<PAGE>

                                 United States
                      Securities and Exchange Commission
                            Washington, D.C. 20549

                                   FORM 10-Q

                                  (MARK ONE)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 2001

                                      or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From __________________ to ___________________

Commission file number 0-22356



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



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



          4 West State Street
        Savannah, Georgia 31401                               31401
------------------------------------------               ---------------
(Address of principal executive offices)                    (Zip Code)



                                (912) 233-9333
-------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)



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



Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

The number of shares of Registrant's Class A Common Stock $.01 par value per
share, outstanding at May 13, 2001 was 13,321,655.

The number of shares of Registrant's Class B Common Stock $.01 par value per
share, outstanding at May 13, 2001 was 1,196,283.
<PAGE>

                                     Index

                                Friedman's Inc.

<TABLE>
<S>      <C>
Part I.  Financial Information

Item 1.  Consolidated Financial Statements (Unaudited)

         Income Statements - Three and nine months ended June 30, 2001 and July 1, 2000

         Balance Sheets - June 30, 2001, July 1, 2000 and September 30, 2000

         Statements of Cash Flows - Nine months ended June 30, 2001 and July 1, 2000

         Notes to Consolidated Financial Statements


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

Part II. Other Information

Item 6.  Exhibits and Reports on Form 8-K

Signatures
</TABLE>
<PAGE>

Part I.  Financial Information
Item 1.

                                FRIEDMAN'S INC.
                        Consolidated Income Statements
                                  (Unaudited)
              (In thousands, except per share and share amounts)

<TABLE>
<CAPTION>

                                                                                Three months ended            Nine months ended
                                                                              June 30,        July 1,      June 30,         July 1,
                                                                                2001           2000          2001            2000
                                                                             ---------      ---------      ---------      ---------
<S>                                                                          <C>            <C>            <C>            <C>
Net sales ..............................................................     $  83,730      $  80,160      $ 345,271      $ 311,981

Operating Costs and Expenses:
      Cost of goods sold including occupancy,
           distribution and buying .....................................        44,921         41,784        179,773        163,774
      Selling, general and administrative ..............................        44,924         31,813        134,337        107,553
      Depreciation, amortization and impairment charges ................         5,079          2,458         10,962          7,001
                                                                             ---------      ---------      ---------      ---------
(Loss) income from operations ..........................................       (11,194)         4,105         20,199         33,653

Interest and other income from related party ...........................          (625)          (618)        (1,917)        (1,785)
Interest expense .......................................................         1,243          1,212          3,904          3,343
                                                                             ---------      ---------      ---------      ---------
(Loss) income before income taxes ......................................       (11,812)         3,511         18,212         32,095
Income tax (benefit) expense ...........................................        (3,793)         1,264          6,855         12,055
Minority interest ......................................................          (974)             0         (1,374)             0
                                                                             ---------      ---------      ---------      ---------
Net (loss) income ......................................................     $  (7,045)     $   2,247      $  12,731      $  20,040
                                                                             =========      =========      =========      =========

(Loss) earnings per share - basic & diluted ............................     $   (0.49)     $    0.16      $    0.88      $    1.39
                                                                             =========      =========      =========      =========

Weighted average shares - basic ........................................        14,517         14,453         14,495         14,439
Weighted average shares - diluted ......................................        14,621         14,453         14,495         14,439


Number of stores open ..................................................           635            599            635            599

</TABLE>
                See notes to consolidated financial statements.
<PAGE>

                                FRIEDMAN'S INC.
                          Consolidated Balance Sheets
              (In thousands, except per share and share amounts)


<TABLE>
<CAPTION>

                                                                                 June 30,       July 1,    September 30,
                                                                                   2001          2000         2000
                                                                               ------------   ----------   -------------
                                                                                (Unaudited)                   (Note)
<S>                                                                             <C>           <C>           <C>
Assets
Current Assets:
      Cash ..................................................................    $     379    $     835    $     459
      Accounts receivable, net of allowance for doubtful accounts
           of $21,563 at June 30, 2001, $15,013 at July 1, 2000
           and $13,514 at September 30, 2000.................................      137,498      123,700      122,168
      Inventories ...........................................................      141,672      129,980      121,607
      Deferred income taxes .................................................        3,107        3,628        3,105
      Other current assets ..................................................        8,633        3,337        5,187
                                                                                 ---------    ---------    ---------
           Total current assets..............................................      291,289      261,480      252,526

Equipment and improvements, net .............................................       53,647       52,479       56,420
Tradename rights, net .......................................................        5,140        5,611        5,493
Other assets ................................................................        3,430        4,190        3,995
                                                                                 ---------    ---------    ---------
           Total assets .....................................................    $ 353,506    $ 323,760    $ 318,434
                                                                                 =========    =========    =========

Liabilities and Stockholders' Equity
Current Liabilities:
      Accounts payable ......................................................    $  51,447    $  44,523    $  40,494
      Accrued liabilities ...................................................       16,413       18,541       15,772
                                                                                 ---------    ---------    ---------
           Total current liabilities ........................................       67,860       63,064       56,266

Bank debt ...................................................................       60,595       47,220       48,430
Deferred income taxes and other .............................................        1,686        1,944        2,221
Minority interest in equity of subsidiaries .................................           --           --          490

Stockholders' Equity:
      Preferred stock, par value $.01, 10,000,000 shares authorized;
           and none issued ..................................................           --           --           --
      Class A common stock, par value $.01, 25,000,000 shares
           authorized, 13,321,655, 13,261,807 and 13,271,207 issued and
           outstanding at June 30, 2001, July 1, 2000 and
           September 30, 2000, respectively .................................          133          133          133
      Class B common stock, par value $.01, 7,000,000 shares
           authorized, 1,196,283 issued and outstanding .....................           12           12           12
      Additional paid-in-capital ............................................      119,066      118,725      118,767
      Retained earnings .....................................................      105,294       93,842       93,290
      Stock purchase loans ..................................................       (1,140)      (1,180)      (1,175)
                                                                                 ---------    ---------    ---------
               Total stockholders' equity....................................      223,365      211,532      211,027
                                                                                 ---------    ---------    ---------
               Total liabilities and stockholders' equity ...................    $ 353,506    $ 323,760    $ 318,434
                                                                                 =========    =========    =========


Note:      The balance sheet at September 30, 2000 has been derived from the audited financial statements
           at that date but does not include all the information and footnotes required by generally accepted
           accounting principles for complete financial statements.

</TABLE>

                See notes to consolidated financial statements.
<PAGE>

                                FRIEDMAN'S INC.
                     Consolidated Statements of Cash Flows
                                  (Unaudited)
                                (In thousands)

<TABLE>
<CAPTION>

                                                                                                     Nine months ended
                                                                                               June 30,              July 1,
                                                                                                 2001                 2000
                                                                                              ----------            --------
<S>                                                                                           <C>                   <C>
Operating Activities:
      Net income .........................................................................     $ 12,731             $ 20,040
      Adjustments to reconcile net income to cash
          used in operating activities:
          Depreciation, amortization & impairment charges ................................       10,566                7,000
          Provision for doubtful accounts ................................................       43,284               29,749
          Income from related party ......................................................         (252)                (251)
          Changes in assets and liabilities:
               Increase in accounts receivable ...........................................      (58,614)             (55,669)
               Increase in inventories ...................................................      (20,065)             (15,852)
               (Increase) decrease in other assets .......................................       (2,359)               1,033
               Increase in accounts payable and
                   accrued liabilities ...................................................       12,223                8,892
                                                                                               --------             --------
                   Net cash used in operating
                        activities .......................................................       (2,486)              (5,058)
Investing Activities:
      Additions to equipment and improvements ............................................       (9,405)             (13,845)
      Repayments of employee stock purchases ..............................................          35                   20
                                                                                               --------             --------
               Net cash used in investing
                        activities .......................................................       (9,370)             (13,825)
Financing Activities:
      Proceeds from bank borrowings ......................................................       12,165               19,036
      Proceeds from employee stock purchases and options exercised .......................          299                  183
      Payment of cash dividend ...........................................................         (688)                (577)
                                                                                               --------             --------
               Net cash provided by financing
                        activities .......................................................       11,776               18,642
                                                                                               --------             --------
Decrease in cash .........................................................................          (80)                (241)
Cash, beginning of period ................................................................          459                1,076
                                                                                               --------             --------
Cash, end of period ......................................................................     $    379             $    835
                                                                                               ========             ========


</TABLE>

           See notes to condensed consolidated financial statements.
<PAGE>

                                FRIEDMAN'S INC.

                  Notes to Consolidated Financial Statements

                                  (Unaudited)

                                 June 30, 2001



Note A - Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X.  Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.  Operating results for the three month and nine month periods
ended June 30, 2001 are not necessarily indicative of the results that may be
expected for the year ending September 29, 2001.  For further information, refer
to the financial statements and footnotes thereto included in the Friedman's
Inc. Annual Report on Form 10-K for the year ended September 30, 2000.  Certain
reclassifications have been made to prior year and prior quarters amounts to
conform with current quarter presentation.

Note B - Earnings per Share

     The dilutive effect of stock options on the weighted average number of
shares outstanding for the period was zero for the three months and nine months
ended June 30, 2001 and July 1, 2000, respectively.
<PAGE>

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

     Certain of the matters discussed in this document and in documents
incorporated by reference in 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 the actual results, performance or achievements
of Friedman's Inc. ("Friedman's" or the "Company")  to be materially different
from future results performance or achievements expressed or implied by such
forward-looking statements.  The words "expect," "anticipate," "intend," "plan,"
"believe," "seek," "estimate," and similar expressions are intended to identify
such forward-looking statements.  The Company's actual results may differ
materially from the results anticipated in these forward-looking statements due
to a variety of factors, including without limitation those discussed under
"Factors Affecting Future Performance" below .  All written or oral forward-
looking statements attributable to the Company are expressly qualified in their
entirety by these cautionary statements.

Three months ended June 30, 2001 compared to three months ended July 1, 2000
----------------------------------------------------------------------------

Results of Operations
---------------------

     Net sales increased 4.5% to $83.7 million for the three months ended June
30, 2001, from $80.2 million for the three months ended July 1, 2000. The
increase in net sales was attributable to the net addition of 36 new stores
since July 1, 2000 and a comparable store net merchandise sales increase of 0.2%
for the three months ended June 30, 2001.

     Cost of goods sold, including occupancy, distribution and buying, increased
7.5% to $44.9 million, or 53.7%, of net sales, for the three months ended June
30, 2001, versus $41.8 million, or 52.1% of net sales, for the three months
ended July 1, 2000.  The increase in cost of goods sold as a percentage of net
sales was primarily due to a slight increase in merchandise cost of goods sold
as a percentage of net sales and an increase in reserves for inventory
disposition costs.

     Selling, general and administrative expenses increased 41.2% to $44.9
million for the three months ended June 30, 2001, from $31.8 million for the
three months ended July 1, 2000. As a percentage of net sales, selling, general
and administrative expenses increased to 53.7% of net sales for the three months
ended June 30, 2001 from 39.7% for the three months ended July 1, 2000. Selling,
general and administrative expenses for the three months ended June 30, 2001
included a non-comparable charge of $3.7 million related to the closing or
planned closing of 23 stores and operating expenses of $1.2 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 increased 25.7% to $40.0 million for the three months ended June 30,
2001 and as a percentage of net sales, increased to 47.8% from 39.7% for the
three months ended July 1, 2000. The increase as a percentage of net sales was
primarily the result of an increase in the provision for bad debt as a
percentage of net sales. The increase in the provision for bad debt as a
percentage of net sales was the result of increased charge offs as compared to
the comparable period last year and an increase in the allowance for doubtful
accounts as a percentage to accounts receivable to 13.6% this year as compared
to 10.8% in the prior year.

     Depreciation, amortization and impairment charges increased 106.6% to $5.1
million for the three months ended June 30, 2001, from $2.5 million for the
three months ended July 1, 2000.  Depreciation, amortization and impairment
charges as a percentage of net sales was 6.1% for the three months ended June
30, 2001 compared to 3.1% in the comparable period in the prior year.
Depreciation, amortization and impairment charges for the three months ended
June 30, 2001 included non-comparable charges of $0.6 million related to the
closing or planned closing of 23 stores and $1.6 million related to the write-
down of impaired assets used in the Company's internet joint venture.  Excluding
these non-comparable charges, depreciation and amortization expenses increased
16.0% to $2.9 million for the three months ended June 30, 2001 and as a
percentage of net sales increased to 3.4% compared to 3.1% in the comparable
period in the prior year.

     Interest and other income from a related party increased to $625,000 for
the three months ended June 30, 2001 compared to $618,000 for the three months
ended July 1, 2000.  Interest expense remained unchanged at $1.2 million for the
three months ended June 30, 2001 and July 1, 2000.
<PAGE>

     Net earnings decreased by 413.5% to a net loss of $7.0 million for the
three months ended June 30, 2001 compared to net income of $2.2 million for the
three months ended July 1, 2000. Basic and diluted earnings per share decreased
406.3% to a loss of $0.49 per share for the three months ended June 30, 2001
from income of $0.16 per share for the three months ended July 1, 2000. Basic
weighted average common shares outstanding increased 0.4% to 14,517,000 for the
three months ended June 30, 2001 from 14,453,000 for the comparable period in
the prior year. Diluted weighted average common shares outstanding increased
1.2% to 14,621,000 for the three months ended June 30, 2001 from 14,453,000 for
the comparable period in the prior year.

Nine months ended June 30, 2001 compared to nine months ended July 1, 2000
--------------------------------------------------------------------------

Results of Operations
---------------------

     Net sales increased 10.7% to $345.3 million for the nine months ended June
30, 2001 from $312.0 million for the nine months ended July 1, 2000. The
increase in net sales was attributable to the net addition of 36 new stores
since July 1, 2000 and an increase in comparable store net merchandise sales of
2.7% for the nine months ended June 30, 2001.

     Cost of goods sold, including occupancy, distribution and buying, increased
9.8% to $179.8 million, or 52.1%, of net sales, for the nine months ended June
30, 2001 versus $163.8 million, or 52.5% of net sales, for the nine months ended
July 1, 2000.  The decrease as a percentage of net sales was primarily the
result of a higher merchandise gross margin as a percentage of net sales. The
higher merchandise gross margin was primarily due to less sales of lower gross
margin clearance merchandise as compared to the comparable period in the prior
year.

     Selling, general and administrative expenses increased 24.9% to $134.3
million for the nine months ended June 30, 2001, from $107.6 million for the
nine months ended July 1, 2000. As a percentage of net sales, selling, general
and administrative expenses increased to 38.9% of net sales for the nine months
ended June 30, 2001 from 34.5% for the nine months ended July 1, 2000. Selling,
general and administrative expenses for the nine months ended June 30, 2001
included non-comparable charges of $4.2 million related to the closing or
planned closing of 34 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 increased 18.9% to $127.9 million for the nine months ended June 30,
2001, and as a percentage of net sales, increased to 37.0% from 34.5% for the
nine months ended July 1, 2000. The increase as a percentage of net sales was
primarily the result of increases in provision for bad debts. The increase in
the provision for bad debt as a percentage of net sales was primarily the result
of increased charge offs as compared to the comparable period last year.

     Depreciation, amortization and impairment charges increased 56.6% to $11.0
million for the nine months ended June 30, 2001, from $7.0 million for the nine
months ended July 1, 2000.  Depreciation, amortization and impairment charges as
a percentage of net sales was 3.2% for the nine months ended June 30, 2001
compared to 2.2% in the comparable period in the prior year.  Depreciation,
amortization and impairment charges for the nine months ended June 30, 2001
included non-comparable charges of $0.7 million related to the closing or
planned closing of 34 stores and $1.9 million related to the write-down of
impaired assets and the depreciation of fixed assets used in the Company's
internet joint venture. Excluding these non-comparable charges, depreciation and
amortization expenses increased 20.1% to $8.4 million for the nine months ended
June 30, 2001 and as a percentage of net sales increased to 2.4% compared to
2.2% in the comparable period in the prior year. In general, depreciation and
amortization expenses as a percentage of net sales may continue to increase as a
result of additional investments in stores, systems and infrastructure, but
management does not believe that such potential increases represent a material
continuing trend.

     Interest and other income from a related party increased to $1.9 million
for the nine months ended June 30, 2001 compared to $1.8 million for the nine
months ended July 1, 2000.  Interest expense increased to $3.9 million for the
nine months ended June 30, 2001 compared to $3.3 million for the three months
ended January 1, 2000.  The increase in interest expense was due primarily to
higher average outstanding borrowings on the Company's line of credit.  See
"Liquidity and Capital Resources."

     Net earnings decreased by 36.5% to $12.7 million for the nine months ended
June 30, 2001 compared to $20.0 million for the nine months ended July 1, 2000.
Basic and diluted earnings per share decreased 36.7% to
<PAGE>

$0.88 per share for the nine months ended June 30, 2001 from $1.39 per share for
the nine months ended July 1, 2000. Excluding the charge for store closing
costs, the write-off of internet fixed assets and the loss from internet
operations, basic and diluted earnings per share decreased 12.9% to $1.21 per
share for the nine months ended June 30, 2001 from $1.39 per share for the nine
months ended July 1, 2000. Basic and diluted weighted average common shares
outstanding increased 0.3% to 14,495,000 for the nine months ended June 30, 2001
from 14,439,000 for the comparable period in the prior year.

Liquidity and Capital Resources
-------------------------------

     During the nine months ended June 30, 2001, net cash used by the Company's
operating activities was $2.5 million compared to $5.1 million for the nine
months ended July 1, 2000.  For the nine months ended June 30, 2001, cash
provided by operations was favorably impacted, by increased net income excluding
non-cash expenses for provision for doubtful accounts and depreciation,
amortization and impairment charges, offset by increased net inventory levels,
increases in customer accounts receivable and an increase in other operating
assets.

     Investing activities used cash of $9.4 million for the nine months ended
June 30, 2001 compared to $13.8 million during the nine months ended July 1,
2000.  The decrease was due primarily to opening fewer stores than in the prior
year.

     Financing activities provided $11.8 million of cash for the nine months
ended June 30, 2001 compared to $18.6 million for the nine months ended July 1,
2000.  This cash was mostly provided from bank borrowings for the nine months
ended June 30, 2001.

     Currently, the Company has a $67.5 million senior secured revolving credit
facility maturing on September 15, 2002.  Borrowings under the credit facility
bear interest at either the federal funds rate plus 0.5%, the prime rate or, at
the Company's option, the eurodollar rate plus applicable margin ranging from
1.00% to 1.75%.  The applicable margin is determined based on a calculation of
the combined leverage ratio of the Company and Crescent Jewelers, an affiliate
of the Company. The facility contains certain financial covenants and is secured
by certain of the Company's assets.  At June 30, 2001, $60.6 million was
outstanding under the facility, with interest accruing on such borrowings in a
range from 5.8% to 6.8%.  Management believes that the Company's credit facility
will be sufficient to fund the Company's working capital requirements through
fiscal 2002.

     In connection with the credit facility, the Company provides certain credit
enhancements and guaranties the obligations of Crescent under its $112.5 million
senior secured revolving credit facility.  In consideration for this guaranty,
Crescent makes quarterly payments to the Company in an amount equal to 2% per
annum of the outstanding obligations of Crescent under its credit facility
during the preceding fiscal quarter.  In further consideration of this guaranty,
Crescent issued the Company a warrant to purchase 7,942,904 shares of Crescent's
non-voting Class A Common Stock, or approximately 50% of the capital stock of
Crescent on a fully diluted basis, for an exercise price of $500,000.

      On June 1, 2001, the Company's Board of Directors declared a quarterly
dividend of $0.0175, payable on July 16, 2001, to stockholders of record as of
June 30, 2001.

                      FACTORS AFFECTING FUTURE PERFORMANCE

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

          The number of stores we operate has increased greatly during the past
three years.  For example, we opened approximately 70 net new stores from
December 1999 to December 2000, and have continued to expand our store base
during fiscal 2001.  The success of our expansion program will depend on the
performance of our existing stores, our ability to find suitable store locations
and our ability to hire and train qualified store personnel.  We anticipate that
there will continue to be significant competition among specialty retailers for
desirable store sites and qualified personnel.  In addition, in fiscal 2001 we
launched a joint venture with Crescent Jewelers, an affiliate, to offer our
products over the internet.  To date, this joint venture has yet to achieve our
expectations.  Factors including consumer preferences regarding internet
shopping, concerns about the safety and reliability of internet shopping and our
ability to provide high-quality customer service and fulfillment will all be
significant in determining whether our internet joint venture is successful. Our
growth, including the internet joint venture, has placed, and will continue to
place, significant demands on all aspects of our business, including our
management information and distribution systems and personnel.  For these
reasons, we may not be successful in continuing our
<PAGE>

growth or successfully managing our growth which could result in a reduction in
our historical revenue growth or an increase in cost of goods sold which would
directly and adversely affect our earnings.

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, discounters, direct mail suppliers, television home
shopping networks and jewelry retailers who make sales through Internet sites.
Our credit operations compete with credit card companies and other providers of
consumer credit.  Management believes that Friedman's competes primarily on the
basis of selection of merchandise offered, pricing, quality of sales personnel,
advertising, ability to offer in-house credit, store location and reputation.
Many competitors are substantially larger and have greater financial resources
than we do.  We may not be able to compete successfully with such competitors.
Competition could cause us to lose customers, increase expenditures or reduce
pricing which could have a material adverse effect on our earnings.

Our results of operations have been and may continue to be significantly
affected by a downturn in general economic conditions.

     Jewelry is a luxury item, not a necessity product.  As a result, recent
adverse trends in the general economy, such as decreases in employment levels,
wages and salaries, have affected sales of our jewelry.  Historically, people
spend less money on luxury items, such as jewelry, during a decline in general
economic activity.  Also, negative developments in local economic conditions,
such as plant closings, industry slowdown and government 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 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 and some economies conditions in the markets in which we operate has
affected our ability to collect outstanding credit accounts receivable, and
could continue to do so if such conditions persist.

Instances of litigation relating to the sale of credit insurance have increased
in the retail industry and our business could be adversely affected by this
litigation.

     States' Attorneys General and private plaintiffs have filed lawsuits
against other retailers relating to improper practices conducted in connection
with the sale of credit insurance in several jurisdictions around the country.
We offer credit insurance in all of our stores and encourage the purchase of
credit insurance products in connection with sales of merchandise on credit.
Similar litigation may be brought against us, and  we could be liable for
substantial damages or may be forced to incur substantial costs as part of an
out-of-court settlement.  This could have a material adverse affect our results
of operations and stock price.  Also, an adverse judgment 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 December 30, has historically been the
strongest quarter of the year in terms of net sales and operating income.  Any
substantial disruption of holiday season shopping or other events which affect
our first quarter results could have a material adverse effect on our
profitability for the whole year.  Our quarterly results of operations also may
fluctuate significantly as a result of a variety of factors, including the
following:

     .    the timing of new store openings,
     .    net sales contributed by new stores,
     .    actions of competitors,
     .    fluctuations in comparable store sales,
<PAGE>

     .    timing of certain holidays,
     .    changes in our merchandise, and
     .    general economic, industry and weather conditions that affect consumer
          spending.

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

Part II.  Other Information

Item 6.   Exhibits and Reports on Form 8-K

          The Company did not file a Current Report on Form 8-K during the three
          month period ended June 30, 2001.

          The exhibits to this report on Form 10-Q are listed on the Exhibit
          Index which immediately follows the signature page hereto.
<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 August 14, 2001.




                                                     FRIEDMAN'S INC.

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




<PAGE>



                                 EXHIBIT INDEX

 Exhibit
 Number

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

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

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

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