<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 29, 2001

                                       OR

         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the transition period from to

                         COMMISSION FILE NUMBER 0-22356

                                 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 $121,902,293 at December 14, 2001, based on the closing sale price of $9.15
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 14, 2001, was 13,322,655. The number of shares of the
registrants Class B Common Stock outstanding at December 14, 2001, was
1,196,283.

                      DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Proxy Statement for the Annual Meeting of Stockholders
to be held on February 28, 2002, are incorporated by reference in Part III.

================================================================================
<PAGE>
                                 FRIEDMAN'S INC.
                           ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 29, 2001

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                                      PAGE
NUMBER                                                                    NUMBER
--------------------------------------------------------------------------------
<S>      <C>                                                              <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                                            10

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                                             21

12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT     21

13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                     21

                                     PART IV

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

SIGNATURES
</TABLE>





                                       i

<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 our actual results, performance or achievements 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. Our 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 us
are expressly qualified in their entirety by these cautionary statements.

ITEM 1. BUSINESS.

GENERAL

         We are the third largest specialty retailer of fine jewelry in the
United States, operating 645 stores in 20 states. We position ourselves as The
Value Leader(R) by offering our customers competitive prices, a broad selection
of quality merchandise and a high level of customer service. We target low to
middle income consumers aged 18 to 45 years with our selection of diamonds,
gold, gemstones and wedding-related items. Overall, our store format, real
estate strategy and customer service are designed to bring our target customers
a neighborhood specialty store experience with the operations, technology and
scale of a chain retailer.

         Since 1992, we have focused on building the Friedman's brand in each of
the markets that we serve. We accomplished this by increasing our store base
from 55 stores in fiscal 1992 to our current 645 stores, to become the largest
specialty jewelry retailer in the 20 states in which we operate. We also used
targeted and aggressive advertising to create what we believe is our unique
identity as a fine jewelry retailer at value prices.

         We were incorporated in Delaware in July 1993. Our principal executive
offices are located at 4 West State Street, Savannah, Georgia 31401.

BUSINESS STRATEGY

         We intend to become the leading specialty retailer of fine jewelry in
the U.S. To achieve this goal, we follow a business strategy that uniquely
positions us in the highly fragmented jewelry industry. The principal elements
of our business strategy include the following:

     -   EFFICIENTLY TAILOR THE ADVERTISING AND MERCHANDISING STRATEGY OF OUR
         STORES TO FIT THE MARKET. We target our advertising and merchandising
         strategy to better serve our customers and to increase sales and
         inventory turnover. We categorize each of our stores based on sales
         volume and customer purchasing preferences. With this information we
         are able to provide stores with an inventory and merchandising plan
         designed for each store's market and create different versions of our
         advertising vehicles to support market specific demographics. The
         merchandising plan for each store type includes careful merchandise
         selection, with particular attention to quality and price, and specific
         merchandise display instructions, each based on the store's market
<PAGE>
         demographics. These efforts provide value to our customers through a
         broad selection of quality merchandise tailored to their preferences,
         and with our high in-stock rate, the items they desire are almost
         always available. The strategy benefits us through faster inventory
         turnover and increased product sales.

     -   BUILD RECURRING TRAFFIC THROUGH IN-STORE CREDIT PROGRAMS. During fiscal
         2001, approximately 53% of our net merchandise sales were generated by
         credit sales in our proprietary credit program. We encourage our credit
         customers to make monthly payments in person at the store and in fiscal
         2001, approximately 75% of our credit customers did so, and we averaged
         ten in-person payments per day across our store base. In contrast to
         credit customers, gift customers may visit our stores three to four
         times a year and wedding customers may only visit our stores once every
         few years for upgrades and anniversaries. The recurring traffic
         generated by our credit program allows sales associates to build
         personal relationships with our customer base and encourages additional
         purchases on a more frequent basis.

     -   TARGET BOTH POWER STRIP CENTERS AND REGIONAL MALLS. Our store locations
         vary from moderately upscale suburban mall locations to strip centers
         in small, rural towns. Approximately 66% of our current store base is
         located in high-traffic shopping centers that are anchored by a large
         discount retailer such as Wal-Mart or Target that are called power
         strip centers. In addition, power strip centers often contain other
         discount retailers such as Cato, Charming Shoppes, Dollar Tree and
         Payless Shoes. We are the only specialty jewelry retailer pursuing a
         power strip strategy and in most cases only locate in power strip
         centers where we obtain the exclusive right to be the only retail
         jeweler in the center. Our power strip stores have a relatively low
         opening cost structure and offer attractive returns and margins.
         Regional mall stores are also an important component of our strategy to
         build and maintain the Friedman's brand.

     -   GAIN EFFICIENCIES THROUGH MARKET DENSITY. We have established strong
         brand name recognition and a substantial store base in the markets that
         we serve. Operating several stores in a particular market allows us to
         realize operating and marketing efficiencies because we can spread our
         costs related to operations, management and advertising over a larger
         number of stores. As a result, we tend to have higher returns on
         investments in markets where we operate more stores. We believe that as
         we expand our presence in our existing markets, market density factors
         will result in reduced costs and improved store sales in those markets
         and lead to better operating margins and increased profitability in the
         future.

     -   LEVERAGE HIGHLY EXPERIENCED MANAGEMENT TEAM. We believe our senior
         management team offers unique insights into jewelry retailing on a
         national level. We believe the management team we have in place is well
         positioned to make us the leading national specialty retailer of fine
         jewelry.

GROWTH STRATEGY

         Since 1992, we have grown by an average of 64 stores per year by
opening new stores in both existing and new markets. With a solid store base and
operating foundation in place, we believe that we are poised for our next growth
phase, which includes the following:

     -   SALES GROWTH FROM RECENTLY OPENED STORES. Our new stores typically take
         three to five years to attain optimal sales and profitability goals.
         During that time, sales from the recurring traffic caused by our credit
         program and increased market awareness resulting from our aggressive
         advertising generally produce significant sales and profitability
         improvements. In addition, as our marketing team becomes more familiar
         with the market where the new store is located, they can adjust the
         merchandising and advertising strategies for that store to promote
         sales.


                                       2
<PAGE>
     -   STORE GROWTH IN EXISTING MARKETS. We believe there is the opportunity
         to grow our stores in existing markets and there are at least an
         additional 1,000 potential locations in these markets. We intend to
         open approximately 10 to 30 net new stores in fiscal 2002 in a
         combination of power strip centers and mall locations, and we will
         initially target store openings in markets where we already have an
         established brand and an operating presence. We believe opening in
         existing markets will drive sales and achieve operating, managerial and
         advertising efficiencies.

     -   STORE GROWTH IN NEW MARKETS. There is additional opportunity for store
         growth in new markets. We target power strip centers in which discount
         retailers like Wal-Mart have a presence and believe there are at least
         2,000 additional locations that have been successful for discount
         retailers and have the demographics for our stores to be successful.
         Growth in these new locations will allow us to bring our quality
         products and services to a national audience and help us reach our goal
         of being the leading specialty retailer of fine jewelry.

     -   FUTURE ACQUISITION OF SELECT JEWELERS. We are open to opportunities to
         grow our company through the acquisition of select retail jewelry
         stores or companies whose geographic location fit within our overall
         goals and whose merchandising and advertising strategy complement our
         own. In addition, our unique relationship with Crescent Jewelers, a
         155-store chain operating primarily in California, may present us with
         a future acquisition opportunity.

TARGET CUSTOMER

         Our stores target 18-45 year old consumers, a broad group that
represents approximately 40% of the United States population and is expected to
grow over the next ten years. A core group of our target market, the late-teen
to early twenties population, is expected to grow at a rate faster than that of
the overall United States population, according to the United States Census
Bureau. We also target consumers with annual household incomes between $35,000
and $50,000. This represents approximately 60% of United States households and
more importantly a group of potential consumers that are underserved as they
have few specialty jewelry retailers that cater to their demographic.

MERCHANDISING

         We tailor our merchandising strategy to better serve our customer and
increase sales and inventory turnaround. We categorize each of our stores based
on sales volume and customer purchasing preferences. With this information we
are able to provide stores with a merchandising plan designed for the store's
market and create different versions of our advertising vehicles to support
market specific demographics. The merchandising plan for each store type
includes careful merchandise selection, with particular attention to quality and
price, and specific merchandise display instructions based on the store's market
demographics. These efforts provide our customers with a broad selection of
quality merchandise tailored to their interests, and with our high in-stock
rate, the items they desire are almost always available. The strategy benefits
us through faster inventory turnaround and increased product sales.

         Regardless of store type, our merchandising plans provide each of our
stores with a wide variety of affordable jewelry products, including earrings,
rings, necklaces, chains, watches and other fine jewelry for men and women.
These items are made of yellow and white gold, platinum and silver and set with
diamonds and other fine gemstones. Diamonds and gemstone jewelry account for the
majority of our sales. Our stores offer a broad range of diamonds up to one
carat and occasionally place special orders for larger diamonds. The gold
jewelry we sell in our stores is primarily 10 and 14 karat.


                                       3
<PAGE>
ADVERTISING AND PROMOTIONS

         Our advertising seeks to position us as "The Value Leader" in the
specialty retail fine jewelry business in the markets that we serve. Our
principal advertising vehicles consist of direct mailings, signage and
promotions within stores, television commercials, local and regional newspaper
advertisements, advertising circulars and our web site. We believe that our
growth strategy, which is focused in part on increasing our market density in
our major advertising markets, will enhance the efficiency of our advertising
activities and lower our overall advertising costs on a per store basis.

         We design frequent special promotions such as diamond remount events
and clearance sales to increase traffic through our stores and generate an
urgency for customers to make purchases. For store "grand openings," we have
formulated a unique "work the town" advertising effort in which Store Partners
personally invite key local residents and businesses to attend.

PURCHASING AND INVENTORY CONTROL

         We purchase completed diamond, gemstone and gold jewelry, and watches
from vendors in the United States and abroad. We also subcontract with jewelry
finishers to set loose gems into rings and jewelry, using styles we select. We
maintain a quality control program, with most of the finished items being
inspected upon receipt at our distribution center in Savannah, Georgia. There
our inspectors can carefully examine the inventory to ensure that the quality
and design are in accordance with our order and without being subject to
influence by our vendors and their representatives. We return any defective
shipments to the vendor and receive an appropriate charge-back against the
purchase order. In fiscal 2001, our top five suppliers accounted for
approximately 37% of our total purchases and no single vendor accounted for more
than 10% of our total purchases. We believe that we are not reliant upon any one
supplier or subcontractor, and we could replace any single supplier or
subcontractor with a competing firm without material difficulty.

         We use a sophisticated forecasting model to predict our inventory
requirements and place orders with our vendors. We constantly revise this model
based on actual sales results reported daily from our stores on an item-by-item
basis. We ship inventory from our distribution center to our stores between one
and three times per week, which has allowed us to maintain high in-stock rates
in our stores.

STORE LOCATIONS

         As of September 29, 2001, we operated 643 stores in 20 states. Of this
number, 423 were located in power strip centers and the remaining 220 were
located in regional malls. The following table shows the total stores opened and
closed for the past five fiscal years:

<TABLE>
<CAPTION>
AGGREGATE NUMBER OF STORES       1997      1998      1999      2000      2001
                                ------    ------    ------    ------    ------
<S>                             <C>       <C>       <C>       <C>       <C>
Beginning of Period               301       384       471       531       619
Opened                             90        95        80        99        55
Closed                              7         8        20        11        31
                                ------    ------    ------    ------    ------
Total at Period End               384       471       531       619       643
                                ------    ------    ------    ------    ------
Percentage growth over prior
period                           27.6%     22.7%     12.7%     16.6%      3.9%
</TABLE>

         We seek to locate our stores in the best real estate locations in each
particular market. In small rural areas, that location is typically the power
strip center where discount retailers like Wal-Mart are the anchor tenant. In
the typical power strip center, we locate our stores close to the Wal-Mart, and
near the specialty discount apparel and shoe stores. In our larger metropolitan
markets we locate stores in regional malls and we seek out the mall with the
best overall consumer traffic. In the typical mall, we place our


                                       4

<PAGE>
stores on the center court corners for high visibility and consumer traffic. All
of our stores provide a welcoming environment with glass cases surrounding the
perimeter of the store. We illuminate our stores with track lighting to best
show off the brilliance of the jewelry in the cases. Our stores range in size
from approximately 1,600 square feet in a power strip center store, to
approximately 1,200 to 1,300 square feet in a mall store.

STORE OPERATIONS

         Each of our stores is operated under the direction of a Store Partner,
a title that reflects our philosophy that each store should operate 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. Staff
members assist each Store Partner. This staff includes an assistant manager and
two to five sales associates, depending on the location of the store and the
sales season. We determine merchandise selections, inventory management and
visual merchandising strategies for each store at the corporate level. In
addition to a salary, our Store Partners also receive incentive compensation in
the form of quotas and commissions.

         We operate a manager training and development program, which is one of
the principal sources for future Store Partners. We provide sales associates
with written manuals containing our policies and procedures and other training
materials and supervisory personnel also provide on-site training. Fifty-five
"Senior Partners," each responsible for approximately 12 stores, and five
"District Partners," each responsible for approximately 4 stores, including
their own, oversee the operations of our stores and evaluate the performance of
the Store Partners. Senior Partners report to 14 Regional Vice Presidents, each
responsible for approximately 40 to 60 stores, and 4 Division Presidents, each
responsible for approximately 100 to 200 stores. Senior Partners, Regional Vice
Presidents and Division Presidents interact on a daily basis with our senior
management to review individual store performance. We believe that our
decentralized store management structure enables senior management, Senior
Partners, Regional Vice Presidents and Division Presidents to focus on our daily
operating disciplines and the needs of our target customers while allowing us to
continue expanding.

         We believe that the quality of our sales associates is a key to our
success in the highly competitive jewelry industry. We seek to motivate our
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 our company. We also offer an employee stock
purchase plan to substantially all of our employees.

CUSTOMER SERVICE

         We have been dedicated for 80 years to providing quality customer
service to our customer base, which is comprised primarily of low to middle
income consumers in the 18 to 45 year-old age group. We offer our 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 our
guidelines, "Store Partners" are primarily responsible for cultivating and
maintaining relationships with customers. We believe that in the highly
competitive retail jewelry industry, we cannot emphasize customer satisfaction
enough and that our customer satisfaction program is an essential element in
creating and maintaining successful customer relationships.

CREDIT OPERATIONS

         Our credit programs are an integral part of our business strategy. We
generated approximately 53% of our net merchandise sales in fiscal 2001 on our
proprietary credit program. Our credit customers are encouraged to make monthly
payments in person at the store and in fiscal 2001, approximately 75% of our
credit customers did so and we averaged 10 in-person payments per day across our
store base. This recurring credit traffic allows our sales associates to build
personal relationships with our customer base


                                       5

<PAGE>
and encourages additional purchases on a more frequent basis.

         To support our store-level credit program, we have developed a
standardized scoring model and system for extending credit and collecting
accounts receivable according to our strict credit disciplines. We process
credit applications at each store, which provides customers access to convenient
credit. Consistent with industry practice, we encourage the purchase of credit
insurance products in connection with sales of merchandise on credit. We sell
such products as an agent for a third-party insurance company and maintain a
reinsurance contract with the insurance company.

         Our policy is generally to write-off in full any credit accounts
receivable if no payments have been received for 120 days and any other credit
accounts receivable, regardless of payment history, if judged uncollectible (for
example, in the event of fraud in the credit application). We maintain an
allowance for uncollectible accounts based in part on historical experience.

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

<TABLE>
<CAPTION>
                                                      (IN THOUSANDS, EXCEPT FOR PERCENTAGES AND INFORMATION
                                                                  RELATING TO CUSTOMER ACCOUNTS)

                                                   2001          2000          1999          1998          1997
                                                 ----------------------------------------------------------------
<S>                                              <C>           <C>           <C>           <C>           <C>
Revenues attributable to credit sales(1)         $257,782      $237,937      $199,965      $171,324      $145,703
Accounts receivable(2)                            147,440       135,682       108,642        95,972        82,678
Credit sales as a percentage of net
   merchandise sales                                 52.8%         52.6%         53.7%         55.0%         56.9%
Receivable revenues(3)                           $ 59,797      $ 53,912      $ 42,759      $ 33,417      $ 27,156
Provision for doubtful accounts                    50,304        36,571        33,942        29,767        22,892
Gross income before credit expenses                 9,493        17,341         8,817         3,650         4,264
Gross yield before credit expenses(4)                 6.1%         13.0%          7.8%          3.5%          4.9%
Active number of customer accounts                325,026       304,687       258,672       244,903       225,701
Balance per customer account(5)                  $    408      $    401      $    378      $    351      $    330
Average credit ticket                                 231           215           221           204           200
Average accounts receivable(6)                    156,324       133,030       113,383       103,609        87,406
Average monthly collection percentage                11.4%         12.0%         12.0%         11.2%         11.1%
Net charge-offs as a percentage of net sales         11.9%          9.1%         10.8%         10.8%         10.0%
Net charge-offs as a percentage of credit
   revenues                                          19.0%         14.5%         16.6%         16.3%         14.8%
Allowance for doubtful accounts as a
   percentage of accounts receivable                 10.0%         10.0%         10.0%         10.5%         10.0%
Accounts receivable greater than 90 days
   past due(7)                                        4.8%          5.8%          4.7%          7.1%          7.7%
Accounts receivable less than 30 days
   past due(7)                                       84.6%         85.6%         83.8%         80.5%         79.8%
</TABLE>

----------
(1) Revenues attributable to credit sales constitute merchandise sold pursuant
    to our 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 as of fiscal year end.

(3) Receivable revenues equal the sum of finance charge income, insurance
    commissions and other credit revenues.

(4) Gross yield before credit expenses is reflected as a percentage of average
    accounts receivable, net of unearned finance charges, diamond and gold bond
    product warranties and credit insurance.

(5) Balance per customer account represents the average customer account balance
    as of end of September, net of allowance for doubtful accounts.

(6) Represents the average accounts receivable net of unearned revenues,
    outstanding during the fiscal year.

(7) Reported on a regency basis.


                                       6
<PAGE>
SYSTEMS AND CONTROLS

         Our management information systems utilize an IBM AS/400-based system
and customized software that was specifically designed for the retail jewelry
industry. The system allows supervisors and senior management to review and
analyze sales and credit activity by store, amount of sale, terms of sale or
employees who approved the sale. Our entire credit extension and collection
process is automated and our system maintains all customer data to facilitate
future credit transactions. Utilizing our 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 a store's transactions so that Store Partners can investigate
discrepancies on a timely basis. Overall, the systems provide information that
enables us to monitor merchandise trends and variances in performance so that we
can improve the efficiency in our inventory and personnel management.

         In fiscal 1999, we embarked on a long-term strategy to upgrade
information systems and financial controls. A retail enterprise software system
was installed in fiscal 1999 that has enhanced our ability to plan, manage,
allocate, control and distribute our inventories. Also in fiscal 1999, our
general ledger system was upgraded. During fiscal 2001, internet connected
personal computers were installed in every store improving communication between
management, vendors and the stores resulting in efficiency improvements in the
areas of credit, expense control and store promotions. We also implemented a new
loss prevention software system in August 2001, which is tailored to a retail
environment enhancing the tools available for loss prevention activities. We are
in the process of installing a new credit system, which will enhance efficiency
and control and a web based training program.

         In fiscal 2001, we began providing our affiliate Crescent Jewelers with
merchandising, inventory management and replenishment systems, accounting and
systems support and certain other back office processing services. To accomplish
this, we integrated information technology systems with Crescent and as a
result, Crescent's information systems and financial controls were upgraded.


COMPETITION

         The retail jewelry industry is highly competitive. We believe that the
primary elements of competition in the industry are selection of merchandise
offered, pricing, quality of sales associates, 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, credit control and information systems.

         We are the sole retail jewelry store in most of the power strip centers
in which we operate. However, our power strip center stores face competition
from small, independent jewelers in the local area. We believe that our ability
to offer greater breadth and depth of product selection, generally lower prices,
more extensive advertising and promotion and proprietary customer credit
programs provides us with a competitive advantage over these local jewelers.

         Our 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, more than one of these
competitors are located in the same regional mall as our mall stores. In
addition, some of our competitors have established non-mall based stores in
major metropolitan areas that offer a large selection of jewelry products. We
also compete 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 our competitors are substantially larger and have greater
financial resources than we have. We also believe that we compete for consumers'
discretionary spending dollars with retailers


                                       7
<PAGE>
that offer merchandise other than fine jewelry. The foregoing competitive
conditions may adversely affect our revenues, profitability and ability to
expand.

CRESCENT JEWELERS

         Crescent Jewelers is a specialty retailer of fine jewelry based in
Oakland, California, and as of September 29, 2001, operated a total of 155
stores in seven western states. We believe that Crescent Jewelers 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 our overall business strategy, we have maintained a
strategic relationship with Crescent Jewelers since 1996. As part of this
relationship, we and Crescent Jewelers entered into agreements under which we
provide Crescent Jewelers with accounting and information technology support,
along with certain other back office processing services. In addition, in
partial consideration for credit enhancements we provided to Crescent Jewelers,
we also received a warrant to purchase 50% of Crescent Jeweler's capital stock
for $500,000. Also, please see "Management's Discussion and Analysis of
Financial Conditions and Results of Operations---Liquidity and Capital
Resources." As a result, we are able to focus on improving operations in our
existing markets and believe that we are well-positioned to enter the west coast
market in the future.

         Crescent Jewelers achieved net sales of $137.2 million for fiscal 2001,
compared to $ 133.5 million for fiscal 2000. During fiscal 2001, Crescent
Jewelers opened six net stores.

EMPLOYEES

         As of September 29, 2001, we had 4,028 employees.

GOVERNMENT REGULATION

         The extension of credit to consumers is a highly regulated area of our
business. Numerous federal and state laws impose disclosure and other
requirements upon our 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 impose limitations
on the maximum amount of finance charges that may be charged by a credit
provider, such as us, and also impose other restrictions on creditors
(including restrictions on collection and enforcement) in consumer credit
transactions. We periodically review our contracts and procedures for
compliance with consumer credit laws with a view to making any changes required
to comply with such laws. Failure on our part to comply with such laws could
expose us to substantial penalties and claims for damages and, in certain
circumstances, may require us to refund finance charges already paid, and to
forego finance charges not yet paid under non-complying contracts. We believe
that we are in material compliance with such laws.

         Our sale of credit life, health and property and casualty insurance
products is also highly regulated. State laws currently impose disclosure
obligations with respect to our 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 of our employees. We believe we are in compliance in all
material respects with all applicable laws and regulations relating to our
insurance business.

ITEM 2. PROPERTIES.

         We lease all of our stores. Our 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. Our 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 our leases, we are required to
maintain and conform our usage of the premises to agreed standards.

         We also lease the buildings in which our headquarters is located. We
paid rent of approximately $290,000 in fiscal 2001 for use of the space we
occupy in these buildings. The buildings in which our headquarters is located
contain approximately 34,500 square feet of office and administrative space.

ITEM 3. LEGAL PROCEEDINGS.

         We are 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 our
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 29, 2001.


                                       8

<PAGE>
                                    PART II.

ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

COMMON STOCK PRICE

         We have two classes of Common Stock -- Class A Common Stock and Class B
Common Stock. Our 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.

<TABLE>
<CAPTION>
                                                               HIGH       LOW
                                                               ----       ---
<S>                                                           <C>        <C>
FISCAL YEAR ENDED SEPTEMBER 29, 2001
         First Quarter....................................    $ 5.25     $4.00
         Second Quarter ..................................    $ 8.00     $4.56
         Third Quarter....................................    $12.15     $5.53
         Fourth Quarter ..................................    $11.08     $6.01
</TABLE>

<TABLE>
<CAPTION>
                                                               HIGH       LOW
                                                               ----       ---
<S>                                                           <C>        <C>
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
</TABLE>


         As of December 14, 2001, the closing price per share on the Nasdaq
National Market was $9.15.

HOLDERS

         As of December 15, 2001, there were approximately 69 record holders of
the Class A Common Stock and two record holders of the Class B Common Stock. We
estimate that there are approximately 2,300 beneficial owners of the Class A
Common Stock.

DIVIDEND POLICY

         We paid a cash dividend of $.0125 per share of Class A Common Stock and
Class B Common Stock in the first two fiscal quarters of 2000 and $.015 per
share in each of the last two fiscal quarters of 2000. We paid a cash dividend
of $0.015 per share of Class A Common Stock and Class B Common Stock in the
first two fiscal quarters of 2001 and $0.0175 per share in each of the last two
fiscal quarters of 2001. Future dividends, if any, will be determined by our
Board of Directors and will be based upon our earnings, capital requirements and
operating and financial condition, among other factors, at the time any such
dividends are considered. Our ability to pay dividends in the future is
restricted by our 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."


                                       9

<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA.

         The following statement of income and balance sheet data for fiscal
years ended September 30, 1997 through September 29, 2001 were derived from our
audited Consolidated Financial Statements. 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,
                                          ------------------------------------------------------------------------------
                                              2001             2000            1999            1998             1997
                                          ------------     ------------     -----------    ------------     ------------
                                                    (Dollars in thousands, except share and per share amounts)
<S>                                       <C>              <C>              <C>            <C>              <C>
STATEMENT OF INCOME DATA:

Net sales .............................   $    411,037     $    376,351     $   308,385    $    259,146     $    214,255
Cost of goods sold, including
   occupancy, distribution and buying .        216,265          199,646         163,983         135,412          109,352
Selling, general and administrative
   expenses ...........................        160,941          133,316         110,665         100,506           71,127
Depreciation and amortization .........         13,881            9,479           6,379           5,269            4,177
Interest (income) expense, net ........          2,511            2,388           1,421             874             (665)
                                          ------------     ------------     -----------    ------------     ------------
Income before income taxes and
   minority interest ..................         17,439           31,522          25,937          17,085           30,264
Income tax expense ....................          6,584           11,849           9,454           6,491           11,498
Minority interest .....................         (1,374)             (31)             --              --               --
                                          ------------     ------------     -----------    ------------     ------------
Net income ............................   $     12,229     $     19,704     $    16,483    $     10,594     $     18,766
                                          ============     ============     ===========    ============     ============

Basic earnings per share ..............   $       0.84     $       1.36     $      1.13    $       0.72     $       1.30

Diluted earnings  per share ...........   $       0.84     $       1.36     $      1.13    $       0.72     $       1.29
Weighted average common shares
   outstanding - basic ................     14,501,000       14,445,000      14,590,000      14,620,000       14,408,000
Weighted average common shares
   outstanding - diluted ..............     14,531,000       14,445,000      14,590,000      14,762,000       14,539,000

OTHER OPERATING DATA:

Number of stores (end of periods) .....            643              619             531             471              384

Percentage increase in number of stores
   (end of periods) ...................            3.9%            16.6%           12.7%           22.7%            27.6%
Percentage increase (decrease) in
   comparable store sales(1) ..........            2.0%             6.9%            8.7%           (1.1%)           (1.5%)
Income from operations as a
percentage of net sales ...............            4.9%             9.0%            8.9%            6.9%            13.8%
Net income as a percentage of net sales            3.0%             5.2%            5.3%            4.1%             8.8%
</TABLE>


<TABLE>
<CAPTION>
                                             2001          2000         1999         1998         1997
                                           --------      --------     --------     --------     --------
<S>                                        <C>           <C>          <C>          <C>          <C>
BALANCE SHEET DATA:

Accounts receivable, net ..............    $132,695      $122,168     $ 97,780     $ 85,900     $ 74,410
Inventories ...........................     136,520       122,828      113,095      105,586       78,683
Working capital .......................      53,628       196,260      167,390      175,865      124,963
Total assets ..........................     451,317       319,655      274,263      267,547      221,786
Capital lease .........................         982            --           --           --           --
Long-term debt ........................          --        48,430       28,184       66,969       19,397
Stockholders' equity ..................     222,571       211,027      191,904      178,514      170,051
Dividends paid ........................         942           794          363           --           --
</TABLE>

----------

(1) A new store becomes a comparable store in the first full month following the
    anniversary of the opening of such store.


                                       10

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

         As used herein, the terms "fiscal 2001," "fiscal 2000" and "fiscal
1999" refer to our fiscal years ended September 29, 2001 and September 30, 2000
and 1999, respectively.

RESULTS OF OPERATIONS

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

<TABLE>
<CAPTION>
                                                              FISCAL YEAR ENDED SEPTEMBER,
                                                              ---------------------------
                                                              2001        2000       1999
                                                             ------      ------     ------
<S>                                                          <C>         <C>        <C>
         Net sales ......................................     100.0%      100.0%     100.0%
         Cost of goods sold including occupancy,
            distribution and buying .....................      52.6        53.1       53.2
         Selling, general and administrative expenses ...      39.1        35.4       35.9
         Depreciation and amortization ..................       3.4         2.5        2.1
         Interest expense ...............................       0.6         0.6        0.5
                                                             ------      ------     ------
         Income before income taxes and minority interest       4.3         8.4        8.3
         Income tax expense .............................       1.6         3.2        3.0
         Minority interest ..............................      (0.3)        0.0        0.0
                                                             ------      ------     ------
         Net income .....................................       3.0%        5.2%       5.3%
                                                             ======      ======     ======
</TABLE>


FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000

         Net sales increased 9.2% to $411.0 million in the fiscal year ended
September 29, 2001, from $376.4 million in the fiscal year ended September 30,
2000. Sales growth resulted from a comparable store sales increase of 2.0% and
the net addition of 24 new stores.

         Cost of goods sold, including occupancy, distribution and buying,
increased 8.3% to $216.3 million for fiscal 2001 versus $199.6 million in fiscal
2000. As a percentage of net sales, cost of goods sold decreased to 52.6% in
fiscal 2001 from 53.1% in fiscal 2000. The decrease as a percentage of net sales
was primarily the result of a shift in our sales mix away from lower gross
margin clearance merchandise as a percentage of total sales in fiscal 2001
versus fiscal 2000. We do not expect the decrease in cost of goods sold,
including occupancy, distribution and buying as a percentage of net sales to
constitute a continuing material trend.

         Selling, general and administrative expenses increased 20.7% to $160.9
million for fiscal 2001 from $133.3 million in fiscal 2000. As a percentage of
net sales, selling, general and administrative expenses increased to 39.1% in
fiscal 2001 from 35.4% in fiscal 2000. Selling, general and administrative
expenses in fiscal 2001 included a $4.2 million charge for the closing of 33
stores. The store closing charge principally consisted of the accrual of lease
obligations and additional provision for anticipated write-offs of uncollectible
accounts. As of September 29, 2001, 31 of the stores had been closed and the
remaining two stores were expected to close by December 31, 2001. Payments on
the lease obligations aggregated $181,000 and remaining accrued obligations were
$1.4 million. Excluding this charge, selling, general and administrative
expenses as a percentage of net sales increased to 38.1% in fiscal 2001 from
35.4% in fiscal 2000. This increase in selling, general and administrative
expenses as a percentage of net sales in fiscal 2001 was primarily due to higher
net charge-offs of customer credit accounts as compared to the prior year. Net
charge-offs as a percentage of credit revenues were 19.0% for fiscal 2001
compared to 14.5% for fiscal 2000.


                                       11

<PAGE>
         Depreciation and amortization expenses increased 46.4% to $13.9 million
in fiscal 2001 from $9.5 million in fiscal 2000. Depreciation and amortization
expense as a percentage of net sales was 3.4% in fiscal 2001 compared to 2.5% in
fiscal 2000. The increase in depreciation and amortization expense as a
percentage of net sales was due primarily to a $0.7 million charge for the
closing of 33 stores and a $1.5 million charge for impaired assets associated
with our internet joint venture. Excluding these charges, depreciation and
amortization expense as a percentage of net sales increased to 2.9% in fiscal
2001 from 2.5% in fiscal 2000.

         Interest income from a related party increased to $2.6 million in
fiscal 2001 compared to $2.4 million in fiscal 2000. Interest income consists
primarily of payments we recieved from Crescent Jewelers related to our
guarantee of Crescent's obligations under Crescent's credit facility. See
"--Liquidity and Capital Resources." Interest expense increased to $5.1 million
in fiscal 2001 compared to $4.8 million in fiscal 2000. As a percentage of net
sales, interest expense decreased to 1.2% of net sales in fiscal 2001 from 1.3%
in fiscal 2000. The fiscal 2001 increase in interest expense was due primarily
to higher average outstanding borrowings on our line of credit.

         Income tax expense decreased 44.4% to $6.6 million in fiscal 2001 from
$11.8 million in fiscal 2000. Our effective income tax rate increased to 35.0%
in fiscal 2001 from 37.6% in fiscal 2000.

         Net income decreased by 37.9% to $12.2 million in fiscal 2001 compared
to $19.7 million in fiscal 2000 primarily as a result of increases in cost of
goods sold, selling, general and administrative expenses which included a $4.2
million charge for store closings and depreciation and amortization expense
which included a $2.2 million charge for impaired assets and interest expense.
This decrease was partially offset by increases in net sales.

         Basic and diluted earnings per share decreased 38.2% to $0.84 in fiscal
2001 from $1.36 in fiscal 2000. Basic and diluted weighted average common shares
outstanding increased 0.4% to 14,501,000 and 0.6% to 14,531,000 in fiscal 2001
compared to 14,445,000 for both basic and diluted weighted average common shares
outstanding in fiscal 2000, respectively.

FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999

         Net sales increased 22.0% to $376.4 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 21.7% to $199.6 million for fiscal 2000 versus $164.0 million in
fiscal 1999. As a percentage of net sales, cost of goods sold decreased to 53.1%
in fiscal 2000 from 53.2% in fiscal 1999, reflecting increased cost of 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 35.4% 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 14.5%
for fiscal 2000 compared to 16.6% for fiscal 1999.

         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. Interest income from a related party decreased to $2.4 million in


                                       12

<PAGE>
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
we recieved from Crescent Jewelers related to our guarantee 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 our line of credit and an increase in
our effective interest rate. The increase in the effective interest rate 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. Our 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.


LIQUIDITY AND CAPITAL RESOURCES

         During fiscal 2001, net cash provided by our operating activities was
$0.3 million compared to net cash used in operating activities of $1.9 million
during fiscal 2000 and net cash provided by operating activities of $29.6
million during fiscal 1999. For fiscal 2001 cash provided by operating
activities was the result of earnings, offset by growth in accounts receivable
and net inventory levels including accounts payable. For fiscal 2000, cash used
in operating activities was the result of growth in accounts receivable and net
inventory levels including accounts payable, which 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 we continue to expand rapidly, we will continue
to experience significant increases in credit sales and related increases in
customer accounts receivables as well as increases in inventories, which will
likely result in a net use of cash from operations.

         Investing activities used cash of $11.4 million and $18.4 million in
fiscal 2001 and fiscal 2000, respectively, compared to cash provided of $10.1
million in fiscal 1999. We opened 55 new stores in fiscal 2001 at a cost of
approximately $8.2 million and invested $3.3 million in store re-modeling and
store relocations. In fiscal 2000, we opened 99 new stores at a cost of
approximately $11.0 million and invested $3.7 million in store re-modeling and
store relocations. In addition, we invested $2.5 million in store displays to
support our merchandising programs and initiatives and $1.2 million on the
implementation of our e-commerce website. In fiscal 1999, at a cost of $2.2
million, we implemented a new "enterprise-wide" computer system. We also
invested $11.5 million for the opening of 80 new stores in fiscal 1999. During
fiscal 1999, we also were repaid $25 million we invested in Crescent in August
1996. During fiscal 1999, we also issued loans, maturing in 2003 and amounting
to $1.2 million to certain of our directors, officers and employees to purchase
shares of our Class A common stock.

         Financing activities provided $11.1 million and $19.7 million in fiscal
2001 and fiscal 2000, respectively. Compared to cash used of $38.9 million in
fiscal 1999. During fiscal 2001, we had additional net bank borrowings of $11.9
million, primarily for new stores and $0.9 million in dividend payments. During
fiscal 2000, we increased bank borrowings by $20.2 million primarily to finance
new stores, the


                                       13

<PAGE>
launch of our e-commerce website and other capital spending and paid dividends
of $0.8 million. During fiscal 1999, we had bank borrowings of $38.8 million. At
September 30, 2001, we had $7.2 million available under our $67.5 million senior
secured revolving credit facility.

         On September 15, 1999, we 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
our 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 us and Crescent Jewelers. The facility contains
certain financial covenants and is secured by certain of our assets. At
September 29, 2001, $60.3 million was outstanding under the facility, with
interest accruing on such borrowings in a range from 5.6% and 6.5%.

         Our current plans are to have between 640 and 680 stores in operation
for the 2002 Christmas season. We estimate that the capital required to fund
this expansion, principally to finance inventory, fixtures and leasehold
improvements, is $8.0 million and we intend to provide this amount with cash
flow from operations and our revolving credit facility. Our credit facility
matures on September 15, 2002. We believe that we will be able to replace this
facility on terms no less favorable than our current facility, and that we will
have sufficient capital to fund our operations through calendar 2002.

         In connection with the credit facility, we agreed to provide certain
credit enhancements, including the support of $60 million of our eligible
receivables and inventories, and to guarantee the obligations of Crescent under
its $112.5 million senior secured revolving credit facility. In consideration
for this guaranty, Crescent makes quarterly payments to us 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 us 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.

         Crescent's bank facility requires the maintenance of certain levels of
fixed charge coverage and limits certain capital and other nonrecurring
expenditures. Some of these covenants are measured on a combined basis for
Crescent and our company. During our fiscal 2001, Crescent violated two of these
covenants as a result of a settlement of litigation in September 2001 and our
third quarter loss. The lenders under the Crescent credit facility have waived
these violations but the maturity of Crescent's debt has been advanced to March
31, 2002 from September 15, 2002.

         We are working with Crescent to pursue a variety of financing
alternatives to replace Crescent's bank facility. Management believes the
operations and net assets of Crescent have value in excess of the outstanding
balance of the bank debt. Crescent's operating performance has improved since
the bank facility was put into place, and our management expects that Crescent
will maintain compliance with the terms of its bank facility through the March
2002 maturity date. Based on negotiations with alternative financing sources, we
believe that Crescent will have replacement financing in place prior to the
maturity date.

         We anticipate that a portion of Crescent's capital requirements will be
satisfied by financial support of up to $112.5 million from us through a
guarantee similar to the one we currently provide, a direct investment in equity
or debt securities or some other form of financial support. We are considering
several financing alternatives of our own in order to facilitate any such
financial support, including a refinancing or restructuring of our credit
facility. Pending completion of the financings by us and by Crescent, Crescent's
entire liability under its credit facility has been recorded on our Consolidated
Financial Statements along with a corresponding asset of equal amount.


                                       14

<PAGE>
SEASONALITY

         We have in the past experienced a well-defined seasonality in our
business with respect to both net sales and profitability. Generally, we
experience 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, we experience the strongest results of
operations in the first quarter of our fiscal year. If for any reason our sales
were below those normally expected for the first quarter, our annual results
could be materially adversely affected. The seasonality of our 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 our 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 our 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 our retail stores located in malls provide for contingent
or volume-related rental increases. In prior years, we have been able to adjust
our selling prices to substantially recover increased costs. While inflation has
not had, and we do not expect that it will have, a material impact upon
operating results, there is no assurance that our business will not be affected
by inflation in the future.

NEW ACCOUNTING STANDARDS

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

     In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets." Under the new rules, intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the new standards. Other
intangible assets will continue to be amortized over their useful lives. We will
apply the new rules on accounting for intangible assets beginning as of
September 30, 2001. Application of the non-amortization provisions of the new
standard to our tradename rights, which are currently amortized over fifteen
years, is expected to result in an increase in net earnings of approximately
$301,000 ($0.02 per share) per year. During fiscal 2002, we will perform the
first of the required impairment tests of tradename rights. We are still
assessing the impact of the new standard and have not yet determined what the
effect of the impairment tests will be on our earnings and financial position.

                      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
four years. For example, we opened approximately 87 net new stores during fiscal
1998, 60 net new stores during fiscal 1999, 88 net new stores during fiscal
2000, and 24 net new stores during fiscal 2001. We intend to continue to expand,
adding approximately 30 to 35 net new stores in fiscal 2002. In addition, in
fiscal 2001 we launched a joint venture with Crescent Jewelers, an affiliate, to
offer our products over the internet. To date, this joint venture has yet to
achieve our expectations. Factors including consumer preferences regarding
internet




                                       15

<PAGE>
shopping, concerns about the safety and reliability of internet shopping and our
ability to provide high-quality customer service and fulfillment will all be
significant in determining whether our internet joint venture is successful. Our
growth, including the internet joint venture, has placed, and will continue to
place, significant demands on all aspects of our business, including our
management information and distribution systems and personnel. In addition, this
growth has required substantial investments necessary to build our brand name,
store base and infrastructure in the new markets we have entered and has
resulted in a decline in our operating margins. For these reasons, we may not be
successful in continuing 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.

WE MAY NOT BE ABLE TO SUCCESSFULLY EXECUTE OUR GROWTH STRATEGY.

         Our growth strategy depends upon our ability to successfully open and
operate new stores. Our success in opening and operating new stores depends upon
a number of factors, including, among others, our ability to:

         -     maintain the cash flow required to open and stock new stores;

         -     identify store locations that match our power strip or regional
               mall profiles;

         -     negotiate acceptable lease terms;

         -     source sufficient levels of inventory to meet the needs of new
               stores;

         -     hire and train qualified store personnel; and

         -     successfully integrate new stores into our existing operations.

In addition, any expansion into new markets may present different competitive,
advertising, merchandising and distribution challenges than those we encounter
in our existing markets. Expansion in our existing markets may cause the net
sales volumes in our existing stores in those markets to decline.

OUR INDUSTRY IS HIGHLY COMPETITIVE, AND IF WE FALL BEHIND OUR COMPETITORS, OUR
EARNINGS AND STOCK PRICE MAY BE ADVERSELY AFFECTED.

         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, discount retailers, 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. We believe that we compete on the basis of
selection of merchandise offered, pricing, quality of sales associates,
advertising, ability to offer in-house credit, store location and reputation.
Many competitors are substantially larger and have greater financial resources
than we have. We may not be able to compete successfully with such competitors.
Competition could cause us to lose customers, increase expenditures or reduce
pricing, any of which could have a material adverse effect on our earnings.

THE ACTIONS OF THE UNITED STATES AGAINST TERRORISTS AND THE COUNTRIES IN WHICH
THEY LIVE OR OPERATE COULD LEAD TO MORE TERRORIST ATTACKS AT HOME OR ABROAD,
WHICH COULD SIGNIFICANTLY HARM OUR STOCK PRICE AND BUSINESS.

         On September 11, 2001, the United States suffered substantial terrorist
attacks and, as a result, initiated retaliatory action against the terrorists
and the countries which harbor, finance and otherwise



                                       16

<PAGE>
support them. The potential political, economic and social instability that may
result from this military engagement may cause further uncertainty in the
financial markets, negatively affecting the trading price of our Class A common
stock. In addition, consumers may be less likely to purchase luxury items, such
as our jewelry products, during times of such political, economic and social
uncertainty, which would harm our sales revenue. Further, armed conflicts and
political instability overseas may impair our ability to obtain gold, diamonds
and other precious and semi-precious metals and stones from foreign countries,
potentially increasing our cost of goods sold.

OUR RESULTS OF OPERATIONS HAVE BEEN AND MAY CONTINUE TO BE SIGNIFICANTLY
AFFECTED BY A DOWNTURN IN GENERAL ECONOMIC CONDITIONS.

         Jewelry is a luxury item, not a necessity product. As a result, recent
adverse trends in the general economy, such as decreases in employment levels,
wages and salaries, have affected sales of our jewelry. Historically, people
spend less money on luxury items, such as jewelry, during a decline in general
economic activity. Also, negative developments in local economic conditions,
such as plant closings, industry slowdowns and employment cutbacks, may affect
sales of our jewelry. We depend on customer traffic at the power strip centers
and malls where our stores are located. Reductions in consumer spending due to
general economic conditions have affected and may continue to 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. General economic trends also affect our credit operations. The downturn
in the general economy and the economic conditions in the markets in which we
operate has affected our ability to collect outstanding credit accounts
receivable, and could continue to do so if such conditions persist.

INSTANCES OF LITIGATION RELATING TO THE SALE OF CREDIT INSURANCE HAVE INCREASED
IN THE RETAIL INDUSTRY AND OUR BUSINESS COULD BE ADVERSELY AFFECTED BY THIS
LITIGATION.

         States' Attorneys General and private plaintiffs have filed lawsuits
against other retailers relating to improper practices conducted in connection
with the sale of credit insurance in several jurisdictions around the country.
We offer credit insurance in all of our stores and encourage the purchase of
credit insurance products in connection with sales of merchandise on credit.
While we believe we are in full compliance with applicable laws and regulations,
similar litigation could be brought against us. If we were found liable, we
could be required to pay substantial damages or incur substantial costs as part
of an out-of-court settlement, either of which could have a material adverse
effect on our results of operations and stock price. Also, an adverse judgment
or any negative publicity associated with credit insurance litigation pending
against us could affect our reputation and this could have a negative impact on
sales of our jewelry and credit insurance products.

OUR BUSINESS IS HIGHLY SEASONAL, WHICH MAY CAUSE SIGNIFICANT FLUCTUATIONS IN OUR
RESULTS.

          Our first fiscal quarter, which ends in December, 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 timing of new store openings,

         -     net sales contributed by new stores,

         -     actions of competitors,

         -     timing of certain holidays,

         -     changes in our merchandise, and





                                       17

<PAGE>
         -     general economic, industry and weather conditions that affect
               consumer spending.

Additionally, if for any reason our sales fall below those normally expected for
our first quarter, our stock price may fall during our second quarter after we
announce our first quarter results of operations.

THE LOSS OF OUR 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 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 currently have employment agreements with, or
key-man life insurance for, any senior officer.

FLUCTUATIONS IN THE AVAILABILITY, PRICES AND QUALITY 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.

         Our supply of diamonds comes primarily from South Africa, Botswana,
Zaire, Russia 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 result in price increases for available diamonds
and adversely affect our product costs and, as a result, our earnings.

         Our merchandising strategy also depends upon our ability to find and
maintain good relations with a few choice vendors. We compete with other jewelry
retailers for access to vendors who will provide us with the quality and
quantity of merchandise necessary to operate our business. A loss in any of
these vendors or a decline in the quality or quantity of merchandise supplied by
our vendors could harm our business.

WE MAY MAKE ACQUISITIONS OR INVESTMENTS THAT ARE NOT SUCCESSFUL AND THAT
ADVERSELY AFFECT OUR ONGOING OPERATIONS.

         As part of our growth strategy, we may acquire or make investments in
other retail jewelry businesses, including a potential consolidation with
Crescent Jewelers. Since we have grown primarily by opening new retail jewelry
stores, our ability to identify prospects, conduct acquisitions and properly
manage the integration of acquisitions is unproven. If we fail to properly
evaluate and execute acquisitions or investments and assimilate acquired
operations into our own, it may seriously harm our business and operating
results. In addition, acquisitions and investments could divert our management's
attention from our core operations, which may adversely affect our operating
results.

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 Corporation, 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




                                       18

<PAGE>
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 our Class A common stock may be
adversely affected. Mr. Cohen's control of us may also discourage offers by
third parties to buy us or to merge with us or reduce the price that potential
acquirers may be willing to pay for our Class A common stock.

OUR CREDIT AND INSURANCE BUSINESS MAY BE ADVERSELY AFFECTED BY CHANGES IN LAWS
AND REGULATIONS GOVERNING OUR BUSINESS.

         Federal and state consumer protection laws and regulations, such as the
Fair Credit Reporting Act, limit the manner in which we may offer and extend
credit. Any adverse change in the regulation of consumer 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,
which could have a material adverse effect on our earnings.

         Federal and states laws and regulations also impact the various types
of insurance that we offer. We operate in many jurisdictions and are subject to
the complex rules and regulations of each jurisdiction's insurance department.
These rules and regulations may undergo periodic modifications and are subject
to differing statutory interpretations, which could make compliance more
difficult and more costly. Compliance with existing and future laws or
regulations could require us to make material expenditures or otherwise
adversely effect our business or financial results. Failure to comply with these
laws or regulations, even if inadvertent, could result in negative publicity,
fines, additional licensing expenses or the revocation of our licenses to sell
insurance in these jurisdictions, any of which could have an adverse effect on
our results of operations and stock price.

THE FUTURE OF OUR CREDIT BUSINESS IS UNCERTAIN, WHICH MAY CAUSE SIGNIFICANT
FLUCTUATIONS IN OUR OPERATING RESULTS.

         Approximately 53% of our net sales are on credit. Our credit programs
allow our customers to purchase more expensive and larger quantities of our
merchandise, which enables our stores to have higher average sales. A decrease
in credit sales could have a material adverse effect on our earnings by lowering
our net sales. Also, credit sales lead to more frequent contact and better
personal relationships with the approximately 75% of our credit customers who
choose to make in-store installment payments. As a result, a decrease in credit
sales could reduce traffic in our stores and lower our revenues.

         While we adhere to strict credit application guidelines in determining
whether our customers qualify for credit, we may suffer a higher rate of
non-payment due to a downturn in general economic conditions or local economic
factors such as plant closings. As we expand our store base into new markets, we
obtain new credit accounts, which present a higher risk than our mature credit
accounts since these new customers do not have an established credit history
with us. Since it takes time to evaluate the credit characteristics of our new
customers, we may experience initial uncertainty in our credit portfolio. Also,
since we conduct our collection procedures at the store level, our collection
efforts are decentralized and become more decentralized as our store base grows.
Difficulties we may encounter in maintaining the currency of our credit accounts
could result in a material adverse effect on our earnings.


                                       19

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

         Our market risk is limited to fluctuations in interest rates as it
pertains to our borrowings under our credit facility. We pay interest on
borrowings at either the federal funds rate plus 0.5%, the prime rate or, at our
option, the eurodollar rate plus applicable margin ranging from 1.00% to 1.75%.
If the interest rates on our borrowings average 100 basis points more in fiscal
2002 than they did in fiscal 2001, our interest expense would increase and
income before income taxes would decrease by $656,000. This amount is determined
solely by considering the impact of the hypothetical change in the interest rate
on our 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 our Proxy Statement for the Annual Meeting of
Stockholders to be held on February 28, 2002 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 our 2002 Proxy Statement is incorporated
herein by reference. In no event shall the information contained in the 2002
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 our 2002 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 our 2002 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 29, 2001 and
September 30, 2000 and 1999

Consolidated Balance Sheets at September 29, 2001 and September 30, 2000

Consolidated Statements of Stockholders' Equity for the Years Ended September
29, 2001 and September 30, 2000 and 1999

Consolidated Statements of Cash Flows for the Years Ended September 29, 2001 and
September 30, 2000 and 1999

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 upon request to Mr. Victor M. Suglia, Secretary,
Friedman's Inc., 4 West State Street, Savannah, Georgia 31401. There is a charge
of $.50 per page to cover expenses for copying and mailing.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              EXHIBIT DESCRIPTION
------                              -------------------
<S>               <C>

3.1               Registrant's Certificate of Incorporation, as amended
                  (incorporated by reference from Exhibit 4(a) to the
                  Registrant's Registration Statement on Form S-8 (File No.
                  333-17755) 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).
</TABLE>

                                       21

<PAGE>
<TABLE>
<S>               <C>
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).
</TABLE>


                                       22
<PAGE>
<TABLE>
<S>               <C>
10.7.1            Amendment Number One and Waiver to 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.

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).

10.8.1            Amendment Number One to 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.

10.8.2            Amendment Number Two to 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.

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
                  (incorporated by reference from Exhibit 10.13 to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended September 29, 2001).
</TABLE>

                                       23
<PAGE>
<TABLE>
<S>               <C>
10.14             Information Technology Services Agreement dated May 1, 2000,
                  between Friedman's Inc. and Crescent Jewelers (incorporated by
                  reference from Exhibit 10.14 to the Registrant's Annual Report
                  on Form 10-K for the fiscal year ended September 29, 2001).

10.15             Services Agreement dated May 1, 2000, between Friedman's Inc.
                  and Crescent Jewelers (incorporated by reference from Exhibit
                  10.15 to the Registrant's Annual Report on Form 10-K for the
                  fiscal year ended September 29, 2001).

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

10.18.1           Amendment Number One to Friedman's Inc. Amended and Restated
                  1994 Stock Option Plan for Outside Directors (incorporated by
                  reference from Exhibit 4.5.1 to the Registrant's Registration
                  Statement on Form S-8 (File No. 333-59566) filed on April 26,
                  2001).

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).
</TABLE>


                                       24
<PAGE>
<TABLE>
<S>               <C>
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).

10.27.1           Amendment Number One to Friedman's Inc. 1999 Long-Term
                  Incentive Plan (incorporated by reference from Exhibit 4.4.1
                  to Registrant's Registration Statement on Form S-8 (File No.
                  333-59566) filed on April 26, 2001).

21                Subsidiaries of the Registrant.

23                Consent of Ernst & Young LLP
</TABLE>


(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 29, 2001.

(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 21, 2001.

                                            FRIEDMAN'S INC.

                                            By: /s/ Bradley J. Stinn
                                                -------------------------
                                                 Bradley J. Stinn
                                                 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 21, 2001.

<TABLE>
<CAPTION>
             SIGNATURE                                   TITLE
             ---------                                   -----
<S>                                    <C>

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

     /s/ Sterling B. Brinkley          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


       /s/ David B. Parshall           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
</TABLE>
<PAGE>
                           ANNUAL REPORT ON FORM 10-K

                              ITEM 14 (a) 1. AND 2.

              FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                    YEARS ENDED SEPTEMBER 2001, 2000 AND 1999
<PAGE>
                                 Friedman's Inc.

                   Index to Consolidated Financial Statements




<TABLE>
<S>                                                                         <C>
Consolidated Income Statements for the Years Ended
  September 29, 2001 and September 30, 2000 and 1999 ...................     F-1
Consolidated Balance Sheets at September 29, 2001 and
  September 30, 2000 ...................................................     F-2
Consolidated Statements of Stockholders' Equity for the Years
   Ended September 29, 2001 and September 30, 2000 and 1999 ............     F-3
Consolidated Statements of Cash Flows for the Years Ended
   September 29, 2001 and September 30, 2000 and 1999 ..................     F-4
Notes to Consolidated Financial Statements .............................     F-5
Report of Independent Auditors .........................................    F-18

FINANCIAL STATEMENT SCHEDULE

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


     All other schedules have been omitted, as they are not required under the
     related instructions, are inapplicable, or because the information required
     is included in the financial statements.
<PAGE>
                                 FRIEDMAN'S INC.
                         CONSOLIDATED INCOME STATEMENTS

<TABLE>
<CAPTION>
                                                                         YEARS ENDED SEPTEMBER,
                                                          -------------------------------------------------
                                                            2001                2000                1999
                                                          ---------           ---------           ---------
                                                             (Amounts in thousands except per share data)
<S>                                                       <C>                 <C>                 <C>
Net Sales                                                 $ 411,037           $ 376,351           $ 308,385

Operating Costs and Expenses:
      Cost of goods sold including occupancy,
           distribution and buying                          216,265             199,646             163,983
      Selling, general and administrative                   160,941             133,316             110,665
      Depreciation and amortization                          13,881               9,479               6,379
                                                          ---------           ---------           ---------
Income from operations                                       19,950              33,910              27,358

Interest income from related party                           (2,569)             (2,421)             (2,489)
Interest expense                                              5,080               4,809               3,910
                                                          ---------           ---------           ---------
Income before income taxes and minority interest             17,439              31,522              25,937
Income tax expense                                            6,584              11,849               9,454
Minority interest                                            (1,374)                (31)                 --
                                                          ---------           ---------           ---------
Net income                                                $  12,229           $  19,704           $  16,483
                                                          =========           =========           =========

Earnings per share - basic                                $    0.84           $    1.36           $    1.13
                                                          =========           =========           =========

Earnings per share - diluted                              $    0.84           $    1.36           $    1.13
                                                          =========           =========           =========

Weighted average shares - basic                              14,501              14,445              14,590
Weighted average shares - diluted                            14,531              14,445              14,590
</TABLE>


                             See accompanying notes.


                                       F-1
<PAGE>
                                 FRIEDMAN'S INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                    SEPTEMBER 29,        SEPTEMBER 30,
                                                                                        2001                 2000
                                                                                      ---------           ---------
                                                                                   (Amounts in thousands, except share
                                                                                           and per share data)
<S>                                                                                 <C>                   <C>
ASSETS
Current Assets:

      Cash                                                                            $     468           $     459
      Accounts receivable, net of allowance for doubtful accounts of $14,745
          in 2001 and $13,514 in 2000                                                   132,695             122,168
      Inventories                                                                       136,520             122,828
      Deferred income taxes                                                               3,002               3,105
      Other current assets                                                                7,690               5,187
                                                                                      ---------           ---------
          Total current assets                                                          280,375             253,747

Equipment and improvements, net                                                          54,495              56,420
Tradename rights, net                                                                     5,022               5,493
Receivable from Crescent Jewelers                                                       108,208                  --
Other assets                                                                              3,217               3,995
                                                                                      ---------           ---------
          Total assets                                                                $ 451,317           $ 319,655
                                                                                      =========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:

      Accounts payable                                                                $  46,288           $  41,715
      Accrued liabilities and other                                                      11,645              15,772
      Bank debt, Crescent Jewelers                                                      108,208                  --
      Bank debt, Friedman's and capital lease obligations                                60,606                  --
                                                                                      ---------           ---------
          Total current liabilities                                                     226,747              57,487

Long term bank debt, Friedman's                                                              --              48,430
Long term capital lease obligation                                                          685                  --
Deferred income taxes and other                                                           1,257               2,221
Minority interest in equity of subsidiary                                                    57                 490
Commitments and contingencies (note 9)

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,
          13,322,655 and 13,271,207 issued and outstanding
          at September 29, 2001 and September 30, 2000, respectively                        133                 133
      Class B common stock, par value $.01, 7,000,000 shares authorized,
          1,196,283 issued and outstanding                                                   12                  12
      Additional paid-in-capital                                                        119,011             118,767
      Retained earnings                                                                 104,540              93,290
      Stock purchase loans                                                               (1,125)             (1,175)
                                                                                      ---------           ---------
          Total stockholders' equity                                                    222,571             211,027
                                                                                      ---------           ---------
          Total liabilities and stockholders' equity                                  $ 451,317           $ 319,655
                                                                                      =========           =========
</TABLE>

                             See accompanying notes.


                                       F-2
<PAGE>
                                 FRIEDMAN'S INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
             (Amounts in Thousands, except share and per share data)

<TABLE>
<CAPTION>
                                             Class A Common Stock       Class B Common Stock        Additional         Retained
                                             --------------------       -------------------
                                             Shares        Amount       Shares       Amount       Paid-in Capital      Earnings
                                           --------------------------------------------------------------------------------------
<S>                                        <C>            <C>          <C>           <C>             <C>           <C>
Balance at September 30, 1998              13,442,167     $  134       1,196,283     $  12           119,889       $   58,479

Retirement of Class A common stock
  pursuant to tradename acquisition          (250,000)        (2)             --        --            (1,623)              --
Issuance of Class A common stock under
  the Employee Stock Purchase Plan             31,360         --              --        --               254               --
Stock purchase loans                               --         --              --        --                --               --
Issuance of Class A common stock
  for services                                  2,600         --              --        --                23               --
Dividends declared ($0.05/share)                   --         --              --        --                --             (545)
Net income                                         --         --              --        --                --           16,483
                                           --------------------------------------------------------------------------------------

Balance at September 30, 1999              13,226,127        132       1,196,283        12           118,543           74,417

Issuance of Class A common stock under
  the Employee Stock Purchase Plan             37,618          1              --        --               179               --
Stock purchase loan payments                       --         --              --        --                --               --
Issuance of Class A common stock
  for services                                  7,462         --              --        --                45               --
Dividends declared ($0.0575/share)                 --         --              --        --                --             (831)
Net income                                         --         --              --        --                --           19,704
                                           --------------------------------------------------------------------------------------

Balance at September 30, 2000              13,271,207        133       1,196,283        12           118,767           93,290

Issuance of Class A common stock under
  the Employee Stock Purchase Plan             44,996         --              --        --               200               --
Stock purchase loan payments                       --         --              --        --                --               --
Issuance of Class A common stock
  for services                                  5,452         --              --        --                37               --
Dividends declared ($0.0675/share)                 --         --              --        --                --             (979)
Employee stock options exercised                1,000         --              --        --                 7               --
Net income                                         --         --              --        --                --           12,229
                                           --------------------------------------------------------------------------------------

Balance at September 29, 2001              13,322,655     $  133       1,196,283     $  12        $  119,011       $  104,540
                                          =======================================================================================
</TABLE>


<TABLE>
<CAPTION>
                                           Stock Purchase

                                               Loans           Total
                                           ---------------------------

<S>                                        <C>              <C>
Balance at September 30, 1998               $     --        $   178,514

Retirement of Class A common stock
  pursuant to tradename acquisition               --             (1,625)
Issuance of Class A common stock under
  the Employee Stock Purchase Plan                --                254
Stock purchase loans                          (1,200)            (1,200)
Issuance of Class A common stock
  for services                                    --                 23
Dividends declared ($0.05/share)                  --               (545)
Net income                                        --             16,483
                                           ----------------------------
Balance at September 30, 1999                 (1,200)           191,904

Issuance of Class A common stock under
  the Employee Stock Purchase Plan                --                180
Stock purchase loan payments                      25                 25
Issuance of Class A common stock
  for services                                    --                 45
Dividends declared ($0.0575/share)                --               (831)
Net income                                        --             19,704
                                           ----------------------------
Balance at September 30, 2000                 (1,175)           211,027


Issuance of Class A common stock under
  the Employee Stock Purchase Plan                --                200
Stock purchase loan payments                      50                 50
Issuance of Class A common stock
  for services                                    --                 37
Dividends declared ($0.0675/share)                --               (979)
Employee stock options exercised                  --                  7
Net income                                        --             12,229
                                           ----------------------------
Balance at September 29, 2001               ($ 1,125)       $   222,571
                                           =============================
</TABLE>

                                       F-3
<PAGE>
                                 FRIEDMAN'S INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                Years ended September,
                                                                        --------------------------------------
                                                                          2001           2000           1999
                                                                        --------       --------       --------
                                                                                (Amounts in thousands)
<S>                                                                      <C>           <C>            <C>
Operating Activities:
      Net income                                                        $ 12,229       $ 19,704       $ 16,483
      Adjustments to reconcile net income to cash
           provided by (used in) operating activities:
           Depreciation and amortization                                  13,881          9,479          6,379
           Provision for doubtful accounts                                50,304         36,571         33,942
           Minority interest in loss of consolidated subsidiary           (1,374)           (31)            --
           Deferred taxes                                                   (585)           885         (1,314)
           Changes in assets and liabilities:
               Increase in accounts receivable                           (60,831)       (60,959)       (45,822)
               Increase in inventories                                   (13,692)        (9,734)        (7,509)
               Increase in other assets                                   (1,725)          (623)        (3,079)
               Increase in accounts payable and
                    accrued liabilities                                    2,081          2,768         30,475
                                                                        --------       --------       --------
               Net cash provided by (used in) operating
                        activities                                           288         (1,940)        29,555
Investing Activities:
      Additions to equipment and improvements                            (11,473)       (18,383)       (13,651)
      Notes receivable from related party                                     --             --         25,000
      Re-payments of (loans for) employee stock purchases                     50             25         (1,200)
                                                                        --------       --------       --------
               Net cash (used in) provided by investing
                        activities                                       (11,423)       (18,358)        10,149
Financing Activities:
      Bank borrowings (payments) under credit agreements                  11,879         20,249        (38,785)
      Proceeds from employee stock purchases and options exercised           207            226            277
      Payment of cash dividend                                              (942)          (794)          (363)
                                                                        --------       --------       --------
               Net cash provided by (used in) financing
                        activities                                        11,144         19,681        (38,871)
                                                                        --------       --------       --------
Increase (decrease) in cash                                                    9           (617)           833
Cash, beginning of year                                                      459          1,076            243
                                                                        --------       --------       --------
Cash, end of year                                                       $    468       $    459       $  1,076
                                                                        ========       ========       ========

Supplemental cash flow information:
      Cash paid for:
      Interest                                                          $  3,139       $  4,796       $  4,064
                                                                        ========       ========       ========
      Income taxes                                                      $ 10,081       $ 11,101       $  5,625
                                                                        ========       ========       ========

</TABLE>

                             See accompanying notes.


                                       F-4
<PAGE>
                                 Friedman's Inc.
                   Notes to Consolidated Financial Statements
                               September 29, 2001


1.     THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

   Basis of Presentation

      Friedman's Inc. (the "Company") is a retailer of fine jewelry operating
643 stores in 20 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.

   Fiscal Year

   The Company's fiscal year consists of 52 or 53 weeks ending the Saturday
closest to September 30.

   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
product warranties. In the quarter ended July 1, 2000, the Company adjusted the
estimated term of product warranty revenue 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
$35.8 million, $34.5 million and $30.8 million in 2001, 2000 and 1999,
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 revenues 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 $17,981,000 and $19,144,000 at September 29,
2001 and September 30, 2000, respectively. Consistent with industry practice,
amounts which are due after one year, are included in current assets and totaled
$12,480,000 and $11,639,000 at September 29, 2001 and September 30, 2000,
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 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).


                                       F-5
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001


1.   THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company 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 $22,858,000, $19,512,000 and
$15,412,000 for the years ended September 29, 2001, September 30, 2000 and
September 30, 1999, respectively. The amount of prepaid advertising at September
2001 and 2000 was $1,772,000 and $689,000, 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 and
with respect to the assets of the Company's internet joint venture.

         During fiscal 2001, the Company recorded store closing expenses of $4.2
million and impairment charges of $2.2 million. The store closing expenses
related to the closing or planned closing of 33 stores and principally consisted
of the accrual of lease obligations and additional provisions for anticipated
write-offs of uncollectible accounts. The impairment charges consisted of $0.7
million related to the store closings and $1.5 million related to the write down
of impaired assets utilized in the Company's internet joint venture.

         As of September 29, 2001, 31 of the stores had been closed and the
remaining two stores were expected to close by December 31, 2001. Payments on
the lease obligations aggregated $181,000 and remaining accrued obligations were
$1.4 million.

   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 2001, 2000 and 1999 were $306,000, $253,000 and
$207,000, respectively. Employee contributions are 100% vested while Company
contributions are vested according to a specified scale based on years of
service.


                                      F-6
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001


1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

   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 29, 2001 and
September 30, 2000, 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. The dilutive effect in
fiscal 2001 increased the diluted weighted shares outstanding by 30,000. There
was no dilutive effect in fiscal 2000 and fiscal 1999. 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: 2001 - 1,248 shares and
2000 - 875,513 shares at prices ranging from $5.63 to $21.75.

   Reclassifications

      Certain balances as of September 30, 2000 and 1999 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. SFAS 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 July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets". Under the new rules, intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the new standards. Other
intangible assets will continue to be amortized over their useful lives. The
Company will apply the new rules on accounting for intangible assets beginning
September 30, 2001. Application of the non-amortization provisions of the new
standard to the Company's tradename rights, which are currently amortized over
fifteen years, is expected to result in an increase in net earnings of
approximately $301,000




                                      F-7
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001


1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

($0.02 per share) per year. During Fiscal 2002, the Company will perform the
first of the required impairment tests of tradename rights. The Company is still
assessing the impact of the new standard and has not yet determined what the
effect of the impairment tests will be on the earnings and financial position of
the Company.

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.

   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. As discussed in Note 6,
Crescent violated certain covenants under its debt agreement with several banks.
In connection with the banks waiving compliance, the maturity of the debt was
advanced to March 2002. The weighted average interest rate on the Credit
Facility outstanding at September 29, 2001 and September 30, 2000 were 5.78% and
8.39%, respectively. As of September 29, 2001 and September 30, 2000, $60.3
million and $48.4 million were outstanding under the Credit Facility,
respectively.

      Borrowings under the Credit 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.

      During fiscal 2001, the Company entered into a capital lease for certain
software and computer hardware that expires in June 2004. The future minimum
lease payments required under the capital lease are $296,000, $326,000 and
$359,000 for the fiscal years ended September 2002, 2003 and 2004, respectively.

                                      F-8
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001


3.   EQUIPMENT AND IMPROVEMENTS

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

<TABLE>
<CAPTION>
                                                               September
                                                          2001           2000
                                                        --------       --------
<S>                                                     <C>            <C>
Store and office equipment                              $ 49,521       $ 45,017
Leasehold improvements                                    33,774         31,596
Computer equipment and implementation costs               12,613         11,104
                                                        --------       --------
Total equipment and improvements                          95,908         87,717
Less accumulated depreciation and amortization           (41,413)       (31,297)
                                                        --------       --------
Total net equipment and improvements                    $ 54,495       $ 56,420
                                                        ========       ========
</TABLE>


4.   ACCRUED AND OTHER LIABILITIES

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

<TABLE>
<CAPTION>
                                                             September
                                                        2001           2000
                                                       -------       -------
<S>                                                    <C>           <C>
Accrued compensation and related expenses              $ 3,454       $ 4,069
Other                                                    8,191        11,703
                                                       -------       -------
Total                                                  $11,645       $15,772
                                                       =======       =======
</TABLE>

                                      F-9
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001

5.   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 remaining year of the incentive
program are noted in the following table:

<TABLE>
<CAPTION>
                       YEARS 6-10
     --------------------------------------------------
                                 % OF REMAINING BALANCE
     STOCK PRICE TARGET                 FORGIVEN
     ------------------          ----------------------
<S>                              <C>
           $32.50                         50%
            37.50                         60%
            45.00                         70%
            52.50                         80%
            60.00                        100%
</TABLE>

      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 $139,000, $177,000 and $155,000 for the
forgiveness of interest and related taxes on the loans for the fiscal years
ended September 2001, 2000 and 1999, respectively.

      Interest was calculated at the minimum rates allowable for federal income
tax purposes of 4.98%, 6.24% and 5.45% for the fiscal years ended September
2001, 2000 and 1999, respectively.

      Through September 29, 2001, 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 29, 2001.

6.   RELATED PARTY TRANSACTIONS

      During fiscal 2001, 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


                                      F-10
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001

6.   RELATED PARTY TRANSACTIONS (CONTINUED)

terminates by written notice. The Company has agreed to indemnify Morgan Schiff
against any losses associated with the Agreement.

         The Company and Crescent Jewelers are affiliated through common
controlling ownership and have certain common officers and directors. In
connection with Crescent's 1999 revolving syndicated bank facility, the Company
agreed to provide certain credit enhancements, including the support of $60
million of the Company's eligible receivables and inventories, and to guarantee
Crescent's obligations to the banks which amounted to $108 million at September
29, 2001. In consideration for these enhancements and guarantees, Crescent pays
the Company a quarterly fee equal to 2% per annum of outstanding borrowings and
was issued a warrant to acquire 50% of the capital stock of Crescent (on a fully
diluted basis) for nominal consideration.

         Among other provisions, Crescent's bank facility requires the
maintenance of certain specified levels of fixed charge coverage and limits
certain capital and other nonrecurring expenditures. Some of these covenants are
measured on a combined basis for Crescent and the Company. During fiscal 2001,
Crescent violated two of these covenants as a result of a settlement of
litigation in September 2001 and Friedman's third quarter loss. The banks have
waived these violations and the maturity of Crescent's debt has been advanced to
March 31, 2002. Management expects that Crescent will maintain compliance with
the terms of its bank facility through the March 2002 maturity date.

         The Company is working with Crescent to pursue financing alternatives
to replace Crescent's bank facility. Based on discussions with lenders and
typical lending criteria, the Company anticipates that Crescent will restructure
or replace its revolving credit facility by March 31, 2002. In connection with
this anticipated refinancing, the Company believes that a portion of Crescent's
capital requirement will be satisfied by financial support of up to $112.5
million from the Company. Management believes that this financial support will
be in the form of a continuation of the guarantee, a direct investment in equity
or debt securities or some other form of financial support. The Company is
considering several financing alternatives of its own to facilitate such
financial support, including a refinancing or restructuring of the Company's
credit facility. Based on discussions with lenders and typical lending criteria,
the Company anticipates that it will complete the necessary financing by March
31, 2002.

         Pending completion of the financings by the Company and by Crescent,
Crescent's entire liability to the bank has been recorded in the accompanying
balance sheet along with a corresponding asset of equal amount. In Management's
opinion, the asset is fully recoverable based on Crescent's cash flows and the
estimated fair value of a corresponding investment in Crescent. Such estimated
fair value has been determined under an investment value methodology based on
the Company's warrant to purchase 50% of Crescent's capital stock and
Friedman's acquisition strategy.

                                      F-11
<PAGE>

         Condensed financial information for Crescent is presented in the
following table (in thousands):



                                                             AS OF
BALANCE SHEET DATA:                             JULY 28, 2001    JULY 31, 2000
                                                        (IN THOUSANDS)
Current assets............................         $96,312          $90,969
Total assets..............................         115,182          108,719
Current liabilities, excluding bank debt..          21,933           14,540
Bank debt.................................         109,361          102,994
Net shareholders' deficiency..............         (16,112)          (8,815)



                                                      FOR THE YEAR ENDED
OPERATING DATA:                                 JULY 28, 2001    JULY 31, 2000
                                                        (IN THOUSANDS)
Net sales................................         $137,205         $133,462
Loss before extraordinary gain(1)........           (7,297)          (2,098)
Operating income.........................            6,094            9,535
Operating income before litigation
  settlement.............................            9,594            9,535
Cash flow from operating activities......           (1,945)         (20,329)


      (1) The loss for 2001 includes a litigation settlement of $3.5 million
      and the write-down of an investment in an internet joint venture of $1.4
      million. The 2001 amounts also include changes in accounting estimates of
      $2.8 million principally relating to a reduction in the reserve for bad
      debts and an increase in certain amounts capitalized in inventory. The
      loss before extraordinary gain for 2000 excludes an extraordinary gain on
      the restructuring of debt of $41.9 million.

      During fiscal 2000, the Company entered into agreements licensing
Cresent to use certain trademarks owned by the Company, to provide Cresent with
merchandising, inventory management and replenishment systems, accounting and
systems support and certain other back office processing services and to
provide Cresent with integration services for new information technology
systems at Cresent. These agreement were effective in October 2000. The Company
charged $1.0 million in fiscal 2001 for these services, which has been recorded
as a reduction of Selling, general and administrative expenses.

      In the fiscal 1999, the Company incurred costs of $1.0 million for
services provided by Morgan Schiff in connection with the refinancing, the
purchase warrant and the guarantee of Cresent's debt.

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










                                     F-12



<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001

7.   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 1,000,000 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 ("APB 25") 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 SFAS No. 123, net income
would have been reduced to the pro forma amounts indicated in the table below:

<TABLE>
<CAPTION>
                                                  2001            2000             1999
                                                -------          -------          -------
<S>                                             <C>              <C>              <C>
Net income -  as reported                       $12,229          $19,704          $16,483
Net income - pro forma                           11,281           17,755           14,674

Basic earnings per share - as reported          $  0.84          $  1.36          $  1.13
Basic earnings per share - pro forma            $  0.78          $  1.23          $  1.01
</TABLE>

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

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

<TABLE>
<CAPTION>
                                            2001          2000         1999
                                          --------      --------     --------
<S>                                       <C>           <C>          <C>
Expected dividend yield                      1.00%         0.60%        0.50%
Risk-free interest rate                      5.68%         5.92%        6.02%
Expected life of options                  10 years      10 years     10 years
                                          --------      --------     --------
Expected stock price volatility              0.645         0.582        0.517
</TABLE>



                                      F-13
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001

7.   STOCK PLANS (CONTINUED)

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

<TABLE>
<CAPTION>
                                                           Weighted
                                                           Average
                                   Options             Exercise Price
                                 Outstanding              Per Share
                               --------------          ---------------
<S>                            <C>                     <C>
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
Granted                              700,050                     7.82
Canceled                            (126,500)                  (13.50)
Exercised                             (1,000)                   (6.75)
                               --------------          ---------------
September 29, 2001                 1,449,063                   $10.90
                               ==============          ===============
</TABLE>

      The weighted average fair value per share of options granted during the
year ended September 29, 2001, September 30, 2000 and September 30, 1999 was
$4.81, $10.23 and $5.04, respectively. Shares available for future grant were
293,250 and 347,277 at September 29, 2001 and September 30, 2000.

At September 29, 2001, the weighted average contractual life of options
outstanding is 5.6 years and options to purchase 908,663 shares are exercisable
with a weighted average exercise price of $12.09. There were 1,240,723 options
outstanding with exercise prices ranging from $5.63 to $15.00 with a weighted
average exercise price of $9.69 and weighted average remaining contractual life
of 5.9 years and there were 208,340 options outstanding with exercise prices
ranging from $16.13 to $21.75 with a weighted average exercise price of $17.35
and a weighted remaining contract life of 3.7 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%.



                                      F-14
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001

8.     INCOME TAXES

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

<TABLE>
<CAPTION>
                 2001           2000            1999
               --------       --------       --------
Current:
<S>            <C>            <C>            <C>
Federal        $  6,825       $  9,980       $  9,308
State               344            984          1,460
               --------       --------       --------
                  7,169         10,964         10,768
Deferred           (585)           885         (1,314)
               --------       --------       --------
               $  6,584       $ 11,849       $  9,454
               ========       ========       ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                            2001         2000        1999
                                                           -------     -------     -------
<S>                                                        <C>         <C>         <C>
Federal tax at statutory rate                              $ 6,042     $10,552     $ 8,514
State income taxes (net of federal income tax benefit)         218         686         830
Other, net                                                     324         611         110
                                                           -------     -------     -------
                                                           $ 6,584     $11,849     $ 9,454
                                                           =======     =======     =======
</TABLE>



                                      F-15
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001


8.   INCOME TAXES (CONTINUED)

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

<TABLE>
<CAPTION>
                                            2001            2000
                                           ------          ------
<S>                                        <C>             <C>
Deferred tax assets:
  Allowance for doubtful accounts          $1,372          $1,602
  Accrued liabilities                       1,529             411
  Deferred revenue                          1,715           1,907
  Other                                        15               0
                                           ------          ------
  Total deferred tax assets                 4,631           3,920

 Deferred tax liabilities:
  Equipment and improvements                1,884           1,616
  Inventories                                 450             311
  Other                                       509             790
                                           ------          ------
  Total deferred tax liabilities            2,843           2,717

                                           ------          ------
Net deferred tax asset                     $1,788          $1,203
                                           ======          ======
</TABLE>




                                      F-16
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001


9.     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
non-cancelable operating leases are as follows (in thousands):

<TABLE>
<CAPTION>
Years ended September
----------------------------------
<S>                           <C>             <C>
                              2002            $20,329
                              2003             16,165
                              2004             11,895
                              2005              7,629
                              2006              3,834
Subsequent years                                5,085
                                              --------
Total                                         $64,937
                                              ========
</TABLE>


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

<TABLE>
<CAPTION>
                                 YEARS ENDED SEPTEMBER
                           2001            2000          1999
                          -------        -------        -------
<S>                       <C>            <C>            <C>
Minimum rentals           $28,160        $25,733        $21,565
Contingent rentals            334            404            401
                          -------        -------        -------
Total rent                $28,494        $26,137        $21,966
                          =======        =======        =======
</TABLE>

      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 offshore
subsidiary which re-insures 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 to
ABIG, as well as the estimated losses related to the insurance products. Losses
are estimated based on historical experience and are recognized 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-17
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 29, 2001


10.    QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the quarterly results of operations for the years
ended September 29, 2001 and September 30, 2000 (in thousands except per share
data):

<TABLE>
<CAPTION>
                                                  For the Fiscal Year Ended September 29, 2001
                                                                 Quarters Ended
                                             -----------       --------        -------         ------------
                                             December 30       March 31        June 30         September 29
                                             -----------       --------        -------         ------------
<S>                                          <C>               <C>             <C>             <C>
Net sales                                      $173,434        $ 88,106        $ 83,730          $ 65,767
Cost of goods sold, including
   occupancy, distribution and buying            87,135          47,717          44,921            36,492
Income (loss) before income taxes (a)            26,460           3,563         (11,812)             (772)
Net income (loss)                                17,331           2,444          (7,045)             (502)
Basic earnings (loss) per share (d)                1.20            0.17           (0.49)            (0.03)
Diluted earnings (loss) per share (d)              1.20            0.17           (0.49)            (0.03)
</TABLE>


<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        $ 80,160        $ 64,370
Cost of goods sold, including
   occupancy, distribution and buying            78,474          43,516          41,784          35,872
Income (loss) before income taxes                23,920           4,661           3,511 (b)        (571)(c)
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>


(a)  Income (loss) before income taxes includes a $0.1 million, $0.5 million and
     $4.3 million charge for the closing of a total of 33 stores during the
     first, second and third quarters, respectively. Additionally, during the
     third quarter the Company recorded a $1.5 million charge for impaired
     assets associated with the Company's internet e-commerce joint venture.

(b)  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 net income and basic
     earnings per share by $945,000 and $0.07, respectively.

(c)  Loss before income taxes includes adjustments for changes in estimates of
     capitalized inventory costs of $1.7 million, estimated recoveries of
     charged - off customer receivables of $1.3 million, estimated incentive
     payments of $400,000 and increases in reserves for inventory disposition
     costs of $600,000.

(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-18
<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 29, 2001 and September 30, 2000, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 29, 2001. 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 29, 2001 and September 30, 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 29, 2001, 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

October 26, 2001
Atlanta, Georgia


                                      F-19
<PAGE>
                 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, 1999                   $ 10,072,000   $ 33,946,000(1)      $ 33,156,000(2)      $ 10,862,000
          Year ended September 30, 2000                     10,862,000     36,571,000(1)        33,919,000(2)        13,514,000
          Year ended September 29, 2001                     13,514,000     50,304,000(1)        49,073,000(2)        14,745,000

    Unearned finance charges, product warranties
       and credit insurance:
          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
          Year ended September 29, 2001                     19,144,000     51,513,000(3)        52,676,000(4)        17,981,000
</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-20