<PAGE>

================================================================================
                      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, 2000

                                      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. [X]

     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 $63,106,282 at December 15, 2000, based on the closing sale price of $4.75
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, 2000, was 13,285,533.  The number of shares of the registrant's
Class B Common Stock outstanding at December 15, 2000, was 1,196,283.

                      Documents Incorporated by Reference

     Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on March 1, 2001, are incorporated by reference in Part III.
================================================================================

<PAGE>

                                Friedman's Inc.
                          Annual Report on Form 10-K
                 For the Fiscal Year Ended September 30, 2000

                               Table of Contents
                               -----------------

<TABLE>
<CAPTION>
Item                                                                       Page
Number                                                                    Number
--------------------------------------------------------------------------------
<S>                                                                        <C>
                                    PART I

1.     Business                                                              1

2.     Properties                                                            9

3.     Legal Proceedings                                                     9

4.     Submission of Matters to a Vote of Security Holders                   9

                                    PART II

5.     Market for the Registrant's Common Equity
       and Related Stockholder Matters                                      10

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
</TABLE>

SIGNATURES
EXHIBIT INDEX
<PAGE>

                                    PART I.

        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" in Item 7 hereof. All
written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by these cautionary statements.

ITEM 1. BUSINESS.

General

     Friedman's is a specialty retailer of fine jewelry and, as of the 2000
Christmas season, operated 634 stores in 21 states primarily in the southeastern
United States. The Company positions itself as "The Value Leader(R)" of
specialty retail fine jewelry by offering competitive prices, a broad
merchandise selection and a high level of customer service that appeals to its
target market 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 its value orientation, loyal customer
base and strong name recognition, having served the southeast since 1920.

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.
The Company defines power strip centers as shopping centers which are anchored
by major discount retailers such as Wal-Mart, Target or K-Mart and often include
other mass merchandisers.

                                      -1-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended
                                                                   September 30,

                                          2000          1999          1998          1997          1996
                                          ----          ----          ----          ----          ----
<S>                                       <C>           <C>           <C>           <C>           <C>
Number of Stores
   Beginning of Period...........          531           471           384           301           215
   Opened........................           99            80            95            90            90
   Closed........................           11            20             8             7             4
                                          ----          ----          ----          ----          ----
   Total at Period End...........          619           531           471           384           301
                                          ====          ====          ====          ====          ====

Percentage growth over prior period       16.6%         12.7%         22.7%         27.6%         40.0%
</TABLE>

     The Company's general policy is to allow a new store two Christmas seasons
to attain the profitability and sales goals set by the Company before it will
consider closing the store.

     As of September 30, 2000, the Company operated 619 stores in 21 states. The
following table provides information regarding the location by state and number
of stores operated by the Company at the end of the Company's last five fiscal
years.

<TABLE>
<CAPTION>
                                                                      September 30,
                                                                      -------------
State                                     2000            1999            1998            1997            1996
-----                                     ----            ----            ----            ----            ----
<S>                                       <C>             <C>             <C>             <C>             <C>
Georgia.......................             82              77              68              61              58
North Carolina................             72              66              57              54              50
South Carolina................             51              48              42              38              34
Virginia......................             51              44              38              22              14
Texas.........................             51              37              30              22               8
Tennessee.....................             46              40              35              23              16
Florida.......................             42              35              25              21              19
Alabama.......................             38              31              24              18              17
Kentucky......................             31              23              20              16              12
Louisiana.....................             27              24              23              22              21
Mississippi...................             27              23              21              21              21
Arkansas......................             23              19              18              13               8
Indiana.......................             20               8               6               5               2
Maryland......................             17              16              19              11               1
Oklahoma......................             13              12              14              13               6
West Virginia.................              8               6               6               1               1
Ohio..........................              7               7               7               7               5
Missouri......................              6               8              10               9               6
Illinois......................              4               4               4               4               1
Delaware......................              2               2               2               2               0
Pennsylvania..................              1               1               1               0               0
Iowa..........................              0               0               1               1               1
                                         ----            ----            ----            ----            ----
     Total....................            619             531             471             384             301
                                         ====            ====            ====            ====            ====
</TABLE>

     For the 2000 Christmas selling season, the Company operated 634 stores of
which 412 stores were in power strip centers and 222 stores were in regional
malls.

                                      -2-
<PAGE>

Crescent Jewelers

     As part of the Company's overall business strategy, the Company has
maintained since 1996 a strategic relationship with Crescent Jewelers, an
affiliate of the Company. Crescent Jewelers ("Crescent") is a specialty retailer
of fine jewelry based in Oakland, California, and operated a total of 152 stores
in seven western states for the 2000 Christmas season. Management believes that
Crescent is strategically located in one of the largest and fastest growing
markets in the United States, operating significantly more stores in the state
of California than its nearest competitor. As part of its relationship,
Friedman's and Crescent entered into agreements under which Friedman's provides
Crescent with accounting and information technology support, along with certain
other back office processing services.

     In November 2000, the Company and Crescent Jewelers jointly announced the
successful launch of their e-commerce websites (www.friedmans.com and
www.crescentonline.com). The sites feature a wide assortment of approximately
500 items, as well as features that combine the convenience of the online
experience with certain features of the in-store experience.

     See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources," the information
incorporated by reference into Item 13. "Certain Relationships and Related
Transactions" and Note 7 to the Notes to the Consolidated Financial Statements.

Customer Service

     Friedman's has been dedicated for 80 years to providing quality customer
service to its customer base, which is comprised primarily of low to middle
income consumers in the 18 to 45 year-old age group. The Company offers its
customers a flexible trade-in and 30-day return policy, a credit program for
qualified purchasers, guaranteed trade-ins on all Friedman's diamond merchandise
and numerous customer appreciation events throughout each year. Pursuant to
Company guidelines, "Store Partners" (discussed below) 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 that its customer satisfaction
program is the essential element in creating and maintaining successful customer
relationships.

Credit Operations

     The Company's credit programs are an integral part of its business
strategy. Approximately 53% of the Company's net merchandise sales in fiscal
2000 were generated by credit sales on the Company's proprietary credit cards.
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 scoring model and system for extending credit and
collecting accounts receivable according to its strict credit disciplines.
Credit applications are processed at each store, which provides customers 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 store
traffic, encouraging additional purchases and strengthening customer
relationships. The Company also accepts major credit cards and accounts for
these 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.

                                      -3-
<PAGE>

     As of September 30, 2000, the Company had 304,687 credit accounts with an
average net principal balance per account of approximately $401.

     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 scoring model.
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.
Compliance with Company policies is reviewed and non-compliance addressed daily.

     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. An installment contract is considered delinquent if the customer
is seven days past due, but the customer only begins to incur a late charge when
the account is 14 days past due. The Company uses a third party vendor to send
notices to past due customers twice a month if payment has not been received.
Each notice carries a progressively stronger collection message. After the first
two notices are sent, the collection activity is assumed by the originating
store and consists of continued late payment notices and collection calls made
by the store personnel. When the Company deems it appropriate, the supervisor
(Senior Partner) may approve legal action, such as pursuing remedies in small
claims or other courts.

     The Company's policy is generally to write-off in full any credit account
receivable if no payments have been received for 120 days for stores opened
prior to July 1, 1999, any credit accounts receivable if no payments have been
received for 90 days for stores opened after June 30, 1999 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). The
Company maintains an allowance for uncollectible accounts based in part on
historical experience. As of September 30, 2000, the allowance was maintained at
10% 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.

                                      -4-
<PAGE>

     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,
                                                                -------------------------------
                                            2000            1999            1998            1997            1996
                                            ----            ----            ----            ----            ----
                                         (in thousands, except for percentages and information relating to customer
                                         accounts)
<S>                                       <C>             <C>             <C>             <C>             <C>
Revenues attributable to credit
 sales/(1)/........................       $241,407        $199,965        $171,324        $145,703        $119,981
Accounts receivable/(2)/...........       $135,682        $108,642        $ 95,972        $ 82,678        $ 68,491
Credit sales as a percentage of
 net merchandise sales.............           52.6%           53.7%           55.0%           56.9%           58.8%

Receivable revenues/(3)/...........       $ 53,912        $ 42,759        $ 33,417        $ 27,156        $ 20,409
Provision for doubtful accounts....       $ 36,571        $ 33,942        $ 29,767        $ 22,892        $ 15,594
Gross income before credit
 expenses..........................       $ 17,341        $  8,817        $  3,650        $  4,264        $  4,815

Gross yield before credit
 expenses/(4)/.....................           13.0%            7.8%            3.5%            4.9%            7.0%


Active number of customer
 accounts..........................        304,687         258,672         244,903         225,701         190,547
Balance per customer account/(5)/         $    401        $    378        $    351        $    330        $    323
Average credit ticket..............       $    250        $    221        $    204        $    200        $    192
Average accounts receivable/(6)/...       $133,030        $113,383        $103,609        $ 87,406        $ 68,736
Average monthly collection
 percentage........................           12.0%           12.0%           11.2%           11.1%           11.4%
Net charge-offs as a percentage of
 net sales/(7)/....................            9.1%           10.8%           10.8%           10.0%            7.8%
Net charge-offs as a percentage of
 credit revenues/(7)/..............           14.2%           16.6%           16.3%           14.8%           11.4%
Allowance for doubtful accounts as
 a percentage of accounts
 receivable........................           10.0%           10.0%           10.5%           10.0%           10.0%
Accounts receivable greater than
 90 days past due/(8)/.............            5.7%            4.7%            7.1%            7.7%            9.1%
Accounts receivable less than
 30 days past due/(8)/.............           85.6%           83.8%           80.5%           79.8%           77.9%
</TABLE>
__________________
(1)  Revenues attributable to credit sales constitute merchandise sold pursuant
     to the Company's proprietary credit program as well as earned finance
     charges, product warranties and credit insurance.
(2)  Accounts receivable is stated net of unearned finance charges, diamond and
     gold bond product warranties and credit insurance.
(3)  The sum of finance charge income, insurance commissions and other credit
     revenues.
(4)  Reflected as a percentage of average accounts receivable, net of unearned
     finance charges, diamond and gold bond product warranties and credit
     insurance.
(5)  Average customer account balance as of September 30, net of allowance for
     doubtful accounts.
(6)  Represents the average accounts receivable balance outstanding during the
     fiscal year.
(7)  Includes the accelerated write-off of specific accounts aggregating $2.7
     million associated with a change in the Company's credit policy effective
     September 30, 1998. Excluding this change in credit policy, net charge-offs
     as a percentage of net sales and credit revenues were 9.8% and 14.8%,
     respectively, for the fiscal year ended September 30, 1998.

                                      -5-
<PAGE>

(8)  Reported on a recency basis.

     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 as an independent business unit to the greatest extent possible.
Store Partners are responsible for the 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 operates a manager
training and development program, which is 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. Fifty-three "Senior Partners,"
each responsible for approximately 12 stores, and eight "District Partners,"
each responsible for approximately four stores including their own, oversee the
operations of the Company's stores and evaluate the performance of the Store
Partners. Senior Partners report to fifteen Regional Vice Presidents, each
responsible for approximately 20 to 60 stores, and five Division Presidents,
each responsible for approximately 100 to 200 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, Senior Partners, Regional Vice Presidents and Division Presidents to
focus on the Company's daily operating disciplines and the needs of its target
customers while allowing the Company to continue expanding.

     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 percentage of their
compensation to store performance, specifically sales and cash flow, as well as
by offering opportunities for promotion within the Company. Friedman's also
offers an employee stock purchase plan to substantially all of its employees.

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 increase 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 store grand
openings in which 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 that
increasing store density in its major advertising markets enhances the
efficiency of its advertising activities and lowers overall advertising costs on
a per store basis.

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 2000, 1999 and 1998, these products represented approximately 70.1%,
71.4% and 67.1%, 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.

                                      -6-
<PAGE>

     The gold jewelry sold in the Company's stores is primarily 10 and 14 karat,
and for fiscal 2000, 1999 and 1998, these products represented approximately
23.0%, 19.3% and 22.8% of the Company's net merchandise sales.

     Sales of wedding-related products accounted for approximately 32.5%, 34.8%
and 32.7% of the Company's net merchandise sales in fiscal 2000, 1999 and 1998,
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 finished 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, because it could replace any single supplier or subcontractor
with a competing firm without material difficulty.

     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 adverse effect on the Company's business. 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 former Soviet 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 these producing countries could adversely affect the Company and the retail
jewelry industry as a whole.

Systems and Controls

     The Company's management information systems utilize an IBM AS/400-based
system. The management information systems use customized software which was
specifically designed for the retail jewelry industry. The Company also utilizes
a retail enterprise, state-of-the-art software system that significantly
enhances the Company's ability to plan, manage, allocate, control and distribute
its inventories. The systems also enable 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.

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

                                      -7-
<PAGE>

Competition

     The retail jewelry industry is highly competitive. Management believes that
the primary elements of competition in the industry are selection 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. 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, Gordon's and Piercing Pagoda
operations; Sterling, Inc., which includes Kay Jewelers; Whitehall Jewelers,
Inc; Helzberg's Diamond Shops, Inc.; regional jewelry chains; independent
jewelers, and major department stores. Typically, one or more of these
competitors are located in the same regional mall as the Company's mall stores.
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, home-shopping television programs and jewelry
retailers who make sales through Internet sites, 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, or its predecessors, have been doing business under the
"Friedman's Jewelers" tradename for approximately 80 years. The Company also
uses the "Regency Jewelers" tradename in three locations as of September 30,
2000. 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.

Employees

     As of September 30, 2000, the Company had 4,193 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 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

                                      -8-
<PAGE>

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.

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

     The Company also leases the buildings in which its headquarters is located.
The Company paid rent of approximately $225,000 in fiscal 2000 for use of the
space it occupies in these buildings. The buildings in which the Company's
headquarters is located contain approximately 34,500 square feet of office and
administrative space.

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, 2000.

                                      -9-
<PAGE>

                                   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 sales
prices per share of the Class A Common Stock as reported by The Nasdaq Stock
Market for the latest two full fiscal years.

                                                        High       Low
                                                        ----       ---
Fiscal Year Ended September 30, 2000
------------------------------------

     First Quarter...............................       $8.50     $5.88
     Second Quarter..............................       $7.88     $5.38
     Third Quarter...............................       $7.06     $4.94
     Fourth Quarter..............................       $6.00     $4.88


                                                         High     Low
                                                         ----     ---
Fiscal Year Ended September 30, 1999
------------------------------------

     First Quarter...............................       $10.00    $5.00
     Second Quarter..............................       $13.25    $7.88
     Third Quarter...............................       $10.75    $7.88
     Fourth Quarter..............................       $10.00    $8.00

     As of December 15, 2000, the closing price per share on the Nasdaq National
Market was $4.75.

Holders

     As of December 15, 2000, there were approximately 71 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 2,300 beneficial owners of the
Class A Common Stock.

Dividend Policy

     The Company paid a cash dividend of $0.0125 per share of Class A Common
Stock and Class B Common Stock in each of the first two fiscal quarters of 2000
and $0.015 per share in each of the last two fiscal quarters of 2000. 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. The Company's ability to pay dividends in the future 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.

                                      -10-
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA.

        The following statement of income and balance sheet data for fiscal
years ended September 30, 1996 through September 30, 2000 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 "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere herein.


<TABLE>
<CAPTION>
                                                                       Fiscal Year Ended September 30,
                                                    ---------------------------------------------------------------------
                                                         2000          1999          1998           1997           1996
                                                         ----          ----          ----           ----           ----
                                                           (Dollars in thousands, except share and per share amounts)
<S>                                                 <C>           <C>           <C>            <C>            <C>
Statement of Income Data:

Net sales........................................  $   377,277   $   308,385   $   259,146    $   214,255    $   173,717
Cost of goods sold, including occupancy,
   distribution and buying........................      200,572       163,983       135,412        109,352         87,863
Selling, general and administrative
   expenses.......................................      133,316       110,665       100,506         71,127         55,693
Depreciation and amortization.....................        9,479         6,379         5,269          4,177          3,321
Interest (income) expense, net....................        2,388         1,421           874           (665)         2,197
                                                    -----------   -----------   -----------    -----------    -----------
Income before extraordinary item, income taxes
   and minority interest (1)......................       31,521        25,937        17,085         30,264         24,643
Income tax expense................................       11,849         9,454         6,491         11,498          9,383
                                                    -----------   -----------   -----------    -----------    -----------
Minority interest                                           (31)           --            --             --             --
                                                    -----------   -----------   -----------    -----------    -----------
Income before extraordinary item..................       19,704        16,483        10,594         18,766         15,260
Extraordinary item (net of taxes) (1).............           --            --            --             --         (1,696)
                                                    -----------   -----------   -----------    -----------    -----------
Net income........................................  $    19,704   $    16,483   $    10,594    $    18,766    $    13,564
                                                    ===========   ===========   ===========    ===========    ===========
Basic earnings per share before extraordinary
   item...........................................  $      1.36   $      1.13   $      0.72    $      1.30    $      1.19
Diluted earnings per share before extraordinary
   item...........................................  $      1.36   $      1.13   $      0.72    $      1.29    $      1.17
Weighted average common shares
   outstanding -basic.............................   14,445,000    14,590,000    14,620,000     14,408,000     12,779,000
Weighted average common shares
   outstanding -diluted...........................   14,445,000    14,590,000    14,762,000     14,539,000     13,031,000

Other Operating Data:

Number of stores (end of periods).................          619           531           471            384            301
Percentage increase in number of stores
   (end of periods)...............................         16.6%         12.7%         22.7%          27.6%          40.0%
Percentage increase (decrease) in comparable
   store sales (2)................................          6.9%          8.7%         (1.1%)         (1.5%)          2.9%
Income from operations as a percentage  of net
   sales..........................................          9.0%          8.9%          6.9%          13.8%          15.5%
Net income as a percentage  of net sales..........          5.2%          5.3%          4.1%           8.8%           7.8%



                                                         2000          1999          1998           1997           1996
                                                         ----          ----          ----           ----           ----
Balance Sheet Data:

Accounts receivable, net..........................  $   122,168   $    97,780   $    85,900    $    74,410    $    61,614
Inventories.......................................      121,607       113,095       105,586         78,683         64,307
Working capital...................................      196,260       167,390       175,865        124,963        121,245
Total assets......................................      318,434       274,263       267,547        221,786        174,618
Long-term debt....................................       48,430        28,184        66,969         19,397             --
Stockholders' equity .............................      211,027       191,904       178,514        170,051        146,358
</TABLE>
_____________________________

(1)  Extraordinary item in fiscal 1996 of $1.7 million net of applicable income
     taxes reflects the payment of a make whole amount of $2.8 million relating
     to the early repayment of the Company's 14.25% Senior Subordinated Debt.

                                      -11-
<PAGE>

(2)  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 2000," "fiscal 1999" and "fiscal 1998"
refer to the Company's fiscal years ended September 30, 2000, 1999 and 1998,
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,
                                                                          -------------------------------
                                                                             2000       1999        1998
                                                                            ------     ------      ------
     <S>                                                                  <C>          <C>         <C>
     Net sales........................................................      100.0%     100.0%       100.0%
     Cost of goods sold including occupancy,
         distribution and buying......................................       53.2       53.2         52.3
     Selling, general and administrative expenses/(1)/................       35.3       35.9         38.8/(1)/
     Depreciation and amortization....................................        2.5        2.1          2.0
     Interest (income) expense........................................        0.7        0.5          0.3
                                                                            -----      -----      -------
     Income before income taxes.......................................        8.4        8.3          6.6
     Income tax expense...............................................        3.1        3.0          2.5
                                                                            -----      -----      -------
     Net income.......................................................        5.2%       5.3%         4.1%
                                                                            =====      =====      =======
</TABLE>

     _____________________________

     (1) Selling, general and administrative expenses in fiscal 1998 include a
         $1.8 million charge related to reserves established for senior
         executive severance and store closing costs and a charge for the
         accelerated write-off of specific accounts aggregating $2.7 million
         associated with the Company's change in its credit policy, effective
         September 30, 1998.  Excluding these charges, selling, general and
         administrative expenses as a percentage of net sales would have been
         37.1%.

Fiscal Year 2000 Compared to Fiscal Year 1999

     Net sales increased 22.3% to $377.3 million in the fiscal year ended
September 30, 2000, from $308.4 million in the fiscal year ended September 30,
1999. Sales growth resulted from a comparable store sales increase of 6.9% and a
net addition of 88 new stores.

     Cost of goods sold, including occupancy, distribution and buying, increased
22.3% to $200.6 million for fiscal 2000 versus $164.0 million in fiscal 1999. As
a percentage of net sales, cost of goods sold remained unchanged at 53.2%,
reflecting increased cost of merchandise goods sold offset by lower store
occupancy costs.

     Selling, general and administrative expenses increased 20.5% to $133.3
million for fiscal 2000 from $110.7 million in fiscal 1999. As a percentage of
net sales, selling, general and administrative expenses decreased to 35.3% in
fiscal 2000 from 35.9% in fiscal 1999. This improvement in selling, general and
administrative expenses as a percentage of net sales in fiscal 2000 was
primarily due to lower net charge-offs of customer credit accounts as compared
to the prior year. Net charge-offs as a percentage of credit revenues were 14.2%
for fiscal 2000 compared to 16.6% for fiscal 1999. The Company does not expect
the decrease in selling, general and administrative expenses as a percentage of
net sales to constitute a continuing material trend.

                                      -12-
<PAGE>

     Depreciation and amortization expenses increased 48.6% to $9.5 million in
fiscal 2000 from $6.4 million in fiscal 1999. Depreciation and amortization
expense as a percentage of net sales was 2.5% in fiscal 2000 compared to 2.1% in
fiscal 1999.  The increase in depreciation and amortization expense as a
percentage of net sales was due primarily to expenses associated with the
implementation of new computer software placed into service July, 1 1999, and
store displays placed into service to support new merchandising programs and
initiatives. In general, depreciation and amortization expenses as a percentage
of net sales may continue to increase as a result of additional investments in
systems and infrastructure.

     Interest income from a related party decreased to $2.4 million in fiscal
2000 compared to $2.5 million in fiscal 1999.  As a percentage of net sales,
interest income from a related party decreased to 0.6% in fiscal 2000 compared
to 0.8% in fiscal 1999. Interest income consists primarily of payments by
Crescent Jewelers to the Company of fees related to the Company's guaranty of
Crescent's obligations under Crescent's credit facility. See "Liquidity and
Capital Resources." Interest expense increased to $4.8 million in fiscal 2000
compared to $3.9 million in fiscal 1999. As a percentage of net sales, interest
expense remained unchanged at 1.3% of net sales in fiscal 2000 and fiscal 1999,
respectively. The fiscal 2000 increase in interest expense was due primarily to
higher average outstanding borrowings on the Company's line of credit and an
increase in the Company's effective interest rate. The increase in the effective
interest rates was caused primarily by an increase in interest rates generally
charged by lenders throughout the economy.  See "Liquidity and Capital
Resources."

     Income tax expense increased 25.3% to $11.8 million in fiscal 2000 from
$9.5 million in fiscal 1999.  The Company's effective income tax rate increased
to 37.6% in fiscal 2000 from 36.5% in fiscal 1999.

     Net income increased by 19.5% to $19.7 million in fiscal 2000 compared to
$16.5 million in fiscal 1999 primarily as a result of increases in net sales and
lower selling, general and administrative expenses as a percentage of net sales.
The positive effect of those items on net income was partially offset by
increases in depreciation and amortization expense, net interest expense and a
higher effective income tax rate.

     Basic and diluted earnings per share increased 20.4% to $1.36 in fiscal
2000 from $1.13 in fiscal 1999. Basic and diluted weighted average common shares
outstanding decreased 1.0% to 14,445,000 in fiscal 2000 from 14,590,000 in
fiscal 1999.

Fiscal Year 1999 Compared to Fiscal Year 1998

     Net sales increased 19.0% to $308.4 million in the fiscal year ended
September 30, 1999, from $259.1 million in the fiscal year ended September 30,
1998.  Of the $49.3 million increase in net sales, $26.1 million, or 10.1% of
the increase resulted from additional net sales contributions from 60 net new
stores and $23.2 million, or 8.9% of the increase came from increases in
comparable store net sales in fiscal 1999.  Comparable store net merchandise
sales increased 8.7% in the fiscal year ended September 30, 1999.

     Cost of goods sold, including occupancy, distribution and buying, increased
21.1% to $164.0 million, or 53.2%, of net sales, for fiscal 1999 versus $135.4
million, or 52.3%, of net sales, in fiscal 1998.  The fiscal 1999 increase as a
percentage of net sales was primarily the result of higher merchandise cost of
goods offset slightly by lower store occupancy costs. The increase in
merchandise cost of goods was primarily due to a higher sales of advertised,
promotional and clearance merchandise and a change in sales mix from gold to
diamond products which traditionally result in lower gross margins.

                                      -13-
<PAGE>

     Selling, general and administrative expenses increased 10.1% to $110.7
million for fiscal 1999 from $100.5 million in fiscal 1998. As a percentage of
net sales, selling, general and administrative expenses decreased to 35.9% in
fiscal 1999 from 38.8% in fiscal 1998. Selling, general and administrative
expenses in fiscal 1998 included a $1.8 million charge related to reserves
established for senior executive severance and store closing costs and a $2.7
million charge related to a change in the Company's credit policy to accelerate
the write-off of all accounts 100% contractually past due if no payments have
been received for 60 days. Excluding these charges, selling, general and
administrative expenses as a percentage of net sales decreased to 35.9% in
fiscal 1999 from 37.1% in fiscal 1998. This decrease in selling, general and
administrative expenses as a percentage of net sales in fiscal 1999 was
primarily due to improved expense leverage in payroll, advertising and other
direct expenses resulting from the increase in comparable store net merchandise
sales and productivity gains from an increase in the number of stores in
existing markets.

     Depreciation and amortization expenses increased 21.1% to $6.4 million in
fiscal 1999 from $5.3 million in fiscal 1998. Depreciation and amortization
expense as a percentage of net sales was 2.1% in fiscal 1999 compared to 2.0% in
fiscal 1998.  The increase in depreciation and amortization as a percentage of
net sales was due primarily to expenses associated with the implementation of
new computer software placed into service July 1, 1999.

     Interest income from a related party decreased to $2.49 million in fiscal
1999 compared to $2.52 million in fiscal 1998.  As a percentage of net sales,
interest income from a related party decreased to 0.8% in fiscal 1999 compared
to 1.0% in fiscal 1998.  Management expects interest income from a related party
to continue to decrease because of repayment of borrowings by Crescent Jewelers
Inc. and its wholly owned subsidiary, Crescent Jewelers (collectively,
"Crescent").  Crescent is affiliated with the Company through common ownership
and management.  This decrease will likely be partially offset by Crescent's
payments to the Company of fees related to the Company's guaranty of Crescent's
obligations under Crescent's credit facility.  See "Liquidity and Capital
Resources."  Interest expense increased to $3.9 million in fiscal 1999 compared
to $3.4 million in fiscal 1998.  As a percentage of net sales, interest expense
remained unchanged at 1.3% of net sales in fiscal 1999 and fiscal 1998,
respectively.  The fiscal 1999 increase in interest expense was due primarily to
higher average outstanding borrowings on the Company's line of credit. See
"Liquidity and Capital Resources."

     Income tax expense increased 45.6% to $9.5 million in fiscal 1999 from $6.5
million in fiscal 1998.  The Company's effective income tax rate decreased to
36.5% in fiscal 1999 from 38.0% in fiscal 1998.

     Net income increased by 55.6% to $16.5 million in fiscal 1999 compared to
$10.6 million in fiscal 1998 primarily as a result of increases in net sales,
lower selling, general and administrative expenses as a percentage of net sales
and a lower effective income tax rate. The positive effect of those items on net
income was partially offset by increases in cost of goods sold, depreciation and
amortization expense and net interest expense.

     Basic and diluted earnings per share increased 56.9% to $1.13 in fiscal
1999 from $0.72 in fiscal 1998. Basic weighted average common shares outstanding
decreased 0.2% to 14,590,000 in fiscal 1999 from 14,620,000 in fiscal 1998.
Diluted weighted average shares outstanding including common stock equivalents
decreased 1.2% to 14,590,000 in fiscal 1999 from 14,762,000 in fiscal 1998.

                                      -14-
<PAGE>

Liquidity and Capital Resources

  During fiscal 2000, net cash used in the Company's operating activities was
$1.9 million compared to net cash provided by operating activities of $29.6
million during fiscal 1999 and net cash used in operating activities of $33.7
million during fiscal 1998. For fiscal 2000 and fiscal 1998, cash used in
operations was the result of growth in accounts receivable and net inventory
levels including accounts payable, which for fiscal 2000 was offset partially by
improved earnings. For fiscal 1999, cash provided by operating activities was
favorably impacted by improved earnings and lower net inventory levels including
accounts payable, offset slightly by an increase in customer accounts
receivable. 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, which will
likely result in a net use of cash from operations.

  Investing activities used cash of $18.4 million in fiscal 2000, compared to
cash provided of $10.1 million in fiscal 1999 and cash used of $11.8 million in
fiscal 1998. The Company added 88 net new stores in fiscal 2000 at a cost of
approximately $11.0 million and invested $3.7 million in store re-modeling and
store relocations. In addition, the Company invested $2.5 million in store
displays to support its new merchandising programs and initiatives and $1.2
million on the implementation of the Company's e-commerce web-site. In fiscal
1999, at a cost of $2.2 million, the Company implemented a new "enterprise-wide"
computer system. The Company also invested $11.5 million for the addition of 60
net new stores in fiscal 1999. During fiscal 1999, the Company was repaid $25
million it had invested in Crescent. The Company made this investment in August
1996. Part of the investment was in the form of a $20 million convertible senior
subordinated secured loan (the "Term Loan") and a $5 million senior subordinated
convertible note (the "Notes") issued by Crescent pursuant to a previously
entered into standby purchase commitment. During fiscal 1999, the Company also
issued loans, maturing in 2003 and amounting to $1.2 million to certain
directors, officers and employees of the Company to purchase shares of the Class
A Common Stock of the Company. The Company invested $11.8 million in 1998 for
the net addition of 87 stores.

  Financing activities provided cash of $19.7 million in fiscal 2000 and $45.0
million in fiscal 1998 compared to a use of cash of $38.9 million in fiscal
1999. During fiscal 2000, the Company increased bank borrowings by $20.2 million
primarily to finance new stores, the launch of its e-commerce website and other
capital spending and paid dividends of $0.8 million. During fiscal 1999 and
1998, the Company had bank repayments of $38.8 million and bank borrowings of
$47.6 million, respectively. At September 30, 2000, the Company had $19.1
million available under its $67.5 million senior secured revolving credit
facility.

  On September 15, 1999, the Company entered into a three year $67.5 million
senior secured revolving credit facility.  Borrowings under the credit facility
bear interest at either the federal funds rate plus 0.5%, the prime rate or, at
the Company's option, the eurodollar rate plus applicable margin ranging from
1.00% to 1.75%.  The applicable margin is determined based on a calculation of
the combined leverage ratio of the Company and Crescent. The facility contains
certain financial covenants and is secured by certain of the Company's assets.
The Company used the proceeds from the credit facility together, with the
proceeds from the repayment of its $25 million investment in Crescent, to repay
in full all of its obligations under its then existing credit facilities. At
September 30, 2000, $48.4 million was outstanding under the facility, with
interest accruing on such borrowings in a range from 8.37% to 9.5%.

  In connection with the credit facility, the Company agreed to provide
certain credit enhancements and to guaranty the obligations of Crescent under
its $112.5 million senior secured revolving credit facility. In consideration
for this guaranty, Crescent makes quarterly payments to the Company in an amount
equal to 2% per annum of the outstanding obligations of Crescent under its
credit facility during the preceding fiscal quarter. In further consideration of
this guaranty, Crescent issued the
                                      -15-
<PAGE>

Company a warrant to purchase 7,942,904 shares of Crescent's non-voting Class A
Common Stock, or approximately 50% of the capital stock of Crescent on a fully
diluted basis, for an exercise price of $500,000.

     The Company's current plans are to have between 700 and 725 stores in
operation for the 2001 Christmas season.  The capital required to fund this
expansion, principally to finance inventory, fixtures and leasehold
improvements, is estimated to be $26.0 million and is intended to be provided by
cash flow from operations and the Company's revolving credit facility.

Seasonality

     The Company has in the past experienced a well-defined seasonality in its
business with respect to both net sales 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 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


     The Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") on
October 1, 2000. FAS 133 provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities. The
Company does not employ any derivative instruments and, therefore, Statement 133
did not have an effect on the Company's financial statements.

     In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 " Revenue Recognition." ("SAB 101").   This bulletin
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements.  This bulletin will be effective in fiscal 2000.  The
Company expects the adoption of SAB 101 will not have a material impact on its
financial position or results of operations.

                                      -16-
<PAGE>

                     FACTORS AFFECTING FUTURE PERFORMANCE

Our growth may place a strain on our resources and may affect adversely the
results of our operations.

          The number of stores we operate has increased greatly during the past
three years. For example, we opened approximately 70 net new stores from January
to December 2000. We intend to continue to expand our store base during fiscal
2001. The success of our expansion program will depend on the performance of our
existing stores, our ability to find suitable store locations and our ability to
hire and train qualified store personnel. We anticipate that there will continue
to be significant competition among specialty retailers for desirable store
sites and qualified personnel. Furthermore, if our operations fail to generate
sufficient cash flow, we may require additional capital to finance our planned
expansion. Our growth has placed, and will continue to place, significant
demands on all aspects of our business, including our management information and
distribution systems and personnel. For these reasons, we may not be successful
in continuing our growth or successfully managing our growth which could result
in a reduction in our historical revenue growth or an increase in cost of goods
sold which would directly and adversely affect our earnings. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

Our industry is highly competitive, and we may fall behind our competitors.

     The retail jewelry business is mature and highly competitive.  Our retail
jewelry business competes with national and regional jewelry chains, as well as
with local independently owned jewelry stores and chains.  We also compete with
other types of retailers who sell jewelry and gift items, such as department
stores, catalog showrooms, discounters, direct mail suppliers, television home
shopping networks and jewelry retailers who make sales through Internet sites.
Our credit operations compete with credit card companies and other providers of
consumer credit.  Management believes that Friedman's competes primarily on the
basis of selection of merchandise offered, pricing, quality of sales personnel,
advertising, ability to offer in-house credit, store location and reputation.
Many competitors are substantially larger and have greater financial resources
than we do.  We may not be able to compete successfully with such competitors.
Competition could cause us to lose customers, increase expenditures or reduce
pricing which could have a material adverse effect on our earnings.  See Item 1.
"Business - Competition."

Our results of operations may be significantly affected by a downturn in general
economic conditions.

     Jewelry is a luxury item, not a necessity product.  As a result, sales of
jewelry may be particularly affected by adverse trends in the general economy,
such as decreases in employment levels, wages and salaries.  Historically,
people spend less money on luxury items, such as jewelry, during a decline in
general economic activity.  Sales of our jewelry are also adversely affected by
negative developments in local economic conditions, such as plant closings,
industry slowdown and government employment cutbacks.  We also depend on
customer traffic at the power strip centers and malls where our stores are
located.  A reduction in consumer spending due to general economic conditions
could negatively affect our net sales.

     A majority of our customers use credit (either from us or another consumer
credit source) to purchase jewelry from us.  When there are adverse trends in
the general economy or increases in interest rates, fewer people use credit.
Our credit operations are also affected by general economic trends.  Any
downturn in general or local economic conditions in the markets in which we
operate would adversely affect our ability to collect outstanding credit
accounts receivable.  See Item 6.  "Selected Financial Data" and Item 1.
"Business - Credit Operations."

                                      -17-
<PAGE>

Our business is highly seasonal, which may cause significant fluctuations in our
results.

     Our first fiscal quarter, which ends December 30, has historically been the
strongest quarter of the year in terms of net sales and operating income.  Any
substantial disruption of holiday season shopping or other events which affect
our first quarter results could have a material adverse effect on our
profitability for the whole year.  Our quarterly results of operations also may
fluctuate significantly as a result of a variety of factors, including the
following:

     .  the timing of new store openings,
     .  net sales contributed by new stores,
     .  actions of competitors,
     .  fluctuations in comparable store sales,
     .  timing of certain holidays,
     .  changes in our merchandise, and
     .  general economic, industry and weather conditions that affect consumer
        spending.

See Item 7.  "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Seasonality."

The loss of our president and chief executive officer or other key personnel
could significantly harm our business.

     Our management and operations depend on the skills and experience of our
senior management team, including our President and Chief Executive Officer,
Bradley J. Stinn. We believe that our ability to successfully implement our
growth strategies depends on the continued employment of our senior management
team. The loss of Mr. Stinn or a significant number of other senior officers
could hurt us materially. We do not have and do not contemplate entering into
employment agreements with, or obtaining key-man life insurance for, any senior
officer.

We may incur additional compensation expense because of our incentive
compensation arrangements.

       In October 1994, we made $1.5 million in incentive loans to each of Mr.
Stinn and Sterling B. Brinkley, our Chairman of the Board of Directors. The
loans mature in 2004. We agreed to forgive principal and interest payments on
these incentive loans if our Class A Common Stock reached certain prices. If we
forgive principal and interest payments, we will incur compensation expense
which reduces earnings. During 1995 and 1996, we incurred compensation expense
of $3 million with respect to the incentive loans. If the price of the Class A
Common Stock increases above the remaining price targets, we will incur an
additional $3 million in compensation expense. This compensation expense, if
incurred, will negatively impact earnings.

We may not be able to maintain the growth of comparable store sales.

     One widely used measure of the performance of a retail company like us is
comparable store sales results. Variations in comparable store sales results
could cause the price of the Class A Common Stock to decrease or fluctuate
substantially. Comparable store sales are affected by a variety of factors
including:

     .  local and general economic conditions,
     .  the retail sales environment, and
     .  our ability to execute our business strategy effectively.

                                      -18-
<PAGE>

Comparable store net merchandise sales increased 6.9% in fiscal 2000. There can
be no assurance that comparable store net merchandise sales will increase in any
future period. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Fluctuations in the availability and prices of our merchandise may affect our
results of operations.

       We primarily sell jewelry made of gold and diamonds and, to a lesser
extent, other precious and semi-precious metals and stones. The prices of these
materials have been, and we expect for them to continue to be, subject to
significant volatility. Further, the supply and price of diamonds are
significantly influenced by a single entity, DeBeers Consolidated Mines Ltd. of
South Africa. We do not maintain long-term inventories or otherwise hedge
against fluctuations in the cost of gold or diamonds. A significant increase in
the price of gold and diamonds could adversely affect our sales and gross
margins. See Item 1. "Business - Purchasing."

       Our supply of diamonds comes primarily from South Africa, Botswana,
Zaire, the former Soviet republics and Australia. Changes in the social,
political or economic conditions in one or more of these countries could have an
adverse effect on our supply of diamonds. Any sustained interruption in the
supply of diamonds from these producing countries could adversely affect our
product costs, and as a result, our earnings. See Item 1. "Business -
Purchasing."

Your stock value may be adversely affected because of the concentrated ownership
of our Class B Common Stock.

       Mr. Phillip E. Cohen controls all of our Class B Common Stock through his
ownership of MS Jewelers, the general partner of the partnership which owns the
Class B Common Stock. The holders of Class B Common Stock have the right to
elect 75% of our directors and control the outcome of all other issues decided
by our stockholders, including major corporate transactions. Mr. Cohen can
transfer the Class B Common Stock and its voting rights to a third party,
subject to certain limitations. If Mr. Cohen were to convert the Class B Common
Stock into Class A Common Stock, he would control approximately 8.3% of the
Class A Common Stock.

Your stock value may be adversely affected because only holders of Class B
Common Stock may vote on corporate actions requiring stockholder approval.

       Holders of Class A Common Stock have the right to elect a minimum of 25%
of our directors. As long as there are shares of Class B Common Stock
outstanding, holders of Class A Common Stock have no other voting rights, except
as required by law. Mr. Cohen controls the outcome of substantially all matters
submitted to a vote of the stockholders. Some potential investors may not like
this concentration of control and the price of Class A Common Stock may be
adversely affected. Mr. Cohen's control of Friedman's may also discourage offers
by third parties to buy us or to merge with us. Further, the interests of Mr.
Cohen could conflict with the interests of the holders of Class A Common Stock.

Our business may be adversely affected by changes in laws and regulations
governing our business.

       Federal and state consumer protection laws and regulations limit the
manner in which we may offer and extend credit and insurance.  Any adverse
change in the regulation of credit could adversely affect our net sales and cost
of goods sold.  For example, new laws or regulations could limit the amount of
interest or fees we could charge on consumer loan accounts, or restrict our
ability to collect on account balances.  Compliance with, or any violation of,
existing and future laws or regulations could require us to make material
expenditures or otherwise adversely effect our business or financial results.

                                      -19-
<PAGE>

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

     The Company's market risk is limited to fluctuations in interest rates as
it pertains to the Company's borrowings under its credit facility. The Company
pays interest on borrowings at either the federal funds rate plus 0.5%, the
prime rate or, at the Company's option, the eurodollar rate plus applicable
margin ranging from 1.00% to 1.75%. If the interest rates on the Company's
borrowings average 100 basis points more in fiscal 2001 than they did in fiscal
2000, the Company's interest expense would increase and income before income
taxes would decrease by $499,000. This amount is determined solely by
considering the impact of the hypothetical change in the interest rate on the
Company's borrowing cost without consideration for other factors such as actions
management might take to mitigate its exposure to interest rate changes.

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 March 1, 2001 (the "2001 Proxy Statement") is
incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION.

     The information under the captions "Election of Directors - Compensation of
Directors," "Election of Directors - Executive Compensation" and "Executive
Officers of the Company" in the Company's 2001 Proxy Statement is incorporated
herein by reference. In no event shall the information contained in the 2001
Proxy Statement under the captions "Election of Directors -- Executive
Compensation - Report on Executive Compensation of the Compensation Committee of
the Board of Directors" 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 2001 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 2001 Proxy Statement is incorporated
herein by reference.

                                      -20-
<PAGE>

                                   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, 2000, 1999 and
1998

Consolidated Balance Sheets at September 30, 2000 and 1999

Consolidated Statements of Stockholders' Equity for the Years Ended September
30, 2000, 1999 and 1998

Consolidated Statements of Cash Flows for the Years Ended September 30, 2000,
1999 and 1998

Notes to Consolidated Financial Statements

Report of Independent Auditors


     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.


Exhibit
Number                                 Exhibit Description
------                                 -------------------
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) filed on 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).

                                      -21-
<PAGE>

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 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 fiscal year ended September 30, 1995).

10.3         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).

10.4         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).

10.5         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).

10.6         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).

10.7         Credit Agreement dated September 15, 1999, by and between
             Friedman's Inc., as Borrower, certain subsidiaries and affiliates
             of Friedman's, as guarantors, the lenders named therein, Bank of
             America, N.A., as Administrative Agent, and General Electric
             Capital Corp., as Documentation Agent (incorporated by reference
             from Exhibit 10.1 to the Registrant's Current Report on Form 8-K
             filed on September 20, 1999).

                                      -22-
<PAGE>

10.8       Credit Agreement dated September 15, 1999, by and between Crescent
           Jeweler's Inc., as Borrower, certain subsidiaries and affiliates of
           Crescent, as guarantors, the lenders named therein, Bank of America,
           N.A., as Administrative Agent, and General Electric Capital Corp., as
           Documentation Agent (incorporated by reference from Exhibit 10.2 to
           the Registrant's Current Report on Form 8-K filed on September 20,
           1999).

10.9       Guaranty Agreement dated September 15, 1999, by Friedman's Inc., in
           favor of Bank of America N.A., as Administrative Agent and the
           lenders under the Crescent Jeweler's Inc. Credit Agreement
           (incorporated by reference from Exhibit 10.3 to the Registrant's
           Current Report on Form 8-K filed on September 20, 1999)

10.10      Guaranty Fee Agreement dated September 15, 1999, by and between
           Friedman's Inc. and Crescent Jewelers Inc. and its wholly owned
           subsidiary Crescent Jewelers (incorporated by reference from Exhibit
           10.4 to the Registrant's Current Report on Form 8-K filed on
           September 20, 1999).

10.11      Warrant to purchase shares of Class A Common Stock of Crescent
           Jewelers Inc. dated September 15, 1999 (incorporated by reference
           from Exhibit 10.5 to the Registrant's Current Report on Form 8-K
           filed on September 20, 1999).

10.12      Friedman's Inc. Dividend Reinvestment Plan, dated June 7, 2000
           (incorporated by reference from the Registrant's Registration
           Statement on Form S-3 (File. No. 333-38736), filed on June 7, 2000)

10.13      Trademark License Agreement dated April 1, 2000 by and between
           Friedman's Management Corp. and Crescent Jewelers.

10.14      Information Technology Services Agreement dated May 1, 2000, between
           Friedman's Inc. and Crescent Jewelers.

10.15      Services Agreement dated May 1, 2000, between Friedman's Inc. and
           Crescent Jewelers.

           Executive Compensation Plans and Arrangements

10.16      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) filed on October 17, 1994).

10.17      Form of Indemnity Agreement executed by the Registrant and each of
           Sterling B. Brinkley, Bradley J. Stinn, , 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).

10.18      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).

                                      -23-
<PAGE>

10.19      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) filed on May
           11, 1994).

10.19.1    Amendment Number One to the Friedman's Inc. 1994 Qualified Employee
           Stock Purchase Plan (incorporated by reference from Exhibit 10.28.1
           to the Registrant's Annual Report on Form 10-K for the fiscal year
           ended September 30, 1996).

10.20      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).

10.20.1    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).

10.21      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).

10.21.1    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).

10.22      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) filed on August 11, 1995).

10.23      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) filed on June 18, 1996).

10.24      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) filed on March 21, 1997).

10.25      Friedman's Inc. 1997 Stock Option Plan (incorporated by reference
           from Exhibit 99 to Registrant's Registration Statement on Form S-8
           (File No. 333-49133) filed on April 1, 1998).

10.26      Form of Unsecured Promissory Note issued to the Company by Bradley J.
           Stinn, Victor M. Suglia, Sterling B. Brinkley, John E. Cay, III,
           Robert W. Cruickshank, David B. Parshall, Mark C. Pickup and Paul G.
           Leonard (incorporated by reference from Exhibit 10.39 to Registrant's
           Annual Report on Form 10-K for the fiscal year ended September 30,
           1998).

10.27      Friedman's Inc. 1999 Long-Term Incentive Plan (incorporated by
           reference from Exhibit 99 to Registrant's Registration Statement on
           Form S-8 (File No. 333-73271) filed on March 3, 1999).


                                      -24-
<PAGE>

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 ended September 30, 1995).

23         Consent of Ernst & Young LLP

27         Financial Data Schedule

(b)  Reports on Form 8-K

     The registrant did not file any Current Reports on Form 8-K during the
fourth quarter of the fiscal year ended September 30, 2000.

(c)  See Item 14(a)(3) above.

(d)  See Item 14(a)(2) above.

                                      -25-
<PAGE>

                                  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 28, 2000.

                                FRIEDMAN'S INC.

                                By: /s/ Bradley J. Stinn
                                    -----------------------
                                    Bradley J. Stinn
                                    President 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 28, 2000.

       Signature                         Title
       ---------                         -----

/s/ Bradley J. Stinn           Chairman of the Executive Committee, President
-------------------------      and Chief Executive Officer (Principal Executive
Bradley J. Stinn               Officer)

                               Chairman 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
-------------------------
David B. Parshall

/s/ Mark C. Pickup             Director
-------------------------
Mark C. Pickup

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

                                      -26-
<PAGE>

                          ANNUAL REPORT ON FORM 10-K

                             Item 14(a) 1. and 2.

             Financial Statements and Financial Statement Schedule

                 Years Ended September 30, 2000, 1999 and 1998
<PAGE>

                                Friedman's Inc.

                   Index to Consolidated Financial Statements


<TABLE>
<S>                                                                             <C>
Consolidated Income Statements for the Years Ended
  September 30, 2000, 1999 and 1998...........................................     F-1
Consolidated Balance Sheets at September 30, 2000 and 1999....................     F-2
Consolidated Statements of Stockholders' Equity for the Years Ended
  September 30, 2000, 1999 and 1998...........................................     F-3
Consolidated Statements of Cash Flows for the Years Ended
  September 30, 2000, 1999 and 1998...........................................     F-4
Notes to Consolidated Financial Statements....................................     F-5
Report of Independent Auditors................................................     F-17


Financial Statement Schedule

Schedule II      --  Valuation and Qualifying Accounts........................     F-18
</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>

                                FRIEDMAN'S INC.
                        Consolidated Income Statements

<TABLE>
<CAPTION>
                                                             Years ended September 30,
                                                    --------------------------------------------
                                                         2000           1999           1998
                                                    -------------  -------------  --------------
                                                    (Amounts in thousands except per share data)
<S>                                                 <C>            <C>            <C>
Net Sales                                               $ 377,277      $ 308,385      $ 259,146

Operating Costs and Expenses:
      Cost of goods sold including occupancy,
           distribution and buying                        200,572        163,983        135,412
      Selling, general and administrative                 133,316        110,665        100,506
      Depreciation and amortization                         9,479          6,379          5,269
                                                    -------------  -------------  --------------
Income from operations                                     33,910         27,358         17,959

Interest income from related party                         (2,421)        (2,489)        (2,516)
Interest expense                                            4,809          3,910          3,390
                                                    -------------  -------------  --------------
Income before income taxes and minority interest           31,522         25,937         17,085
Income tax expense                                         11,849          9,454          6,491
Minority interest                                             (31)          --             --
                                                    -------------  -------------  --------------
Net income                                              $  19,704      $  16,483      $  10,594
                                                    =============  =============  ==============

Earnings per share - basic                              $    1.36      $    1.13      $    0.72
                                                    =============  =============  ==============

Earnings per share - diluted                            $    1.36      $    1.13      $    0.72
                                                    =============  =============  ==============

Weighted average shares - basic                            14,445         14,590         14,620
Weighted average shares - diluted                          14,445         14,590         14,762
</TABLE>

                            See accompanying notes.

                                      F-1
<PAGE>

                                Friedman's Inc.

                          Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                   September 30,
                                                                            2000               1999
                                                                      ----------------    ---------------
                                                                      (Amounts in thousands, except share
                                                                              and per share data)
<S>                                                                   <C>                 <C>
Assets
Current Assets:
     Cash                                                                  $       459        $     1,076
     Accounts receivable, net of allowance for doubtful accounts of
         $13,514 in 2000 and $10,862 in 1999                                   122,168             97,780
     Inventories                                                               121,607            113,095
     Deferred income taxes                                                       3,105              3,629
     Other current assets                                                        5,187              3,791
                                                                           -----------        -----------
         Total current assets                                                  252,526            219,371

Equipment and improvements, net                                                 56,420             44,160
Tradename rights, net                                                            5,493              5,964
Other assets                                                                     3,995              4,768
                                                                           -----------        -----------
         Total assets                                                      $   318,434        $   274,263
                                                                           ===========        ===========

Liabilities and Stockholders' Equity
Current Liabilities:
     Accounts payable                                                      $    40,494        $    40,818
     Accrued liabilities and other                                              15,772             11,163
                                                                           -----------        -----------
         Total current liabilities                                              56,266             51,981

Bank Debt                                                                       48,430             28,184
Deferred income taxes and other                                                  2,221              2,194
Minority interest in equity of subsidiary                                          490               --

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,
         13,271,207 and 13,226,127 issued and outstanding at September 30,
         2000 and September 30, 1999, respectively                                 133                132
     Class B common stock, par value $.01, 7,000,000 shares authorized,
         1,196,283 issued and outstanding                                           12                 12
     Additional paid-in-capital                                                118,767            118,543
     Retained earnings                                                          93,290             74,417
     Stock purchase loans                                                       (1,175)            (1,200)
                                                                           -----------        -----------
                        Total stockholders' equity                             211,027            191,904
                                                                           -----------        -----------
                        Total liabilities and stockholders' equity         $   318,434        $   274,263
                                                                           ===========        ===========
</TABLE>

                            See accompanying notes.

                                      F-2
<PAGE>

                                Friedman's Inc.
                Consolidated Statements of Stockholder's Equity
                            (Amounts in Thousands)

<TABLE>
<CAPTION>
                                            Class A Common Stock  Class B Common Stock   Additional  Retained    Stock
                                            -------------------- ---------------------     Paid-in    Earnings   Purchase  Total
                                             Shares      Amount     Shares     Amount      Capital                Loans
                                            --------------------------------------------------------------------------------------
<S>                                         <C>          <C>     <C>            <C>    <C>          <C>         <C>       <C>
Balance at October 1, 1997                   13,107,343   $131   1,492,401     $15       $122,020    $47,885    $     0   $170,051
Market value adjustment to common stock
  issued for tradename acquisition                    -      -           -       -         (2,625)         -                (2,625)
Issuance of Class A common stock under
  the Employee Stock Purchase Plan               23,011      -           -       -            287          -                   287
Conversion of Class B common stock into
  Class A common stock by an Affiliate          296,118      3    (296,118)     (3)             -          -                     -
Employee stock options exercised                 15,695      -           -       -            207          -                   207
Net income                                            -      -           -       -              -     10,594                10,594
                                            --------------------------------------------------------------------------------------
Balance at September 30, 1998                13,442,167    134   1,196,283      12        119,889     58,479          0   $178,514

Retirement of Class A common stock
  pursuant to tradename acquisition            (250,000)    (2)          -       -         (1,623)         -                (1,625)
Issuance of Class A common stock under                                                                                           -
  the Employee Stock Purchase Plan               31,360      -           -       -            254          -                   254
Stock purchase loans                                  -      -           -       -              -                (1,200)    (1,200)
Issuance of Class A common stock                                                                                                 -
  for services                                    2,600      -           -       -             23          -                    23
Dividends declared ($0.0375/Share)                    -      -           -       -              -       (545)                 (545)
Net income                                            -      -           -       -              -     16,483                16,483
                                            --------------------------------------------------------------------------------------
Balance at September 30, 1999                13,226,127    132   1,196,283      12        118,543     74,417     (1,200)   191,904

Issuance of Class A common stock under                                                                                           -
  the Employee Stock Purchase Plan               37,618      1           -       -            179          -                   180
Stock purchase loan payments                          -      -           -       -              -                    25         25
Issuance of Class A common stock                                                                                                 -
  for services                                    7,462      -                                 45          -                    45
Dividends declared ($0.0575/Share)                    -      -           -       -              -       (831)                 (831)
Net income                                            -      -           -       -              -     19,704                19,704
                                            --------------------------------------------------------------------------------------
Balance at September 30, 2000                13,271,207   $133   1,196,283     $12       $118,767    $93,290    ($1,175)   211,027
                                            ======================================================================================
</TABLE>

                            See accompanying notes.


                                      F-3
<PAGE>

                                FRIEDMAN'S INC.
                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                         Years ended September 30,
                                                                     --------------------------------
                                                                       2000        1999        1998
                                                                     ---------  ---------   ---------
                                                                           (Amounts in thousands)
<S>                                                                  <C>         <C>         <C>
Operating Activities:
      Net income                                                     $ 19,704    $ 16,483    $ 10,594
      Adjustments to reconcile net income to cash
      provided by (used in) operating activities:
          Depreciation and amortization                                 9,479       6,379       5,269
          Provision for doubtful accounts                              36,571      33,942      29,767
          Deferred Taxes                                                  885      (1,314)        146
          Changes in assets and liabilities:
              Increase in accounts receivable                         (60,959)    (45,822)    (41,257)
              Increase in inventories                                  (8,512)     (7,509)    (26,903)
              Decrease (increase) in other assets                        (623)     (3,079)         47
              Increase (decrease) in accounts payable and
                  accrued liabilities                                   1,515      30,475     (11,357)
                                                                     --------    --------    --------
              Net cash (used in) provided by operating
                      activities                                       (1,940)     29,555     (33,694)
Investing Activities:
      Additions to equipment and improvements                         (18,383)    (13,651)    (11,842)
      Notes receivable from related party                                  --      25,000          --
      Loans for employee stock purchases                                   25      (1,200)         --
                                                                     --------    --------    --------
              Net cash (used in) provided by investing
                      activities                                      (18,358)     10,149     (11,842)
Financing Activities:
      Bank borrowings (payments) under credit agreements               20,249     (38,785)     47,572
      Advance related to acquisition of tradename rights                   --          --      (3,063)
      Proceeds from employee stock purchases and options exercised        226         277         494
      Payment of cash dividend                                           (794)       (363)         --
                                                                     --------    --------    --------
              Net cash provided by (used in) financing
                      activities                                       19,681     (38,871)     45,003
                                                                     --------    --------    --------
(Decrease) increase in cash                                              (617)        833        (533)
Cash, beginning of year                                                 1,076         243         776
                                                                     --------    --------    --------
Cash, end of year                                                    $    459    $  1,076    $    243
                                                                     ========    ========    ========
Supplemental cash flow information:
      Cash paid for:
      Interest                                                       $  4,796    $  4,064    $  2,797
                                                                     ========    ========    ========
      Income Taxes                                                   $ 11,101    $  5,625    $  9,085
                                                                     ========    ========    ========
</TABLE>

                            See accompanying notes.


                                      F-4
<PAGE>

                                Friedman's Inc.
                  Notes to Consolidated Financial Statements
                              September 30, 2000


1.  The Company and Significant Accounting Policies

 Basis of Presentation

  Friedman's Inc. (the "Company") is a retailer of fine jewelry operating 619
stores in 21 states. The consolidated financial statements include the accounts
of the Company and all of its majority-owned subsidiaries.  All significant
inter-company accounts have been eliminated.

 Revenue Recognition

  Revenue related to merchandise sales is recognized at the time of sale,
reduced by a provision for returns. Finance charges, product warranties and
credit insurance revenue are recognized ratably over the term or estimated term
of the related contracts. The company periodically reviews the estimated term of
finance charge, product warranty and insurance revenue. In the quarter ended
July 1, 2000, the Company adjusted the estimated average life of diamond and
gold bond warranties based on actual trends and experience. The effect of this
adjustment increased warranty revenue by $1.6 million in fiscal 2000. Finance
charge and credit service revenues aggregating $34.5 million, $30.8 million and
$27.0 million in 2000, 1999 and 1998, respectively, have been classified as a
reduction of selling, general and administrative expenses in the accompanying
income statements.

 Use of Estimates

  The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, 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, product
warranties and credit insurance of $19,144,000 and $18,129,000 at September 30,
2000 and 1999, respectively.  Consistent with industry practice, amounts, which
are due after one year, are included in current assets and totaled $11,639,000
and $9,522,000 at September 30, 2000 and 1999, respectively.

  Credit approval and collection procedures are conducted 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.

  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.  The
Company's policy is generally to write-off in full any credit account receivable
if no payments have been received for 120 days for stores opened prior to July
1, 1999, any credit accounts receivable if no payments have been received for 90
days for stores opened after June 30, 1999 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).  The Company
changed its policy in July 1999 to write-off in full any credit accounts if no
payments have been received for 90 days for stores opened after June 30, 1999
because the costs and time incurred by its employees in efforts to collect the
accounts once they aged past 90 days were disproportionate in relation to the
amounts to be recovered.  The Company

                                      F-5
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000


1.  The Company and Significant Accounting Policies (continued)

does not require separate collateral to secure credit purchases made by its
customers, but it does retain a security interest in the purchased item

 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 $19,512,000, $15,412,000 and
$15,225,000 for the years ended September 30, 2000, 1999 and 1998, respectively.
The amount of prepaid advertising at September 30, 2000 and 1999 was $689,000
and $808,000, respectively.

Store Opening and Closing costs

  Store opening costs are expensed when incurred.  Store closing costs,
consisting of fixed asset impairment charges and accruals for remaining lease
obligations, are estimated and recognized in the period in which the Company
makes the decision that a store will be closed.  The stores are closed shortly
thereafter.  Indicators of impairment generally do not exist with respect to the
Company's property and equipment except in circumstances of store closings.

 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 trade name rights are
amortized using the straight-line method over fifteen years.

 Retirement Savings Plan

  The Company has 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 salary
contributed to the Plan.  Company matching contributions to the Plan for the
fiscal years ended September 30, 2000, 1999 and 1998 were $253,000, $207,000 and
$181,000, respectively.  Employee contributions are 100% vested while Company
contributions are vested according to a specified scale based on years of
service.

 Stock-Based Compensation

  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 of the option equals or exceeds the
market price of the Company's Common Stock on the date of grant.

                                      F-6
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000


1.  The Company and Significant Accounting Policies (continued)

 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 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, 2000 and 1999,
respectively, for cash, accounts receivable, accounts payable, and long-term
debt approximate fair value due to the short term nature of the financial
instruments and the variable interest rate on debt.

 Earnings Per Share

  Basic earnings per common share excludes any dilutive effect of options,
warrants and convertible securities. The dilutive effect of the Company's stock
options is included in diluted earnings per common share. There was no dilutive
effect in fiscal 2000 and fiscal 1999. The effect in 1998 increased the diluted
weighted average shares outstanding by 142,000. All earnings per share amounts
for all periods have been presented and, where appropriate, restated to conform
to FAS 128 requirements.

  Certain options outstanding during each of the following years and their
related exercise prices were not included in the computation of diluted earnings
per common share because their exercise price was greater than the average
market price of the shares and, therefore, the effect would be antidulitive:
2000 - 875,513 shares at prices ranging from $10.00 to $21.75 and 1999 - 825,413
shares at prices ranging from $10.00 to $21.75.

 Reclassifications

  Certain balances as of September 30, 1999 and 1998 have been reclassified to
conform to the current year financial statement presentation.

 New Accounting Standards

  The Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") on
October 1, 2000.  FAS 133 provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities. The
Company does not employ any derivative instruments and, therefore, Statement 133
did not have an effect on the Company's financial statements.

  In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101"). This bulletin
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. This bulletin will be effective in fiscal 2000. The
Company expects the adoption of SAB 101 will not have a material impact on its
financial position or results of operations.

                                      F-7
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000


2.   Financing Arrangements

 Common Stock

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

  During June 1998, 296,118 shares of the Company's Class B Common Stock were
converted into shares of Class A Common Stock.

 Bank Line of Credit Agreement

     The Company's credit facility the "Credit Facility" with a syndicated group
of banks provides for borrowings on 65% of eligible receivables and 50% of
eligible inventories up to $67,500,000, through September 15, 2002, with a
possible expansion of the credit line up to $75,000,000. Borrowings under the
Credit Facility bear interest at either the federal funds rate plus 0.5%, the
prime rate or, at the Company's option, the Eurodollar rate plus applicable
margin ranging from 1.00% to 1.75%. The applicable margin is determined based on
a calculation of the combined leverage ratio of the Company and Crescent
Jewelers ("Crescent"), an affiliate of the Company. In connection with the
transaction, the Company accrued estimated costs of $1 million for services
provided by Morgan Schiff, an affiliate, associated with the refinancing, the
purchase warrant and guaranty of Crescent's debt, as discussed in Note 7 to the
Consolidated Financial Statements. The weighted average interest rate on
borrowings outstanding at September 30, 2000 and 1999 were 8.39% and 7.34%,
respectively. Amounts outstanding under the bank line are classified as long
term based on the Company's intent and ability to re-finance the agreement on a
long-term basis. As of September 30, 2000 and 1999, $48.4 million and $28.2
million were outstanding under the line of credit, respectively.

     Borrowings under the facility are secured by certain of the Company's
assets, including inventory and accounts receivable.  The agreement contains
certain financial covenants, and limits mergers and acquisitions, certain
capital transactions, asset dispositions and the incurrence of additional
indebtedness.

3.  Equipment and Improvements

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

                                                      September 30,

                                                     2000       1999
                                                   --------   -------

Store and office equipment                        $ 45,017   $ 31,865
Leasehold improvements                              31,596     25,753
Computer equipment and implementation costs         11,104      9,196
                                                  --------   --------
Total equipment & improvements                      87,717     66,814
Less accumulated depreciation & amortization       (31,297)   (22,654)
                                                  --------   --------
Total net equipment & improvements                $ 56,420   $ 44,160
                                                  ========   ========

                                      F-8
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000

4.  Purchase of Tradename

  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 for $7.1
million. In connection therewith, the Company issued to AAFCO 250,000 shares of
its Class A Common Stock, which were placed in escrow, and agreed to pay AAFCO
the 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. The Company also agreed to make advance payments to AAFCO through an
escrow arrangement which would pre-fund the minimum purchase price. As of
September 30, 1998, the entire $7.1 million of advance payments had been made.
Based on the market value of the 250,000 shares at June 30, 1999, no further
amounts were due to AAFCO and the Company retired the 250,000 shares held in
escrow finalizing the transaction.

5.  Accrued and Other Liabilities

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

                                                 September 30,

                                               2000       1999
                                             -------     -------

Accrued compensation and related expenses    $ 4,069      $2,749
Other                                         11,703       8,414
                                            --------     -------
Total                                        $15,772     $11,163
                                            ========     =======

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 the Chief Executive
Officer and Chairman of the Executive Committee based on growth in the price of
the Company's 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 for each year of the incentive program are noted in the
following table:

<TABLE>
<CAPTION>
                        Years 1-5                                                 Years 6-10
-------------------------------------------------------------------------------------------------------------------
                               % of Original Principal                                     % of Remaining Balance
    Stock Price Target             Balance 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>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000


  6.  Long-Term Incentive Program (continued)

  Attainment of 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 either or
both 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.

  The Company incurred expense of $177,000, $155,000 and $154,000 for the
forgiveness of interest and related taxes on the loans for the fiscal years
ended September 30, 2000, 1999 and 1998 respectively.  Interest was calculated
at the minimum rates allowable for federal income tax purposes of 6.24%, 5.45%
and 5.63% for the fiscal years ended September 30, 2000, 1999 and 1998
respectively

  Through September 30, 2000, the principal amount of each loan had been reduced
by $750,000 by attainment of stock price targets.  None of the stock price
targets were attained in the three year period ended September 30, 2000.

7.  Related Party Transactions

  During fiscal 2000 and 1999, the Company paid $400,000 to Morgan Schiff, an
affiliate of the Company,  pursuant to a Financial Advisory Services Agreement
(the "Agreement").  Morgan Schiff and the Company are affiliated through common
controlling ownership.  Pursuant to the Agreement, Morgan Schiff provides the
Company with certain financial advisory services with respect to capital
structure, business strategy and operations, budgeting and financial controls,
mergers and 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 has agreed to indemnify the Morgan Schiff against
any losses associated with the Agreement.

  Effective April 1, 2000, the Company signed an agreement licensing Crescent to
use certain trademarks owned by the Company.  Effective May 1, 2000, the Company
signed an agreement with Crescent to provide Crescent with merchandising,
inventory management and replenishment systems, accounting and systems support
and certain other back office processing services.   Also effective May 1, 2000,
the Company signed an agreement with Crescent to provide Crescent with
integration services for new information technology systems at Crescent.

  On September 15, 1999, Crescent entered into a $112.5 million, three year
senior, secured revolving syndicated bank facility, led by Bank of America, N.A.
to fund its restructuring and provide for its working capital needs. The Company
and Crescent are affiliated through common controlling ownership. In addition,
certain officers and directors of the Company are also officers and directors of
Crescent.

  As part of Crescent's new three-year bank facility, the Company agreed to
provide certain credit enhancements and to guarantee the obligations of Crescent
under the syndicated credit facility.  In consideration for this guarantee,
Crescent agreed to make quarterly payments to the Company in an amount equal to
2% per annum of the outstanding obligations of Crescent under its credit
facility during the preceding quarter. These payments amounted to $2.4 million
in fiscal 2000. In further consideration of this guaranty, Crescent issued a
warrant to the Company to purchase 7,942,904 shares of Crescent non-voting Class
A Common Stock, or approximately 50% of the capital stock of Crescent on a fully
diluted basis, for an exercise price of $500,000. The value of the warrant is
being amortized over the life of the warrant, or three years. At September 30,
2000 and 1999, Crescent's borrowings under the facility were $105.6 million and
$93.0 million, respectively. Based upon Crescent's operating performance, the
Company does not expect to incur losses relating to its guarantee of Crescent's
debt.

                                      F-10
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000



7.   RELATED PARTY TRANSACTIONS (CONTINUED)

     During fiscal year 1999, the Company made stock purchase loans aggregating
$1.2 million to certain directors, officers and employees of the Company. Such
loans extend for five years and bear interest at 5%. The loans have been
classified as a reduction in stockholders equity in the accompanying financial
statements.

8.   STOCK PLANS

  Stock Option Plan

     The Company maintains the 1999 Long-Term Incentive Plan ("LTIP") that
provides for the granting of incentive stock options to officers and key
employees up to a maximum of 500,000 shares of Class A Common Stock. Prior to
the adoption of the LTIP, the Company maintained several other plans which have
since been discontinued, although options remain outstanding under them.
Incentive stock options are granted at the greater of the Class A Common Stock's
fair market value at the grant date or at the company's book value at grant
date, as determined by the Board of Directors. All options have a 10-year term
and vest over three years.

     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 Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("FAS 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 FAS No. 123, net income would have been
reduced to the pro forma amounts indicated in the table below:

                                               2000       1999        1998
                                             --------   --------    --------

Net income - as reported                      $19,704    $16,483     $10,594
Net income - pro forma                         17,755     14,674       9,334

Basis earnings per share - as reported          $1.36      $1.13       $0.72
Basis earnings per share - pro forma            $1.23      $1.01       $0.63


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.

                                      F-11
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000


8.  STOCK PLANS (CONTINUED)

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:

                                            2000         1999        1998
                                          --------     --------    --------
Expected dividend yield                      0.60%        0.50%       0.00%
Risk-free interest rate                      5.92%        6.02%       6.04%
Expected life of options                  10 years     10 years    10 years
Expected stock price volatility              0.582        0.517       0.491

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


                                                  Weighted
                                                   Average
                                    Options    Exercise Price
                                  Outstanding     Per Share
                                  -----------  --------------
October 1, 1997                     737,018        14.39
Granted                             454,100        14.62
Canceled                           (168,510)      (15.47)
Exercised                           (15,695)      (13.58)
                                  ---------       ------
September 30, 1998                1,006,913        14.32
Granted                             135,500        13.09
Canceled                           (317,000)      (15.34)
                                  ---------       ------
September 30, 1999                  825,413        13.74
Granted                              51,100        10.23
                                  ---------       ------
September 30, 2000                  876,513       $13.72
                                  =========       ======

     The weighted average fair value per share of options granted during the
year ended September 30, 2000, 1999 and 1998 was $10.23, $5.04 and $9.90
respectively.  Shares available for future grant were 347,277 and 364,500 at
September 30, 2000 and 1999, respectively.

     At September 30, 2000, the weighted average contractual life of options
outstanding is 5.2 years and options to purchase 740,113 shares are exercisable
with a weighted average exercise price of $13.72. There were 624,823 options
outstanding with exercise prices ranging from $5.63 to $15.00 with a weighted
average exercise price of $11.82 and weighted average remaining contractual life
of 4.4 years and there

                                      F-12
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000


8.  Stock Plans (continued)

were 251,690 options outstanding with exercise prices ranging from $16.13 to
$21.75 with a weighted average exercise price of $17.47 and a weighted remaining
contract life of 5.0 years.

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%.

9.  Income Taxes

  The provision for income taxes for the years ended September 30 consists of
the following (in thousands):

<TABLE>
<CAPTION>
                                                          2000      1999       1998
                                                        --------  --------   --------
<S>                                                     <C>       <C>        <C>
Current:
Federal                                                 $ 9,980   $ 9,308    $ 5,396
State                                                       984     1,460        949
                                                        -------   -------    -------
                                                         10,964    10,768      6,345
Deferred                                                    885    (1,314)       146
                                                        -------   -------    -------
                                                        $11,849   $ 9,454    $ 6,491
                                                        =======   =======    =======
</TABLE>

  Income tax expense reconciled to the amount computed at statutory rates for
the years ended September 30 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                          2000      1999       1998
                                                        --------  --------   --------
<S>                                                     <C>       <C>        <C>
Federal tax at statutory rate                           $10,552   $ 8,514    $ 5,866
State income taxes (net of federal income tax benefits)     686       830        347
Other, net                                                  611       110        278
                                                        -------   -------    -------
                                                        $11,849   $ 9,454    $ 6,491
                                                        =======   =======    =======
</TABLE>

                                      F-13
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000


9.  INCOME TAXES (continued)

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

<TABLE>
<CAPTION>
                                                         2000               1999
                                                     ------------       ------------
<S>                                                  <C>                <C>
Current deferred taxes:
Assets
 Allowance for doubtful accounts                     $      1,602       $      4,750
 Accrued liabilities                                          411                402
 Deferred revenue                                           1,907                385
 Other                                                          0                 55
                                                     ------------       ------------
 Total Current Assets                                       3,920              5,592

Liabilities:
 Inventory                                                    311              1,411
 Prepaid assets                                               504                552
                                                     ------------       ------------
 Total Current Liabilities                                    815              1,963

                                                     ------------       ------------
Deferred current tax asset, Net                             3,105              3,629
Non-current deferred taxes:
Liabilities:
 Equipment and improvements                                 1,616              1,323
 Other                                                        286                218
                                                     ------------       ------------
Deferred non-current tax liabilities                        1,902              1,541

                                                     ------------       ------------
Deferred tax asset, Net                              $      1,203       $      2,088
                                                     ============       ============
</TABLE>

                                      F-14
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000


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):

Years ended September 30,
-------------------------

                    2001   $19,717
                    2002    17,393
                    2003    13,490
                    2004     9,304
                    2005     5,633
Subsequent years             4,565
                          --------
Total                      $70,102
                          ========

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

                                   Years ended September 30,

                                2000         1999        1998
                              ---------   ---------    ---------

Minimum rentals                 $25,733     $21,565      $18,355
Contingent rentals                  404         401          446
                              ---------   ---------    ---------
Total rent                      $26,137     $21,966      $18,801
                              =========   =========    =========


  The Company sells credit life, health and property and casualty on its
merchandise as an agent for American Bankers Insurance Group ("ABIG"), which
underwrites the insurance products. The Company has a wholly owned subsidiary as
an offshore entity to re-insure risks related to these products. Under the re-
insurance contract, the Company's subsidiary assumes the risk of the insurance
immediately after the insurance products are sold. The Company recognizes
premium expense and commissions earned related to this insurance over the terms
of the related insurance products. Premium expense includes fees payable to
ABIG, as well as the estimated losses related to the insurance products. Losses
are estimated based on actual losses incurred in the past, and amortized over
the term of the related insurance product. The Company's losses on these
products have historically been very stable, thus enabling the accrual of
reliable loss estimates.

  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.

                                      F-15
<PAGE>

                                Friedman's Inc.
            Notes to Consolidated Financial Statements (continued)
                              September 30, 2000

11.  Quarterly Financial Data (Unaudited)

The following is a summary of the quarterly results of operations for the years
ended September 30, 2000 and 1999 (in thousands except per share data):

<TABLE>
<CAPTION>
                                                  For the Fiscal Year Ended September 30, 2000
                                                                  Quarters Ended
                                               -------------  ----------   ----------   --------------
                                                 January 1     April 1      July 1       September 30
                                               -------------  ----------   ----------   --------------
<S>                                            <C>            <C>          <C>          <C>
Net Sales                                        $151,418      $80,403      $81,086         $64,370
Cost of goods sold, including occupancy,
distribution and buying                            78,474       43,516       42,710          35,872
Income (loss) before income taxes                  23,920        4,661        3,511 (a)        (571) (b)
Net income (loss)                                  14,830        2,963        2,247            (337)
Basic earnings (loss) per share (d)                  1.03         0.21         0.16           (0.02)
Diluted earnings (loss) per share (d)                1.03         0.21         0.16           (0.02)
</TABLE>


<TABLE>
<CAPTION>
                                                  For the Fiscal Year Ended September 30, 1999
                                                                  Quarters Ended
                                               -------------  ----------   ----------   --------------
                                                December 31    March 31      June 30     September 30
                                               -------------  ----------   ----------   --------------
<S>                                            <C>            <C>          <C>          <C>
Net Sales                                        $125,101      $61,694      $66,503         $55,087
Cost of goods sold, including occupancy,
distribution and buying                            63,359       33,593       35,715          31,316
Income (loss) before income taxes                  21,253        3,900        2,789          (2,275)
Net income (loss)                                  13,346        2,418        1,729          (1,010) (c)
Basic earnings (loss) per share (d)                  0.92         0.16         0.12           (0.07)
Diluted earnings (loss) per share (d)                0.92         0.16         0.12           (0.07)
</TABLE>


(a)  During the quarter ended July 1, 2000, the estimated average life of
     diamond and gold bond warranties was adjusted based on actual trends and
     experience. The effect of this adjustment increased pre-tax income by
     $1,481,000.
(b)  Loss before income taxes was reduced for adjustments in capitalized
     inventory costs of $1.7 million, estimated recoveries of charged-off
     customer receivables of $1.3 million, and was increased for accruals for
     incentive payments of $400,000 and increases in reserves for inventory
     refurbishment costs of $600,000.
(c)  Net loss includes a reduction in the reserve for income taxes of $400,000
(d)  Due to the method required by FAS 128 to calculate per share data, the
     quarterly per share data may not total the full year per share data.

                                      F-16
<PAGE>

                         Report of Independent Auditors

The Board of Directors
Friedman's Inc.

We have audited the accompanying consolidated balance sheets of Friedman's Inc.
(the Company) as of September 30, 2000 and 1999, and the related statements of
income, stockholders' equity and cash flows for each of the three years in the
period ended September 30, 2000.  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 based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States.  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, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
2000, in conformity with accounting principles generally accepted in the United
States.  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.


/s/ Ernst & Young LLP
---------------------

November 20, 2000
Atlanta, Georgia

                                     F-17


<PAGE>

                                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, 1998                 $  8,268,000       $  29,767,000  (1)    $  27,963,000 (2)    $  10,072,000
    Year ended September 30, 1999                   10,072,000          33,942,000  (1)       33,152,000 (2)       10,862,000
    Year ended September 30, 2000                   10,862,000          36,571,000  (1)       33,919,000 (2)       13,514,000

  Unearned finance charges, product warranties and credit insurance:

    Year ended September 30, 1998                 $ 12,279,000       $  38,200,000  (3)    $  34,804,000 (4)    $  15,675,000
    Year ended September 30, 1999                   15,675,000          45,078,000  (3)       42,624,000 (4)       18,129,000
    Year ended September 30, 2000                   18,129,000          50,931,000  (3)       49,916,000 (4)       19,144,000
</TABLE>



    ________________________
    (1)  Provision for doubtful accounts.
    (2)  Uncollectible accounts receivable written off, net of recoveries.
    (3)  Additions to credit insurance and product warranties are the dollar
         amount of premiums sold.
    (4)  Deductions to unearned finance charges, credit insurance and product
         warranties occur as finance charges, credit insurance and product
         warranties are earned.

                                      F-18