                    34,322       14,902      19,657      17,187
Income before extraordinary item
   and income taxes(a)                       16,497        2,754       2,746       3,080
Income before extraordinary item             10,063        1,680       1,676       2,110
Net income (loss)                            10,063        1,680        (20)       2,110
Earnings per share before
   extraordinary item                          0.82         0.14        0.13        0.15
Earnings per share                             0.82         0.14        0.00        0.15
</TABLE>

 (a) Income before extraordinary item and income taxes for the quarter ended
     June 30, 1996 includes $2,100,000 of compensation expense related to the
     Company's long-term incentive program (see Note 6). Excluding this amount,
     income before extraordinary item and income taxes would have been
     $4,846,000.

                                     F-17
<PAGE>   49


               Report of Independent Certified Public Accountants

Board of Directors and Stockholders
Friedman's Inc.

We have audited the accompanying consolidated balance sheets of Friedman's Inc.
(the Company) as of September 30, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1997. Our audits also included
the financial statement schedule listed in Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Friedman's Inc.
at September 30, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Jacksonville, Florida
November 7, 1997



                                     F-18
<PAGE>   50


                                Friedman's Inc.

                 Schedule II--Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                            BALANCE AT                                           BALANCE AT
                                                            BEGINNING                                             END OF
                      DESCRIPTION                           OF PERIOD        ADDITIONS        DEDUCTIONS          PERIOD
-----------------------------------------------------    --------------   --------------    --------------     --------------
<S>                                                      <C>              <C>               <C>                <C>
Reserves and allowances deducted from asset accounts:
   Allowance for uncollectible accounts:
     Year ended September 30, 1995                          $3,231,000     $  9,311,000(1)  $  7,518,000(2)      $5,024,000
     Year ended September 30, 1996                           5,024,000       15,643,000(1)    13,611,000(2)       7,056,000
     Year ended September 30, 1997                           7,056,000       22,981,000(1)    21,501,000(2)       8,536,000

   Unearned finance charges and credit insurance:
     Year ended September 30, 1995                           3,892,000       13,671,000(3)    11,720,000(4)       5,843,000
     Year ended September 30, 1996                           5,843,000       19,595,000(3)    17,535,000(4)       7,903,000
     Year ended September 30, 1997                           7,903,000       23,707,000(3)    22,014,000(4)       9,596,000

   Valuation account for deferred tax assets:
     Year ended September 30, 1995                           2,292,000                -        2,292,000(5)               -
     Year ended September 30, 1996                                   -                -                -                  -
     Year ended September 30, 1997                                   -                -                -                  -
</TABLE>



----------------------
(1)  Provision for doubtful accounts.
(2)  Uncollectible accounts receivable written off, net of recoveries.
(3)  Additions to credit insurance are the dollar amount of premiums sold.
(4)  Deductions to unearned finance charges and credit insurance occur as
     finance charges and credit insurance are earned. 
(5)  Reversal of valuation allowance due to assessment of the realization of
     deferred tax assets as more likely than not.

                                     F-19
<PAGE>   51



                                   SIGNATURES


         Pursuant to the requirements of Section 13 or 15(d) 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 on December 29,
1997.
                                     FRIEDMAN'S INC.

                                     BY: /s/ Bradley J. Stinn
                                         --------------------------------------
                                         Bradley J. Stinn
                                         Chairman of the Board of Directors and
                                         Chief Executive Officer

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities indicated on December
29, 1997.

<TABLE>
<CAPTION>

                          SIGNATURE                                               TITLE
                          ---------                                               -----

          <S>                                                  <C>
                   /s/ Bradley J. Stinn                        Chairman of the Board and Chief Executive Officer
          ---------------------------------------              (Principal Executive Officer)  
                      Bradley J. Stinn                                                                                  

                  /s/ Victor M. Suglia                         Senior Vice President - Chief Financial Officer
          ---------------------------------------              (Principal Financial and Accounting Officer)
                      Victor M. Suglia                                                                   

                 /s/ Sterling B. Brinkley                      Chairman of the Executive Committee of
          ---------------------------------------              the Board of Directors
                    Sterling B. Brinkley                                                                                    

                    /s/ John E. Cay, III                       Director  
          ---------------------------------------                                                                           
                       John E. Cay III

                /s/ Robert W. Cruickshank                      Director  
          ---------------------------------------                                                                           
                    Robert W. Cruickshank
                                                               Director, President and Chief Operating Officer  
          ---------------------------------------                                                                           
                      Robert S. Morris
          
                  /s/ David B. Parshall                        Director
          ---------------------------------------                                                                           
                      David B. Parshall

                     /s/ Mark C. Pickup                        Director  
          ---------------------------------------                                                                           
                       Mark C. Pickup
</TABLE>


<PAGE>   52

                         
                              ==================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549







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




                                    EXHIBITS
                                       TO
                                 ANNUAL REPORT
                                       ON
                                   FORM 10-K
                           FOR THE FISCAL YEAR ENDED
                               SEPTEMBER 30, 1997



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




                                FRIEDMAN'S INC.






                              ==================
<PAGE>   53

 
                               INDEX TO EXHIBITS

         The exhibits indicated below are either included or incorporated by
reference herein, as indicated.


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                           EXHIBIT DESCRIPTION
-------                          -------------------
<S>               <C>
3.1               Registrant's Certificate of Incorporation, as amended
                  (incorporated by reference from Exhibit 4(a) to the
                  Registrant's Registration Statement on Form S-8 (File No.
                  333-17755) dated March 21, 1997).

3.2               Bylaws of the Registrant (incorporated by reference from
                  Exhibit 3.2 to the Registrant's Registration Statement on
                  Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).

4.1               See Exhibits 3.1 and 3.2 for provisions of the Certificate of
                  Incorporation and Bylaws of the Registrant defining rights of
                  holders of Class A and Class B Common Stock of the
                  Registrant.

4.2               Form of Class A Common Stock certificate of the Registrant
                  (incorporated by reference from Exhibit 4.2 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.1              Amended and Restated Agreement of Limited Partnership, dated
                  as of May 24, 1990, among MS Jewelers Corporation and the
                  limited partners listed in Annex A thereto (incorporated by
                  reference from Exhibit 10.1 to the Registrant's Registration
                  Statement on Form S-1 (File No. 33-67662), and amendments
                  thereto, originally filed on August 19, 1993).  

10.2              Lease Agreement, dated as of May 24, 1990, by and between
                  Friedman's Jewelers, Inc. and MS Jewelers Limited Partnership
                  (incorporated by reference from Exhibit 10.5 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.2.1            Addendum to Lease between Friedman's Jewelers, Inc., Lessor
                  and Friedman's Inc. dated August 17, 1995. (incorporated
                  by reference from Exhibit 10.5.1 to the Registrant's Annual
                  Report on Form 10-K for the Year Ended September 30, 1995).

10.3              Letter Agreement regarding sales of equity interests in MS
                  Jewelers Limited Partnership, dated as of February 15, 1990,
                  among Morgan Schiff & Co., Inc., Sterling Brinkley, Philip E.
                  Cohen, Bradley J. Stinn, Friedman's Jewelers, Inc.,
                  Friedman's Jewelers, Inc., Anniston, Friedman's Jewelers,
                  Inc., Columbia, Friedman's Jewelers, Inc., Greenville,
                  Friedman's Jewelers, Inc., Main, Friedman's Jewelers, Inc.,
                  Marietta, Friedman's Jewelers, Inc., Oglethorpe, Friedman's
                  Jewelers, Inc., Westside and Stanley Jewelers, Inc.
                  (incorporated by reference from Exhibit 10.6 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).
</TABLE>
                                     - 1 -
<PAGE>   54
<TABLE>
<S>               <C>
10.4              Loan Agreement, dated October 26, 1993, by and between
                  NationsBank of Georgia, N.A. and Friedman's Inc.
                  (incorporated by reference from Exhibit (10) to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended December 31, 1993).

10.5              Amendment, dated November 17, 1994, to Loan Agreement, dated
                  October 26, 1993, by and between NationsBank of Georgia, N.A.
                  and Friedman's Inc. (incorporated by reference from Exhibit
                  10.9 to the Registrant's Annual Report on Form 10-K for the
                  fiscal year ended September 30, 1994).

10.5.1            Amended and Restated Loan Agreement, dated December 14, 1995,
                  by and between NationsBank of Georgia, N.A. and Friedman's
                  Inc.  (Incorporated by reference from Exhibit 10.9.1 to the
                  Registrant's Annual Report on From 10-K for the Year Ended
                  September 30, 1995).

10.6              Loan Agreement, dated as of May 27, 1994, by and between
                  First Union National Bank of Georgia and Friedman's Inc.
                  (incorporated by reference from Exhibit 10.10 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended September 30, 1994).

10.7              Amendment, dated November 17, 1994, to Loan Agreement dated
                  May 27, 1994, by and between First Union National Bank and
                  Friedman's Inc. (incorporated by reference from Exhibit 10.11
                  to the Registrant's Annual Report on Form 10-K for the fiscal
                  year ended September 30, 1994).

10.7.1            Amended and Restated Loan Agreement, dated December 14, 1995,
                  by and between First Union National Bank and Friedman's Inc.
                  (Incorporated by reference from Exhibit 10.11.1 to the 
                  Registrant's Annual Report on Form 10-K for the Year Ended
                  September 30, 1995).

10.8              Registration Rights Agreement, dated as of August 19, 1993,
                  by and between Friedman's Inc. and Teachers Insurance and
                  Annuity Association of America (incorporated by reference
                  from Exhibit 10.16 to the Registrant's Registration Statement
                  on Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).

10.9              Letter Agreement regarding Section 6.02(b) of MS Jewelers
                  Limited Partnership's Amended and Restated Agreement of
                  Limited Partnership, dated as of May 24, 1990, between MS
                  Jewelers Corporation and Crescent Jewelers (incorporated by
                  reference from Exhibit 10.17 to the Registrant's Registration
                  Statement on Form S-1 (File No. 33-67662), and amendments
                  thereto, originally filed on August 19, 1993).

10.10             Letter Agreement regarding Section 6.02(b) of MS Jewelers
                  Limited Partnership's Amended and Restated Agreement of
                  Limited Partnership, dated as of May 24, 1990, between MS
                  Jewelers Corporation and Steven C. Graber (incorporated by
                  reference from Exhibit 10.18 to the Registrant's Registration
                  Statement on Form S-1 (File No. 33-67662), and amendments
                  thereto, originally filed on August 19, 1993).

10.11             Option Transfer and Consent Agreement, dated as of March 16,
                  1992, by and among Sterling B. Brinkley, Steven C. Graber and
                  MS Jewelers Limited Partnership (incorporated by reference
                  from Exhibit 10.26 to the Registrant's Registration Statement
                  on Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).
</TABLE>
                                     - 2 -
<PAGE>   55
<TABLE>
<S>               <C>
10.12             Amended and Restated Partnership Purchase Option Agreement,
                  dated as of March 16, 1992, between MS Jewelers Limited
                  Partnership and Steven C. Graber (incorporated by reference
                  from Exhibit 10.27 to the Registrant's Registration Statement
                  on Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).

10.13             Partnership Purchase Option Agreement, dated as of March 16,
                  1992, between MS Jewelers Limited Partnership and Sterling B.
                  Brinkley (incorporated by reference from Exhibit 10.28 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.14             MS Jewelers Limited Partnership 1993 Incentive Plan
                  (incorporated by reference from Exhibit 10.29 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.15             Representative sample of MS Jewelers Limited Partnership's
                  form of Installment Credit Agreement for self-financed sales
                  to customers (incorporated by reference from Exhibit 10.41 to
                  the Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.16             Representative sample of MS Jewelers Limited Partnership's
                  form of Limited Diamond Warranty (incorporated by reference
                  from Exhibit 10.42 to the Registrant's Registration Statement
                  on Form S-1 (File No. 33-67662), and amendments thereto,
                  originally filed on August 19, 1993).

10.17             Agreement and Understanding, dated December 14, 1994, between
                  Friedman's Inc. and Morgan Schiff & Co., Inc. regarding
                  financial advisory services (incorporated by reference from
                  Exhibit 10.32 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended September 30, 1994).

10.18             Loan and Security Agreement, dated as of October 15, 1996, by
                  and between Friedman's Inc. and Crescent Jewelers
                  (incorporated by reference from Exhibit 10.1 to the
                  Registrant's Current Report on Form 8-K (File No. 000-22356)
                  originally filed on October 28, 1996).

10.18.1           Amendment dated June 30, 1997, to that certain Loan and 
                  Security Agreement, dated as of October 15, 1996, by and
                  between Friedman's, Inc. and Crescent Jewelers.

10.19             Promissory Note dated, as of October 15, 1996, in the
                  original principal amount of $20,000,000 executed by Crescent
                  Jewelers in favor of Friedman's, Inc. (incorporated by
                  reference from Exhibit 10.2 to the Registrant's Current
                  Report on Form 8-K (File No. 000-22356) originally filed on
                  October 28, 1996).

10.20             Subordination Agreement, dated as of October 15, 1996, by and
                  among the financial institutions party thereto, LaSalle
                  National Bank, as Agent and Friedman's Inc. (incorporated by
                  reference from Exhibit 10.3 to the Registrant's Current
                  Report on Form 8-K (File No. 000-22356) originally filed on
                  October 28, 1996).
</TABLE>

                                     - 3 -
<PAGE>   56
<TABLE>
<S>               <C>
10.21             Standby Purchase Agreement, dated as of October 15, 1996, by
                  and between Friedman's Inc. and Crescent Jewelers, including,
                  as an exhibit thereto, the Form of Note Purchase Agreement
                  (incorporated by reference from Exhibit 10.4 to the
                  Registrant's Current Report on Form 8-K (File No. 000-22356)
                  originally filed on October 28, 1996).

10.22             Conversion Agreement, dated as of October 15, 1996, by and
                  among Friedman's Inc., Crescent Jewelers, Inc. and Crescent
                  Jewelers (incorporated by reference from Exhibit 10.5 to the
                  Registrant's Current Report on Form 8-K (File No. 000-22356)
                  originally filed on October 28, 1996).

10.23             Registration Rights Agreement made as of the 16th day of
                  October, 1996, by and between Crescent Jewelers, Inc. and the
                  investors listed from time to time on Schedule A thereto
                  (incorporated by reference from Exhibit 10.6 to the
                  Registrant's Current Report on Form 8-K (File No. 000-22356)
                  originally filed on October 28, 1996).

10.24             Agreement by and between A.A. Friedman Co., Inc., and its
                  Affiliates and the Company (incorporated by reference from
                  Exhibit 10.1 to the Registrant's Quarterly Report on Form
                  10-Q for the Quarter Ended June 30, 1997 (File No. 000-22356)
                  originally filed on August 14, 1997).

10.25             Note Purchase Agreement, dated as of June 12, 1997, by and
                  among Crescent Jewelers and each of the Purchasers named on
                  Schedule I thereto (which includes the Company), relating to
                  the issuance $8 million in aggregate principal amount of 10%
                  Convertible Senior Subordinated Notes due October 15, 2006
                  (incorporated by reference from Exhibit 10.2 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1997 (File No. 000-22356) originally filed on
                  August 14, 1997).

10.25.1           First Amendment dated June 30, 1997, to that certain Note 
                  Purchase Agreement, dated as of June 30, 1997, by and between
                  Crescent Jewelers and the Company, relating to the issuance of
                  $8,000,000 in aggregate principal amount of the Company's 10%
                  Convertible Subordinated Notes due October 15, 2006.

10.26             10% Convertible Senior Subordinated Note due October 15,
                  2006, dated June 12, 1997, made by Crescent Jewelers in favor
                  of the Company in the original principal amount of $5 million
                  (incorporated by reference from Exhibit 10.3 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1997 (File No. 000-22356) originally filed on
                  August 14, 1997).

10.27             Second Amended and Restated Loan Agreement, dated July 14,
                  1997, by and between First Union National Bank and the
                  Company (incorporated by reference from Exhibit 10.4 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1997 (File No. 000-22356) originally filed on
                  August 14, 1997).

10.28             Second Amended and Restated Loan Agreement, dated July 14,
                  1997, by and between NationsBank, N.A. and the Company
                  (incorporated by reference from Exhibit 10.5 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1997 (File No. 000-22356) originally filed on
                  August 14, 1997).
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10.29             Loan Agreement, dated as of July 14, 1997, by and between ABN
                  AMRO Bank N.V. and the Company (incorporated by reference
                  from Exhibit 10.6 to the Registrant's Quarterly Report on
                  Form 10-Q for the Quarter Ended June 30, 1997 (File No.
                  000-22356) originally filed on August 14, 1997).

10.30             Second Amendment and Restated Intercreditor and Security
                  Agreement, dated July 14, 1997, among NationsBank, N.A. as
                  collateral agent, First Union National Bank, NationsBank,
                  N.A. ABN AMRO Bank N.V. and the Company (incorporated by
                  reference from Exhibit 10.7 to the Registrant's Quarterly
                  Report on Form 10-Q for the Quarter Ended June 30, 1997 (File
                  No. 000-22356) originally filed on August 14, 1997).

10.31             Security Agreement, dated July 14, 1997, between the Company
                  and ABN AMRO Bank N.V (incorporated by reference from Exhibit
                  10.8 to the Registrant's Quarterly Report on Form 10-Q for
                  the Quarter Ended June 30, 1997 (File No. 000-22356)
                  originally filed on August 14, 1997).

                  EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

10.32             Friedman's Inc. 1993 Stock Option Plan (incorporated by
                  reference from Exhibit 4(c) to the Registrant's Registration
                  Statement on Form S-8 (File No. 33-85216) dated October 17,
                  1994).

10.33             Form of Indemnity Agreement executed by the Registrant and
                  each of Sterling B. Brinkley, Bradley J. Stinn, Robert S.
                  Morris, John Smirnoff, Robert W. Cruickshank and Mark C.
                  Pickup (incorporated by reference from Exhibit 10.44 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  33-67662), and amendments thereto, originally filed on August
                  19, 1993).

10.34             Friedman's Inc. 1994 Stock Option Plan for Outside Directors
                  (incorporated by reference from Exhibit 10.37 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended September 30, 1994).

10.35             Friedman's Inc. 1994 Qualified Employee Stock Purchase Plan
                  (incorporated by reference from Exhibit 4(c) to the
                  Registrant's Registration Statement on Form S-8 (File No.
                  33-78820) dated May 11, 1994).

10.35.1           Amendment Number One to the Friedman's Inc. 1994 Qualified
                  Employee Stock Purchase Plan (incorporated by reference from
                  Exhibit 10.28.1 to the Registrants Annual Report on Form 10-K
                  for FY 1996).

10.36             Loan Agreement, dated November 17, 1994, between Friedman's
                  Inc. and Sterling B. Brinkley (incorporated by reference from
                  Exhibit 10.39 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended September 30, 1994).

10.36.1           Amendment to Loan Agreement and Promissory Note between
                  Friedman's Inc. and Sterling B. Brinkley dated February 2,
                  1995 (incorporated by reference from Exhibit 10.39.1 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1995).
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                                     - 5 -
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10.37             Loan Agreement, dated November 17, 1994, between Friedman's
                  Inc. and Bradley J. Stinn (incorporated by reference from
                  Exhibit 10.40 to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended September 30, 1994).

10.37.1           Amendment to Loan Agreement and Promissory Note between
                  Friedman's Inc. and Bradley J. Stinn dated February 2, 1995
                  (incorporated by reference from Exhibit 10.40.1 to the
                  Registrant's Quarterly Report on Form 10-Q for the Quarter
                  Ended June 30, 1995).

10.38             Friedman's Inc. 1994 Stock Option Plan (incorporated by
                  reference from Exhibit 4(d) to the Registrant's Registration
                  Statement on Form S-8 (File No. 33-95584) originally filed on
                  August 11, 1995).

10.39             Friedman's Inc. 1995 Stock Option Plan (incorporated by
                  reference from Exhibit 4(d) to Registrant's Registration
                  Statement on Form S-8 (File No. 333-06221) originally filed
                  on June 18, 1996).

10.40             Friedman's Inc. 1996 Stock Option Plan (incorporated by
                  reference from Exhibit 4(c) to Registrant's Registration
                  Statement on Form S-8 (File No. 333-23757) originally filed
                  on March 21, 1997.

11                Statement Re: Computation of Per Share Earnings

21                Subsidiaries of the Registrant (incorporated by reference
                  from Exhibit 21 to the Registrant's Annual Report on Form
                  10-K for its fiscal year 1995.)

23                Consent of Ernst & Young LLP

27                Financial Data Schedule
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