<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 28, 2002
                                       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]

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

Yes     [X]       No     [ ]

      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 $180,732,472 at March 29, 2002 based on the closing sale price of $10.75 per
share for the Class A Common Stock on such date on The Nasdaq Stock Market.

      The number of shares of the registrant's Class A Common Stock outstanding
at December 18, 2002, was 17,423,706. The number of shares of the registrants
Class B Common Stock outstanding at December 18, 2002, was 1,196,283.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on February 25, 2003, are incorporated by reference in Part III.
<PAGE>
                                 FRIEDMAN'S INC.
                           ANNUAL REPORT ON FORM 10-K
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 28, 2002

                                TABLE OF CONTENTS

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

1.       BUSINESS...................................................................................2

2.       PROPERTIES.................................................................................9

3.       LEGAL PROCEEDINGS..........................................................................9

4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................9

                                     PART II

5.       MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..............................10

6.       SELECTED FINANCIAL DATA...................................................................11

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

7(A).    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................24

8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................24

9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
         DISCLOSURE................................................................................24

                                    PART III

10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........................................25

11.      EXECUTIVE COMPENSATION....................................................................25

12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
         STOCKHOLDER MATTERS.......................................................................25

13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................25

14.      CONTROLS AND PROCEDURES...................................................................25

                                     PART IV

15.      EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K............................26

SIGNATURES.........................................................................................31
</TABLE>


                                       1
<PAGE>
                                     PART I

      SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

      Certain of the matters discussed in this document and in documents
incorporated by reference into this document, 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 the 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 - Risk Factors" and "Application of Critical
Accounting Policies" 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 650 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, ages 18 to 45, and provide them with a selection of
diamonds, gold, gemstones and wedding-related items tailored for their market.
We offer a proprietary credit program to help customers finance their purchases
and, in fiscal 2002, sales on credit accounted for approximately 53% of our net
merchandise sales. Our credit program generates return visits to our stores, as
a majority of our customers make their credit payments in person. This allows
our sales associates to build personal relationships with customers and
facilitates additional purchases.

      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 have accomplished this by increasing our store base from 55 stores in
fiscal 1992 to our current 662 stores, to become the largest specialty jewelry
retailer in the 20 states in which we operate. We also believe that we were the
first jewelry retailer to pursue significant expansion in power strip centers
anchored by large discount retailers such as Wal-Mart or Target. Currently, 435
of our stores are located in power strip centers. We have also used targeted and
focused advertising to create what we believe is our unique identity as a fine
jewelry retailer offering value prices.

      We were incorporated in Delaware in July 1993. Our principal executive
offices are located at 4 West State Street, Savannah, Georgia 31401. Our
Internet address is http://www.friedmans.com and we make available free of
charge through our Internet website our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports promptly after we electronically file such material with the SEC.

MERCHANDISING

      We tailor our 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 each store with a merchandising plan designed

                                       2
<PAGE>
for its market and we can create different versions of our advertising vehicles
to support market-specific demographics. Our merchandising plan for each type of
store includes careful merchandise selection, with particular attention devoted
to quality and price, and specific merchandise display instructions based on
each store's market demographics. As a result of these efforts, we can 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. Our merchandising strategy enables us to achieve 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.

ADVERTISING AND PROMOTIONS

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

      We frequently design special promotions, such as diamond remount events
and clearance sales, in order to increase traffic through our stores and to
generate an urgency for customers to make purchases. For store grand openings,
we have formulated a unique "work the town" advertising effort in which our
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, 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 2002, our top five suppliers accounted for approximately 40% 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 vendor 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.

OUR STORES

      As of September 28, 2002, we operated 650 stores in 20 states primarily in
the Southeast, Midwest and Mid-Atlantic regions. Of this number, 428 were
located in power strip centers and the remaining 222 were located in regional
malls. The following table shows the total stores opened and closed for the
fiscal periods shown:



                                       3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER OF STORES            1998           1999           2000           2001          2002
----------------------------          ----           ----           ----           ----          ----
<S>                                   <C>            <C>            <C>            <C>           <C>
  Beginning of Period......            384            471            531            619           643
  Opened...................             95             80             99             55            23
  Closed...................              8             20             11             31            16
  Total at Period End......            471            531            619            643           650
                                      ----           ----           ----           ----          ----
Percentage growth over prior
period.....................           22.7%          12.7%          16.6%           3.9%          1.1%
                                      ----           ----           ----           ----          ----
</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 a discount retailer such as Wal-Mart or Target is the anchor
tenant. In the typical power strip center, we locate our stores close to the
anchor tenant, 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 stores on the center court corners for high visibility and consumer traffic.
All of our stores provide a welcoming environment with glass cases at the
interior perimeter of the store. We illuminate our stores with track lighting to
best show 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 operate 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, payroll and personnel matters. Each Store Partner is
assisted by a staff, which includes an assistant manager, a collector and two to
five sales associates, depending on the location of the store and the sales
season. We determine merchandise selection, inventory management and visual
merchandising strategies for each store at the corporate level.

      We operate a manager training and development program, which is one of our
principal sources for future Store Partners. We provide sales associates with
written and on-line manuals containing our policies and procedures and other
training materials. We also provide web-based training that can be accessed at
any time. Sixty-one Senior Partners, each responsible for approximately 12
stores, oversee the operations of our stores and evaluate the performance of the
Store Partners. Senior Partners report to 12 Regional Vice Presidents, each
responsible for approximately 40 to 60 stores. Regional Vice Presidents report
to three Division Vice Presidents, each responsible for approximately 200 to 225
stores. The Division Vice Presidents are based in our home office in Savannah,
Georgia and report to the Senior Vice President of Store Operations. Senior
Partners, Regional Vice Presidents and Division Vice Presidents interact on a
daily basis with our senior management to review individual store performance.
We believe that our store management structure enables senior management, Senior
Partners, Regional Vice Presidents and Division Vice Presidents to focus on our
daily operating disciplines and the needs of our target customers.

      We believe that the quality of our store partners is the key to our
success in the highly competitive jewelry industry. We seek to motivate our
store partners 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.



                                       4
<PAGE>
CUSTOMER SERVICE

      For 80 years, we have been dedicated to providing quality customer service
to our customers, who are primarily low to middle income consumers, ages 18 to
45. 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 2002 through
our proprietary credit program. Our credit customers are encouraged to make
monthly payments in person at the store. In fiscal 2002, 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 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 access credit
bureau reports and process credit applications at each store, which provides our
customers with convenient access to credit. Consistent with industry practice,
we offer the purchase of credit insurance products in connection with sales of
merchandise on credit. We offer and sell such products as an agent for a
third-party insurance company and maintain a reinsurance contract with a
reinsurance 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 un-collectible
(for example, in the event of fraud in the credit application or bankruptcy). We
maintain an allowance for un-collectible accounts based, in part, on historical
experience. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."



                                       5
<PAGE>
      The following table presents certain information related to our credit
operations for the last five fiscal years:

<TABLE>
<CAPTION>
                                                                 2002           2001           2000           1999           1998
                                                               --------       --------       --------       --------       ---------
                                                                (IN THOUSANDS, EXCEPT FOR PERCENTAGES AND INFORMATION RELATING TO
                                                                                         CUSTOMER ACCOUNTS)
<S>                                                            <C>            <C>            <C>            <C>            <C>
Revenues attributable to credit sales(1) ................      $286,465       $266,616       $243,588       $202,197       $172,164
Accounts receivable(2) ..................................       166,519        147,440        135,682        108,642         95,972
Credit sales as a percentage of net merchandise
   sales ................................................          52.8%          52.3%          52.6%          53.7%          55.0%
Receivable revenues (3) .................................      $ 66,029       $ 59,797       $ 53,912       $ 43,057       $ 34,257
Provision for doubtful accounts .........................        51,449         50,304         36,571         33,942         29,767
Gross credit income (4) .................................        14,580          9,493         17,341          9,115          4,490
Risk adjusted gross credit yield (5) ....................           8.5%           6.1%          13.0%           8.0%           4.3%
Active number of customer accounts ......................       355,827        325,026        304,687        258,672        244,903
Balance per customer account (6) ........................      $    421       $    408       $    401       $    378       $    351
Average credit ticket ...................................           250            231            215            221            204
Average accounts receivable (7) .........................       171,415        156,324        133,030        113,383        103,609
Average monthly collection percentage ...................          11.0%          11.4%          12.0%          12.0%          11.2%
Net charge-offs..........................................        49,543         49,073         34,415         33,155         27,963
Net charge-offs as a percentage of net sales ............          11.4%          11.9%           9.1%          10.8%          10.8%
Net charge-offs as a percentage of credit ...............          17.3%          18.4%          14.1%          16.4%          16.2%
   revenues .............................................
Allowance for doubtful accounts as a percentage
   of accounts receivable ...............................          10.0%          10.0%          10.0%          10.0%          10.5%
Accounts receivable greater than 90 days
   past due (8) .........................................           4.6%           4.8%           5.8%           4.7%           7.1%
Accounts receivable less than 30 days
   past due (8) .........................................          85.4%          84.6%          85.6%          83.8%          80.5%
</TABLE>

------------------
(1)   Revenues attributable to credit sales constitute merchandise sold pursuant
      to our proprietary credit program, as well as earned finance charges,
      product warranties, credit insurance and late fee charges.

(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 equals the sum of earned finance charge income,
      insurance commissions, late fees and product warranties sold on credit.

(4)   Gross Credit income is the sum of receivable revenues less the provision
      for doubtful accounts.

(5)   Risk adjusted gross credit yield is reflected as a percentage of gross
      credit income divided by average accounts receivable, net of unearned
      finance charges, diamond and gold bond product warranties and credit
      insurance during the fiscal year.

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

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

(8)   Reported on a recency 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 and
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 information systems, senior management
and field 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 each Store Partner 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 our
information systems and financial controls. A retail enterprise software system,
Island Pacific, was installed in fiscal 1999. The system has enhanced our
ability to plan, manage, allocate, control and distribute our inventory. 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. Also in fiscal 2001, we implemented a new loss prevention
software system, which is tailored to the transaction-intensive retailing
industry, enhancing the tools available for loss prevention activities. During
fiscal 2002, we enhanced our loss prevention software through the implementation
of centralized sales audit software. This allows us to track specific
transactions based on trends and unusual activity. In fiscal 2002, we began the
installation of a new credit and collection monitoring system. This system is
being installed in phases, and we expect completion in fiscal 2003. During
fiscal 2002, we also expanded our training facilities to incorporate a new
web-based training system. This new training system allows each associate to go
through a standardized training program and complete test questions at the
conclusion of each system segment. Detailed reports of each associate's training
progress are available on-line in order to allow each supervisor to track
results.

      In fiscal 2001, we began providing our West Coast 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. See "Item 13. Certain Relationships and Related Transactions."

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 also face competition in power
strip centers from discount retailers. 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 Zales, 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

                                       7
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malls 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 discount stores, direct suppliers, home-shopping
television programs and jewelry retailers that make sales through Internet
sites, as well as credit card companies and other providers of consumer credit.
Certain of our competitors are substantially larger than we are and have greater
financial resources than we have. We also believe that we compete for consumers'
discretionary spending dollars with retailers 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 28, 2002, operated a total of 156
stores in seven western states. We believe that Crescent is strategically
located in one of the largest and fastest growing markets in the United States,
operating significantly more stores in the state of California than its nearest
competitor.

      As part of our overall business strategy, we have maintained a strategic
relationship with Crescent since 1996. As part of this relationship, we entered
into agreements with Crescent under which we provide Crescent Jewelers with
accounting and information technology support, along with certain other back
office processing services. From September 1999 through August 2002, we provided
credit enhancement for Crescent's credit facility. In partial consideration for
the credit enhancement, we received a warrant to purchase 50% of Crescent's
capital stock for $500,000, which remains outstanding. In connection with
Crescent's new credit facility in August 2002, we continued our support in the
form of a direct investment in Crescent totaling $85.0 million, consisting of
$50.0 million of series A preferred stock and $35.0 million of a senior
subordinated note. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations -- Liquidity and Capital Resources." As a
result of our strategic relationship with Crescent, we believe that we are well
positioned to enter the west coast market in the future, while maintaining our
focus on improving operations in our existing markets.

      Crescent achieved net sales of $138.2 million for fiscal year ended July
28, 2002, compared to $137.2 million for fiscal 2001. During fiscal 2002,
Crescent opened seven new stores and closed seven stores for a net change of
zero.

      We are affiliated with Crescent through common controlling ownership and
executive management. Phillip E. Cohen controls Crescent Jewelers through his
sole ownership of CJ Morgan Corp., the special purpose general partner of CJ
Limited Partnership, which owns substantially all of the capital stock of
Crescent. Through CJ Morgan Corp. and CJ Limited Partnership, Mr. Cohen owns
approximately 13.9% of Crescent. Mr. Cohen is also the sole owner of MS Jewelers
Corporation, the general partner of MS Jewelers Limited Partnership, which holds
all of our Class B voting common stock. In addition, our Chief Executive
Officer, Bradley J. Stinn, also serves as Chief Executive Officer of Crescent
and our Chief Financial Officer, Victor M. Suglia, serves as Chief Financial
Officer of Crescent.

EMPLOYEES

      As of September 28, 2002, we had 3,967 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


                                       8
<PAGE>
review our contracts and procedures for compliance with consumer credit laws
with a view to making any changes required to comply with such laws. Any 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 sale of credit and other insurance products
similar to those required by the Federal Truth in Lending Act, impose
restrictions on the amount of premiums that may be charged and also require the
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 sale
of credit insurance products.

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 common area maintenance charge. Our power strip store leases
typically have a three-year 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
annual rent of approximately $347,000 in fiscal 2002 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. As
of September 28, 2002, we had executed a letter of intent with the Savannah
Economic Development Authority for the leasing of 5.893 acres of land in the
Crossroads Business Center in Savannah, Georgia. We have begun construction of a
40,000 square foot headquarters and distribution facility on the site, which is
anticipated to be completed in June 2003. At that time, we will vacate the
buildings we lease for our headquarters facilities in downtown Savannah.

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 28, 2002.


                                       9
<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 Stock 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 28, 2002
         First Quarter.................................................       $ 9.86            $ 6.87
         Second Quarter ...............................................       $12.09            $ 8.27
         Third Quarter.................................................       $13.84            $10.40
         Fourth Quarter ...............................................       $13.26            $ 7.00
</TABLE>


<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>

      As of December 16, 2002, the closing price per share on the Nasdaq Stock
Market was $9.91.

HOLDERS

      As of December 16, 2002, there were approximately 62 record holders of the
Class A Common Stock and one record holder of the Class B Common Stock. We
estimate that there are approximately 2,500 beneficial owners of the Class A
Common Stock.

DIVIDEND POLICY

      We paid a cash dividend of $0.0175 per share of Class A Common Stock and
Class B Common Stock in the first two fiscal quarters of 2002, and $0.02 per
share in the last two fiscal quarters of 2002. 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."



                                       10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.

      The following statement of income and balance sheet data for fiscal years
ended September 30, 1998 through September 28, 2002 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.

                          FISCAL YEAR ENDED SEPTEMBER,

<TABLE>
<CAPTION>
                                                 2002             2001             2000             1999            1998
                                             ------------     ------------     ------------     ------------    ------------
                                                            (Dollars in thousands, except  per share amounts)
<S>                                          <C>              <C>              <C>              <C>             <C>
  STATEMENT OF INCOME DATA:

  Net sales ..............................   $    436,069     $    411,037     $    376,351     $    308,385    $    259,146
  Cost of goods sold, including
  occupancy, distribution and buying .....        227,486          216,265          199,646          163,983         135,412
  Selling, general and administrative
     expenses ............................        161,536          160,941          133,316          110,665         100,506
  Depreciation and amortization ..........         11,340           13,881            9,479            6,379           5,269
  Interest expense, net ..................            305            2,511            2,388            1,421             874
                                             ------------     ------------     ------------     ------------    ------------
  Income before income taxes and
      minority interest ..................         35,402           17,439           31,522           25,937          17,085
  Income tax expense .....................         12,415            6,584           11,849            9,454           6,491
  Minority interest ......................           (180)          (1,374)             (31)              --              --
                                             ------------     ------------     ------------     ------------    ------------
  Net income .............................   $     23,167     $     12,229     $     19,704     $     16,483    $     10,594
                                             ============     ============     ============     ============    ============

  Basic earnings per share ...............   $       1.35     $       0.84     $       1.36     $       1.13    $       0.72

  Diluted earnings per share .............   $       1.34     $       0.84     $       1.36     $       1.13    $       0.72

  Dividends declared per share ...........   $     0.0775     $     0.0675     $     0.0575     $     0.0375    $         --

  Weighted average common shares
     outstanding  - basic ................     17,108,000       14,501,000       14,445,000       14,590,000      14,620,000
  Weighted average common shares
     outstanding  - diluted ..............     17,347,000       14,531,000       14,445,000       14,590,000      14,762,000

  OTHER OPERATING DATA:

  Number of stores (end of periods) ......            650              643              619              531             471
  Percentage increase in number of stores
     (end of periods) ....................            1.1%             3.9%            16.6%            12.7%           22.7%
  Percentage increase (decrease) in
  comparable store sales (1) .............            3.5%             2.0%             6.9%             8.7%           (1.1%)
  Income from operations as a percentage
  of net sales ...........................            8.2%             4.9%             9.0%             8.9%            6.9%
  Net income as a percentage of net sales             5.3%             3.0%             5.2%             5.3%            4.1%
</TABLE>



<TABLE>
<CAPTION>
                                                  2002             2001             2000             1999            1998
                                             ------------     ------------     ------------     ------------    ------------
<S>                                          <C>              <C>              <C>              <C>             <C>
  BALANCE SHEET DATA:

  Accounts receivable, net ...............   $    149,868     $    132,695     $    122,168     $     97,780    $     85,900
  Inventories ............................        136,606          136,520          122,828          113,095         105,586
  Working capital (2) ....................        249,832           53,628          196,260          167,390         175,865
  Total assets ...........................        447,883          452,625          319,655          274,263         267,547
  Long term debt (3) .....................        114,808               --           48,430           28,184          66,969
  Stockholders' equity ...................        279,567          222,571          211,027          191,904         178,514
  Dividends paid .........................          1,252              942              794              363              --
</TABLE>



                                       11
<PAGE>
(1)   A new store becomes a comparable store in the first full month following
      the anniversary of the opening of such store. Commencing in fiscal 2002,
      the calculation of comparable store sales includes product warranty
      revenue in addition to sales of merchandise.

(2)   Fiscal 2001, includes bank debt of Friedman's and Crescent amounting to
      $168.5 million. For comparable purposes, excluding bank debt, working
      capital was $222.1 million.

(3)   Fiscal 2001, bank debt of Friedman's of $60.3 million was classified
      within current liabilities.

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

      As used herein, the terms "fiscal 2002," "fiscal 2001" and "fiscal 2000"
refer to our fiscal years ended September 28, 2002, September 29, 2001 and
September 30, 2000, respectively.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

      Revenue Recognition. We recognize revenue related to our merchandise sales
at the time of sale, reduced by a provision for returns. We estimate this
returns provision principally based on prior year return rates. Payments from
customers on our layaway program are recorded as a liability until the customer
fulfills the terms of the layaway. Once the customer completes the terms of the
layaway program, including taking receipt of the merchandise, a sale is
recognized.

      Finance charges and credit insurance revenues (excluding credit property
insurance) are earned based on the declining principal of each contract using
the interest method. Credit property insurance revenues are recorded on a
straight-line basis over the term of the contract. Product warranties are
recorded on a straight-line basis over the estimated warranty period. We
periodically review the estimated term of product warranties and may adjust the
estimated term over which our product warranty revenue is recognized based on
actual trends and experience. The effect of our estimation may be an increase or
decrease in our warranty revenue and, as a result, a corresponding increase or
decrease in our net sales. We classify finance charges, credit insurance and
other credit service revenues as a reduction in selling, general and
administrative expenses.

      Accounts Receivable. Approximately 50% of our merchandise sales are made
under installment contracts due in periodic payments over periods typically
ranging from three to 24 months. Accounts receivable is comprised of purchased
merchandise, finance charges, credit insurance, product warranties and late
fees, less unearned finance charges, product warranties, credit insurance and
our allowance for doubtful accounts. We follow industry practice and include
amounts due after one year in current assets.

      We conduct credit approval and collection procedures at each store and
follow internal company guidelines to evaluate the credit worthiness of our
customers and to manage the collection process. In order to minimize our credit
risk, we generally require down payments on credit sales and offer credit
insurance to our customers. We believe that we are not dependent on a given
industry or business for our customer base, and, therefore, have no significant
concentration of credit risk.

      We maintain an allowance for uncollectible accounts. We estimate the
reserve each quarter based on historical experience, the composition of
outstanding balances, credit experience trends and other relevant information.
The application of this methodology may result in increases or decreases in our
provision for uncollectible accounts from quarter to quarter. Our 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). We contract with collection agencies
on a contingent fee basis to collect accounts previously written off. Upon
write-off of an account, we record as a receivable an estimate of the amount to
be recovered by the collection agencies based on our historical experience. Such
amounts, currently 7% of amounts written-off, are included in other current
assets and are credited to the allowance for uncollectible accounts.



                                       12
<PAGE>
      We do not require separate collateral to secure credit purchases made by
our customers, but we do retain a security interest in the purchased item.

      Store Opening and Closing Costs. We expense store-opening costs when
incurred. We determine our store closing costs, consisting of fixed asset
impairment charges and accruals for remaining lease obligations, and recognize
these costs in the period in which we make the decision that a store will be
closed. We then close the store shortly thereafter. Indicators of impairment
generally do not exist with respect to our property and equipment except in
circumstances of store closings.

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,
                                                     ----------------------------
                                                       2002      2001      2000
                                                      -----     -----     -----
<S>                                                  <C>        <C>       <C>
Net sales .........................................   100.0%    100.0%    100.0%
Cost of goods sold including occupancy,
    distribution and buying .......................    52.2      52.6      53.1
Selling, general and administrative expenses ......    37.0      39.1      35.4
Depreciation and amortization .....................     2.6       3.4       2.5
Interest expense (net) ............................     0.0       0.6       0.6
                                                      -----     -----     -----
Income before income taxes and minority interest ..     8.1       4.3       8.4
Income tax expense ................................     2.8       1.6       3.2
Minority interest .................................    (0.0)     (0.3)      0.0
                                                      -----     -----     -----
Net income ........................................     5.3%      3.0%      5.2%
                                                      =====     =====     =====
</TABLE>

FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001

      Net sales increased 6.1% to $436.1 million for fiscal year 2002, from
$411.0 million for fiscal year 2001. The increase in sales was attributable to a
comparable store sales increase of 3.5% and the addition of 7 net new stores.

      Cost of goods sold, including occupancy, distribution and buying costs
include: (i) merchandise acquisition cost, (ii) freight cost related to the
receipt and distribution of merchandise, (iii) physical inventory adjustments,
(iv) costs to refurbish customer returns, (v) payroll costs (including payroll
taxes and employee benefit costs) associated with our buying and distribution
personnel, (vi) other costs associated with our buying and distribution
functions and (vii) store rents and other occupancy costs. Cost of goods sold,
including occupancy, distribution and buying costs, increased 5.2% to $227.5
million, or 52.2% of net sales, for fiscal 2002, versus $216.3 million, or 52.6%
of net sales, for fiscal 2001. The increase in cost of goods sold, including
occupancy, distribution and buying costs was due to the increase in net sales.
The decline in cost of goods sold as a percentage of net sales was primarily the
result of improved merchandise gross margins, particularly in the bridal and
diamond solitaire category. We do not expect the decrease in cost of goods sold,
including occupancy, distribution and buying costs as a percentage of net sales,
to constitute a continuing material trend.

      Selling, general and administrative expense includes: (i) payroll costs
(including payroll taxes and employee benefit costs), excluding payroll costs
associated with our buying and distribution personnel, (ii) advertising costs,
(iii) operating costs such as insurance, utility, business related travel,
professional service fees and other related business expenses, and (vii)
provisions for bad debt and collection expense reduced by earned finance
charges, earned credit insurance and late fee revenues. Selling, general and


                                       13
<PAGE>
administrative expenses increased 0.4% to $161.5 million for fiscal 2002, from
$160.9 million for fiscal 2001. As a percentage of net sales, selling, general
and administrative expenses decreased to 37.0% for fiscal 2002 as compared to
39.1% for the comparable period last year. Selling, general and administrative
expenses for fiscal 2001 included non-comparable charges of $4.2 million related
to the closing of 33 stores and operating expenses of $2.2 million related to
the Company's internet joint venture. Excluding the store closing charge and the
consolidation of internet operations, selling, general and administrative
expenses for fiscal 2001 was $154.5 million or 37.6% of net sales. The decrease
as a percentage of net sales was primarily the result of improved expense
controls and a decline in net charge-offs of customer credit accounts as a
percentage of credit revenues. Net charge-offs as a percentage of credit
revenues were 17.3% in fiscal 2002 compared to 18.4% during fiscal 2001.

      Depreciation and amortization charges decreased 18.8% to $11.3 million for
fiscal 2002, from $13.9 million for fiscal 2001. Depreciation and amortization
as a percentage of net sales was 2.6% for fiscal 2002 compared to 3.4% for
fiscal 2001. Fiscal 2001 included non-comparable charges of $0.7 million related
to impairment charges from store closings and $1.9 million related to the
depreciation and write-down of impaired assets used in our internet joint
venture. Excluding these non-comparable charges, depreciation and amortization
charges for fiscal 2001 was $11.3 million, or 2.8% of net sales. The slight
decrease in depreciation and amortization expense as a percentage of net sales
was primarily the result of the increase in comparable store sales and our
adoption of FAS 142. Effective September 30, 2001, we adopted Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("FAS 142"). In accordance with FAS 142, we discontinued amortization of our
trade-name rights beginning September 30, 2001, resulting in an increase in net
earnings of approximately $306,000 ($.02 per fully diluted share) for fiscal
2002.

      Interest and other income from a related party, Crescent, increased to
$2.9 million for fiscal year 2002 compared to $2.6 million for fiscal year 2001.
The increase was due to an increase in guarantee fee income due to higher
outstanding debt owed by Crescent under its bank line of credit. Interest
expense decreased to $3.2 million for fiscal 2002 compared to $5.1 million for
fiscal 2001. The decrease in interest expense was primarily due to a decrease in
our effective interest rate and lower average borrowing levels. The decrease in
average borrowing levels is primarily due to net cash proceeds of $35.0 million
from the sale of our common stock. See "Liquidity and Capital Resources."

      Income tax expense increased 88.6% to $12.4 million in fiscal 2002 from
$6.6 million in fiscal 2001. Our effective income tax rate was 35.0% in fiscal
2002 and 37.8% in fiscal 2001.

      Net income increased by 89.4% to $23.2 million for fiscal year 2002
compared to $12.2 million for fiscal year 2001. Basic earnings per share was
$1.35 for fiscal 2002 compared to $0.84 for fiscal 2001. Basic weighted average
common shares outstanding increased 18.0% to 17,108,000 for fiscal 2002 from
14,501,000 for fiscal 2001. Diluted earnings per share was $1.34 for fiscal 2002
compared to $0.84 for fiscal 2001. Diluted weighted average common shares
outstanding increased 19.4% to 17,347,000 for fiscal 2002 from 14,531,000 for
fiscal 2001. The increase in basic and diluted weighted average shares
outstanding was primarily due to our issuance of 4.1 million shares of common
stock in an offering completed on February 11, 2002.

FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000

      Net sales increased 9.2% to $411.0 million in fiscal year 2001, from
$376.4 million in fiscal year 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 costs
include: (i) merchandise acquisition cost, (ii) freight cost related to the
receipt and distribution of merchandise, (iii) physical inventory adjustments,
(iv) costs to refurbish customer returns, (v) payroll costs (including payroll
taxes and employee benefit costs) associated


                                       14
<PAGE>
with our buying and distribution personnel, (vi) other costs associated with our
buying and distribution functions and (vii) store rents and other occupancy
costs. Costs of goods sold, including occupancy, distribution and buying costs,
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.

      Selling, general and administrative expense includes: (i) payroll costs
(including payroll taxes and employee benefit costs), excluding payroll costs
associated with our buying and distribution personnel, (ii) advertising costs,
(iii) operating costs such as insurance, utility, business related travel,
professional service fees and other related business expenses, and (vii)
provisions for bad debt and collection expense reduced by earned finance
charges, earned credit insurance and late fee revenues. 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
closed 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 18.4% for fiscal 2001 compared to 14.1% for fiscal 2000.

      Depreciation and amortization expense 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 2.8% 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 received from Crescent 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 decreased 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, respectively,
in fiscal 2001, compared to 14,445,000 for both basic and diluted weighted
average common shares outstanding in fiscal 2000.


                                       15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

      General Liquidity Discussion. During fiscal 2002, net cash provided by our
operating activities was $4.4 million compared to $0.3 million during fiscal
2001 and net cash used by operating activities of $1.9 million during fiscal
2000. For fiscal 2002, cash provided by operations was the result of increases
in net income, offset by growth in accounts receivable and other assets and a
reduction in accounts payable. For fiscal 2001, cash provided by operations was
the result of earnings, offset by growth in accounts receivable and net
inventory levels including accounts payable. For fiscal 2000, cash used in
operations was the result of growth in accounts receivable and net inventory
levels including accounts payable, which was offset partially by improved
earnings. To the extent that we continue to expand, we will continue to
experience 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 $92.5 million, $11.4 million and $18.4
million in fiscal 2002, fiscal 2001 and fiscal 2000, respectively. In fiscal
2002, we made a direct investment in Crescent, consisting of $50.0 million of
Series A Preferred Stock and a $35.0 million Senior Subordinated Note. Also in
fiscal 2002, we opened 23 new stores at a cost of approximately $3.2 million and
invested $4.4 million in store re-modeling and store relocations. In fiscal
2001, we opened 55 new stores 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. Additionally
in fiscal 2000, 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.

      Financing activities provided cash of $87.9 million in fiscal 2002, $11.1
million in fiscal 2001, and $19.7 million in fiscal 2000. During fiscal 2002, we
refinanced our line of credit and had additional net bank borrowings of $54.1
million. Also during fiscal 2002, we issued 4.1 million shares of Class A common
stock at a price of $9.50 per share resulting in cash proceeds, net of related
expenses, of $35.0 million. The proceeds of the stock offering and additional
bank borrowings were used for the new investment in Crescent, new stores and
other capital expenditures. Additional net bank borrowings of $12.0 million in
fiscal 2001 and $20.2 million in fiscal 2001 and were used to finance new stores
and other capital expenditures, including the launch of our e-commerce website
in fiscal 2000.

      Our Credit Facility. On August 28, 2002, we entered into a new three-year
$150 million secured revolving credit facility, which replaced our three-year
$67.5 million senior secured revolving credit facility that was scheduled to
expire on September 15, 2002. The facility provides for borrowings on 65% of
eligible receivables and the lesser of 50% of eligible inventories or $75.0
million. Borrowings under the Credit Facility bear interest at either the prime
rate plus applicable margin ranging from zero to 0.25% or, at our option, the
Eurodollar rate plus applicable margin ranging from 1.75% to 2.50%. The
applicable margin is determined based on a calculation of the fixed charge
coverage ratio. The facility contains certain financial covenants and is secured
by a lien on substantially all of our personal property. At September 28, 2002,
$114.8 million was outstanding under the facility, with interest accruing on
such borrowings in a range from 4.06% to 4.75%.

      Our credit facility contains the following financial covenants:

            -     measured as of the end of each fiscal period, our trailing
                  twelve-month Consolidated Leverage Ratio must not be greater
                  than 2.0 to 1.0;


                                       16
<PAGE>
            -     measured as of the end of each fiscal period, our Consolidated
                  Adjusted Tangible Net Worth must not be less than the sum of
                  $140 million through August 23, 2003, and for each fiscal
                  period thereafter, Consolidated Adjusted Tangible Net Worth
                  must not be less than the sum of $140 million plus as of the
                  end of each fiscal year, commencing with the Fiscal Year
                  Ending September 27, 2003, an amount equal to 50% of
                  Consolidated Net Income for that fiscal year, which increases
                  will be cumulative, plus an amount equal to 75% of net
                  proceeds from certain equity transactions;

            -     measured as of the end of each fiscal quarter, our
                  Consolidated Fixed Charge Ratio for the preceding four (4)
                  Fiscal Quarters must not be less than 1.15 to 1.0; and

            -     measured as of the fiscal period ending December of each year,
                  our retail sales must not be less than $89.6 million for
                  Fiscal Period ending December 28, 2002 and for each year
                  thereafter, not to be less than 70% of the projected retail
                  sales delivered to the agent and the lenders.

      For further information about the financial and other covenants under our
credit facility, we refer you to the text of the agreement, which was filed as
an exhibit to our Current Report on Form 8-K filed with the SEC on September 10,
2002, and incorporated in this annual report by reference.

      Our Future Capital Requirements. Our current plans are to have between 685
and 700 stores in operation for the 2003 Christmas season. We estimate that the
investment required to fund this expansion, principally to finance inventory,
net of accounts payable, accounts receivable, fixtures and leasehold
improvements, is $13.0 million. We also anticipate investing approximately $3.0
million during fiscal 2003 in store-remodels and store-relocations.
Additionally, we anticipate spending approximately $1.0 million in fiscal 2003
for various system improvements and to support merchandising and marketing
initiatives. We intend to fund these expenditures with cash flow from operations
and our revolving credit facility. Our credit facility matures on August 28,
2005. We believe that we will be able to replace this facility and that we will
have sufficient capital to fund our operations through calendar 2005. In
addition, in fiscal 2003, we expect to complete the construction of our new
headquarters and distribution facility in Savannah, Georgia at a cost of
approximately $5.0 million. The construction is being funded by cash from
operations and our revolving credit facility. We anticipate financing the new
facility through a mortgage loan after its completion.

      Our Future Contractual Obligations. The following table summarizes our
contractual obligations at September 28, 2002, and the effect such obligations
are expected to have on our liquidity and cash flow in future periods (in
thousands):


<TABLE>
<CAPTION>
                                             Year Ending September 28,
                                 -----------------------------------------------
                                 Maturity     Maturity     Maturity     Maturity
                                 less 1 yr     1-3 yrs      4-5 yrs    Over 5 yrs
                                 --------     --------     --------     ---------
<S>                              <C>          <C>          <C>         <C>
Debt principal and other         $    590     $115,426     $     --     $     --
Operating leases                   22,725       31,868       11,594        9,663
                                 --------     --------     --------     --------
Total commitments                $ 23,315     $147,294     $ 11,594     $  9,663
                                 ========     ========     ========     ========
</TABLE>


                                       17
<PAGE>
      Financial Support of Crescent. In connection with the refinancing of our
credit facility in August 2002, we restructured our financial support of
Crescent by terminating our guarantee of Crescent's previous $112.5 million
senior secured revolving credit facility and making a direct investment in
Crescent of $85.0 million. This investment consists of $50.0 million of Series A
Preferred Stock and $35.0 million of a Senior Subordinated Note. Based in part
on our financial support of $85.0 million, on August 28, 2002, Crescent replaced
its previous $112.5 million senior secured revolving credit facility with a
$50.0 million secured credit facility. We continue to hold a warrant to purchase
50% of the capital stock of Crescent for an exercise price of $500,000 that we
received in consideration of our guarantee of Crescent's previous credit
facility on September 15, 1999. That warrant will expire on September 14, 2014.

      The Crescent Series A Preferred Stock carries a floating rate dividend
equal to the all-in cost of funds under our credit facility, plus a pre-tax
amount approximating a proportionate share of the 2% guarantee fee payable by
Crescent under our guarantee of their previous credit facility, less the tax
benefit Friedman's receives from the dividends received deduction. This
calculation currently yields an approximate initial dividend rate of 6.26%.
Cumulative dividends on the Series A Preferred Stock are payable semi-annually
on January 15th and July 15th. We can request that the preferred stock be
redeemed by Crescent at any time after August 28, 2007. The preferred stock
carries no voting rights, but does have a preference in liquidation or upon a
change of control.

      The Senior Subordinated Note carries a floating interest rate equal to the
all-in cost of funds under our credit facility, plus an amount approximating a
proportionate share of the 2% guarantee fee payable by Crescent under our
guarantee of their previous credit facility. This calculation currently yields
an initial interest rate of approximately 7.61%. Interest on the note is payable
semi-annually on January 15th and July 15th. The note is due August 28, 2007.
All amounts due under the note are subordinate to Crescent's credit facility.

      The investments were recorded on our balance sheet as a noncurrent asset
and are currently carried at their face value. In accordance with the Statement
of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("FAS 115") we will be required to evaluate whether
there has been an other than temporary decline in the value of the investment on
a quarterly basis. Any other than temporary reduction in value will result in an
immediate income statement charge, which will reduce our reported net income and
our earnings per share.

      Dividends. On November 14, 2002, the Board of Directors declared a
quarterly dividend of $.02 per share payable on January 15, 2003, to holders of
record of our Class A and Class B common stock as of December 31, 2002.

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.


                                       18
<PAGE>
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 our
operating results, there is no assurance that our business will not be affected
by inflation in the future.

NEW ACCOUNTING STANDARDS

      In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities", ("FAS 146"). This statement applies to all exit or
disposal activities initiated after December 31, 2002 and requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, store closing, or other exit or disposal activity. We
will adopt this accounting standard for all exit or disposal activities
initiated after December 31, 2002.

      In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", ("FAS 144"). This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supercedes FAS 121. FAS 144 is effective for fiscal years beginning after
December 15, 2001. We will adopt FAS 144 as of September 29, 2002 and do not
anticipate that the pronouncement will have a material impact on the
consolidated financial statements.

      We adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets", ("FAS 142") on September 30, 2001. Under FAS 142,
intangible assets deemed to have indefinite lives are no longer amortized but
are subject to impairment tests in accordance with the new standard. Other
intangible assets continue to be amortized over their useful lives. Application
of the non-amortization provisions of FAS 142 to our trade-name rights, which
had previously been amortized over fifteen years, resulted in an increase in net
earnings of approximately $306,000 ($0.02 per fully diluted share) for the year
ended September 28, 2002. During fiscal 2002, we performed the required
impairment test of trade-name rights and concluded that no impairment of the
asset existed.

                                  RISK FACTORS

WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY, WHICH 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 60 net new stores during fiscal
1999, 88 net new stores during fiscal 2000, 24 net new stores during fiscal
2001, and 7 net new stores during fiscal 2002. We intend to continue to expand,
adding approximately 30 to 50 net new stores in fiscal 2003. Our growth has
placed and will continue to place, significant demands on all aspects of our
business, including our management information and distribution systems and
personnel. 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.
Also in 2002, our Chief Financial Officer relocated his principal office to
Oakland, California, in the executive offices of Crescent, joining our Chief
Executive Officer whose principal offices are also located in Oakland. Both
officers spend a significant amount of their time on site in our principal
executive offices in Savannah, Georgia; however, this dual location of offices
may


                                       19
<PAGE>
negatively affect the efficiency of our OPERATIONS. 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;

      -     open new stores in a timely manner;

      -     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.

      We anticipate opening approximately 30 to 50 net new stores in fiscal
2003. 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.
If we are unsuccessful in implementing our growth strategy, our business,
operating results and financial position could be adversely affected.

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 than we are 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 AND THE POTENTIAL FOR HOSTILE ACTIONS BY THE UNITED STATES
AGAINST IRAQ MAY RESULT IN A DECREASE IN CONSUMER SPENDING AND SIGNIFICANTLY
HARM OUR 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 support them. In
addition, the U.S. government is contemplating hostile action against the
current regime in


                                       20
<PAGE>
Iraq. 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,
decreases in the stock market, and decreases in 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. If this continues, it could
have a material adverse effect on our earnings.

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 generals and private plaintiffs have filed lawsuits
against retailers relating to alleged improper practices conducted in connection
with the sale of credit insurance in several jurisdictions around the country.
We offer credit insurance in many of our stores and encourage the purchase of
credit insurance products in connection with sales of merchandise on credit. We
have been sued in two states by private plaintiffs with regard to our sale of
credit insurance. We are also in discussions with attorney generals from several
states about our credit insurance sales practices. The results of those
discussions may be the settlement of any alleged infractions, or those states
may decide to file a lawsuit against us. Either a settlement or lawsuit where we
were found liable could require us to pay substantial damages or incur
substantial costs, 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 settlements or 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;


                                       21
<PAGE>
      -     changes in our merchandise; and

      -     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, including Mr. Stinn.

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, both the supply and price of diamonds are
significantly influenced by a single entity, Diamond Trading Corporation. 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 that will provide us with the quality and
quantity of merchandise necessary to operate our business. In fiscal 2002, our
top five suppliers accounted for approximately 40% of our total purchases.
Although we believe that alternative sources of supply are available, the abrupt
loss of any of our vendors or a decline in the quality or quantity of
merchandise supplied by our vendors could cause significant disruption in our
business as we substitute vendors.

      A substantial portion of the merchandise we sell is carried on a
consignment basis prior to sale or is otherwise financed by vendors, thereby
reducing our direct capital investment in inventory. The percentage of our total
inventory that was carried on consignment for fiscal 2000, 2001 and 2002 (based
on the inventory levels at the end of each period) was 34.0%, 33.0% and 31.1%,
respectively. The willingness of vendors to enter into such arrangements may
vary substantially from time to time based on a number of factors, including the
merchandise involved, the financial resources of vendors, interest rates,
availability of financing, fluctuations in gem and gold prices, inflation, our
financial condition and a number of economic or competitive conditions in the
jewelry business or the economy. Any change in these relationships would have a
material adverse effect on our results of operations or financial condition. See
"Business -- Purchasing and Inventory Control."

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


                                       22
<PAGE>
      As part of our growth strategy, we may acquire or make investments in
other retail jewelry businesses, including a potential consolidation with
Crescent, our affiliate. Since we have grown primarily by opening new retail
jewelry stores, our ability to identify acquisition candidates, 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 materially 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.

OUR INVESTMENT OF $85.0 MILLION IN CRESCENT IS UNSECURED, AND IS THEREFORE
SUBJECT TO THE SAME RISKS AS ANY EQUITY OR UNSECURED INVESTMENT; ANY REDUCTION
IN THE VALUE OF THAT INVESTMENT WOULD RESULT IN AN IMMEDIATE CHARGE TO OUR
EARNINGS, ADVERSELY AFFECTING OUR REPORTED RESULTS OF OPERATIONS AND LIKELY OUR
STOCK PRICE.

      In connection with the refinancing of our credit facility in August 2002,
we restructured our financial support of Crescent by terminating our guarantee
of Crescent's previous $112.5 million senior secured revolving credit facility
and making a direct investment in Crescent of $85.0 million. This investment
consists of $50.0 million of Series A Preferred Stock and $35.0 million of a
Senior Subordinated Note. Both investments are unsecured. Please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Financial Support of Crescent"
for more details.

      The investments were recorded on our balance sheet as a noncurrent asset
and are currently carried at their face value. In accordance with the Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("FAS 115"), we will be required to evaluate
whether there has been an other than temporary decline in the value of the
investment on a quarterly basis. Any other than temporary reduction in value
will result in an immediate income statement charge, which will reduce our
reported net income and earnings per share. The reduction in the value of our
investment in Crescent, which would likely result from a deterioration in its
financial condition and results of operations, and the resulting charge to our
earnings would most likely have a negative impact on the trading price of our
Class A common stock on The Nasdaq Stock Market.

OUR CONTROLLING STOCKHOLDER AND SOME OF OUR DIRECTORS AND EXECUTIVE OFFICERS MAY
HAVE A CONFLICT OF INTEREST AS A RESULT OF THEIR RELATIONSHIP WITH CRESCENT.

      We are affiliated with Crescent through common controlling ownership and
executive management. Phillip E. Cohen controls all of our Class B common stock
through his ownership of MS Jewelers Corporation, the general partner of MS
Jewelers Limited Partnership, which owns all of our Class B common stock. As a
result, he has significant control over our business, policies and affairs,
including the power to appoint new management, prevent or cause a change of
control and approve any action requiring the approval of the holders of our
common stock, including adopting amendments to our certificate of incorporation
and approving mergers or sales of all or substantially all of our assets. In
addition, Mr. Cohen has the right to elect a majority of our directors. Mr.
Cohen also controls Crescent through his ownership of CJ Morgan Corp., the
general partner of CJ Limited Partnership, which owns substantially all of the
capital stock of Crescent. Through CJ Morgan Corp. and CJ Limited Partnership,
Mr. Cohen owns approximately 13.9% of Crescent. We have entered into agreements
with Crescent, whereby we provide Crescent with accounting and systems support
services, as well as use of our "The Value Leader" trademark. See "Management
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources -- Financial Support of Crescent." In addition,
Bradley J. Stinn, our Chief Executive Officer, is also the Chief Executive
Officer of Crescent and Victor M. Suglia, our Chief Financial Officer, is also
the Chief Financial Officer of Crescent.

YOUR STOCK VALUE MAY BE ADVERSELY AFFECTED BECAUSE OF THE CONCENTRATED OWNERSHIP
OF OUR CLASS B COMMON STOCK.


                                       23
<PAGE>
      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 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 6.5% 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, which may adversely affect the price of our Class
A common stock. 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.

      The operation of our credit and insurance business subjects us to
substantial regulation relating to disclosure and other requirements upon
origination, servicing, debt collection and particularly upon the amount of
finance changes we can impose. 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. 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
material expenditures or otherwise adversely affect 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 a material adverse effect on our results of operations and
stock price. See also "Business -- Government Regulation."

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 also reduce traffic in our stores and lower our revenues.

      We adhere to strict credit application guidelines in determining whether
our customers qualify for credit. During a downturn in general economic
conditions, as we are currently experiencing, or local economic development such
as plant closings, fewer of our customers may qualify for credit, and we may
suffer a higher rate of non-payment, either of which could have a material
adverse effect on our business,


                                       24
<PAGE>
financial condition or result of operations. As we expand our store base into
new markets, we obtain new credit accounts, which present a higher risk than our
mature credit accounts, as 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.

      We use a computer credit scoring process to determine whether a credit
applicant should be approved for a credit account and, if so, the credit limit
that should be applied to the account. The computer credit scoring process
relies on a computer model, which we revise from time to time. If our computer
credit scoring process fails to accurately analyze the credit risk of applicant
due to a computer failure or errors in the model, our credit losses may be
greater than anticipated.

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 prime rate plus an applicable margin ranging from 0% to
0.25% or, at our option, the Eurodollar rate plus an applicable margin ranging
from 1.75% to 2.50%. If the interest rates on our borrowings average 100 basis
points more in fiscal 2003 than they did in fiscal 2002, our interest expense
would increase and income before income taxes would decrease by $450,000. 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 15(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 25, 2003 is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION.

      The information under the captions "Election of Directors - Compensation
of Directors," "Election of Directors - Executive Compensation" and "Executive
Officers of the Company" in the Company's 2003 Proxy Statement is incorporated
herein by reference. In no event shall the information contained in the 2003
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.


                                       25
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

      The information under the caption "Election of Directors -- Stock
Ownership" in our 2003 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 2003 Proxy Statement is incorporated herein by
reference.


ITEM 14. CONTROLS AND PROCEDURES

      Under the supervision and with the participation of our management,
including our principal executive officer and our principal financial officer,
we concluded an evaluation of the effectiveness of our "disclosure controls and
procedures" on December 19, 2002. Our evaluation tested controls and other
procedures designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Securities and Exchange Act of
1934, as amended, is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules and
forms. Based on this evaluation, our principal executive officer and principal
financial officer concluded as of December 19, 2002, that the information
required to be disclosed in our reports that we file or submit under the
Securities Exchange Act is accumulated and communicated to management, including
our principal executive officer and principal financial officer, as appropriate,
in a manner that allows timely decisions regarding required disclosure.

      There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to December
19, 2002.


                                       26
<PAGE>
                                    PART IV.

ITEM 15. 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 28, 2002, September
29, 2001 and September 30, 2000

Consolidated Balance Sheets at September 28, 2002 and September 29, 2001

Consolidated Statements of Stockholders' Equity for the Years Ended September
28, 2002, September 29, 2001 and September 30, 2000

Consolidated Statements of Cash Flows for the Years Ended September 28, 2002,
September 29, 2001 and September 30, 2000

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>


                                       27
<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 (File No. 0-22356)).

10.2.2            Addendum to Lease between Friedman's Jewelers, Inc., Lessor
                  and Friedman's Inc. dated October 1, 2002.

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 (File No.
                  0-22356)).

10.7              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).
</TABLE>


                                       28
<PAGE>
<TABLE>
<S>               <C>
10.8              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).

10.9              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).

10.10             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).

10.11             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).

10.12             Amended and Restated Credit Agreement, dated as of August 28,
                  2002, among Friedman's Inc. and certain of its subsidiaries
                  party thereto, as the Credit Parties, the lending institutions
                  named therein, as the Lenders, and Bank of America, N.A., as
                  Administrative Agent (incorporated by reference from Exhibit
                  10.1 to the Registrant's Current Report on Form 8-K filed on
                  September 10, 2002).

10.13             Amended and Restated Credit Agreement, dated as of August 28,
                  2002, among Crescent Jewelers Inc., Crescent Jewelers, and
                  certain of their Subsidiaries party thereto, as the Credit
                  Parties, the lending institutions named therein, as the
                  Lenders, the CIT Group/Business Credit, Inc., as Documentation
                  Agent, and Bank of America, N.A. as Administrative Agent
                  (incorporated by reference from Exhibit 10.2 to the
                  Registrant's Current Report on Form 8-K filed on September 10,
                  2002).

10.14             Series A Preferred Stock Purchase Agreement, dated as of
                  August 28, 2002, by and among Crescent Jewelers, Crescent
                  Jewelers Inc., and Friedman's Inc. (incorporated by reference
                  from Exhibit 10.3 to the Registrant's Current Report on Form
                  8-K filed on September 10, 2002).

10.15             Note Purchase Agreement, dated as of August 28, 2002, by and
                  among Crescent Jewelers, Crescent Jewelers Inc., and
                  Friedman's Inc. (incorporated by reference from Exhibit 10.4
                  to the Registrant's Current Report on Form 8-K filed on
                  September 10, 2002).

10.16             Senior Subordinated Note by Crescent Jewelers due August 28,
                  2007 (incorporated by reference from Exhibit 10.5 to the
                  Registrant's Current Report on Form 8-K filed on September 10,
                  2002).

10.17             Development Agreement dated November 1, 2002 between Savannah
                  Economic Development Authority and Friedman's Inc.
</TABLE>


                                       29
<PAGE>
<TABLE>
<S>               <C>
10.18             Lease Agreement dated November 1, 2002 between Savannah
                  Economic Development Authority and Friedman Inc.

                  EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

10.19             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).

10.20             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).

10.21.1           Indemnification Agreement with Bradley J. Stinn, dated August
                  27, 2002.

10.21.2           Indemnification Agreement with Victor M. Suglia, dated August
                  27, 2002.

10.22             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 (File No. 0-22356)).

10.22.1           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).

10.23             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).

10.23.1           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 (File No.
                  0-22356)).

10.24             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 (File No.
                  0-22356)).

10.24.1           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 (File No. 0-22356)).

10.25             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 (File No.
                  0-22356)).
</TABLE>


                                       30
<PAGE>
<TABLE>
<S>               <C>
10.25.1           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 (File No. 0-22356)).

10.26             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).

10.27             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).

10.28             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).

10.29             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).

10.30             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).

10.31             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).

10.31.1           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

99.1              Section 906 Certification of the CEO

99.2              Section 906 Certification of the CFO
</TABLE>

(b)   REPORTS ON FORM 8-K

      On September 10, 2002, the registrant filed a current report on Form 8-K
relating to its new credit facility and its direct investment in Crescent
Jewelers.

(c)   SEE ITEM 15(a)(3) ABOVE.

(d)   SEE ITEM 15(a)(2) ABOVE.


                                       31
<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 20, 2002.

                                                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 20, 2002.

<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

                                 Chairman of the Board of Directors
-------------------------
Sterling B. Brinkley

                                 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>


                                       32
<PAGE>
                        CERTIFICATION OF PERIODIC REPORT
            PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

      I, Bradley J. Stinn, Chief Executive Officer, of Friedman's Inc. (the
"Company"), do hereby certify, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, that:

      1. I have reviewed this Annual Report on Form 10-K of the Company for the
fiscal year ended September 28, 2002 (this "Report");

      2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;

      3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this Report;

      4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:

      a)    Designated such disclosure controls and procedures to ensure that
            material information relating to the Company, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this Report
            is being prepared;

      b)    Evaluated the effectiveness of the Company's disclosure controls and
            procedures as of a date within 90 days prior to the filing date of
            this Report (the "Evaluation Date"); and

      c)    Presented in this Report our conclusions about the effectiveness of
            the disclosure controls and procedures based on our evaluation as of
            the Evaluation Date;

      5. The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors (or persons performing the equivalent functions):

      a)    All significant deficiencies in the design or operation of internal
            controls which could adversely affect the Company's ability to
            record, process, summarize and report financial data and have
            identified for the Company's auditors any material weaknesses in
            internal controls; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the Company's
            internal controls; and

      6. The Company's other certifying officers and I have indicated in this
Report whether there were significant changes in internal controls or in the
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: December 20, 2002

                             /s/ Bradley J. Stinn
                             -----------------------
                             Bradley J. Stinn
                             Chief Executive Officer
<PAGE>
                        CERTIFICATION OF PERIODIC REPORT
            PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

      I, Victor M. Suglia, Chief Financial Officer, of Friedman's Inc. (the
"Company"), do hereby certify, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, that:

      1. I have reviewed this Annual Report on Form 10-K of the Company for the
fiscal year ended September 28, 2002 (this "Report");

      2. Based on my knowledge, this Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Report;

      3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this Report;

      4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:

      a)    Designated such disclosure controls and procedures to ensure that
            material information relating to the Company, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this Report
            is being prepared;

      b)    Evaluated the effectiveness of the Company's disclosure controls and
            procedures as of a date within 90 days prior to the filing date of
            this Report (the "Evaluation Date"); and

      c)    Presented in this Report our conclusions about the effectiveness of
            the disclosure controls and procedures based on our evaluation as of
            the Evaluation Date;

      5. The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors (or persons performing the equivalent functions):

      a)    All significant deficiencies in the design or operation of internal
            controls which could adversely affect the Company's ability to
            record, process, summarize and report financial data and have
            identified for the Company's auditors any material weaknesses in
            internal controls; and

      b)    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the Company's
            internal controls; and

      6. The Company's other certifying officers and I have indicated in this
Report whether there were significant changes in internal controls or in the
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: December 20, 2002

                             /s/Victor M. Suglia
                             -----------------------
                             Victor M. Suglia and
                             Senior Vice President
                             Chief Financial Officer


<PAGE>

                           ANNUAL REPORT ON FORM 10-K

                              ITEM 15 (a) 1. AND 2.

              FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

                    YEARS ENDED SEPTEMBER 2002, 2001 AND 2000
<PAGE>
                                 Friedman's Inc.

                   Index to Consolidated Financial Statements


<TABLE>
<S>                                                                                       <C>
Consolidated Income Statements for the Years Ended
   September 28, 2002, September 29, 2001 and September 30, 2000......................     F-1
Consolidated Balance Sheets at September 28, 2002 and September 29, 2001..............     F-2
Consolidated Statements of Stockholders' Equity for the Years Ended September 28,
   2002, September 29, 2001 and September 30, 2000....................................     F-3
Consolidated Statements of Cash Flows for the Years Ended September 28, 2002,
   September 29, 2001 and September 30, 2000..........................................     F-4
Notes to Consolidated Financial Statements............................................     F-5
Report of Independent Auditors........................................................    F-19

FINANCIAL STATEMENT SCHEDULE

Schedule II -- Valuation and Qualifying Accounts......................................    F-20
</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,
                                                               ----------------------
                                                         2002            2001           2000
                                                         ----            ----           ----
                                                    (Amounts in thousands, except per share data)
<S>                                                 <C>             <C>             <C>
Net Sales                                             $ 436,069       $ 411,037       $ 376,351

Operating Costs and Expenses:
 Cost of goods sold including occupancy,
     distribution and buying                            227,486         216,265         199,646
 Selling, general and administrative                    161,536         160,941         133,316
 Depreciation and amortization                           11,340          13,881           9,479
                                                      ---------       ---------       ---------
Income from operations                                   35,707          19,950          33,910

Interest and dividend income from related party          (2,904)         (2,569)         (2,421)
Interest expense                                          3,209           5,080           4,809
                                                      ---------       ---------       ---------
Income before income taxes and minority interest         35,402          17,439          31,522
Income tax expense                                       12,415           6,584          11,849
Minority interest                                          (180)         (1,374)            (31)
                                                      ---------       ---------       ---------
Net income                                            $  23,167       $  12,229       $  19,704
                                                      =========       =========       =========

Earnings per share - basic                            $    1.35       $    0.84       $    1.36
                                                      =========       =========       =========

Earnings per share - diluted                          $    1.34       $    0.84       $    1.36
                                                      =========       =========       =========

Weighted average shares - basic                          17,108          14,501          14,445
Weighted average shares - diluted                        17,347          14,531          14,445
</TABLE>


                             See accompanying notes.


                                      F-1
<PAGE>
                                 FRIEDMAN'S INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                           SEPTEMBER 28,   SEPTEMBER 29,
                                                                               2002            2001
                                                                               ----            ----
                                                                        (Amounts in thousands, except share
                                                                                and per share data)
<S>                                                                     <C>                <C>
ASSETS
Current Assets:
 Cash                                                                        $     271       $     468
 Accounts receivable, net of allowance for doubtful accounts of $16,651
   in 2002 and $14,745 in 2001                                                 149,868         132,695
 Inventories                                                                   136,606         136,520
 Deferred income taxes                                                           3,788           3,002
 Other current assets                                                            9,608           8,998
                                                                             ---------       ---------
   Total current assets                                                        300,141         281,683

Equipment and improvements, net                                                 50,117          54,495
Tradename rights                                                                 5,022           5,022
Receivable from Crescent Jewelers                                                   --         108,208
Investment in Crescent Jewelers                                                 85,000              --
Other assets                                                                     7,603           3,217
                                                                             ---------       ---------
   Total assets                                                              $ 447,883       $ 452,625
                                                                             =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 Accounts payable                                                            $  31,070       $  46,680
 Accrued and other liabilities                                                  18,649          12,561
 Bank debt, Crescent Jewelers                                                       --         108,208
 Bank debt, Friedman's and capital lease obligations                               590          60,606
                                                                             ---------       ---------
   Total current liabilities                                                    50,309         228,055

Long-term bank debt, Friedman's                                                114,808              --
Long-term capital lease obligation                                                 618             685
Deferred income taxes and other liabilities                                      2,581           1,314
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,
   17,423,706 and 13,322,655 issued and outstanding
   at September 28, 2002 and September 29, 2001, respectively                      174             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                                                    153,991         119,011
 Retained earnings                                                             126,335         104,540
 Stock purchase loans                                                             (945)         (1,125)
                                                                             ---------       ---------
   Total stockholders' equity                                                  279,567         222,571
                                                                             ---------       ---------
   Total liabilities and stockholders' equity                                $ 447,883       $ 452,625
                                                                             =========       =========
</TABLE>

                             See accompanying notes.


                                      F-2
<PAGE>
                                 FRIEDMAN'S INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                            Class A Common Stock   Class B Common Stock  Additional              Stock
                                            --------------------   --------------------   Paid-in   Retained    Purchase
                                             Shares      Amount     Shares      Amount    Capital   Earnings     Loans      Total
                                             ------      ------     ------      ------    -------   --------     -----      -----
<S>                                         <C>          <C>       <C>          <C>      <C>        <C>         <C>       <C>
Balance at September 30, 1999               13,226,127   $   132   1,196,283    $    12   $118,543  $  74,417   $(1,200)  $ 191,904

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

Issuance of Class A common stock under
  the Employee Stock Purchase Plan              44,996        --          --         --        200         --        --         200
Stock purchase loan payments                        --        --          --         --         --         --        50          50
Issuance of Class A common stock
  for services                                   5,452        --          --         --         37         --        --          37
Dividends declared ($0.0675/share)                  --        --          --         --         --       (979)       --        (979)
Employee stock options exercised                 1,000        --          --         --          7         --        --           7
Net income                                          --        --          --         --         --     12,229        --      12,229
                                            ----------   -------   ---------    -------   --------  ---------   -------   ---------
Balance at September 29, 2001               13,322,655       133   1,196,283         12    119,011    104,540    (1,125)    222,571

Issuance of Class A common stock in stock
  offering                                   4,082,500        41                            34,924                           34,965
Issuance of Class A common stock under
  the Employee Stock Purchase Plan               2,962        --          --         --         20         --        --          20
Stock purchase loan payments                        --        --          --         --         --         --       180         180
Issuance of Class A common stock
  for services                                   3,329        --          --         --         13         --        --          13
Dividends declared ($0.0775/share)                  --        --          --         --         --     (1,372)       --      (1,372)
Employee stock options exercised                12,260        --          --         --         23         --        --          23
Net income                                          --        --          --         --         --     23,167        --      23,167
                                            ----------   -------   ---------    -------   --------  ---------   -------   ---------
Balance at September 28, 2002               17,423,706   $   174   1,196,283    $    12   $153,991  $ 126,335   $  (945)  $ 279,567
                                            ==========   =======   =========    =======   ========  =========   =======   =========
</TABLE>

                             See accompanying notes.


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

<TABLE>
<CAPTION>
                                                                            Years ended September,
                                                                            ----------------------
                                                                      2002           2001           2000
                                                                      ----           ----           ----
                                                                            (Amounts in thousands)
<S>                                                                 <C>            <C>            <C>
Operating Activities:
  Net income                                                        $ 23,167       $ 12,229       $ 19,704
  Adjustments to reconcile net income to cash
    provided by (used in) operating activities:
    Depreciation and amortization                                     11,340         13,881          9,479
    Provision for doubtful accounts                                   51,449         50,304         36,571
    Minority interest in loss of consolidated subsidiary                (180)        (1,374)           (31)
    Deferred taxes                                                       581           (585)           885
    Changes in assets and liabilities:
      Increase in accounts receivable                                (68,622)       (60,831)       (60,959)
      Increase in inventories                                            (86)       (13,692)        (9,734)
      Increase in other assets                                        (4,873)        (2,260)        (1,066)
      (Decrease) increase in accounts payable and
        accrued liabilities                                           (8,383)         2,616          3,211
                                                                    --------       --------       --------

      Net cash provided by (used in) operating activities              4,393            288         (1,940)
Investing Activities:
  Additions to equipment and improvements                             (7,614)       (11,473)       (18,383)
  Investment in Crescent Jewelers                                    (85,000)            --             --
  Repayments of employee stock purchase loans                            133             50             25
                                                                    --------       --------       --------

      Net cash used in investing activities                          (92,481)       (11,423)       (18,358)
Financing Activities:
  Net additions to revolving credit facilities                        54,499         11,991         20,249
  Payments on capital lease obligations                                 (364)          (112)            --
  Proceeds from stock offering                                        34,965             --             --
  Proceeds from employee stock purchases and options exercised            43            207            226
  Payment of cash dividend                                            (1,252)          (942)          (794)
                                                                    --------       --------       --------

      Net cash provided by financing activities                       87,891         11,144         19,681
                                                                    --------       --------       --------
(Decrease) increase in cash                                             (197)             9           (617)
Cash, beginning of year                                                  468            459          1,076
                                                                    --------       --------       --------
Cash, end of year                                                   $    271       $    468       $    459
                                                                    ========       ========       ========

Supplemental cash flow information:
  Cash paid for:
  Interest                                                          $  2,506       $  3,139       $  4,796
                                                                    ========       ========       ========
  Income Taxes                                                      $  7,360       $ 10,081       $ 11,101
                                                                    ========       ========       ========
</TABLE>

                             See accompanying notes.


                                      F-4
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


1.    THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

  Basis of Presentation

      Friedman's Inc. (the "Company") is a retailer of fine jewelry operating
650 stores in 20 states. The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. All significant
inter-company accounts have been eliminated.

  Fiscal Year

      The Company's fiscal year consists of fifty-two or fifty-three weeks
ending on 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. The returns provision is estimated
principally based on prior year return rates. Payments from customers on the
Company's layaway program are recorded as a liability until the customer
fulfills the terms of the layaway. Once the customer completes the terms of the
layaway program, including taking receipt of the merchandise, a sale is
recognized.

      Finance charges, product warranties and credit insurance revenues are
recognized ratably over the term or estimated term of the related contracts.
Finance charges and credit insurance revenues (excluding credit property
insurance) are earned based on the declining principal balance of each contract
using the interest method. The average contract term was thirteen months in each
of the fiscal years 2002, 2001 and 2000. Credit property insurance revenues are
recorded on a straight-line basis over the term of the contract. Product
warranties are recorded on a straight-line basis over the estimated warranty
period, which is currently eight months. The Company periodically reviews the
estimated term of product warranties and may adjust the estimated term over
which product warranty revenue is recognized based on actual trends and
experience. The effect of the adjustment may be an increase or decrease in
warranty revenue and, as a result, a corresponding increase or decrease in net
sales. Product warranty revenues were $19.0 million, $17.1 million and $16.7
million in 2002, 2001 and 2000, respectively.

      Finance charge and credit service revenues aggregating $36.2 million,
$35.6 million and $34.2 million in 2002, 2001 and 2000, respectively, have been
classified as a reduction of selling, general and administrative expenses in the
accompanying income statements. Finance charge revenues were $30.1 million,
$28.5 million and $25.5 million in 2002, 2001 and 2000, respectively. Credit
insurance revenues were $6.1 million, $7.1 million and $8.7 million in 2002,
2001 and 2000, respectively.

  Insurance Products

      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.


                                      F-5
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


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

      Approximately 50% of the Company's merchandise sales are made under
installment contracts due in periodic payments over periods generally ranging
from 3 to 24 months. Consistent with industry practice, amounts which are due
after one year, are included in current assets and totaled $15,812,000 and
$12,480,000 at September 28, 2002 and September 29, 2001, respectively.

      Accounts receivable is comprised of purchased merchandise, finance
charges, credit insurance, product warranties and late fees less unearned
finance charges, credit insurance and product warranties and an allowance for
doubtful accounts. Unearned finance charges, product warranties and credit
insurance aggregated $20,926,000 and $17,981,000 at September 28, 2002 and
September 29, 2001, 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. A credit scoring model provides
a maximum credit approval limit for each customer. Credit sales in excess of the
limits determined by the scoring model require approval from regional credit
supervisors. To minimize credit risk, the Company generally requires down
payments on credit sales and offers credit insurance to its customers. Down
payments average 10% to 11% of the purchase price. The Company believes it is
not dependent on a given geographic area, industry or business for its customer
base and, therefore, has no significant concentration of credit risk. 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.

      The allowance for uncollectible accounts is estimated based on historical
experience, the composition of outstanding balances, credit experience trends
and other relevant information. The application of this methodology may result
in increases or decreases in the provision for uncollectible accounts from
quarter to quarter. 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).

      The Company contracts with collection agencies on a contingent fee basis
to collect accounts previously written off. Upon write-off of an account, the
Company records as a receivable an estimate of the amount to be recovered by the
collection agencies. Such amount, currently 7% of amounts written-off, is
credited to the allowance for uncollectible accounts. Collection agency
recoveries, net of contingent fees, are deposited and credited against the
receivable. The estimated recoveries receivable from collection agencies
aggregated $4.9 million and $4.2 million at September 28, 2002 and September 29,
2001, respectively, and are included in other current assets in the accompanying
balance sheets.

Merchandise Inventories

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

Cost of Goods Sold Including Occupancy, Distribution and Buying

      The Company includes the following expenses in the cost of goods sold
including occupancy, distribution and buying line item: (i) merchandise
acquisition cost, (ii) freight cost related to the receipt and distribution of
merchandise, (iii) physical inventory adjustments and adjustments to reduce
inventory


                                      F-6
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


balances to an amount not in excess of estimated market value, (iv) costs to
refurbish customer returns, (v) payroll costs (including payroll taxes and
employee benefit costs) associated with the Company's buying and distribution
personnel, (vi) other costs associated with the Company's buying and
distribution functions and (vii) store rents and other occupancy costs.

Selling, General and Administrative

      The Company includes the following expenses in the selling, general and
administrative line item: (i) payroll costs (including payroll taxes and
employee benefit costs), excluding payroll costs associated with the Company's
buying and distribution personnel, (ii) advertising costs, (iii) operating
costs, such as insurance, utilities, business related travel, professional
service fees and other related business expenses, and (vii) provisions for bad
debt and collection expense reduced by earned finance charges, earned credit
insurance and late fee revenues.

Advertising Costs

      Advertising costs are charged against operations when the corresponding
advertising is first run. Amounts expensed were $23,529,000, $22,858,000 and
$19,512,000 for the years ended September 28, 2002, September 29, 2001 and
September 30, 2000, respectively. The amount of prepaid advertising at September
2002 and 2001 was $1,959,000 and $1,772,000, 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.

      During the third quarter of fiscal 2001, the Company recorded store
closing costs of $4.2 million and impairment charges of $2.2 million. The store
closing costs related to the closure or planned closure of 33 stores and
principally consisted of the accrual of lease obligations. 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. All 33 stores were closed as of December 29, 2001. In connection
with these closings, the Company made payments of $1.1 million and $0.2 million
during the years ended September 28, 2002 and September 29, 2001, respectively.
The Company had a remaining liability for lease obligations of approximately
$0.3 million at September 28, 2002.

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.

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 2002, 2001 and 2000 were $354,000, $306,000 and
$253,000, respectively.


                                       F-7
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


Employee contributions are 100% vested while Company contributions are vested
according to a specified scale based on years of service.

Stock-Based Compensation

      The Company accounts for employee stock options under the provisions of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. Accordingly, the Company does not record compensation expense for
stock option grants when the exercise price of the option equals or exceeds the
market price of the Company's Common Stock on the date of grant.

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 28, 2002 and
September 29, 2001, for cash, accounts receivable, investment in Crescent,
accounts payable, and long-term debt approximate fair value due to the short
term nature of the financial instruments of cash, accounts receivable and
accounts payable, the recency of the investment in Crescent, 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, and, in fiscal 2002
and 2001, increased the diluted weighted shares outstanding by 239,000 and
30,000, respectively. There was no dilutive effect of stock options in fiscal
2000. 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 antidilutive:
2002 - 430,000 shares, 2001 - 1,248 shares and 2000 - 875,513 shares.

Reclassifications

      Certain balances as of September 29, 2001 have been reclassified to
conform to the current year financial statement presentation.

New Accounting Standards

      In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities", ("FAS 146"). This statement applies to all exit or
disposal activities initiated after December 31, 2002 and requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, store closing, or other exit or disposal activity. The
Company will adopt this accounting standard for all exit or disposal activities
initiated after December 31, 2002.


                                       F-8
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


      In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", ("FAS 144"). This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supercedes Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." FAS 144 is effective for fiscal years beginning after December 15, 2001.
The Company will adopt FAS 144 as of September 29, 2002 and does not anticipate
that the pronouncement will have a material impact on the consolidated financial
statements.

      The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets", ("FAS 142") on September 30, 2001. Under
FAS 142, intangible assets deemed to have indefinite lives are no longer
amortized but are subject to impairment tests in accordance with the new
standard. Other intangible assets continue to be amortized over their useful
lives. During fiscal 2002, the Company performed the required impairment test of
tradename rights and concluded that no impairment of the asset existed. The
following table indicates the impact of the application of the non-amortization
provisions of FAS 142 to the Company's tradename rights, which had previously
been amortized over fifteen years (amounts in thousands except per share
amounts):

<TABLE>
<CAPTION>
                                        2002            2001            2000
                                     ----------      ----------      ----------
<S>                                  <C>             <C>             <C>
Reported net income                  $   23,167      $   12,229      $   19,704
  Add: Tradename amortization                --             306             306
                                     ----------      ----------      ----------
  Adjusted net income                $   23,167      $   12,535      $   20,010
                                     ==========      ==========      ==========

Earnings per share - basic:
  Reported net income                $     1.35      $     0.84      $     1.36
  Tradename amortization                     --            0.02            0.02
                                     ----------      ----------      ----------
  Adjusted net income per share      $     1.35      $     0.86      $     1.38
                                     ==========      ==========      ==========

Earnings per share - diluted:
  Reported net income                $     1.34      $     0.84      $     1.36
  Tradename amortization                     --            0.02            0.02
                                     ----------      ----------      ----------
  Adjusted net income per share      $     1.34      $     0.86      $     1.38
                                     ==========      ==========      ==========
</TABLE>

2.    FINANCING ARRANGEMENTS

Common Stock

      In February 2002, the Company sold 4,082,500 shares of its Class A common
stock at $9.50 per share. Net proceeds to the Company totaled approximately
$35.0 million and were used primarily to reduce debt.

      The Company has two classes of Common Stock, Class A and Class B. The
holders of 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.


                                      F-9
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002

Bank Line of Credit Agreement

On August 28, 2002, the Company entered into a new three-year $150.0 million
credit facility (the "Credit Facility") with a syndicated group of banks which
provides for borrowings on 65% of eligible receivables and the lesser of 50% of
eligible inventories or $75.0 million. Borrowings under the Credit Facility are
due August 28, 2005 and bear interest at either the prime rate plus applicable
margin ranging from zero to 0.25% or, at the Company's option, the Eurodollar
rate plus applicable margin ranging from 1.75% to 2.50%. The applicable margin
is determined based on the calculation of a fixed charge coverage ratio.

      Among other provisions, the Credit Facility requires the maintenance of
certain specified levels of fixed charge coverage and limits certain capital and
other nonrecurring expenditures.

      The weighted average interest rate on borrowings outstanding at September
28, 2002 and September 29, 2001 were 4.09% and 5.78%, respectively. As of
September 28, 2002 and September 29, 2001, $114.8 million and $60.3 million,
respectively, were outstanding under the Credit Facility.

      Borrowings under the Credit Facility are secured by certain of the
Company's assets, including inventory and accounts receivable.

      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 $590,000 and $618,000 for
the fiscal years ended September 2003 and 2004, respectively.

3.    EQUIPMENT AND IMPROVEMENTS

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

<TABLE>
<CAPTION>

                                                            SEPTEMBER
                                                       2002           2001
                                                       ----           ----
<S>                                                 <C>             <C>
Store and office equipment                          $  52,705       $ 49,521
Leasehold improvements                                 35,993         33,774
Computer equipment and implementation costs            13,753         12,613
                                                    ---------       --------
Total equipment and improvements                      102,451         95,908
Less accumulated depreciation and amortization        (52,334)       (41,413)
                                                    ---------       --------
Total net equipment and improvements                $  50,117       $ 54,495
                                                    =========       ========
</TABLE>


                                      F-10
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


4.    ACCRUED AND OTHER LIABILITIES

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

<TABLE>
<CAPTION>

                                                    SEPTEMBER
                                                 2002         2001
                                                 ----         ----
<S>                                            <C>          <C>
Accrued compensation and related expenses      $ 7,207      $ 5,491
Income taxes payable                             2,844           --
Other                                            8,598        7,070
                                               -------      -------
Total                                          $18,649      $12,561
                                               =======      =======
</TABLE>

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 $78,000, $139,000 and $177,000 for the
forgiveness of interest and related taxes on the loans for the fiscal years
ended September 2002, 2001 and 2000, respectively. Interest


                                      F-11
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


was calculated at the minimum rates allowable for federal income tax purposes of
2.78%, 4.98% and 6.24% for the fiscal years ended September 2002, 2001 and 2000
respectively.

      Through September 28, 2002, 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 28, 2002.

6.    RELATED PARTY TRANSACTIONS

      During fiscal 2002, 2001 and 2000, the Company incurred management fees,
transaction fees and related expenses to Morgan Schiff, an affiliate of the
Company, totaling $2.4 million, $0.9 million and $0.9 million, respectively.
Morgan Schiff and the Company are affiliated through common controlling
ownership. Pursuant to a Financial Advisory Services Agreement (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 capital market
and other financing transactions. The Agreement has a term of one year with an
automatic renewal unless either party terminates by written notice. The Company
has agreed to indemnify Morgan Schiff against any losses associated with the
Agreement. Of the amounts incurred, $2.4 million and $0.2 million were
capitalized in fiscal years 2002 and 2001, respectively, related to the
Company's sale of Class A Common Stock and the bank refinancing. Amounts due to
Morgan Schiff aggregated $0.8 million and zero at fiscal year ends 2002 and
2001, respectively.

      The Company and Crescent Jewelers are affiliated through common
controlling ownership and have certain common officers and directors. In
connection with the refinancing of the Company's Credit Facility in August 2002,
Friedman's restructured its financial support of Crescent Jewelers by
terminating its guarantee of Crescent's previous $112.5 million senior secured
revolving credit facility and making a direct investment in Crescent of $85.0
million. The investment consists of $50.0 million of Series A Preferred Stock
and $35.0 million of a Senior Subordinated Note. Based in part on the Company's
financial support of $85.0 million, on August 28, 2002, Crescent Jewelers
replaced its previous $112.5 million senior secured revolving credit facility
with a $50.0 million secured credit facility. The Company still holds a warrant
to purchase 50% of the capital stock of Crescent Jewelers for an exercise price
of $500,000 that was received in consideration of the guarantee of Crescent's
previous credit facility on September 15, 1999. The warrant will expire on
September 14, 2014.

      The Series A Preferred Stock carries a floating rate dividend equal to the
all-in cost of funds under the Company's Credit Facility, plus a pre-tax amount
approximating a proportionate share of the 2% guarantee fee payable by Crescent
under the Company's guarantee of Crescent's previous credit facility, less the
tax benefit the Company receives from the dividends received deduction. This
calculation currently yields an approximate initial dividend rate of 6.26%.
Cumulative dividends on the Series A Preferred Stock are payable semi-annually
on January 15th and July 15th. The Company can request that the preferred stock
be redeemed by Crescent Jewelers at any time after August 28, 2007. The
preferred stock carries no voting rights, but does have a preference in
liquidation or upon a change of control.

      The Senior Subordinated Note carries a floating interest rate equal to the
all-in cost of funds under the Company's credit facility, plus an amount
approximating a proportionate share of the 2% guarantee fee payable by Crescent
under the Company's guarantee of Crescent's previous credit facility. This
calculation currently yields an initial interest rate of approximately 7.61%.
Interest on the note is payable semi-annually on January 15th and July 15th. The
note is due August 28, 2007. All amounts due under the note are subordinate to
Crescent's credit facility.


                                      F-12
<PAGE>
                                Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002



      The Company recorded dividend income of $275 thousand related to the
preferred stock and interest income of $237 thousand related to the subordinated
note for the quarter and year ended September 28, 2002.

      In connection with Crescent's 1999 revolving syndicated bank facility, the
Company agreed to provide certain credit enhancements and to guarantee
Crescent's obligations to the banks. These credit enhancements provided to
Crescent Jewelers composed of: (i) a guarantee by the Company of 100% of
Crescent's bank debt and (ii) additional collateral support provided by the
Company in the form of a security interest in $80.0 million of the Company's
inventory and receivables. In consideration for these enhancements and
guarantees, Crescent paid the Company a quarterly fee equal to 2% per annum of
outstanding borrowings and was issued a warrant to purchase 50% of the capital
stock of Crescent Jewelers for an exercise price of $500,000. The fair market
value of the warrant was determined to be $1 million and has been recorded as an
asset on the books of the Company. The income resulting from the Company's
acquisition of the warrant has been amortized using the interest method over a
period of 36 months, commencing with the month of acquisition, September 1999.

      Crescent paid the Company a quarterly fee equal to 2% per annum of the
outstanding borrowings of Crescent, equal to $2.0 million in 2002, $2.6 million
in 2001 and $2.4 million in 2000.

      During fiscal 2000, the Company entered into agreements licensing Crescent
to use certain trademarks owned by the Company, to provide Crescent with
merchandising, inventory management and replenishment systems, accounting and
systems support and certain other back office processing services and to provide
Crescent with integration services for new information technology systems at
Crescent. These agreements were effective in October 2000. The Company received
$0.8 million and $1.0 million in fiscal 2002 and 2001 respectively, for these
services, which has been recorded as a reduction of selling, general and
administrative expenses. As of September 28, 2002 additional amounts due to the
company from Crescent were $1.7 million.

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

      In connection with the employment of its Chief Operating Officer in
September 2001, the Company granted the officer a loan of $200,000 bearing
interest at the prime rate. The loan provides that all principal amounts due
under the loan will be ratably forgiven over a 3 year period if the officer
remains in the employment of the Company. During 2002, $66,667 was forgiven
under the loan and $133,333 was outstanding at September 28, 2002. In addition,
during July 2002, the Company made a relocation loan to its Chief Financial
Officer of $300,000, bearing interest at the prime rate. The loan is due upon
the sale of the officer's prior residence or three months following termination
of employment. The loan was outstanding at September 28, 2002.

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.


                                      F-13
<PAGE>
                                Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002




      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:

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>
                                       2002              2001               2000
                                       ----              ----               ----
<S>                                  <C>               <C>                <C>
Expected dividend yield                 0.90%             1.00%              0.60%
Risk-free interest rate                 4.51%             5.68%              5.92%
Expected life of options             10 years          10 years           10 years
Expected stock price volatility         0.629             0.645              0.582
</TABLE>

      The weighted average fair value per share of options granted during the
years ended September 28, 2002, September 29, 2001 and September 30, 2000 was
$5.57, $4.81 and $10.23, respectively. There were no shares available for future
grant at September 28, 2002.

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, 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
Granted                    429,500            8.34
Canceled                  (227,125)          (8.64)
Exercised                  (22,060)          (6.89)
                         ---------       ---------
September 28, 2002       1,629,378       $    9.99
                         ---------       ---------
</TABLE>


                                      F-14
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


The following table summarizes information concerning options outstanding and
exercisable at September 28, 2002:

<TABLE>
<CAPTION>
                                          WEIGHTED
                                           AVERAGE                           WEIGHTED         WEIGHTED
                                          EXERCISE                           AVERAGE          AVERAGE
    RANGE OF              NUMBER           PRICE            NUMBER       EXERCISE PRICE      REMAINING
EXERCISE PRICES        OUTSTANDING       PER SHARE       EXERCISABLE       PER SHARE      CONTRACTUAL LIFE
---------------        -----------       ---------       -----------       ---------      ----------------
<S>                    <C>               <C>             <C>             <C>              <C>
$5.63 - 7.84               751,015          $ 7.10           181,406           $ 6.75                8.5
$8.94 - 13.41              528,073           10.13           320,873            10.20                5.5
$13.56 - 19.62             347,290           15.95           336,490            15.96                3.4
$21.75                       3,000           21.75             3,000            21.75                5.6
                         ---------          ------           -------           ------                ---
                         1,629,378          $ 9.99           841,769           $11.80                6.4
                         =========          ======           =======           ======                ===
</TABLE>

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%. At September 28, 2002, no shares are
available for issuance under the Plan.


8.    INCOME TAXES

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

<TABLE>
<CAPTION>
                2002          2001          2000
                ----          ----          ----
<S>           <C>          <C>            <C>
Current:
Federal       $11,111      $  6,825       $ 9,980
State             723           344           984
              -------      --------       -------
               11,834         7,169        10,964
Deferred          581          (585)          885
              -------      --------       -------
              $12,415      $  6,584       $11,849
              =======      ========       =======
</TABLE>


                                      F-15
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


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

<TABLE>
<CAPTION>
                                                              2002          2001         2000
                                                              ----          ----         ----
<S>                                                         <C>            <C>          <C>
Federal tax at statutory rate                               $ 11,995       $ 6,042      $10,552
State income taxes (net of federal income tax benefit)           502           218          686
Other, net                                                       (82)          324          611
                                                            --------       -------      -------
                                                            $ 12,415       $ 6,584      $11,849
                                                            ========       =======      =======
</TABLE>

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

<TABLE>
<CAPTION>
                                        2002        2001
                                        ----        ----
<S>                                    <C>         <C>
Deferred tax assets:
  Allowance for doubtful accounts      $2,276      $1,372
  Accrued liabilities                     507       1,529
  Deferred revenue                      1,910       1,715
  Other                                   143          15
                                       ------      ------
  Total deferred tax assets             4,836       4,631

 Deferred tax liabilities:
  Equipment and improvements            2,401       1,884
  Inventories                             783         450
  Tradename                               172           0
  Other                                   273         509
                                       ------      ------
  Total deferred tax liabilities        3,629       2,843

                                       ------      ------
Net deferred tax asset                 $1,207      $1,788
                                       ======      ======
</TABLE>


                                      F-16
<PAGE>
                                 Friedman's Inc.
             Notes to Consolidated Financial Statements (continued)
                               September 28, 2002


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. During 2002, computer equipment in the
amount of $1.7 million was acquired under capital lease arrangements. Future
minimum lease payments under non-cancelable leases are as follows (in
thousands):

<TABLE>
<CAPTION>
                                            OPERATING      CAPITAL
YEARS ENDED SEPTEMBER,                       LEASES         LEASE        TOTAL
----------------------                       ------         -----        -----
<S>                                         <C>            <C>          <C>
2003                                         $ 22,725      $   679      $ 23,404
2004                                           18,606          622        19,228
2005                                           13,262            -        13,262
2006                                            7,078            -         7,078
2007                                            4,516            -         4,516
Subsequent years                                9,663            -         9,663
                                             --------      -------      --------
Total minimum lease payments                 $ 75,850        1,301      $ 77,151
                                             ========                   ========
Less amounts representing interest                              93
                                                           -------
Present value of minimum lease payments                    $ 1,208
                                                           =======
</TABLE>

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

<TABLE>
<CAPTION>
                              YEARS ENDED SEPTEMBER,
                              ----------------------
                          2002         2001         2000
                          ----         ----         ----
<S>                     <C>          <C>          <C>
Minimum rentals         $30,094      $28,160      $25,733
Contingent rentals          378          334          404
                        -------      -------      -------
Total rent              $30,472      $28,494      $26,137
                        =======      =======      =======
</TABLE>

      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 28, 2002


10.   QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is a summary of the quarterly results of operations for the years
ended September 28, 2002 and September 29, 2001 (in thousands except per share
data):

<TABLE>
<CAPTION>
                                              For the Fiscal Year Ended September 28, 2002
                                                             Quarters Ended
                                                             --------------
                                         December 30    March 31       June 30      September 29
                                         -----------    --------       -------      ------------
<S>                                      <C>            <C>           <C>           <C>
Net sales                                  $181,371      $94,346      $ 91,112       $   69,240
Cost of goods sold, including
occupancy, distribution and buying           89,522       51,188        48,212           38,564
Income (loss) before income taxes (c)        28,337        4,544         3,048             (527)
Net income (loss)                            18,434        2,987         2,015             (269)
Basic earnings (loss) per share (a)            1.27         0.18          0.11            (0.01)
Diluted earnings (loss) per share (a)          1.26         0.18          0.11            (0.01)
</TABLE>

<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 (c)        26,460        3,563       (11,812)(b)          (772)
Net income (loss)                            17,331        2,444        (7,045)             (502)
Basic earnings (loss) per share (a)            1.20         0.17         (0.49)            (0.03)
Diluted earnings (loss) per share (a)          1.20         0.17         (0.49)            (0.03)
</TABLE>

(a)   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.

(b)   Loss before income taxes includes a $4.2 million charge for the closing of
      23 stores and a $2.2 million charge for impaired assets associated with
      the store closings and the Company's internet e-commerce joint venture.

(c)   Income recognized from the 2% guarantee fee from Crescent was $554
      thousand for the quarter ending December 29, 2001; $548 thousand for
      quarter ending March 30, 2002; $560 thousand for the quarter ending June
      29, 2002; $358 thousand for the quarter ending September 28, 2002, $648
      thousand for the quarter ending December 30, 2000; $643 thousand for
      quarter ending March 31, 2001; $625 thousand for the quarter ending June
      30, 2001 and $653 thousand for the quarter ending September 29, 2001.


                                      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 28, 2002 and September 29, 2001, and the related
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 28, 2002. Our audits also included the
financial statement schedule listed in Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with 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 28, 2002 and September 29, 2001, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
September 28, 2002, 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.

As described in Note 1 to the financial statements, Friedman's Inc. adopted
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective September 30, 2001.

/s/ Ernst & Young LLP

November 1, 2002
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, 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
    Year ended September 28, 2002                             14,745,000       51,449,000(1)       49,543,000(2)       16,651,000

  Unearned finance charges, product warranties and
  credit insurance:
    Year ended September 30, 2000                            $18,129,000      $51,946,000(3)      $50,931,000(4)      $19,144,000
    Year ended September 29, 2001                             19,144,000       51,513,000(3)       52,676,000(4)       17,981,000
    Year ended September 28, 2002                             17,981,000       58,114,000(3)       55,169,000(4)       20,926,000
</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