`================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

        X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934*

             For the fiscal year ended  January 29, 2005    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: 33-59380

                         FINLAY FINE JEWELRY CORPORATION
                         -------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                         13-3287757
-----------------------------                              -------------------
State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization                              Identification No.)

        529 Fifth Avenue New York, NY                       10017
        ----------------------------------------          ----------
        (Address of principal executive offices)          (Zip Code)

                                  212-808-2800
              ----------------------------------------------------
              (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: None

                                   ----------

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 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 Rule 12b-2 of the Act).

                      Yes [ ]               No [X]
                          ---                  ---

As of April 8, 2005, there were 1,000 shares of common stock, par value $.01 per
share, of the registrant outstanding. As of such date, all shares of common
stock were owned by the registrant's parent, Finlay Enterprises, Inc., a
Delaware corporation.

*The registrant is not subject to the filing requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934 and is voluntarily filing this Annual
Report on Form 10-K.

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


                         FINLAY FINE JEWELRY CORPORATION

                                    FORM 10-K

                   FOR THE FISCAL YEAR ENDED JANUARY 29, 2005

                                      INDEX



                                                                                          PAGE(S)
                                                                                          -------

PART I
    Item 1.  Business.......................................................................  3
    Item 2.  Properties......................................................................12
    Item 3.  Legal Proceedings...............................................................12
    Item 4.  Submission of Matters to a Vote of Security Holders.............................13

PART II
    Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters
                and Issuer Purchases of Equity Securities....................................14
    Item 6.  Selected Consolidated Financial Data............................................15
    Item 7.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations..........................................17
    Item 7A. Quantitative and Qualitative Disclosures about Market Risk......................36
    Item 8.  Financial Statements and Supplementary Data.....................................37
    Item 9.  Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure..........................................37
    Item 9A. Controls and Procedures.........................................................37
    Item 9B. Other Information...............................................................39

PART III
    Item 10. Directors and Executive Officers of the Registrant..............................40
    Item 11. Executive Compensation..........................................................43
    Item 12. Security Ownership of Certain Beneficial Owners and Management and
                Related Stockholder Matters..................................................55
    Item 13. Certain Relationships and Related Transactions..................................59
    Item 14. Principal Accounting Fees and Services..........................................60

PART IV
    Item 15. Exhibits, Financial Statement Schedules.........................................60

SIGNATURES   ................................................................................67



                                       2


                                     PART I

ITEM 1. BUSINESS
        --------

THE COMPANY

     Finlay Fine Jewelry Corporation, a Delaware corporation, and its
wholly-owned subsidiaries ("Finlay Jewelry", the "Registrant", "we", "us" and
"our") is a wholly-owned subsidiary of Finlay Enterprises, Inc., a Delaware
corporation (the "Holding Company"). References to "Finlay" mean, collectively,
the Holding Company and Finlay Jewelry. All references herein to "departments"
refer to fine jewelry departments operated pursuant to license agreements with
host department stores.

     We are one of the leading retailers of fine jewelry in the United States.
We operate licensed fine jewelry departments in major department stores for
retailers such as The May Department Stores Company ("May"), Federated
Department Stores, Inc. ("Federated"), Belk, the Carson Pirie Scott division of
Saks Incorporated and Dillard's. We sell a broad selection of moderately priced
fine jewelry, including necklaces, earrings, bracelets, rings and watches, and
market these items principally as fashion accessories with an average sales
price of approximately $201 per item. Average sales per department were $955,000
in 2004 and the average size of a department is approximately 800 square feet.

     As of January 29, 2005, we operated our 962 locations in 16 host store
groups in 46 states and the District of Columbia. Our largest host store
relationship is with May, for which we have operated departments since 1948. We
operate in 481 of May's fine jewelry departments, representing substantially all
of May's department stores. Our second largest host store relationship is with
Federated, for which we have operated departments since 1983. We operate
departments in 113 of Federated's 458 department stores. During 2004, store
groups owned by May and Federated accounted for 59% (including Marshall Field's
for the 2004 fiscal year) and 19%, respectively, of our sales. Our management
believes that we maintain excellent relations with our host store groups, 15 of
which have had license agreements with us for more than five years (representing
91% of our sales in 2004) and twelve of which have had license agreements with
us for more than ten years (representing 76% of our sales in 2004).

     On February 28, 2005, Federated and May announced that they have entered
into a merger agreement whereby Federated would acquire May. The transaction is
expected to close in the third quarter of 2005. The completion of the merger is
contingent upon regulatory review and approval by the shareholders of both
companies. Finlay's license agreements with May are terminable as follows:
Robinsons-May/Meier & Frank, Filene's/Kaufmann's and Famous Barr/L.S.
Ayres/Jones on January 28, 2006, Foley's, Hecht's/Strawbridge's and Lord &
Taylor on February 3, 2007 and Marshall Field's on April 2, 2008. Finlay's
license agreements with Federated are terminable as follows:
Rich's-Macy's/Lazarus-Macy's/Goldsmith's-Macy's and Bon-Macy's on January 28,
2006 and Bloomingdale's on February 3, 2007. We cannot anticipate the impact of
the proposed transaction on our future results of operations and there is no
assurance that we will not be adversely impacted.

     On March 1, 2005, the Holding Company announced that it is in advanced
discussions regarding a possible acquisition of Carlyle & Co. Jewelers
("Carlyle"). Carlyle is a privately-owned regional chain, located primarily in
the southeastern United States, with 32 jewelry stores and annual sales of
approximately $80.0 million. Finlay is presently engaged in its due diligence
review of Carlyle.

     During the second quarter of 2004, we and the Holding Company completed the
redemption of our then-outstanding 8-3/8% Senior Notes, due May 1, 2008, having
an aggregate principal amount of $150.0 million (the "Senior Notes") and the 9%
Senior Debentures, due May 1, 2008, having an aggregate principal amount of
$75.0 million (the "Senior Debentures"). Additionally, in June 2004, we
completed the sale of the 8-3/8% Senior Notes, due June 1, 2012, having an
aggregate principal amount of $200.0 million (the "New Senior Notes"). These
transactions were undertaken to decrease our overall interest rate, extend our
debt maturities and decrease total long-term debt as well as simplify our
capital structure by eliminating debt at the parent company level.


                                       3


     During 2003, Federated announced that it would not renew our license
agreement in its Burdines department store division due to the consolidation of
the Burdines and Macy's fine jewelry departments in 2004. The termination of the
license agreement in January 2004 resulted in the closure of 46 Finlay
departments in the Burdines department store division. In 2003, we generated
approximately $55 million in sales from the Burdines departments. Additionally,
in 2003, May announced its intention to divest 32 Lord & Taylor stores as well
as two other stores in its Famous-Barr division, resulting in the closure of 18
departments in 2004, which generated approximately $10.6 million in sales.
Through January 29, 2005, a total of 27 of these stores have closed.

     On January 22, 2003, our revolving credit agreement with General Electric
Capital Corporation ("G.E. Capital") and certain other lenders was amended and
restated (the "Revolving Credit Agreement"). The Revolving Credit Agreement,
which matures in January 2008, provides us with a senior secured revolving line
of credit up to $225.0 million (the "Revolving Credit Facility").

     Our fiscal year ends on the Saturday closest to January 31. References to
2005, 2004, 2003, 2002, 2001 and 2000 relate to the fiscal years ending on
January 28, 2006, January 29, 2005, January 31, 2004, February 1, 2003, February
2, 2002 and February 3, 2001, respectively. Each of the fiscal years includes 52
weeks except 2000, which includes 53 weeks.

     We were initially incorporated on August 2, 1985 as SL Holdings Corporation
("SL Holdings"). The Holding Company, a Delaware corporation incorporated on
November 22, 1988, was organized by certain officers and directors of SL
Holdings to acquire certain operations of SL Holdings. In connection with a
reorganization transaction in 1988, which resulted in the merger of a
wholly-owned subsidiary of the Holding Company into SL Holdings, SL Holdings
changed its name to Finlay Fine Jewelry Corporation and became a wholly-owned
subsidiary of the Holding Company. Our principal executive offices are located
at 529 Fifth Avenue, New York, New York 10017 and our telephone number at this
address is (212) 808-2800.

GENERAL

     OVERVIEW. Host stores benefit from outsourcing the operation of their fine
jewelry departments. By engaging us, host stores gain specialized managerial,
merchandising, selling, marketing, inventory control and security expertise.
Additionally, by avoiding the high working capital investment typically required
of the jewelry business, host stores improve their return on investment and can
potentially increase their profitability.

     As a licensee, we benefit from the host stores' reputation, customer
traffic, advertising, credit services and established customer base. We also
avoid the substantial capital investment in fixed assets typical of stand-alone
retail formats. These factors have generally enabled our new departments to
achieve profitability within their first twelve months of operation. We further
benefit because net sales proceeds are generally remitted to us by each host
store on a monthly basis with essentially all customer credit risk borne by the
host store.

     As a result of our strong relationships with our vendors, our management
believes that our working capital requirements are lower than those of many
other jewelry retailers. In recent years, on average, approximately 50% of our
merchandise has been carried on consignment. The use of consignment merchandise
also reduces our inventory exposure to changing fashion trends because unsold
consigned merchandise can be returned to the vendor.

     INDUSTRY. Our management believes that current trends in jewelry retailing
provide a significant opportunity for our growth. Consumers spent approximately
$57.0 billion on jewelry (including both fine and costume jewelry) in the United
States in 2004, an increase of approximately $21.0 billion over 1994, according
to the United States Department of Commerce. In the department store sector in
which we operate, consumers spent an estimated $4.1 billion on fine jewelry in
2003. Our management believes that demographic factors such as the maturing U.S.
population and an increase in the number of working


                                       4


women have resulted in greater disposable income, thus contributing to the
growth of the fine jewelry retailing industry. Our management also believes that
jewelry consumers today increasingly perceive fine jewelry as a fashion
accessory, resulting in purchases which augment our gift and special occasion
sales. Our departments are typically located in "high traffic" areas of leading
department stores, enabling us to capitalize on these consumer buying patterns.

     GROWTH STRATEGY. We intend to continue to pursue the following key
initiatives to increase sales and earnings:

o    INCREASE COMPARABLE DEPARTMENT SALES. Our merchandising and marketing
     strategy includes emphasizing key merchandise items, increasing focus on
     holiday and event-driven promotions, participating in host store marketing
     programs and positioning our departments as "destination locations" for
     fine jewelry. We believe that comparable department sales (sales from
     departments open for the same months during the comparable period) will
     continue to benefit from these strategies. Over the past decade, we have
     experienced comparable store sales increases (in nine out of ten years) and
     have consistently outperformed our host store groups with respect to these
     increases.

o    ADD DEPARTMENTS WITHIN EXISTING HOST STORE GROUPS. Our well established
     relationships with many of our host store groups have enabled us to add
     departments in new locations opened by existing host stores. We also seek
     to open new departments within existing host stores that do not currently
     operate jewelry departments. We have operated departments in May stores
     since 1948 and operate in 481 of May's fine jewelry departments,
     representing substantially all of May's department stores. We have also
     operated departments in Federated stores since 1983 and operate departments
     in 113 of Federated's 458 department stores.

o    ESTABLISH NEW HOST STORE RELATIONSHIPS. We have an opportunity to grow by
     establishing new relationships with department stores that presently
     operate their own fine jewelry departments or have an interest in opening
     jewelry departments. We seek to establish these new relationships by
     demonstrating to department store management the potential for improved
     financial performance. Through acquisitions, we have added Marshall
     Field's, Parisian, Dillard's and Bloomingdale's to our host store
     relationships.

o    OPEN NEW CHANNELS OF DISTRIBUTION. An important initiative and focus of
     management is finding new opportunities for growth. We seek to identify
     complementary businesses, such as one or more regional jewelry chains, to
     leverage our core competencies in the jewelry industry. The Holding
     Company's proposed acquisition of Carlyle, discussed above, represents a
     retail format different from the licensed department store business. In
     November 2003, we began a relationship with SmartBargains.com, LP
     ("SmartBargains") to provide jewelry via its internet site and successfully
     absorbed this e-business fulfillment into our distribution center.

o    IMPROVE OPERATING LEVERAGE. We seek to continue to leverage expenses both
     by increasing sales at a faster rate than expenses and by reducing our
     current level of certain operating expenses. For example, we have
     demonstrated that by increasing the selling space (with host store
     approval) of certain high volume departments, incremental sales can be
     achieved without having to incur proportionate increases in selling and
     administrative expenses. In addition, our management believes we will
     benefit from further investments in technology and refinements of operating
     procedures designed to allow our sales associates more time for customer
     sales and service. Our merchandising and inventory control system and our
     point-of-sale system for our departments provide the foundation for
     improved productivity and expense control initiatives. Further, our central
     distribution facility has enabled us to improve the flow of merchandise to
     departments and to reduce payroll and freight costs.


                                       5


o    ENHANCE CUSTOMER SERVICE STANDARDS AND STRENGTHEN SELLING TEAMS. We are
     continuously developing and evaluating our selling teams. One of our
     priorities is to effectively manage personnel at our store locations, as
     they are the talent driving our business at the critical point of sale. We
     place strong emphasis on training and customer service. Over the past
     twelve months, we added trainers and expanded our interactive, web-based
     training programs to provide our associates with a uniform training
     experience. We believe our training initiatives have increased, and will
     continue to enhance, selling productivity. In order to further our goals of
     optimizing service levels and driving sales growth, we will continue to
     incentivize our sales associates by providing performance-based
     compensation and recognition.

     MERCHANDISING STRATEGY. We seek to maximize sales and profitability through
a unique merchandising strategy known as the "Finlay Triangle", which integrates
store management (including host store management and our store group
management), vendors and our central office. By coordinating efforts and sharing
access to information, each Finlay Triangle participant plays a role which
emphasizes its area of expertise in the merchandising process, thereby
increasing productivity. Within guidelines set by the central office, our store
group management contributes to the selection of the specific merchandise most
appropriate to the demographics and customer tastes within their particular
geographical area. Our advertising initiatives and promotional planning are
closely coordinated with both host store management and our store group
management to ensure the effective use of our marketing programs. Vendors
participate in the decision-making process with respect to merchandise
assortment, including the testing of new products, marketing, advertising and
stock levels. By utilizing the Finlay Triangle, opportunities are created for
the vendor to assist in identifying fashion trends thereby improving inventory
turnover and profitability, both for the vendor and us. As a result, our
management believes it capitalizes on economies of scale by centralizing certain
activities, such as vendor selection, advertising and planning, while allowing
store management the flexibility to implement merchandising programs tailored to
the host store environments and clientele.

                              THE FINLAY TRIANGLE

                               [GRAPHIC OMITTED]

                                     FINLAY
                                 MERCHANDISING
                                      TEAM

                       VENDORS                  STORE
                                              MANAGEMENT

     We have structured our relationships with vendors to encourage sharing of
responsibility for marketing and merchandise management. We furnish to vendors,
through on-line access to our information systems, the same sales, stock and
gross margin information that is available to our store group management and
central office for each of the vendor's styles in our merchandise assortment.
Using this information, vendors are able to participate in decisions to
replenish inventory which has been sold and to return or exchange slower-moving
merchandise. New items are tested in specially selected "predictor" departments
where sales experience can indicate an item's future performance in our other
departments. Our management believes that the access and input which vendors
have in the merchandising process results in a better assortment, more timely
replenishment, higher turnover and higher sales of inventory, differentiating us
from our competitors.

     Since many of the host store groups in which we operate differ in fashion
image and customer demographics, our flexible approach to merchandising is
designed to complement each host store's own merchandising philosophy. We
emphasize a "fashion accessory" approach to fine jewelry and watches, and seek
to provide items that coordinate with the host store's fashion focus as well as
to maintain stocks of traditional and gift merchandise.


                                       6


STORE RELATIONSHIPS

     HOST STORE RELATIONSHIPS. Our relations with our host store groups, 15 of
which have had license agreements with us for more than five years (representing
91% of our sales in 2004) and twelve of which have had license agreements with
us for more than ten years (representing 76% of our sales in 2004), provide
strong and, in many instances, long-term relationships such that license
agreements are routinely renewed.

     The following table identifies the host store groups in which we operated
departments at January 29, 2005, the year in which our relationship with each
host store group commenced and the number of departments operated by us in each
host store group.



HOST STORE GROUP                                                    INCEPTION OF       NUMBER OF
                                                                    RELATIONSHIP      DEPARTMENTS
                                                                    ------------      -----------

MAY
Robinsons-May/Meier & Frank....................................         1948                74
Filene's/Kaufmann's............................................         1977                99
Lord & Taylor..................................................         1978                62
Famous Barr/L.S. Ayres/Jones...................................         1979                42
Foley's........................................................         1986                69
Hecht's/Strawbridge's..........................................         1986                81
Marshall Field's...............................................         1997                54
                                                                                           ---
    Total May Departments......................................                                        481

FEDERATED
Rich's-Macy's/Lazarus-Macy's/Goldsmith's-Macy's (1)............         1983                60
Bon-Macy's (1).................................................         1993                23
Bloomingdale's.................................................         2000                30
                                                                                           ---
    Total Federated Departments................................                                        113

SAKS INCORPORATED
Carson Pirie Scott/Bergner's/Boston Store/Younkers/Herberger's.         1973                83
Parisian.......................................................         1997                32
                                                                                           ---
    Total Saks Incorporated Departments........................                                        115

OTHER DEPARTMENTS
Gottschalks....................................................         1969                38
Belk's.........................................................         1975                67
The Bon-Ton/Elder Beerman......................................         1986                78
Dillard's......................................................         1997                70
                                                                                           ---
    Total Other Departments....................................                                        253
                                                                                                       ---
    Total Departments..........................................                                        962
                                                                                                       ===


----------
(1)  Effective in March, 2005, Federated changed the name of these groups to
     Macy's.


                                       7


     TERMS OF LICENSE AGREEMENTS. Our license agreements typically have an
initial term of one to five years. Substantially all of our license agreements
contain renewal options or provisions for automatic renewal absent prior notice
of termination by either party. License agreement renewals are generally for one
to three year periods. In exchange for the right to operate a department within
the host store, we pay each host store group a license fee, calculated as a
percentage of sales (subject to a minimum annual fee in a limited number of
cases).

     Our license agreements require host stores to remit sales proceeds for each
month (without regard to whether such sales were cash, store credit or national
credit card) to us approximately three weeks after the end of such month.
However, we cannot ensure the collection of sales proceeds from our host stores.
Additionally, substantially all of our license agreements provide for
accelerated payments during the months of November and December, which require
the host store groups to remit to us 75% of the estimated months' sales prior to
or shortly following the end of each such month. Each host store group withholds
from the remittance of sales proceeds a license fee and other expenditures, such
as advertising costs, which the host store group may have incurred on our
behalf.

     We are usually responsible for providing and maintaining any fixtures and
other equipment necessary to operate our departments, while the host store is
typically required to provide clean space for installation of any necessary
fixtures. The host store is generally responsible for paying utility costs
(except certain telephone charges), maintenance and certain other expenses
associated with the operation of the departments. Our license agreements
typically provide that we are responsible for the hiring (subject to the
suitability of such employees to the host store) and discharge of our sales and
department supervisory personnel, and substantially all license agreements
require us to provide our employees with salaries and certain benefits
comparable to those received by the host store's employees. Many of our license
agreements provide that we may operate the departments in any new stores opened
by the host store group. In certain instances, we are operating departments
without written agreements, although the arrangements in respect of such
departments are generally in accordance with the terms described herein.

     In several cases, we are subject to limitations under our license
agreements which prohibit us from operating departments for competing host store
groups within a certain geographical radius of the host stores (typically five
to ten miles). Such limitations restrict us from further expansion within areas
where we currently operate departments, including expansion by possible
acquisitions. Certain license agreements, however, make an exception for adding
departments in stores established by groups with which we have a preexisting
license agreement. In addition, we have from time to time obtained the consent
of an existing host store group to operate in another host store group within a
prohibited area. For example, May and Federated have granted consents of this
type to us with respect to one another's stores. Further, we have sought and
received the consent of certain of our existing host store groups in connection
with past acquisitions.

     CREDIT. Substantially all consumer credit risk is borne by the host store
rather than by us. Purchasers of our merchandise at a host store are entitled to
the use of the host store's credit facilities on the same basis as all of the
host store's customers. Payment of credit card or check transactions is
generally guaranteed to us by the host store, provided that the proper credit
approvals have been obtained in accordance with the host store's policy.
Accordingly, payment to us in respect of our sales proceeds is generally not
dependent on when, or if, payment is received by the host store.

     DEPARTMENTS OPENED/CLOSED. During 2004, department openings offset by
closings resulted in a net decrease of ten departments. The openings, which
totaled 28 departments, including eleven departments in Dillard's, were all
within existing store groups. The closings totaled 38 departments and included
17 Lord & Taylor departments as well as one Famous Barr department as a result
of May's decision to close these smaller, less profitable locations. The balance
of the closings were within existing store groups. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-2004 Compared with
2003".


                                       8


     The following table sets forth data regarding the number of departments
which we have operated from the beginning of 2000:



                                                               FISCAL YEAR ENDED
                                           ---------------------------------------------------------
                                           JAN. 29,    JAN. 31,     FEB. 1,     FEB. 2,     FEB. 3,
                                             2005        2004        2003        2002        2001
                                           --------    ---------   --------    ---------   ---------

DEPARTMENTS:
Open at beginning of year ..............        972       1,011       1,006       1,053         987
Opened during year .....................         28          32          21          33          86
Closed during year .....................        (38)        (71)        (16)        (80)        (20)
                                           --------    --------    --------    --------    --------
Open at end of year ....................        962         972       1,011       1,006       1,053
                                           --------    --------    --------    --------    --------
Net increase (decrease) ................        (10)        (39)          5         (47)         66
                                           ========    ========    ========    ========    ========


     For the years presented in the table above, department closings were
primarily attributable to: ownership changes in host store groups; internal
consolidation within host store groups; the closing or sale by host store groups
of individual stores; host store group decisions to consolidate with one
licensee or to operate departments themselves; and our decision to close
unprofitable departments. To our management's knowledge, none of the department
closings during the periods presented in the table above resulted from
dissatisfaction of a host store group with our performance.

PRODUCTS AND PRICING

     Each of our departments offers a broad selection of necklaces, earrings,
bracelets, rings and watches. Other than watches, substantially all of the fine
jewelry items sold by us are made from precious metals and many also contain
diamonds or colored gemstones. We also provide jewelry and watch repair
services. We do not carry costume or gold-filled jewelry. Specific brand
identification is generally not important within the fine jewelry business,
except for watches and designer jewelry. With respect to watches, we emphasize
brand name vendors, including Citizen, Bulova, Movado and Seiko. Many of our
license agreements with host store groups restrict us from selling certain types
of merchandise or, in some cases, selling particular merchandise below certain
price points.

     The following table sets forth the sales and percentage of sales by
category of merchandise for 2004, 2003 and 2002:



                                                               FISCAL YEAR ENDED
                                           -----------------------------------------------------------------
                                             JAN. 29, 2005           JAN. 31, 2004          FEB. 1, 2003
                                           -------------------    -------------------    -------------------
                                                       % OF                   % OF                   % OF
                                            SALES      SALES       SALES      SALES       SALES      SALES
                                           --------   --------    --------   --------    --------   --------
                                                               (DOLLARS IN MILLIONS)

Diamonds ...............................   $  244.0       26.4%   $  232.6       25.8%   $  217.8       24.8%
Gold ...................................      197.3       21.4       196.9       21.8       196.0       22.3
Gemstones ..............................      196.8       21.3       198.0       22.0       196.3       22.4
Watches ................................      132.0       14.3       134.0       14.8       134.3       15.3
Designer ...............................       53.2        5.8        42.6        4.7        33.0        3.8
Other (1) ..............................      100.3       10.8        98.3       10.9        99.9       11.4
                                           --------   --------    --------   --------    --------   --------
Total Sales ............................   $  923.6      100.0%   $  902.4      100.0%   $  877.3      100.0%
                                           ========   ========    ========   ========    ========   ========


----------
(1)  Includes special promotional items, remounts, estate jewelry, pearls,
     beads, cubic zirconia, sterling silver and men's jewelry, as well as repair
     services and accommodation sales to our employees.

     We sell our merchandise at prices generally ranging from $50 to $1,000. In
2004, the average price of items sold by us was approximately $201 per item. An
average department has over 5,000 items in stock. Consistent with fine jewelry
retailing in general, a substantial portion of our sales are made at prices
discounted from listed retail prices. Our advertising and promotional planning
are closely coordinated with our pricing strategy. Publicized sales events are
an important part of our marketing efforts. A substantial portion of our sales
occur during such promotional events. The amount of time during which


                                       9


merchandise may be offered at discount prices is limited by applicable laws and
regulations. See "Legal Proceedings".

PURCHASING AND INVENTORY

     GENERAL. A key element of our strategy has been to lower the working
capital investment required for operating our existing departments and opening
new departments. In recent years, on average, approximately 50% of our
merchandise has been obtained on consignment and certain additional inventory
has been purchased with extended payment terms. In 2004, our net monthly
investment in inventory (i.e., the total cost of inventory owned and paid for)
averaged 35% of the total cost of our on-hand merchandise. We are generally
granted exchange privileges which permit us to return or exchange unsold
merchandise for new products at any time. In addition, we structure our
relationships with vendors to encourage their participation in and
responsibility for merchandise management. By making the vendor a participant in
our merchandising strategy, we have created opportunities for the vendor to
assist in identifying fashion trends, thereby improving inventory turnover and
profitability. As a result, our direct capital investment in inventory has been
reduced to levels which we believe are low for the retail jewelry industry. In
addition, our inventory exposure to changing fashion trends is reduced because
unsold consignment merchandise can be returned to the vendor.

     In 2004, merchandise obtained from our 40 largest vendors (out of a total
of approximately 500 vendors) generated approximately 82% of sales, and
merchandise obtained from our largest vendor generated approximately 10% of
sales. We do not believe the loss of any one of our vendors would have a
material adverse effect on our business.

     GOLD CONSIGNMENT AGREEMENT. We are a party to an amended and restated gold
consignment agreement (as amended, the "Gold Consignment Agreement"), which
enables us to receive consignment merchandise by providing gold, or otherwise
making payment, to certain vendors. While the merchandise involved remains
consigned, title to the gold content of the merchandise transfers from the
vendors to the gold consignor. Our Gold Consignment Agreement matures on July
31, 2005, and permits us to consign up to the lesser of (i) 165,000 fine troy
ounces or (ii) $50.0 million worth of gold, subject to a formula as prescribed
by the Gold Consignment Agreement. We are currently in the process of extending
the term of the Gold Consignment Agreement. At January 29, 2005, amounts
outstanding under the Gold Consignment Agreement totaled 116,687 fine troy
ounces, valued at approximately $49.8 million. The average amount outstanding
under the Gold Consignment Agreement was $48.9 million for the fiscal year ended
January 29, 2005. In the event this arrangement is terminated, we will be
required to return the gold or purchase the outstanding gold at the prevailing
gold rate in effect on that date.

     Under the Gold Consignment Agreement, we are required to pay a daily
consignment fee on the dollar equivalent of the fine gold value of the ounces of
gold consigned thereunder. The daily consignment fee is based on a floating rate
which, as of January 29, 2005, was 2.8% per annum. In conjunction with the Gold
Consignment Agreement, we granted to the gold consignor a first priority
perfected lien on, and a security interest in, specified gold jewelry of
participating vendors approved under the Gold Consignment Agreement and a lien
on proceeds and products of such jewelry, subject to the terms of an
intercreditor agreement between the gold consignor and the Revolving Credit
Agreement lenders.

OPERATIONS

     GENERAL. Most of our departments have between 50 and 150 linear feet of
display cases (with an average of approximately 80 linear feet) generally
located in high traffic areas on the main floor of the host stores. Each
department is supervised by a manager whose primary duties include customer
sales and service, scheduling and training of personnel, maintaining security
controls and merchandise presentation. Each department is open for business
during the same hours as its host store.


                                       10


     To parallel host store operations, we have established separate group
service organizations responsible for managing departments operated for each
host store. Staffing for each group organization varies with the number of
departments in each group. Typically, we service each host store group with a
group manager, an assistant group manager, one group buyer, three or more
regional supervisors who oversee the individual department managers and a number
of clerical employees. Each group manager reports to a regional vice president,
who is responsible for the supervision of up to five host store groups. In our
continued efforts to improve comparable department sales through improved
operating efficiency, we have taken steps to minimize administrative tasks at
the department level, to improve customer service and, as a result, sales.

     We had average sales per linear foot of approximately $12,000 in 2004, and
$11,700 in both 2003 and 2002. We determine average sales per linear foot by
dividing our sales by the aggregate estimated measurements of the outer
perimeters of the display cases of our departments. We had average sales per
department of approximately $955,000, $932,000 and $911,000 in 2004, 2003 and
2002, respectively.

     MANAGEMENT INFORMATION AND INVENTORY CONTROL SYSTEMS. We, along with our
vendors, use our management information systems to monitor sales, gross margin
and inventory performance by location, merchandise category, style number and
vendor. Using this information, we are able to monitor merchandise trends and
variances in performance and improve the efficiency of our inventory management.
We also measure the productivity of our sales force by maintaining current
statistics for each employee such as sales per hour, transactions per hour and
transaction size. Our merchandising and inventory control system and
point-of-sale system for our departments have provided improved analysis and
reporting capabilities. Additionally, these systems provide the foundation for
improved productivity and expense control initiatives.

     PERSONNEL AND TRAINING. We consider our employees an important component of
our operations and devote substantial resources to training and improving the
quality of sales and management personnel.

     As of the end of 2004, we regularly employed approximately 6,000 people of
which approximately 95% were regional and local sales and supervisory personnel
and the balance were employed in administrative or executive capacities. Of our
6,000 employees, approximately 3,000 were part-time employees, working less than
32 hours per week. Our labor requirements fluctuate because of the seasonal
nature of our business. Our management believes that relations with our
employees are good. Less than 1% of our employees are unionized.

     ADVERTISING. We promote our products through four-color direct mail
catalogs, using targeted mailing lists, and newspaper advertising of the host
store groups. We maintain an in-house advertising staff responsible for
preparing a majority of our advertisements and for coordinating the finished
advertisements with the promotional activities of the host stores. Our gross
advertising expenditures over the past five fiscal years have been approximately
5% of sales, a level which is consistent with the jewelry industry's reliance on
promotional efforts to generate sales. The majority of our license agreements
with host store groups require us to expend certain specified minimum
percentages of the respective department's annual sales on advertising and
promotional activities.

     INVENTORY LOSS PREVENTION AND INSURANCE. We undertake substantial efforts
to safeguard our merchandise from loss or theft, including the installation of
safes and lockboxes at each location and the taking of a daily diamond inventory
count. During 2004, inventory shrinkage amounted to approximately 0.4% of sales.
We maintain insurance covering the risk of loss of merchandise in transit or on
our premises (whether owned or on consignment) in amounts that management
believes are reasonable and adequate for the types and amounts of merchandise we
carry.

     GOLD HEDGING. The cost to us of gold merchandise sold on consignment in
some cases is not fixed until the sale is reported to the vendor or the gold
consignor in the case of merchandise sold pursuant to the Gold Consignment
Agreement. In such cases, the cost of merchandise varies with the price of gold
and we are exposed to the risk of fluctuations in the price of gold between the
time we establish the


                                       11


advertised or other retail price of a particular item of merchandise and the
date on which the sale of the item is reported to the vendor or the gold
consignor. In order to hedge against this risk and to enable us to determine the
cost of such goods prior to their sale, we may elect to fix the price of gold
prior to the sale of such merchandise. Accordingly, we, at times, enter into
forward contracts, based upon the anticipated sales of gold product in order to
hedge against the risk arising from our payment arrangements. The value of gold
hedged under such contracts represented approximately 8% of our cost of goods
sold in 2004. Under such contracts, we obtain the right to purchase a fixed
number of fine troy ounces of gold at a specified price per ounce for a
specified period. Such contracts typically have durations ranging from one to
nine months and are generally priced at the spot gold price plus an amount based
on prevailing interest rates plus customary transaction costs. When sales of
such merchandise are reported to the consignment vendors and the cost of such
merchandise becomes fixed, we sell our related hedge position. At January 29,
2005, we had several open positions in gold forward contracts totaling 37,000
fine troy ounces, to purchase gold for $16.1 million, which expire during 2005.
The fair market value of gold under such contracts was approximately $15.8
million at January 29, 2005.

     We manage the purchase of forward contracts by estimating and monitoring
the quantity of gold that we anticipate will be required in connection with our
anticipated level of sales of the type described above. Our gold hedging
transactions are entered into in the ordinary course of business. Our gold
hedging strategies are determined and monitored on a regular basis by our senior
management and our Board of Directors.

COMPETITION

     We face competition for retail jewelry sales from national and regional
jewelry chains, other department stores, local independently owned jewelry
stores and chains, specialty stores, mass merchandisers, catalog showrooms,
discounters, direct mail suppliers, televised home shopping and internet
merchants. Our management believes that competition in the retail jewelry
industry is based primarily on the price, quality, fashion appeal and perceived
value of the product offered and on the reputation, integrity and service of the
retailer. See "--Store Relationships--Terms of License Agreements" with respect
to certain limitations on our ability to compete.

SEASONALITY

     Our business is subject to substantial seasonal variations. Historically,
we have realized a significant portion of our sales, cash flow and net income in
the fourth quarter of the year principally due to sales from the holiday season.
We expect that this general pattern will continue. Our results of operations may
also fluctuate significantly as a result of a variety of other factors,
including the timing of new store openings and store closings.

ITEM 2. PROPERTIES
        ----------

     The only real estate owned by us is the central distribution facility,
totaling 106,200 square feet at 205 Edison Avenue, Orange, Connecticut. We lease
approximately 18,400 square feet at 521 Fifth Avenue, New York, New York, and
49,100 square feet at 529 Fifth Avenue, New York, New York for our executive,
accounting, advertising, merchandising, information services and other
administrative functions. The leases for such space expire September 30, 2008.
Generally, as part of our license agreements, host stores provide office space
to our host store group management personnel free of charge.

ITEM 3. LEGAL PROCEEDINGS
        -----------------

     From time to time, we are involved in litigation relating to claims arising
out of our operations in the normal course of business. As of April 8, 2005, we
are not a party to any legal proceedings that, individually or in the aggregate,
are reasonably expected to have a material adverse effect on our consolidated
financial statements. However, the results of these matters cannot be predicted
with


                                       12


certainty, and an unfavorable resolution of one or more of these matters could
have a material adverse effect on our consolidated financial statements.

     Commonly in the retail jewelry industry, a substantial amount of
merchandise is sold at a discount to the "regular" or "original" price. Our
experience is consistent with this practice. A number of states in which we
operate have regulations which require retailers who offer merchandise at
discounted prices to offer the merchandise at the "regular" or "original" prices
for stated periods of time. Our management believes we are in substantial
compliance with all applicable legal requirements with respect to such
practices.

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

     No matters were submitted to a vote of security holders during the fourth
quarter of 2004.



                                       13


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES
        ----------------------------------------------------------------------

     During 2004, we distributed cash dividends of $39.7 million to the Holding
Company. Additionally, we repaid an intercompany tax liability due to the
Holding Company totaling $43.4 million. During 2003, we distributed cash
dividends of $13.5 million to the Holding Company. The distributions were
generally utilized to repurchase the outstanding Senior Debentures, to pay
interest on the Senior Debentures and to purchase the Holding Company's common
stock, par value $.01 per share ("Common Stock"), under its stock repurchase
program. Certain restrictive covenants in the indenture relating to the New
Senior Notes, the Revolving Credit Agreement and the Gold Consignment Agreement
impose limitations on the payment of dividends to the Holding Company.
Additionally, the New Senior Notes, the Revolving Credit Agreement and the Gold
Consignment Agreement currently restrict the amount of annual distributions to
the Holding Company, including those required to fund stock repurchases.

     Information regarding the Holding Company's equity compensation plans is
set forth in Item 12 of Part III of this Form 10-K, which information is
incorporated herein by reference.

     There was one record holder of our common stock at April 8, 2005.

ISSUER PURCHASES OF EQUITY SECURITIES

     We are a wholly-owned subsidiary of the Holding Company. Accordingly, there
is no established public trading market for our common stock.



                                       14


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
        ------------------------------------

     The selected consolidated financial information below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto. The statement of operations data and balance sheet data as of and for
each of the years ended January 29, 2005, January 31, 2004, February 1, 2003,
February 2, 2002 and February 3, 2001 have been derived from our audited
Consolidated Financial Statements.



                                                                                 FISCAL YEAR ENDED (1)
                                                          -----------------------------------------------------------------
                                                           JAN. 29,     JAN. 31,       FEB. 1,       FEB. 2,        FEB. 3,
                                                            2005        2004 (2)       2003 (2)      2002 (2)       2001 (2)
                                                          ---------     ---------     ---------     ---------     ---------
                                                                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
  Sales ...............................................   $ 923,606     $ 902,416     $ 877,296     $ 900,628     $ 944,756
  Cost of sales .......................................     454,391       440,517       424,846       453,246       469,058
                                                          ---------     ---------     ---------     ---------     ---------
  Gross margin (3) ....................................     469,215       461,899       452,450       447,382       475,698
  Selling, general and administrative expenses ........     396,185       387,501       378,095       374,085       388,601
  Credit associated with the closure of Sonab (4) .....        (364)         --          (1,432)         --            --
  Depreciation and amortization .......................      17,319        17,026        16,827        19,348        16,878
                                                          ---------     ---------     ---------     ---------     ---------
  Income from operations ..............................      56,075        57,372        58,960        53,949        70,219
  Interest expense, net ...............................      20,179        16,556        17,678        19,635        22,562
  Other expense - debt extinguishment costs (5) .......       5,962          --            --            --            --
                                                          ---------     ---------     ---------     ---------     ---------
  Income from continuing operations before
    income taxes and cumulative effect of
    accounting change .................................      29,934        40,816        41,282        34,314        47,657
  Provision for income taxes (6) ......................      10,447        16,035        16,064        14,369        20,088
                                                          ---------     ---------     ---------     ---------     ---------
  Income from continuing operations before
    cumulative effect of accounting change ............      19,487        24,781        25,218        19,945        27,569
  Discontinued operations, net of tax (2) .............        --         (11,537)        3,810         3,382         3,860
  Cumulative effect of accounting change,
    net of tax (7) ....................................        --            --         (17,209)         --            --
                                                          ---------     ---------     ---------     ---------     ---------
    Net income ........................................   $  19,487     $  13,244     $  11,819     $  23,327     $  31,429
                                                          =========     =========     =========     =========     =========

 OPERATING AND FINANCIAL DATA:
   Number of departments (end of year) ................         962           972         1,011         1,006         1,053
   Percentage increase (decrease) in sales ............         2.3%          2.9%         (2.6)%        (4.7)%         9.7%
   Percentage increase (decrease) in comparable
     department sales (8) .............................         2.7%          2.3%          0.1%         (3.0)%         2.1%
   Average sales per department (9) ...................   $     955     $     932     $     911     $     916     $     970
   EBITDA (10) ........................................      73,394        74,398        75,787        73,297        87,097
   Capital expenditures ...............................      12,667        12,934        12,489        13,850        18,118

 CASH FLOWS PROVIDED FROM (USED IN):
   Operating activities ...............................   $ (14,172)    $  48,279     $  52,291     $  43,658     $  34,455
   Investing activities ...............................     (12,667)      (12,934)      (15,750)      (17,432)      (30,403)
   Financing activities ...............................        (685)      (14,349)      (17,278)       (8,253)       (7,640)

 BALANCE SHEET DATA-END OF PERIOD:
   Working capital ....................................   $ 229,886     $ 197,297     $ 173,960     $ 173,334     $ 152,003
   Total assets .......................................     558,477       592,324       578,575       583,422       602,254
   Short-term debt, including current portion of
     long-term debt ...................................        --            --            --            --            --
   Long-term debt .....................................     200,000       150,000       150,000       150,000       150,000
   Total stockholders' equity .........................     164,857       185,100       187,816       193,596       179,423


----------
(1)  Each of the fiscal years for which information is presented includes 52
     weeks except 2000, which includes 53 weeks.

(2)  As a result of Federated's decision not to renew our license agreement in
     the Burdines department store division in 2003, and in accordance with
     Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
     for the Impairment or Disposal of Long-Lived Assets", the results of
     operations of the Burdines departments have been segregated from continuing
     operations and reflected as a discontinued operation for financial
     statement purposes for 2000, 2001, 2002 and


                                       15


     2003. Refer to Note 11 of Notes to Consolidated Financial Statements for
     additional information regarding discontinued operations.

(3)  We utilize the last-in, first-out ("LIFO") method of accounting for
     inventories. If we had valued inventories using the first-in, first-out
     inventory valuation method, the gross margin would have increased as
     follows: $2.1 million, $4.5 million, $2.2 million, $3.6 million and $1.7
     million for 2004, 2003, 2002, 2001 and 2000, respectively. During the third
     quarter of 2004, we changed our method of determining price indices used in
     the valuation of LIFO inventories. Refer to Note 3 of Notes to Consolidated
     Financial Statements for additional information regarding this change in
     accounting method.

(4)  Included in Credit associated with the closure of Sonab for 2004 and 2002
     is a $0.4 million and $1.4 million credit, respectively, which represents a
     revision of our estimate of closure expenses to reflect our remaining
     liability associated with the closure of Sonab. Refer to Note 15 of Notes
     to Consolidated Financial Statements for additional information regarding
     Sonab.

(5)  During the second quarter of 2004, we refinanced the Senior Notes. Included
     in Other expense - debt extinguishment costs for the year ended January 29,
     2005 are pre-tax charges of approximately $6.0 million, including $4.4
     million for redemption premiums paid on the Senior Notes, $1.3 million to
     write-off deferred financing costs related to the refinancing of Senior
     Notes and $0.3 million for other expenses. Refer to Note 5 of Notes to
     Consolidated Financial Statements for additional information regarding the
     debt refinancing.

(6)  Included in Provision for income taxes for 2004 is approximately a $1.0
     million benefit associated with the reversal of tax accruals no longer
     required. Additionally, included in 2004 is a $0.6 million benefit
     associated with tax refunds related to Sonab. Refer to Note 10 of Notes to
     Consolidated Financial Statements.

(7)  In accordance with the provisions of the Financial Accounting Standards
     Board's ("FASB") Emerging Issues Task Force ("EITF") Issue No. 02-16,
     "Accounting by a Customer (Including a Reseller) for Cash Consideration
     Received from a Vendor" ("EITF 02-16"), we recorded a cumulative effect of
     accounting change as of February 3, 2002, the date of adoption, that
     decreased net income for 2002 by $17.2 million, net of tax of $11.7
     million. The application of EITF 02-16 changed our accounting treatment for
     the recognition of vendor allowances. In 2004, 2003 and 2002 $18.2 million,
     $19.4 million and $18.9 million, respectively, of vendor allowances has
     been reflected as a reduction to cost of sales. In 2000 and 2001, these
     allowances were recorded as a reduction to gross advertising expenses and
     thus decreased selling, general and administrative expenses ("SG&A"). Refer
     to Note 2 of Notes to Consolidated Financial Statements for additional
     information regarding EITF 02-16.

(8)  Comparable department sales are calculated by comparing sales from
     departments open for the same months in the comparable periods.

(9)  Average sales per department is determined by dividing sales by the average
     of the number of departments open at the beginning and at the end of each
     period.

(10) EBITDA, a non-GAAP financial measure, represents income from operations
     before depreciation and amortization expenses, and excludes discontinued
     operations. We believe EBITDA provides additional information for
     determining our ability to meet future debt service requirements. EBITDA
     should not be construed as a substitute for income from operations, net
     income or cash flow from operating activities (all determined in accordance
     with GAAP) for the purpose of analyzing our operating performance,
     financial position and cash flow as EBITDA is not defined by generally
     accepted accounting principles. We have presented EBITDA, however, because
     it is commonly used by certain investors to analyze and compare companies
     on the basis of operating performance and to determine a company's ability
     to service and/or incur debt. Our computation of EBITDA may not be
     comparable to similar titled measures of other companies. EBITDA is
     calculated as follows:



                                                               FISCAL YEAR ENDED
                                                -----------------------------------------------
                                                JAN. 29,  JAN. 31,   FEB. 1,  FEB. 2,   FEB. 3,
                                                  2005     2004       2003     2002      2001
                                                -------   -------   -------   -------   -------
                                                             (DOLLARS IN THOUSANDS)

     Income from operations .................   $56,075   $57,372   $58,960   $53,949   $70,219
     Add: Depreciation and amortization .....    17,319    17,026    16,827    19,348    16,878
                                                -------   -------   -------   -------   -------
     EBITDA .................................   $73,394   $74,398   $75,787   $73,297   $87,097
                                                =======   =======   =======   =======   =======



                                       16


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

     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations ("MD&A") is provided as a supplement to the
accompanying consolidated financial statements and notes thereto contained in
Item 8 of this report. This MD&A is organized as follows:

     o    EXECUTIVE OVERVIEW - This section provides a general description of
          our business and a brief discussion of the opportunities, risks and
          uncertainties that we focus on in the operation of our business.

     o    RESULTS OF OPERATIONS - This section provides an analysis of the
          significant line items on the consolidated statements of operations.

     o    LIQUIDITY AND CAPITAL RESOURCES - This section provides an analysis of
          liquidity, cash flows, sources and uses of cash, contractual
          obligations and financial position.

     o    SEASONALITY - This section describes the effects of seasonality on our
          business.

     o    CRITICAL ACCOUNTING POLICIES AND ESTIMATES - This section discusses
          those accounting policies that both are considered important to our
          financial condition and results of operations, and require us to
          exercise subjective or complex judgments in their application. In
          addition, all of our significant accounting policies, including
          critical accounting policies, are summarized in Note 2 to the
          consolidated financial statements.

     o    FORWARD-LOOKING INFORMATION AND RISK FACTORS THAT MAY AFFECT FUTURE
          RESULTS - This section provides cautionary information about
          forward-looking statements and a description of certain risks and
          uncertainties that could cause actual results to differ materially
          from our historical results or current expectations or projections.

     The Burdines departments have been accounted for as a discontinued
operation, and, unless otherwise indicated, the following discussion relates to
our continuing operations.

EXECUTIVE OVERVIEW
------------------

OUR BUSINESS

     We are one of the leading retailers of fine jewelry in the United States
and operate licensed fine jewelry departments in major department stores for
retailers such as May and Federated. We sell a broad selection of moderately
priced jewelry, with an average sales price of approximately $201 per item. As
of January 29, 2005, we operated 962 locations in 16 host store groups, in 46
states and the District of Columbia.

     Our primary focus is to offer desirable and competitively priced products,
a breadth of merchandise assortments and to provide superior customer service.
Our ability to quickly identify emerging trends and maintain strong
relationships with vendors has enabled us to present better assortments in our
showcases. We believe that we are an important contributor to each of our host
store groups and we continue to seek opportunities to penetrate the department
store segment. By outsourcing their fine jewelry departments to us, host store
groups gain our expertise in merchandising, selling and marketing jewelry and
customer service. Additionally, by avoiding high working capital investments
typically required of the traditional retail jewelry business, host stores
improve their return on investment and increase their profitability. As a
licensee, we benefit from the host stores' reputation, customer traffic, credit
services and established customer base. We also avoid the substantial capital
investment in fixed assets typical of a stand-alone retail format. In recent
years, on average, approximately 50% of our merchandise has been carried on


                                       17


consignment, which reduces our inventory exposure to changing fashion trends.
These factors have generally led our new departments to achieve profitability
within the first twelve months of operation.

     We measure ourselves against key financial measures that we believe provide
a well-balanced perspective regarding our overall financial success. Those
benchmarks are as follows, together with how they are computed:

     o    Comparable department sales growth computed as the percentage change
          in sales for departments open for the same months during the
          comparable periods. Comparable department sales are measured against
          our host store groups as well as other jewelry retailers;

     o    Total net sales growth (current year total net sales minus prior year
          total net sales divided by prior year total net sales equals
          percentage change) which indicates, among other things, the success of
          our selection of new store locations and the effectiveness of our
          merchandising strategies; and

     o    Operating margin rate (income from operations divided by net sales)
          which is an indicator of our success in leveraging our fixed costs and
          managing our variable costs. Key components of income from operations
          which management focuses on include monitoring gross margin levels as
          well as continued emphasis on leveraging our SG&A.

2004 HIGHLIGHTS

     During 2004, we successfully executed our marketing and merchandising
strategy, as evidenced by our 2.7% growth in comparable department sales,
achieved strong operating cash flow and increased profitability. Over the past
decade, we have experienced comparable store sales increases (in nine out of ten
years) and we have consistently outperformed our host store groups with respect
to these increases. We attribute our success to an experienced and stable
management team, a well-trained and highly motivated sales force, an expert
jewelry merchandising team, unique vendor relationships and an established
customer base. Also contributing to our success are our merchandising and
inventory control system and point-of-sale system for our departments, which
provide the foundation for improved productivity. Total sales were $923.6
million in 2004 compared to $902.4 million in 2003, an increase of 2.3%. Gross
margin increased by $7.3 million in 2004 compared to 2003, and as a percentage
of sales, gross margin decreased by 0.4% from 51.2% to 50.8%. Although SG&A
increased by $8.7 million, as a percentage of sales, SG&A remained flat at
42.9%.

     During 2004, we effectively managed our inventories and implemented
appropriate expense controls. We ended 2004 with $62.0 million of cash compared
to $89.5 million at the end of 2003. This decrease related primarily to the
reduction of long-term debt as a result of the refinancing of the Senior Notes
and the Senior Debentures as well as fees and expenses related to the
transaction. Additionally, borrowings under the Revolving Credit Agreement were
reduced to zero by the end of December 2004. The average outstanding balance
increased to $50.6 million as compared to $42.7 million in the prior year,
primarily as a result of the refinancing of the Senior Notes and the Senior
Debentures. These transactions, together with the issuance of the New Senior
Notes, were undertaken to decrease our overall interest rate, extend our debt
maturities and decrease total long-term debt as well as simplify our capital
structure by eliminating debt at the parent company level. Lastly, maximum
outstanding borrowings during 2004 peaked at $99.8 million, at which point the
available borrowings under the Revolving Credit Agreement were an additional
$113.5 million.

OPPORTUNITIES

     We believe that current trends in jewelry retailing provide a significant
opportunity for our growth. Consumers spent approximately $57.0 billion on
jewelry (including both fine jewelry and costume jewelry) in the United States
in calendar year 2004, an increase of approximately $21.0 billion over 1994,
according to the United States Department of Commerce. In the department store
sector in which we


                                       18


operate, consumers spent an estimated $4.1 billion on fine jewelry in calendar
year 2003. Our management believes that demographic factors such as the maturing
U.S. population and an increase in the number of working women, have resulted in
greater disposable income, thus contributing to the growth of the fine jewelry
retailing industry. Our management also believes that jewelry consumers today
increasingly perceive fine jewelry as a fashion accessory, resulting in
purchases which augment our gift and special occasion sales.

     An important initiative and focus of management is developing opportunities
for our growth. We consider it a high priority to identify new businesses that
offer growth, financial viability and manageability and will have a positive
impact on shareholder value.

     On March 1, 2005, the Holding Company announced that it is in advanced
discussions regarding a possible acquisition of Carlyle. Carlyle is a
privately-owned regional chain, located primarily in the southeastern United
States, with 32 jewelry stores and annual sales of approximately $80.0 million.
Finlay is presently engaged in its due diligence review of Carlyle.

     In 2004, the Company tested moissanite merchandise (moissanite is a
lab-created stone with greater brilliance and luster than a diamond) in certain
departments. This new category of merchandise will be expanded to additional
departments in 2005 and is estimated to generate sales of $10-$15 million.

     Additional growth opportunities exist with respect to opening departments
within existing host store groups that do not currently operate jewelry
departments. Such opportunities exist within Dillard's and Belk's. During 2003
and 2004, we added a total of 24 new departments in Dillard's and Belks and plan
to add a total of seven departments within these host store groups during 2005.

     In November 2003, we began a relationship with SmartBargains to provide
jewelry via its internet site and absorbed this e-business fulfillment into our
distribution center. Sales generated via this internet business during 2004
totaled approximately $8.0 million. We will continue to seek to identify
complementary businesses to leverage our core competencies in the jewelry
industry.

     We continue to seek growth opportunities and plan to continue to pursue the
following key initiatives to further increase sales and earnings:

     o    Increase comparable department sales;

     o    Add departments within existing host store groups;

     o    Expansion of our most productive departments;

     o    Identify and acquire new businesses;

     o    Open new channels of distribution;

     o    Introduction of new fashion trends;

     o    Add new host store relationships;

     o    Continue to raise customer service standards;

     o    Strengthen selling teams through training programs;

     o    Continue to improve operating leverage; and

     o    De-leverage the balance sheet.


                                       19


     See "Business-Growth Strategy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

RISKS AND UNCERTAINTIES

     We achieved sustained growth during 2004, however, we have faced certain
challenges as well, including:

     o    Host store consolidation; and

     o    Dependence on or loss of certain host store relationships.

     During 2004, approximately 59% (including Marshall Field's for the 2004
fiscal year) and 19% of our sales were generated by departments operated in
store groups owned by May and Federated, respectively. We have operated
departments with May since 1948 and with Federated since 1983. We believe that
our relationships with these host stores are excellent. Nevertheless, a decision
by either company, or certain of our host store groups, to terminate existing
relationships, to assume the operation of those departments themselves, or to
close significant number of stores would have a material adverse effect on our
business and financial condition.

     On February 28, 2005, Federated and May announced that they have entered
into a merger agreement whereby Federated would acquire May. The transaction is
expected to close in the third quarter of 2005. The completion of the merger is
contingent upon regulatory review and approval by the shareholders of both
companies. Finlay's license agreements with May are terminable as follows:
Robinsons-May/Meier & Frank, Filene's/Kaufmann's and Famous Barr/L.S.
Ayres/Jones on January 28, 2006, Foley's, Hecht's/Strawbridge's and Lord &
Taylor on February 3, 2007 and Marshall Field's on April 2, 2008. Finlay's
license agreements with Federated are terminable as follows:
Rich's-Macy's/Lazarus-Macy's/Goldsmith's-Macy's and Bon-Macy's on January 28,
2006 and Bloomingdale's on February 3, 2007. We cannot anticipate the impact of
the proposed transaction on our future results of operations and there is no
assurance that we will not be adversely impacted.

     As a result of Federated's decision not to renew our license agreement in
its Burdines department store division in 2003 due to the consolidation of the
Burdines and Macy's fine jewelry departments, we closed 46 Burdines departments
in January 2004. These departments generated approximately $55 million in
revenue during 2003.

     During 2003, May announced its intention to close certain of its smaller,
less profitable stores, including 32 Lord & Taylor stores, as well as two stores
in its Famous-Barr division, resulting in the closure of 18 departments in 2004,
which generated approximately $10.6 million in sales. Through January 29, 2005,
a total of 27 stores have closed.


                                       20


RESULTS OF OPERATIONS

     The following table sets forth operating results as a percentage of sales
for the periods indicated. The discussion that follows should be read in
conjunction with the following table:



                                                                          FISCAL YEAR ENDED
                                                                    ---------------------------------
                                                                    JAN. 29,    JAN. 31,      FEB. 1,
                                                                      2005        2004         2003
                                                                    --------    --------     --------

     STATEMENT OF OPERATIONS DATA:
     Sales ......................................................      100.0%      100.0%       100.0%
     Cost of sales ..............................................       49.2        48.8         48.4
                                                                    --------    --------     --------
       Gross margin .............................................       50.8        51.2         51.6
     Selling, general and administrative expenses ...............       42.9        42.9         43.1
     Credit associated with the closure of Sonab ................       --          --           (0.1)
     Depreciation and amortization ..............................        1.8         1.9          1.9
                                                                    --------    --------     --------
     Income from operations .....................................        6.1         6.4          6.7
     Interest expense, net ......................................        2.2         1.9          2.0
     Other expense - debt extinguishment costs (1) ..............        0.7        --           --
                                                                    --------    --------     --------
     Income from continuing operations before income
       taxes and cumulative effect of accounting change .........        3.2         4.5          4.7
     Provision for income taxes .................................        1.1         1.8          1.8
                                                                    --------    --------     --------
     Income from continuing operations before
       cumulative effect of accounting change ...................        2.1         2.7          2.9
     Discontinued operations, net of tax (2) ....................       --          (1.3)         0.4
     Cumulative effect of accounting change,
       net of tax (3) ...........................................       --          --           (1.9)
                                                                    --------    --------     --------
     Net income .................................................        2.1%        1.4%         1.4%
                                                                    ========    ========     ========


----------
(1)  See Note 5 to "Selected Consolidated Financial Data".

(2)  See Note 2 to "Selected Consolidated Financial Data".

(3)  See Note 7 to "Selected Consolidated Financial Data".


                                       21


2004 COMPARED WITH 2003

     SALES. Sales increased $21.2 million, or 2.3%, in 2004 compared to 2003.
The increase in sales is due primarily to the 2.7% increase in comparable
department sales. Additionally, total sales increased as a result of the net
effect and timing of new department openings and closings. We attribute the
increase in sales primarily to our merchandising and marketing strategy, which
includes the following initiatives: (i) emphasizing our "Best Value"
merchandising programs, which provide a targeted assortment of items at
competitive prices; (ii) focusing on holiday and event-driven promotions as well
as host store marketing programs; (iii) using host store groups' proprietary
customer lists for targeted marketing; and (iv) positioning our departments as a
"destination location" for fine jewelry.

     Our major merchandise categories include diamonds, gold, gemstones, watches
and designer jewelry. Diamond sales increased $11.4 million, or 4.9%, in 2004
compared to 2003 due primarily to the increase in consumer demand for diamond
fashion assortments, including categories such as solitare and bridal jewelry,
diamond stud earring assortments and three-stone jewelry. Designer jewelry sales
increased $10.6 million, or 24.9%, in 2004 compared to 2003. Sales in all other
categories remained relatively flat in 2004 compared to 2003.

     During 2004, we opened 28 departments, within existing store groups, and
closed 38 departments. The openings were comprised of the following:



                                                    NUMBER OF
                     STORE GROUP                   DEPARTMENTS
          -----------------------------------      -----------

                 May........................             9
                 Dillard's..................            11
                 Federated..................             3
                 Saks.......................             1
                 Other......................             4
                                                      ----
                          Total.............            28
                                                      ====


     The closings were comprised of the following:



                                                    NUMBER OF
                     STORE GROUP                   DEPARTMENTS                            REASON
          -----------------------------------      -----------       --------------------------------------------------

                 Lord & Taylor..............           17            May closed these less profitable locations.
                 Other......................           21            Department closings within existing store groups.
                                                      ----
                           Total............           38
                                                      ====


     GROSS MARGIN. Gross margin increased by $7.3 million in 2004 compared to
2003, and as percentage of sales, gross margin decreased by 0.4%. The components
of this 0.4% net decrease in gross margin are as follows:



                      COMPONENT                         %                                 REASON
          -----------------------------------      -----------       --------------------------------------------------

          Merchandise cost of sales.........         (0.7)%          Increase in merchandise cost of sales is due to our
                                                                     continued efforts to increase market penetration
                                                                     and market share through our pricing strategy, the
                                                                     mix of sales with increased sales in the diamond,
                                                                     designer and clearance categories, which have lower
                                                                     margins than other categories as well as the
                                                                     increased price of gold.
          LIFO .............................          0.3%           Net decrease in the LIFO provision from $4.5
                                                                     million in the 2003 period to $2.1 million in the
                                                                     2004 period. As discussed below, we changed our
                                                                     method of valuing inventory for LIFO purposes.
                                                     ----
                     Total ...............           (0.4)%
                                                     ====



                                                           22


     During the third quarter of 2004, we changed our method of determining
price indices used in the valuation of LIFO inventories. Prior to the third
quarter of 2004, we determined our LIFO inventory value by utilizing selected
producer price indices published for jewelry and watches by the Bureau of Labor
Statistics ("BLS"). During the third quarter of 2004, we began applying
internally developed indices that we believe more accurately measure inflation
or deflation in the components of our merchandise and our merchandise mix than
the BLS producer price indices. Additionally, we believe that this accounting
change is an alternative accounting method that is preferable under the
circumstances described above. As a result of this change in accounting method,
we recorded a LIFO charge of approximately $2.1 million for the year ended
January 29, 2005. Using the BLS producer price indices, the LIFO charge for the
year ended January 29, 2005 would have been $8.0 million. Had we not changed our
method of determining price indices, the net income under the former LIFO method
for the year ended January 29, 2005 would have been approximately $15.9 million.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The components of SG&A
include payroll expense, license fees, net advertising expenditures and other
field and administrative expenses. SG&A increased $8.7 million, or 2.2%. As a
percentage of sales, SG&A remained flat at 42.9%.

     CREDIT ASSOCIATED WITH THE CLOSURE OF SONAB. In 2004, we revised our
estimate of closure expenses to reflect our remaining liability associated with
the closure of Sonab and, as a result, recorded a credit of $0.4 million.

     DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.3
million reflecting additional depreciation and amortization as a result of
capital expenditures for the most recent twelve months, offset by the effect of
certain assets becoming fully depreciated. In addition, accelerated depreciation
costs totaling approximately $0.5 million and $0.4 million associated with the
Lord & Taylor store closings, were recorded in 2004 and 2003, respectively.

     INTEREST EXPENSE, NET. Interest expense increased by $3.6 million primarily
due to an increase in average borrowings ($231.9 million for 2004 compared to
$192.7 million for 2003) as a result of the refinancing of the Senior Notes. The
weighted average interest rate was approximately 7.4% for 2004 compared to 7.3%
for 2003.

     OTHER EXPENSE - DEBT EXTINGUISHMENT COSTS. Other expense - debt
extinguishment costs includes $4.4 million for redemption premiums paid on the
Senior Notes, $1.3 million to write-off deferred financing costs related to the
refinancing of the Senior Notes and $0.3 million for other expenses.

     PROVISION FOR INCOME TAXES. The income tax provision for 2004 and 2003
reflects effective tax rates of 34.9% and 39.6%, respectively. The income tax
provision for 2004 includes a benefit of approximately $1.0 million associated
with the reversal of certain income tax accruals which were no longer required.
Additionally, the tax provision for 2004 includes a benefit of approximately
$0.6 million associated with tax refunds related to Sonab.

     NET INCOME. Net income of $19.5 million for 2004 represents an increase of
$6.2 million as compared to net income of $13.2 million in 2003 as a result of
the factors discussed above.

2003 COMPARED WITH 2002

     SALES. Sales increased $25.1 million, or 2.9%, in 2003 compared to 2002.
The increase in sales is due primarily to the 2.3% increase in comparable
department sales. Additionally, total sales increased as a result of the net
effect and timing of new department openings and closings. We attribute the
increase in sales primarily to our merchandising and marketing strategy, which
includes the following initiatives: (i) emphasizing our "Best Value"
merchandising programs, which provide a targeted assortment of items at
competitive prices; (ii) focusing on holiday and event-driven promotions as well
as host store marketing programs; and (iii) positioning our departments as a
"destination location" for fine jewelry.


                                       23


     Our major merchandise categories include diamonds, gold, gemstones, watches
and designer jewelry. Diamond sales increased $14.8 million, or 6.8%, in 2003
compared to 2002 due primarily to the increase in consumer demand for diamond
fashion assortments, including emerging merchandise categories such as
three-stone jewelry. Designer jewelry sales increased $9.6 million, or 29.1%, in
2003 compared to 2002. Sales in all other categories remained relatively flat in
2003 compared to 2002.

     During 2003, we opened 32 departments, within existing store groups, and
closed 71 departments. The openings were comprised of the following:



                                                    NUMBER OF
                     STORE GROUP                   DEPARTMENTS
          -----------------------------------      -----------

                 May........................           10
                 Dillard's..................            9
                 Federated..................            5
                 Saks.......................            3
                 Other......................            5
                                                     ----
                          Total.............           32
                                                     ====


     The closings were comprised of the following:



                                                    NUMBER OF
                     STORE GROUP                   DEPARTMENTS                            REASON
          -----------------------------------      -----------       --------------------------------------------------

                 Burdines...................           46            Federated did not renew our license agreement.
                 Lord & Taylor..............            7            May closed these less profitable locations.
                 Other......................           18            Department closings within existing store groups.
                                                     ----
                           Total............           71
                                                     ====


     GROSS MARGIN. Gross margin increased by $9.4 million in 2003 compared to
2002, and as percentage of sales, gross margin decreased by 0.4%. The components
of this 0.4% net decrease in gross margin are as follows:



                      COMPONENT                         %                                 REASON
          -----------------------------------      -----------       --------------------------------------------------

          Merchandise cost of sales.........         (0.6%)          Increase in merchandise cost of sales is due to our
                                                                     continued efforts to increase market penetration
                                                                     and market share through our pricing strategy and
                                                                     the impact of higher gold prices.
          LIFO .............................          (0.2%)         Increase in LIFO provision from $2.2 million to
                                                                     $4.5 million.
          Shortage .........................          0.4%           Decrease in shortage is due primarily to favorable
                                                                     physical inventory results.
                                                     ------
                       Total ...............         (0.4%)
                                                     ======


     SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The components of SG&A
include payroll expense, license fees, net advertising expenditures and other
field and administrative expenses. SG&A increased $9.4 million, or 2.5%. As a
percentage of sales, SG&A decreased to 42.9% from 43.1%. The components of this
0.2% net decrease in SG&A are as follows:



                      COMPONENT                         %                                           REASON
          -----------------------------------      -----------       --------------------------------------------------

          Net advertising expenditures......           0.2%          Decrease in net advertising expenditures is due
                                                                     primarily to increased vendor support.
          Payroll expense ..................          (0.1%)         Favorably impacted by the leveraging of payroll
                                                                     expense, offset by an increase in medical expenses
                                                                     as 2002 included a $1.8 million benefit. This $1.8
                                                                     million benefit related to favorable claims
                                                                     experience following a change in medical insurance
                                                                     carriers.
          Other field expenses..............            0.1%         Decrease in other field expenses is due primarily
                                                                     to the favorable leveraging of these expenses.
                                                      -----
                         Total .............            0.2%
                                                      =====



                                                           24


     DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.2
million reflecting additional depreciation and amortization as a result of
capital expenditures for the most recent twelve months, offset by the effect of
certain assets becoming fully depreciated. In addition, accelerated depreciation
costs totaling approximately $0.4 million, associated with the Lord & Taylor
store closings, were recorded in the period.

     INTEREST EXPENSE, NET. Interest expense decreased by $1.1 million primarily
due to a decrease in average borrowings ($192.7 million for 2003 compared to
$211.2 million for 2002). The weighted average interest rate was approximately
7.3% for 2003 compared to 7.1% for 2002.

     PROVISION FOR INCOME TAXES. The income tax provision for 2003 and 2002
reflects effective tax rates of 39.3% and 38.9%, respectively. The income tax
provision in 2002 was reduced for certain income tax accruals which were no
longer required.

     DISCONTINUED OPERATIONS. Discontinued operations includes the results of
operations of the Burdines department store division. The net loss from
discontinued operations for 2003 was $11.5 million compared to the net income
from discontinued operations of $3.8 million in 2002. The loss in 2003 included
$1.2 million of pre-tax charges associated with the accelerated depreciation of
fixed assets and severance, as well as a charge of $13.8 million for the
write-down of goodwill resulting from the Burdines department closings.

     NET INCOME. Net income of $13.2 million for 2003 represents an increase of
$1.4 million as compared to net income of $11.8 million in 2002 as a result of
the factors discussed above.

LIQUIDITY AND CAPITAL RESOURCES

     Information about our financial position is presented in the following
table:

                                                 JANUARY 29,   JANUARY 31,
                                                    2005         2004
                                                 -----------   -----------
          (IN THOUSANDS)
          --------------
          Cash and cash equivalents.........      $ 61,957     $ 89,481
          Working capital...................       229,886      197,297
          Long-term debt....................       200,000      150,000
          Stockholder's equity..............       164,857      185,100

     Our primary capital requirements are for funding working capital for new
departments and growth of existing departments, as well as debt service
obligations and license fees to host store groups, and, to a lesser extent,
capital expenditures for opening new departments, renovating existing
departments and information technology investments. For 2004 and 2003, capital
expenditures totaled $12.7 million and $12.9 million, respectively. Total
capital expenditures for 2005 are estimated to be approximately $10 to $12
million, excluding any impact from the possible Carlyle acquisition. Although
capital expenditures are limited by the terms of the Revolving Credit Agreement,
to date, this limitation has not precluded us from satisfying our capital
expenditure requirements.

     We currently expect to fund capital expenditure requirements as well as
liquidity needs from a combination of cash, internally generated funds and
borrowings under our Revolving Credit Agreement. We believe that our internally
generated liquidity through cash flows from operations, together with access to
external capital resources, will be sufficient to satisfy existing commitments
and plans and will provide adequate financing flexibility.


                                       25


     Cash flows provided from (used in) operating, investing and financing
activities for the fiscal years ended January 29, 2005, January 31, 2004 and
February 1, 2003 were as follows:



                                                                         FISCAL YEARS ENDED
                                                               -----------------------------------------
                                                               JANUARY 29,    JANUARY 31,    FEBRUARY 1,
                                                                  2005           2004           2003
                                                               -----------    -----------    -----------
          (IN THOUSANDS)

          Operating Activities .............................   $   (14,172)   $    48,279    $    52,291
          Investing Activities .............................       (12,667)       (12,934)       (15,750)
          Financing Activities .............................          (685)       (14,349)       (17,278)
                                                               -----------    -----------    -----------
            Net increase (decrease) in cash and cash
                 equivalents ...............................   $   (27,524)   $    20,996    $    19,263
                                                               ===========    ===========    ===========


     Our current priorities for the use of cash or borrowings, as a result of
borrowings available under the Revolving Credit Agreement, are:

     o    Investment in inventory and for working capital;

     o    Capital expenditures for new departments, expansions and remodeling of
          existing departments;

     o    Investments in technology; and

     o    Strategic acquisitions.

OPERATING ACTIVITIES

     The primary source of our liquidity is cash flows from operating
activities. The key component of operating cash flow is merchandise sales.
Operating cash outflows include payments to vendors for inventory, services and
supplies, payments for employee payroll, license fees and payments of interest
and taxes. Net cash flows used in operations were $14.2 million for 2004,
consisting principally of the payment of an intercompany tax liability to the
Holding Company totaling $43.4 million as well as a decrease in accounts payable
due to lower inventory receipts and lower consignment inventory sales.

     Our operations substantially preclude customer receivables as our license
agreements require host stores to remit sales proceeds for each month (without
regard to whether such sales were cash, store credit or national credit card) to
us approximately three weeks after the end of such month. However, we cannot
ensure the collection of sales proceeds from our host stores. Additionally, on
average, approximately 50% of our merchandise has been carried on consignment.
Our working capital balance was $229.9 million at January 29, 2005, an increase
of $32.6 million from January 31, 2004. The increase resulted primarily from the
impact of 2004's net income (exclusive of depreciation and amortization), offset
by capital expenditures, payment of dividends to the Holding Company and the
reduction of cash to pay down long-term debt associated with the refinancing of
the Senior Notes and the Senior Debentures.

     The seasonality of our business causes working capital requirements, and
therefore borrowings under the Revolving Credit Agreement, to reach their
highest level in the months of October, November and December in anticipation of
the year-end holiday season. Accordingly, we experience seasonal cash needs as
inventory levels peak. Additionally, substantially all of our license agreements
provide for accelerated payments during the months of November and December,
which require the host store groups to remit to us 75% of the estimated months'
sales prior to or shortly following the end of that month. These proceeds result
in a significant increase in our cash, which is used to reduce our borrowings
under the Revolving Credit Agreement. Inventory levels increased by $5.6
million, or 2.1%, as compared to January 31, 2004 partially as a result of
further investments in the diamond and designer categories.


                                       26


INVESTING ACTIVITIES

     Net cash used in investing activities, consisting of payments for capital
expenditures, was $12.7 million, $12.9 million and $15.8 million in 2004, 2003
and 2002, respectively. Capital expenditures in 2004 and 2003 related primarily
to expenditures for new department openings and renovations.

FINANCING ACTIVITIES

     Payments on debt and the issuing of dividends to the Holding Company have
been our primary financing activities. Additionally, during 2004, we refinanced
our long-term debt. Net cash used in financing activities was $0.7 million in
2004, consisting principally of proceeds from the issuance of the New Senior
Notes, offset by the purchase and redemption of the outstanding Senior Notes,
payments of dividends to the Holding Company and capitalized financing costs
related to the New Senior Notes. Net cash used in financing activities was $14.3
million and $17.3 million in 2003 and 2002, respectively.

     In January 2003, we entered into the Revolving Credit Agreement, which
expires in January 2008. The Revolving Credit Agreement provides us with a line
of credit of up to $225.0 million to finance working capital needs. Amounts
outstanding under the Revolving Credit Agreement bear interest at a rate equal
to, at our option, (i) the prime rate plus a margin ranging from zero to 1.0% or
(ii) the adjusted Eurodollar rate plus a margin ranging from 1.0% to 2.0%, in
each case depending on our financial performance. The weighted average interest
rate was 4.0% and 3.4% for 2004 and 2003, respectively.

     In each year, we are required to reduce the outstanding revolving credit
balance and letter of credit balance under the Revolving Credit Agreement to
$50.0 million or less and $20.0 million or less, respectively, for a 30
consecutive day period (the "Balance Reduction Requirement"). Borrowings under
the Revolving Credit Agreement at January 29, 2005 and January 31, 2004 were
zero. The average amounts outstanding under the Revolving Credit Agreement
during 2004 and 2003 were $50.6 million and $42.7 million, respectively. The
maximum amount outstanding during 2004 was $99.8 million, at which point the
available borrowings were an additional $113.5 million.

     On May 7, 2004, we and the Holding Company each commenced an offer to
purchase for cash any and all of our Senior Notes and the Holding Company's
Senior Debentures, respectively. In conjunction with the tender offers, we and
the Holding Company each solicited consents to effect certain proposed
amendments to the indentures governing the Senior Notes and the Senior
Debentures. On May 20, 2004, we and the Holding Company announced that holders
of approximately 98% and 79% of the outstanding Senior Notes and the outstanding
Senior Debentures, respectively, tendered their securities and consented to the
proposed amendments to the related indentures.

     On June 3, 2004, we completed the sale of the New Senior Notes. Interest on
the New Senior Notes is payable semi-annually on June 1 and December 1 of each
year and commenced on December 1, 2004. We used the net proceeds from the
offering of the New Senior Notes, together with drawings from our Revolving
Credit Facility, to repurchase the tendered Senior Notes and to make consent
payments and to distribute $77.3 million to the Holding Company to enable the
Holding Company to repurchase the tendered Senior Debentures and to make consent
payments. Additionally, on June 3, 2004, we and the Holding Company called for
the redemption of all of the untendered Senior Notes and Senior Debentures,
respectively, and these securities were repurchased on July 2, 2004.

     The tender offers, New Senior Notes offering, and redemptions of the
outstanding Senior Notes and Senior Debentures were all undertaken to decrease
our overall interest rate, extend our debt maturities and decrease total
long-term debt as well as simplify our capital structure by eliminating debt at
the parent company level. As a result of the completion of the redemption of the
Senior Debentures, we are no longer required to provide the funds necessary to
pay the higher debt service costs associated with the Senior Debentures.


                                       27


     We incurred approximately $5.2 million in costs, including $5.0 million
associated with the sale of the New Senior Notes, which have been deferred and
are being amortized over the term of the New Senior Notes. In June 2004, we
recorded pre-tax charges of approximately $6.0 million, including $4.4 million
for redemption premiums paid on the Senior Notes, $1.3 million to write-off
deferred financing costs related to the refinancing of the Senior Debentures and
the Senior Notes and $0.3 million for other expenses. These costs are included
in Other expense - debt extinguishment costs in the accompanying Consolidated
Statements of Operations.

     In September 2004, for the purpose of an exchange offer, we registered
notes with terms identical to the New Senior Notes under the Securities Act of
1933. We completed the exchange offer in the third quarter of 2004 and 100% of
the original notes were exchanged for the registered notes.

     In the past, a significant amount of our operating cash flow has been used
to pay interest with respect to the Senior Debentures, the Senior Notes and
amounts due under the Revolving Credit Agreement, including the payments
required pursuant to the Balance Reduction Requirement. Although the Senior
Debentures and the Senior Notes are no longer outstanding as a result of the
refinancing, a significant amount of our operating cash flow will still be
required to pay interest with respect to the New Senior Notes and amounts due
under the Revolving Credit Agreement, including payments required under the
Balance Reduction Requirement. As of January 29, 2005, our outstanding
borrowings were $200.0 million under the New Senior Notes.

     Our agreements covering the Revolving Credit Agreement and the New Senior
Notes each require that we comply with certain restrictive and financial
covenants. In addition, we are a party to the Gold Consignment Agreement, which
also contains certain covenants. As of and for the year ended January 29, 2005,
we are in compliance with all of our covenants. We expect to be in compliance
with all of our covenants through 2005. Because compliance is based, in part, on
our management's estimates and actual results can differ from those estimates,
there can be no assurance that we will be in compliance with the covenants in
the future or that the lenders will waive or amend any of the covenants should
we be in violation thereof. We believe the assumptions used are appropriate.

     The Revolving Credit Agreement contains customary covenants, including
limitations on, or relating to, capital expenditures, liens, indebtedness,
investments, mergers, acquisitions, affiliate transactions, management
compensation and the payment of dividends and other restricted payments. The
Revolving Credit Agreement also contains various financial covenants, including
minimum earnings and fixed charge coverage ratio requirements and certain
maximum debt limitations.

     The indenture related to the New Senior Notes contains restrictions
relating to, among other things, the payment of dividends, redemptions or
repurchases of capital stock, the incurrence of additional indebtedness, the
making of certain investments, the creation of certain liens, the sale of
certain assets, entering into transactions with affiliates, engaging in mergers
and consolidations and the transfer of all or substantially all assets.

     We believe that, based upon current operations, anticipated growth and
continued availability under the Revolving Credit Agreement, we will, for the
foreseeable future, be able to meet our debt service and anticipated working
capital obligations and to make distributions to the Holding Company sufficient
to permit the Holding Company to pay certain expenses as they come due. No
assurances, however, can be given that our current level of operating results
will continue or improve or that our income from operations will continue to be
sufficient to permit us to meet our debt service and other obligations.
Currently, our principal financing arrangements restrict the amount of annual
distributions to the Holding Company, including those required to fund stock
repurchases. The amounts required to satisfy the aggregate of our interest
expense totaled $19.6 million and $16.0 million in 2004 and 2003, respectively.

     Our long-term needs for external financing will depend on our rate of
growth, the level of internally generated funds and the ability to continue
obtaining substantial amounts of merchandise on advantageous terms, including
consignment arrangements with our vendors. At January 29, 2005 and


                                       28


January 31, 2004 $349.7 million and $364.5 million, respectively, of consignment
merchandise from approximately 300 vendors was on hand. For 2004, we had an
average balance of consignment merchandise of $365.2 million as compared to an
average balance of $364.7 million in 2003.

     The following table summarizes our contractual and commercial obligations
which may have an impact on future liquidity and the availability of capital
resources, as of January 29, 2005 (dollars in thousands):



                                                                         PAYMENTS DUE BY PERIOD
                                                     --------------------------------------------------------------
                                                                  LESS THAN      1 - 3        3 - 5      MORE THAN
CONTRACTUAL OBLIGATIONS                                TOTAL       1 YEAR        YEARS        YEARS       5 YEARS
-----------------------                              ----------   ----------   ----------   ----------   ----------

Long-Term Debt Obligations:
    New Senior Notes (due 2012) (1) ..............   $  200,000   $     --     $     --     $     --     $  200,000
Interest payments on New Senior Notes (1) ........      122,833       16,750       33,500       33,500       39,083
Operating lease obligations (2) ..................        7,054        1,942        3,834        1,278         --
Revolving Credit Agreement (due 2008) (3) ........         --           --           --           --           --
Gold Consignment Agreement (expires 2005) ........       49,802       49,802         --           --           --
Gold forward contracts ...........................       16,066       16,066         --           --           --
Letters of credit ................................       11,690       11,440         --            250         --
                                                     ----------   ----------   ----------   ----------   ----------
   Total .........................................   $  407,445   $   96,000   $   37,334   $   35,028   $  239,083
                                                     ==========   ==========   ==========   ==========   ==========


----------
(1)  On June 3, 2004, we issued $200.0 million of New Senior Notes due 2012.
     Refer to Note 5 of Notes to the Consolidated Financial Statements.

(2)  Represents future minimum payments under noncancellable operating leases as
     of January 29, 2005.

(3)  There were no borrowings under the Revolving Credit Agreement at January
     29, 2005. The average amount outstanding during 2004 was $50.6 million and
     the outstanding balance as of April 8, 2005 was $22.3 million.

     The operating leases included in the above table do not include contingent
rent based upon sales volume or variable costs such as maintenance, insurance
and taxes. Our open purchase orders are cancelable without penalty and are
therefore not included in the above table. There were no commercial commitments
outstanding as of January 29, 2005, other than as disclosed in the table above,
nor have we provided any third-party financial guarantees as of and for the year
ended January 29, 2005.

OFF-BALANCE SHEET ARRANGEMENTS

     Our Gold Consignment Agreement enables us to receive consignment
merchandise by providing gold, or otherwise making payment, to certain vendors.
While the merchandise involved remains consigned, title to the gold content of
the merchandise transfers from the vendors to the gold consignor. The Gold
Consignment Agreement matures on July 31, 2005 and permits us to consign up to
the lesser of (i) 165,000 fine troy ounces or (ii) $50.0 million worth of gold,
subject to a formula as prescribed by the Gold Consignment Agreement. We are
currently in the process of extending the term of the Gold Consignment
Agreement. At January 29, 2005, amounts outstanding under the Gold Consignment
Agreement totaled 116,687 fine troy ounces, valued at $49.8 million. The average
amount outstanding under the Gold Consignment Agreement was $48.9 million in
2004. In the event this agreement is terminated, we would be required to return
the gold or purchase the outstanding gold at the prevailing gold rate in effect
on that date. For financial statement purposes, the consigned gold is not
included in merchandise inventories on the Consolidated Balance Sheets and,
therefore, no related liability has been recorded.

     The Gold Consignment Agreement requires us to comply with certain
covenants, including restrictions on the incurrence of certain indebtedness, the
creation of liens, engaging in transactions with affiliates and limitations on
the payment of dividends. In addition, the Gold Consignment Agreement also
contains various financial covenants, including minimum earnings and fixed
charge coverage ratio requirements and certain maximum debt limitations. At
January 29, 2005, we were in compliance with all of our covenants under the Gold
Consignment Agreement.

     We have not created, and are not party to, any off-balance sheet entities
for the purpose of raising capital, incurring debt or operating our business. We
do not have any arrangements or relationships with


                                       29


entities that are not consolidated into the financial statements that are
reasonably likely to materially affect our liquidity or the availability of
capital resources.

OTHER ACTIVITIES AFFECTING LIQUIDITY

     In November 2004, we entered into a new employment agreement with a senior
executive. The new employment agreement has a term of four years commencing on
January 30, 2005 and ending on January 31, 2009, unless earlier terminated, in
accordance with the provisions of the employment agreement. The new employment
agreement provides an annual salary level of approximately $1.0 million as well
as incentive compensation based on meeting specific financial goals, which are
not yet determinable.

     From time to time, we enter into forward contracts based upon the
anticipated sales of gold product in order to hedge against the risk arising
from our payment arrangements. At January 29, 2005, we had several open
positions in gold forward contracts totaling 37,000 fine troy ounces, to
purchase gold for $16.1 million. There can be no assurance that these hedging
techniques will be successful or that hedging transactions will not adversely
affect our results of operations or financial position.

     In January 2000, Sonab, our European licensed jewelry department
subsidiary, sold the majority of its assets for approximately $9.9 million. As
of January 29, 2005, our exit plan has been completed with the exception of
certain legal matters and we are in the process of liquidating the subsidiary.
During the fourth quarter of 2004, we revised our estimate of closure expenses
to reflect our remaining liability, and as a result, reduced our accrual by $0.4
million. To date, we have charged a total of $26.4 million against our revised
estimate of $26.8 million. We do not believe future operating results or
liquidity will be materially impacted by any remaining payments.

     SEASONALITY
     -----------

     Our business is highly seasonal, with a significant portion of our sales
and income from operations generated during the fourth quarter of each year,
which includes the year-end holiday season. The fourth quarter accounted for an
average of approximately 42% of our sales and approximately 90% of our income
from operations for 2004 and 2003. We have typically experienced net losses in
the first three quarters of our fiscal year. During these periods, working
capital requirements have been funded by borrowings under the Revolving Credit
Agreement. Accordingly, the results for any of the first three quarters of any
given fiscal year, taken individually or in the aggregate, are not indicative of
annual results. See Note 13 of Notes to Consolidated Financial Statements.

     The following table summarizes the quarterly financial data for 2004 and
2003:



                                                                      FISCAL QUARTER
                                                -----------------------------------------------------------
                                                 FIRST (a)     SECOND (a)           THIRD          FOURTH
                                                -----------    -----------       -----------    -----------
                                                                  (DOLLARS IN THOUSANDS)
                                                                        (UNAUDITED)

       2004:
         Sales ..............................   $   187,572    $   188,638       $   166,841    $   380,555
         Gross margin .......................        95,729         96,164            84,612        192,710
         Income (loss) from operations ......         3,159          4,504            (2,315)        50,727
         Net income (loss) ..................          (530)        (3,330)(b)        (4,828)        28,175
       2003:
         Sales ..............................   $   175,427    $   182,229       $   165,784    $   378,976
         Gross margin .......................        90,766         92,796            84,717        193,620
         Income (loss) from operations ......         2,669          4,502               (62)        50,263
         Net income (loss) ..................          (234)           645            (2,713)        15,546(c)
     


                                       30


----------
(a)  The thirteen week periods ended May 1, 2004 and July 31, 2004 have been
     restated to reflect the change in our method of determining LIFO
     inventories. Refer to Note 3 to Notes to Consolidated Financial Statements.

(b)  The net loss includes debt extinguishment costs of $6.0 million related to
     the refinancing of the Senior Notes in the second quarter of 2004. Refer to
     Note 5 to Notes to Consolidated Financial Statements.

(c)  Net income includes the write-down of goodwill of $13.8 million in the
     fourth quarter of 2003. Refer to Note 11 to Notes to Consolidated Financial
     Statements.

INFLATION

     The effect of inflation on our results of operations has not been material
in the periods discussed.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the appropriate
application of certain accounting policies, many of which require us to make
estimates and assumptions about future events and their impact on amounts
reported in our financial statements and related notes. We believe the
application of our accounting policies, and the estimates inherently required
therein, are reasonable. These accounting policies and estimates are constantly
re-evaluated, and adjustments are made when facts and circumstances dictate a
change. However, since future events and their impact cannot be determined with
certainty, actual results may differ from our estimates, and such differences
could be material to the consolidated financial statements. Historically, we
have found our application of accounting policies to be appropriate, and actual
results have not differed materially from those determined using necessary
estimates. A summary of our significant accounting policies and a description of
accounting policies that we believe are most critical may be found in Note 2 to
the Consolidated Financial Statements.

     MERCHANDISE INVENTORIES

     We value our inventories at the lower of cost or market. The cost is
determined by the LIFO method utilizing an internally generated index. Factors
related to inventories, such as future consumer demand and the economy's impact
on consumer discretionary spending, inventory aging, ability to return
merchandise to vendors, merchandise condition and anticipated markdowns, are
analyzed to determine estimated net realizable values. An adjustment is recorded
to reduce the LIFO cost of inventories, if required. Any significant
unanticipated changes in the factors above could have a significant impact on
the value of the inventories and our reported operating results.

     Shrinkage is estimated for the period from the last inventory date to the
end of the fiscal year on a store by store basis. The shrinkage rate from the
most recent physical inventory, in combination with historical experience, is
the basis for estimating shrinkage.

     VENDOR ALLOWANCES

     We receive allowances from our vendors through a variety of programs and
arrangements, including cooperative advertising. Vendor allowances are
recognized as a reduction of cost of sales upon the sale of merchandise or SG&A
when the purpose for which the vendor funds were intended to be used has been
fulfilled. Accordingly, a reduction or increase in vendor allowances has an
inverse impact on cost of sales and/or SG&A.

     FINITE-LIVED ASSETS

     Finite-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
recoverable. If the undiscounted future cash flows from the finite-lived assets
are less than the carrying value, we recognize a loss equal to the difference
between the carrying value and the fair value of the assets. We determine the
fair value of the underlying assets


                                       31


based upon the discounted future cash flows of the assets. Various factors,
including future sales growth and profit margins, are included in this analysis.
To the extent these future projections or our strategies change, the conclusion
regarding impairment may differ from the current estimates.

     GOODWILL

     We evaluate goodwill for impairment annually or whenever events and changes
in circumstances suggest that the carrying amount may not be recoverable from
our estimated future cash flows. To the extent these future cash flows or our
strategies change, the conclusion regarding impairment may differ from current
estimates.

     REVENUE RECOGNITION

     We recognize revenue upon the sale of merchandise, either owned or
consigned, to our customers, net of anticipated returns. The provision for sales
returns is based on our historical return rate.

     SELF-INSURANCE RESERVES

     We are self-insured for medical and workers' compensation claims up to
certain maximum liability amounts. Although the amounts accrued are determined
based on analysis of historical trends of losses, settlements, litigation costs
and other factors, the amounts that we will ultimately disburse could differ
materially from the accrued amounts.

     INCOME TAXES

     We are subject to income taxes in many jurisdictions and must first
determine which revenues and expenses should be included in each taxing
jurisdiction. This process involves the estimation of our actual current tax
exposure, together with the assessment of temporary differences resulting from
differing treatment of income or expense items for tax and accounting purposes.
We establish tax reserves in our consolidated financial statements based on our
estimation of current tax exposures. If we prevail in tax matters for which
reserves have been established or if we are required to settle matters in excess
of established reserves, the effective tax rate for a particular period could be
materially affected.

RECENT ACCOUNTING PRONOUNCEMENT
-------------------------------

     In December 2004, the FASB issued SFAS No. 123(R), "Accounting for
Stock-Based Compensation". This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS 123(R) requires that the fair value of such equity
instruments be recognized as expense in the historical financial statements as
services are performed. Currently, only certain pro forma disclosures of fair
value are required. This Statement is effective as of the beginning of the first
annual or interim period beginning after June 15, 2005. We will adopt SFAS
123(R) prospectively on July 30, 2005, the beginning of our third fiscal
quarter. Although we are in the process of determining the impact of this
Statement on our results of operations, the historical impact under SFAS No. 123
"Accounting for Stock-Based Compensation" is disclosed in Note 2 to the
Consolidated Financial Statements.

FORWARD-LOOKING INFORMATION AND RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
---------------------------------------------------------------------------

     This Form 10-K includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical information provided herein are
forward-looking statements and may contain information about financial results,
economic conditions, trends and known uncertainties. The forward-looking
statements contained herein are subject to certain risks and uncertainties that
could cause actual results, performances or achievements to differ materially
from those reflected in, or implied by, the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, those
discussed under


                                       32


"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Important factors that could cause actual results to differ
materially include, but are not limited to:

     OUR SALES DEPEND UPON OUR HOST STORE RELATIONSHIPS. THE LOSS OF
RELATIONSHIPS WITH MAY OR FEDERATED, OR SIGNIFICANT STORE CLOSURES BY OUR HOST
STORE GROUPS, COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.

     The impact of the recently announced planned merger of May and Federated is
unknown. A decision by them, or certain of our other host store groups, to
terminate existing relationships, transfer the operation of some or all of their
departments to a competitor, assume the operation of those departments
themselves, or close a significant number of stores, could have a material
adverse effect on our business and financial condition. During 2004,
approximately 78% of our sales were generated by departments operated in store
groups owned by May and Federated.

     SEASONALITY OF THE RETAIL JEWELRY BUSINESS AND FLUCTUATIONS IN OUR
QUARTERLY RESULTS COULD ADVERSELY AFFECT OUR PROFITABILITY.

     Our business is highly seasonal, with a significant portion of our sales
and income from operations generated during the fourth quarter of each year,
which includes the year-end holiday season. The fourth quarter of 2004 accounted
for 41% of our sales and 90% of our operating income. We have typically
experienced net losses in the first three quarters of our fiscal year. During
these periods, working capital requirements have been funded by borrowings under
our revolving credit facility. This pattern is expected to continue. A
substantial decrease in sales during the fourth quarter, whether resulting from
adverse weather conditions, natural disasters or any other cause, would have a
material adverse effect on our profitability.

     OUR DEPARTMENTS ARE HEAVILY DEPENDENT ON CUSTOMER TRAFFIC AND THE CONTINUED
POPULARITY OF OUR HOST STORES AND MALLS.

     The success of our departments depends, in part, on the ability of host
stores to generate consumer traffic in their stores, and the continuing
popularity of malls and department stores as shopping destinations. Sales volume
and customer traffic may be adversely affected by economic slowdowns in a
particular geographic area, the closing of anchor tenants, or competition from
retailers such as discount and mass merchandise stores and other department
stores where we do not have departments.

     WE MAY NOT BE ABLE TO SUCCESSFULLY IDENTIFY, FINANCE, INTEGRATE OR MAKE
ACQUISITIONS OUTSIDE OF THE LICENSED JEWELRY DEPARTMENT BUSINESS.

     We may from time to time examine opportunities to acquire or invest in
companies or businesses that complement our existing core business. There can be
no assurance that future acquisitions by us will be successful or improve our
operating results. In addition, our ability to complete acquisitions will depend
on the availability of both suitable target businesses and acceptable financing.
Any future acquisitions may result in a potentially dilutive issuance of
additional equity securities, the incurrence of additional debt or increased
working capital requirements. Such acquisitions could involve numerous
additional risks, including difficulties in the assimilation of the operations,
products, services and personnel of any acquired company, diversion of our
management's attention from other business concerns, and expansion into new
businesses with which we may have no prior experience.

     OUR PROFITABILITY DEPENDS, IN PART, UPON OUR ABILITY TO CONTINUE TO OBTAIN
SUBSTANTIAL AMOUNTS OF MERCHANDISE ON CONSIGNMENT AND TO OUR ABILITY TO CONTINUE
OUR GOLD CONSIGNMENT AGREEMENT.

     In recent years, on average, approximately 50% of our merchandise has been
obtained on consignment. 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


                                       33


financial condition and a number of other economic or competitive conditions in
the jewelry business or generally. In addition, our Gold Consignment Agreement
allows us to receive consignment merchandise by providing gold, or otherwise
making payment, to certain vendors. As the price of gold increases, the amount
of consigned gold that is available to us is reduced pursuant to the limitations
of the Gold Consignment Agreement. Although we expect to renew the Gold
Consignment Agreement upon its expiration on July 31, 2005, there can be no
assurances that such renewal will actually occur. If the agreement is not
renewed or replaced, our ability to receive gold merchandise on consignment
through such an arrangement and on favorable terms may be materially adversely
affected. Additionally, in the event that this agreement is terminated, we would
be required to return the gold or purchase the outstanding gold at the
prevailing, and potentially higher, gold price in effect on that date.

     TERRORIST ATTACKS, ACTS OF WAR, OR OTHER FACTORS AFFECTING DISCRETIONARY
CONSUMER SPENDING MAY ADVERSELY AFFECT OUR INDUSTRY, OUR OPERATIONS AND OUR
PROFITABILITY.

     Terrorist activities, armed hostilities and other political instability, as
well as a decline in general economic conditions, including the country's
financial markets, a decline in consumer credit availability, or increases in
prevailing interest rates, could materially reduce discretionary consumer
spending particularly with respect to luxury items and, therefore, materially
adversely affect our business and financial condition, especially if such
changes were to occur in the fourth quarter of our fiscal year.

     VOLATILITY IN THE AVAILABILITY AND COST OF PRECIOUS METALS AND PRECIOUS AND
SEMI-PRECIOUS STONES COULD ADVERSELY AFFECT OUR BUSINESS.

     The jewelry industry in general is affected by fluctuations in the prices
of precious metals and precious and semi-precious stones. The availability and
prices of gold, diamonds and other precious metals and precious and
semi-precious stones may be influenced by cartels, political instability in
exporting countries and inflation. Shortages of these materials or sharp changes
in their prices could have a material adverse effect on our results of
operations or financial condition. Although we attempt to protect against such
fluctuations in the price of gold by entering into gold forward contracts, there
can be no assurance that these hedging practices will be successful or that
hedging transactions will not adversely affect our results of operations or
financial condition.

     THE RETAIL JEWELRY BUSINESS IS HIGHLY COMPETITIVE.

     We face competition for retail jewelry sales from national and regional
jewelry chains, other department stores, local independently owned jewelry
stores and chains, specialty stores, mass merchandisers, catalog showrooms,
discounters, direct mail suppliers, internet merchants and televised home
shopping. Some of our competitors are substantially larger and have greater
financial resources than our business.

     WE MAY NOT BE ABLE TO COLLECT PROCEEDS FROM OUR HOST STORES.

     Our license agreements typically require the host stores to remit the net
sales proceeds for each month to us approximately three weeks after the end of
such month. However, we cannot assure you that we will timely collect the net
sales proceeds due to us from our host stores. If one or more host stores fail
to remit the net sales proceeds for a substantial period of time or during the
fourth quarter of our fiscal year due to financial instability, insolvency or
otherwise, this could have a material adverse impact on our liquidity.

     WE ARE DEPENDENT ON SEVERAL KEY VENDORS AND OTHER SUPPLIERS.

     In 2004, merchandise obtained by us from our five largest vendors generated
approximately 31% of sales, and merchandise obtained from our largest vendor
generated approximately 10% of sales. There can be no assurances that we can
identify, on a timely basis, alternate sources of merchandise supply in the case
of an abrupt loss of any of our significant suppliers.


                                       34


     OUR SUCCESS DEPENDS ON OUR ABILITY TO IDENTIFY AND RAPIDLY RESPOND TO
FASHION TRENDS.

     The jewelry industry is subject to rapidly changing fashion trends and
shifting consumer demands. Accordingly, our success depends on the priority that
our target customers place on fashion and our ability to anticipate, identify
and capitalize upon emerging fashion trends.

     WE MAY NOT BE ABLE TO SUCCESSFULLY EXPAND OUR BUSINESS OR INCREASE THE
NUMBER OF DEPARTMENTS WE OPERATE.

     A significant portion of our growth in sales and income from operations in
recent years has resulted from our ability to obtain licenses to operate
departments in new host store groups and the addition of new departments in
existing host store groups. We cannot predict the number of departments we will
operate in the future or whether our expansion, if any, will be at levels
comparable to that experienced to date. In a few cases, we are subject to
limitations under our license agreements which prohibit us from operating
departments for competing host store groups within a certain geographical radius
of the host stores (typically five to ten miles) without the host store's
permission. Such limitations restrict us from further expansion within areas
where we currently operate departments, including expansion through possible
acquisitions. If we cannot obtain required consents, we will be limited in our
ability to expand further in areas near our existing host stores.

     WE COULD BE MATERIALLY ADVERSELY AFFECTED IF OUR DISTRIBUTION OPERATIONS
ARE DISRUPTED.

     We operate a central distribution facility and we do not have other
facilities to support our distribution needs. As a result, if this distribution
facility were to shut down or otherwise become inoperable or inaccessible for
any reason, we could incur higher costs and longer lead times associated with
the distribution of merchandise to our stores during the time it takes to reopen
or replace the facility.

     WE ARE HEAVILY DEPENDENT ON OUR MANAGEMENT INFORMATION SYSTEMS.

     The efficient operation of our business is heavily dependent on our
fully-integrated management information systems. In particular, we rely on our
inventory and merchandising control system, which allows us to make better
decisions in the allocation and distribution of our merchandise. Our business
and operations could be materially and adversely affected if our systems were
inoperable or inaccessible or if we were not able, for any reason, to
successfully restore our systems and fully execute our disaster recovery plan.

     WE DEPEND ON KEY PERSONNEL.

     Our success depends to a significant extent upon our ability to retain key
personnel, particularly Arthur E. Reiner, our Chairman and Chief Executive
Officer. The loss of Mr. Reiner's services or one or more of our current members
of senior management, or our failure to attract talented new employees, could
have a material adverse effect on our business.

     OUR SUBSTANTIAL DEBT AND DEBT SERVICE REQUIREMENTS COULD ADVERSELY AFFECT
OUR BUSINESS.

     We currently have a significant amount of debt. As of January 29, 2005, we
had $200.0 million of debt outstanding (not including $11.7 million in letters
of credit under our $225.0 million revolving credit facility). In 2004, our
average revolver balance was $50.6 million and we peaked in usage at $99.8
million. In addition, as of January 29, 2005, the value of gold outstanding
under the Gold Consignment Agreement totaled $49.8 million. Subject to the terms
of our indebtedness, we may incur additional indebtedness, including secured
debt, in the future.


                                       35


     THE TERMS OF OUR DEBT INSTRUMENTS AND OTHER OBLIGATIONS IMPOSE FINANCIAL
AND OPERATING RESTRICTIONS.

     Our Revolving Credit Agreement, Gold Consignment Agreement and the
indenture relating to the New Senior Notes contain restrictive covenants that
will limit our ability to engage in activities that may be in our long-term best
interests. These covenants include limitations on, or relating to, capital
expenditures, liens, indebtedness, investments, mergers, acquisitions,
affiliated transactions, management compensation and the payment of dividends
and other restricted payments.

     THE FUTURE IMPACT OF LEGAL AND REGULATORY ISSUES IS UNKNOWN.

     Our business is subject to government laws and regulations including, but
not limited to, employment laws and regulations, state advertising regulations,
quality standards imposed by federal law, and other laws and regulations. A
violation or change of these laws could have a material adverse effect on our
business, financial condition and results of operations. In addition, the future
impact of litigation arising in the ordinary course of business may have an
adverse effect on the financial results or reputation of the company.

     Readers are cautioned not to rely on these forward-looking statements,
which reflect management's analysis, judgment, belief or expectation only as of
the date hereof. We undertake no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof or to reflect the occurrence of unanticipated events. In
addition to the disclosure contained herein, readers should carefully review any
disclosure of risks and uncertainties contained in other documents we file or
have filed from time to time with the Securities and Exchange Commission (the
"Commission").

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
         ----------------------------------------------------------

     We are exposed to market risk through the interest rate on our borrowings
under the Revolving Credit Agreement, which has a variable interest rate. Based
on the average amounts outstanding under the Revolving Credit Agreement for
2004, a 100 basis point change in interest rates would have resulted in an
increase in interest expense of approximately $0.5 million in 2004. In seeking
to minimize the risks from interest rate fluctuations, we manage exposures
through our regular operating and financing activities. In addition, the
majority of our borrowings are under fixed rate arrangements, as described in
Note 5 of Notes to Consolidated Financial Statements.

     COMMODITY RISK

     We enter into forward contracts for the purchase of the majority of our
gold in order to hedge the risk of gold price fluctuations. As of January 29,
2005, we had several open positions in gold forward contracts totaling 37,000
fine troy ounces, to purchase gold for $16.1 million. The fair value of gold
under such contracts was $15.8 million at January 29, 2005. These contracts have
settlement dates ranging from March 31, 2005 to September 30, 2005.


                                       36


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
        -------------------------------------------

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                                                            PAGE
                                                                                                            ----

Report of Independent Registered Public Accounting Firm......................................................F-2

Consolidated Statements of Operations for the years ended January 29, 2005, January 31, 2004
    and February 1, 2003.....................................................................................F-3

Consolidated Balance Sheets as of January 29, 2005 and January 31, 2004......................................F-4

Consolidated Statements of Changes in Stockholder's Equity and Comprehensive Income
    for the years ended January 29, 2005, January 31, 2004 and February 1, 2003..............................F-5

Consolidated Statements of Cash Flows for the years ended January 29, 2005, January 31, 2004
    and February 1, 2003.....................................................................................F-6

Notes to Consolidated Financial Statements for the years ended January 29, 2005, January 31, 2004
     and February 1, 2003....................................................................................F-7


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

     We have had no disagreements with our independent auditors regarding
accounting or financial disclosure matters.

ITEM 9A. CONTROLS AND PROCEDURES
         -----------------------

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f). Under the supervision and with the participation of our
management, including our Chief Executive Officer ("CEO") and Chief Financial
Officer ("CFO"), we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under the framework in Internal
Control - Integrated Framework, our management concluded that our internal
control over financial reporting was effective as of January 29, 2005.

     Our management's assessment of the effectiveness of our internal control
over financial reporting as of January 29, 2005 has been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their
report which is included herein.

DISCLOSURE CONTROLS AND PROCEDURES

     Finlay Jewelry's management, with the participation of its CEO and CFO,
carried out an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period
covered by this report. Based upon that evaluation, the CEO and CFO concluded
that the design and operation of these disclosure controls and procedures are
effective in ensuring that material financial and non-financial information
required to be disclosed by us in reports that we file or submit under the
Exchange Act are recorded, processed, summarized and reported within the time
periods specified in the Commission's rules and forms.


                                       37


CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

     Finlay Jewelry's management, with the participation of Finlay Jewelry's CEO
and CFO, also conducted an evaluation of Finlay Jewelry's internal control over
financial reporting, as defined in Exchange Act Rule 13a-15(f), to determine
whether any changes occurred during the quarter ended January 29, 2005 that have
materially affected, or are reasonably likely to materially affect, Finlay
Jewelry's internal control over financial reporting. Based on that evaluation,
there was no such change during the quarter ended January 29, 2005.

     A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
controls systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within Finlay Jewelry have
been detected. Finlay Jewelry conducts periodic evaluations of its controls to
enhance, where necessary, its procedures and controls. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.

     There have been no changes in our internal controls over financial
reporting that occurred during our last fiscal year to which this report relates
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of
Finlay Fine Jewelry Corporation:

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that Finlay
Fine Jewelry Corporation and subsidiaries (the "Company") maintained effective
internal control over financial reporting as of January 29, 2005, based on
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in


                                       38


accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of January 29, 2005, is fairly
stated, in all material respects, based on the criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of January 29, 2005, based on the criteria established in Internal
Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended January 29, 2005, of the Company and our
report dated April 11, 2005 expressed an unqualified opinion on those financial
statements and included an explanatory paragraph regarding the Company's change
in method of determining price indices used in the valuation of LIFO inventories
in 2004 and the Company's change in method of accounting for cash consideration
received from a vendor to conform to Emerging Issues Task Force Issue No. 02-16.


DELOITTE & TOUCHE LLP

New York, New York
April 11, 2005


ITEM 9B. OTHER INFORMATION
         -----------------

     None.


                                       39


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
         --------------------------------------------------

     Set forth below is certain information with respect to each of the current
executive officers and directors of the Holding Company and Finlay Jewelry. Each
of the persons listed as a director is a member of the Board of Directors of
both the Holding Company and Finlay Jewelry.

                 NAME         AGE                    POSITION
---------------------------  -------  ------------------------------------------
Arthur E. Reiner...........    64     Chairman of the Board, President and Chief
                                      Executive Officer of the Holding Company,
                                      Chairman and Chief Executive Officer of
                                      Finlay Jewelry and Director
Joseph M. Melvin...........    54     Executive Vice President and Chief
                                      Operating Officer of the Holding Company
                                      and President and Chief Operating Officer
                                      of Finlay Jewelry
Leslie A. Philip...........    58     Executive Vice President and Chief
                                      Merchandising Officer of the Holding
                                      Company and Finlay Jewelry
Edward J. Stein............    60     Senior Vice President and Director of
                                      Stores of Finlay Jewelry
Bruce E. Zurlnick..........    53     Senior Vice President, Treasurer and Chief
                                      Financial Officer of the Holding Company
                                      and Finlay Jewelry
David B. Cornstein.........    66     Director
Rohit M. Desai.............    66     Director
Michael Goldstein..........    63     Director
John D. Kerin..............    66     Director
Richard E. Kroon...........    61     Director
Ellen R. Levine............    61     Director
Norman S. Matthews.........    72     Director
Thomas M. Murnane..........    58     Director

     See information under the caption "Certain Relationships and Related
Transactions-Stockholders' Agreement"

     Under the Holding Company's Restated Certificate of Incorporation, the
Holding Company's Board of Directors is classified into three classes. The
members of each class will serve staggered three-year terms. Messrs. Desai,
Goldstein and Murnane are Class I directors; Messrs. Cornstein, Kerin and Reiner
are Class II directors; and Messrs. Matthews and Kroon and Ms. Levine are Class
III directors. The terms of the Class I, Class II and Class III directors expire
at the annual meeting of stockholders to be held in 2005, 2006 and 2007,
respectively. Officers serve at the discretion of the Board of Directors.

     The business experience, principal occupations and employment of each of
the executive officers and directors of the Holding Company and Finlay Jewelry,
together with their periods of service as directors and executive officers of
the Holding Company and Finlay Jewelry, are set forth below.


                                       40


     ARTHUR E. REINER became Chairman of the Holding Company effective February
1, 1999 and, from January 1995 to such date, served as Vice Chairman of the
Holding Company. Mr. Reiner has also served as President and Chief Executive
Officer of the Holding Company since January 30, 1996 and as Chairman of the
Board and Chief Executive Officer of Finlay Jewelry since January 3, 1995. Prior
to joining Finlay, Mr. Reiner had spent over 30 years with the Macy's
organization. From February 1992 to October 1994, Mr. Reiner was Chairman and
Chief Executive Officer of Macy's East, a subsidiary of Macy's. From 1988 to
1992, Mr. Reiner was Chairman and Chief Executive Officer of Macy's Northeast,
which was combined with Macy's Atlanta division to form Macy's East in 1992. Mr.
Reiner is also a director of New York & Company, Inc.

     JOSEPH M. MELVIN was appointed as Executive Vice President and Chief
Operating Officer of the Holding Company and President and Chief Operating
Officer of Finlay Jewelry on May 1, 1997. From September 1975 to March 1997, Mr.
Melvin served in various positions with May, including, from 1990 to March 1997,
as Chairman and Chief Operating Officer of Filene's (a division of May).

     LESLIE A. PHILIP has been Executive Vice President and Chief Merchandising
Officer of the Holding Company and Finlay Jewelry since May 1997. From May 1995
to May 1997, Ms. Philip was Executive Vice President--Merchandising and Sales
Promotion of Finlay Jewelry. From 1993 to May 1995, Ms. Philip was Senior Vice
President--Advertising and Sales Promotion of Macy's, and from 1988 to 1993, Ms.
Philip was Senior Vice President--Merchandise--Fine Jewelry at Macy's. Ms.
Philip held various other positions at Macy's from 1970 to 1988.

     EDWARD J. STEIN has been Senior Vice President and Director of Stores of
Finlay Jewelry since July 1995. From December 1988 to June 1995, Mr. Stein was
Vice President - Regional Supervisor of Finlay Jewelry, and occupied similar
positions with Finlay's predecessors from 1983 to December 1988. Mr. Stein held
various other positions at Finlay from 1965 to 1983.

     BRUCE E. ZURLNICK has been Senior Vice President, Treasurer and Chief
Financial Officer of the Holding Company and Finlay Jewelry since January 2000.
From June 1990 to December 1999, he was Treasurer of the Holding Company and
Vice President and Treasurer of Finlay Jewelry. From December 1978 through May
1990, Mr. Zurlnick held various finance and accounting positions with Finlay's
predecessors.

     DAVID B. CORNSTEIN has been Chairman Emeritus of the Holding Company since
his retirement from day-to-day involvement with the Holding Company effective
January 31, 1999. He served as Chairman of the Holding Company from May 1993
until his retirement, and has been a director of the Holding Company and Finlay
Jewelry since their inception in December 1988. Mr. Cornstein is a Principal of
Pinnacle Advisors Limited. From December 1988 to January 1996, Mr. Cornstein was
President and Chief Executive Officer of the Holding Company. From December 1985
to December 1988, Mr. Cornstein was President, Chief Executive Officer and a
director of a predecessor of the Holding Company.

     ROHIT M. DESAI has been a director of the Holding Company and Finlay
Jewelry since May 1993. Mr. Desai is the founder of and, since its formation in
1984, has been Chairman and President of Desai Capital Management Incorporated,
a specialized equity investment management firm in New York which manages the
assets of various institutional clients through Equity-Linked Investors-II,
Private Equity Investors III, L.P. and Private Equity Investors IV, L.P. Mr.
Desai is also the managing general partner of the general partner of
Equity-Linked Investors-II and the managing member of the general partners of
Private Equity Investors III, L.P. and Private Equity Investors IV, L.P. Mr.
Desai serves as a director of SITEL Corporation, Triton PCS and Independence
Community Bank Corp.

     MICHAEL GOLDSTEIN has been a director of the Holding Company and Finlay
Jewelry since May 1999. Mr. Goldstein has been Chairman of the Toys "R" Us
Children's Fund, Inc. since June 2001. Mr. Goldstein was Chairman of the Board
of Toys "R" Us, Inc. from February 1998 to June 2001. From February 1994 to
February 1998, Mr. Goldstein was Vice Chairman of the Board and Chief Executive


                                       41


Officer of Toys "R" Us, Inc., and served as acting Chief Executive Officer from
August 1999 to January 14, 2000. Mr. Goldstein is also a director of United
Retail Group Inc., 4Kids Entertainment, Inc., Medco Health Solutions, Inc.,
Pacific Sunwear of California, Inc. and Martha Stewart Living Omnimedia, Inc.

     JOHN D. KERIN has been a director of the Holding Company and Finlay Jewelry
since December 1999. Since January 2000, Mr. Kerin has been a consultant to The
McGraw Hill Companies, Inc. From July 1979 to January 2000, Mr. Kerin served in
various positions with The McGraw-Hill Companies, Inc., including, from May 1994
to January 2000, as Senior Vice President, Information Management and Chief
Information Officer.

     RICHARD E. KROON was elected as a director of the Holding Company and
Finlay Jewelry in 2003. Mr. Kroon retired in July 2001 as chairman of the Sprout
Group Venture Capital Fund (a venture capital affiliate of Credit Suisse First
Boston), where he had served as Chairman since April 2000 and where he served as
Managing Partner from March 1981 to April 2000. Mr. Kroon is also a director of
Cohen & Steers REIT and Preferred Income Fund Inc.

     ELLEN R. LEVINE was appointed as a director of the Holding Company and
Finlay Jewelry in January 2004. Ms. Levine has been Editor-in-Chief of Good
Housekeeping since 1994. Ms. Levine also served as Editor-in-Chief of two other
major women's magazines from 1982 to 1994.

     NORMAN S. MATTHEWS has been a director of the Holding Company and Finlay
Jewelry since July 1993. Mr. Matthews has been a retail consultant based in New
York for more than the past five years. Mr. Matthews served as Vice Chairman and
then President of Federated Department Stores from 1983 to 1988. He is also a
director of Toys "R" Us, Inc., The Progressive Corporation, Henry Schein, Inc.,
and Sunoco, Inc.

     THOMAS M. MURNANE has served as a director of the Holding Company and
Finlay Jewelry since December 2002. Mr. Murnane is a recently retired partner of
PricewaterhouseCoopers, LLP, who served in various capacities during his tenure
with that firm since 1980, including Director of the firm's Retail Strategy
Consulting Practice, Director of Overall Strategy Consulting for the East Region
of the United States, and most recently Global Director of Marketing and Brand
Management for PwC Consulting. Mr. Murnane has been self-employed as a business
advisor since 2002. Mr. Murnane is also a director of The Pantry, Inc.,
Captaris, Inc. and Pacific Sunwear of California, Inc.

CODES OF ETHICS

     The Holding Company has adopted Codes of Ethics that apply to all of its
directors and employees including, without limitation, its CEO, its CFO and all
of its employees performing financial or accounting functions. The Holding
Company's Codes of Ethics are posted on its web-site, www.finlayenterprises.com
under the heading "Governance" and are incorporated by reference as an exhibit
to this Form 10-K. The Holding Company intends to satisfy the disclosure
requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver
from, a provision of its Codes of Ethics by posting such information on its
website at the location specified above. The Holding Company will provide to any
person without charge, upon request addressed to the Corporate Secretary at
Finlay Fine Jewelry Corporation, 529 Fifth Avenue, New York, N.Y. 10017, a copy
of the Codes of Ethics.

AUDIT COMMITTEE FINANCIAL EXPERT

     The Audit Committee of the Board of Directors consists of the following
members of the Board of Directors of each of the Holding Company and Finlay
Jewelry: Rohit M. Desai, Michael Goldstein, John D. Kerin and Thomas M. Murnane,
each of whom is an "independent director" under the NASDAQ listing standards
applicable to audit committee members. Each of the Holding Company and Finlay
Jewelry has determined that Mr. Goldstein, Chairman of the Audit Committee,
qualifies as an "audit committee financial expert" as defined in Item 401(h) of
Regulation S-K, and that Mr. Goldstein is independent as the term is used in
Item 7 (d) (3) (iv) of Schedule 14A under the Securities Exchange Act.


                                       42


ITEM 11. EXECUTIVE COMPENSATION
-------------------------------

                           SUMMARY COMPENSATION TABLE

     The following table sets forth information with respect to the compensation
in 2004, 2003 and 2002 of Finlay's Chief Executive Officer and each of the four
other most highly compensated executive officers of the Holding Company or
Finlay Jewelry (collectively, the "Named Executive Officers").



                                                     ANNUAL COMPENSATION                LONG TERM COMPENSATION
                                      ----------------------------------------------- ---------------------------
                                                                                                      NUMBER OF
                                                                                      RESTRICTED     SECURITIES
      NAME AND PRINCIPAL                                               OTHER ANNUAL     STOCK         UNDERLYING       ALL OTHER
           POSITION                   YEAR      SALARY     BONUSES   COMPENSATION (1)   AWARDS       OPTIONS/SARS  COMPENSATION (2)
           --------                   ----      ------     -------   ----------------   ------       ------------  ----------------

ARTHUR E. REINER                      2004   $1,005,000     $478,782     $24,124      $   --               --         $44,882(3)
  Chairman, President                 2003      970,000      597,520      16,775       773,500(3)        50,000        37,596(3)
  and Chief Executive                 2002      935,000      521,169      18,343          --               --          35,332(3)
  Officer of the Holding
  Company and Chairman
  and Chief Executive
  Officer of Finlay Jewelry
JOSEPH M. MELVIN                      2004   $  437,056     $215,556        --        $ 96,750(4)         5,000       $ 9,340
  Executive Vice President            2003      422,056      259,986        --          75,700(5)         5,000         9,340
  and Chief Operating                 2002      407,057      226,893        --            --               --           8,895
  Officer of the Holding
  Company and President
  and Chief Operating
  Officer of Finlay Jewelry
LESLIE A. PHILIP                      2004   $  456,690     $225,240        --        $ 96,750(6)         5,000       $ 9,340
  Executive Vice President            2003      441,690      272,081        --          75,700(7)         5,000         9,340
  and Chief Merchandising             2002      426,690      237,837        --            --               --           8,895
  Officer of the Holding
  Company and
  Finlay Jewelry
EDWARD J. STEIN                       2004   $  380,056     $187,444        --        $ 48,375(8)         2,500       $ 9,340
  Senior Vice President and           2003      370,056      227,954        --          37,850(9)         2,500         9,340
  Director of Stores                  2002      360,055      200,695        --            --               --           8,895
   of Finlay Jewelry
BRUCE E. ZURLNICK                     2004   $  295,000     $145,494        --        $ 48,375(10)        2,500       $ 9,340
  Senior Vice President,              2003      285,000      180,834        --          37,850(11)        2,500         9,340
  Treasurer and Chief                 2002      275,000      153,285        --            --               --           8,895
  Financial Officer of the
  Holding Company and
  Finlay Jewelry


----------
     (1)  Represents tax equalization payments made in connection with life
          insurance premiums paid by Finlay on behalf of the Named Executive
          Officers.

     (2)  Includes for each Named Executive Officer the sum of the following
          amounts earned in 2004, 2003 and 2002 for such Named Executive
          Officer:


                                       43


                                                                     LIFE           RETIREMENT       MEDICAL
                                                                  INSURANCE (a)    BENEFITS (b)    BENEFITS (c)
                                                                 --------------    ------------    ------------

    Arthur E. Reiner.................................     2004       $28,376           $6,500           $  --
                                                          2003        20,176            6,500              --
                                                          2002        20,176            5,525              --

    Joseph M. Melvin.................................     2004       $  --             $6,500           $2,840
                                                          2003          --              6,500            2,840
                                                          2002          --              5,525            3,370

    Leslie A. Philip.................................     2004       $  --             $6,500           $2,840
                                                          2003          --              6,500            2,840
                                                          2002          --              5,525            3,370

    Edward J. Stein..................................     2004       $  --             $6,500           $2,840
                                                          2003          --              6,500            2,840
                                                          2002          --              5,525            3,370

    Bruce E. Zurlnick................................     2004       $  --             $6,500           $2,840
                                                          2003          --              6,500            2,840
                                                          2002          --              5,525            3,370


          (a)  Insurance premiums paid by us with respect to life insurance for
               the benefit of the Named Executive Officer.

          (b)  The dollar amount of all matching contributions and profit
               sharing contributions under our 401(k) profit sharing plan
               allocated to the account of the Named Executive Officer.

          (c)  The insurance premiums paid in respect of the Named Executive
               Officer under our Executive Medical Benefits Plan.

     (3)  Included in the other compensation set forth in Note 2 above, are
          taxable auto allowances and employer provided travel of $10,006,
          $10,920 and $9,631 for 2004, 2003 and 2002, respectively. The value of
          the 50,000 shares of restricted stock of the Holding Company issued to
          Mr. Reiner in August 2003, is based on the closing prices on the dates
          of issuance. At January 29, 2005, Mr. Reiner owned 100,000 shares of
          restricted stock, subject to vesting, having an aggregate market value
          at such date of $1,700,000 and 50,000 shares of restricted stock,
          subject to vesting, having an aggregate market value at such date of
          $850,000. To the extent dividends are paid on the Holding Company's
          Common Stock generally, dividends would be paid on the restricted
          stock. See "--Employment and Other Agreements and Change of Control
          Arrangements".

     (4)  The value of the 5,000 shares of restricted stock awarded to Mr.
          Melvin in April 2004, which shares are to be received by him upon
          completion of vesting in April 2006 (or an earlier vesting date under
          certain circumstances), if he is then employed by the Holding Company,
          is based on the closing price on the date of the award. At January 29,
          2005, such shares would have had an aggregate market value of $85,000.
          To the extent any dividend or other distribution is made in the form
          of shares of Common Stock, the number of shares to be received shall
          be adjusted by the Holding Company in such manner as it deems
          equitable.

     (5)  The value of the 5,000 shares of restricted stock awarded to Mr.
          Melvin in October 2003, which shares are to be received by him upon
          completion of vesting in September 2007 (or an earlier vesting date
          under certain circumstances), if he is then employed by the Holding
          Company, is based on the closing price on the date of the award. At
          January 29, 2005, such shares would have had an aggregate market value
          of $85,000. To the extent any dividend or other distribution is made
          in the form of shares of Common Stock, the number of shares to be
          received shall be adjusted by the Holding Company in such manner as it
          deems equitable.

     (6)  The value of the 5,000 shares of restricted stock awarded to Ms.
          Philip in April 2004, which shares are to be received by her upon
          completion of vesting in April 2006 (or an earlier vesting date under
          certain circumstances), if she is then employed by the Holding
          Company, is based on the closing price on the date of the award. At
          January 29, 2005, such shares would have had an aggregate market value
          of $85,000. To the extent any dividend or other distribution is made
          in the form of shares of Common Stock, the number of shares to be
          received shall be adjusted by the Holding Company in such manner as it
          deems equitable.


                                       44


     (7)  The value of the 5,000 shares of restricted stock awarded to Ms.
          Philip in October 2003, which shares are to be received by her upon
          completion of vesting in September 2007 (or an earlier vesting date
          under certain circumstances), if she is then employed by the Holding
          Company, is based on the closing price on the date of the award. At
          January 29, 2005, such shares would have had an aggregate market value
          of $85,000. To the extent any dividend or other distribution is made
          in the form of shares of Common Stock, the number of shares to be
          received shall be adjusted by the Holding Company in such manner as it
          deems equitable.

     (8)  The value of 2,500 shares of restricted stock awarded to Mr. Stein in
          April 2004, which shares are to be received by him upon completion of
          vesting in April 2006 (or an earlier vesting date under certain
          circumstances) if he is then employed by the Holding Company, is based
          on the closing price on the date of the award. At January 29, 2005,
          such shares would have had an aggregate market value of $42,500. To
          the extent any dividend or other distribution is made in the form of
          shares of Common Stock, the number of shares to be received shall be
          adjusted by the Holding Company in such manner as it deems equitable.

     (9)  The value of the 2,500 shares of restricted stock awarded to Mr. Stein
          in October 2003, which shares are to be received by him upon
          completion of vesting in September 2007 (or an earlier vesting date
          under certain circumstances), if he is then employed by the Holding
          Company, is based on the closing price on the date of the award. At
          January 29, 2005, such shares would have had an aggregate market value
          of $42,500. To the extent any dividend or other distribution is made
          in the form of shares of Common Stock, the number of shares to be
          received shall be adjusted by the Holding Company in such manner as it
          deems equitable.

     (10) The value of 2,500 shares of restricted stock awarded to Mr. Zurlnick
          in April 2004, which shares are to be received by him upon completion
          of vesting in April 2006 (or an earlier vesting date under certain
          circumstances) if he is then employed by the Holding Company, is based
          on the closing price on the date of the award. At January 29, 2005,
          such shares would have had an aggregate market value of $42,500. To
          the extent any dividend or other distribution is made in the form of
          shares of Common Stock, the number of shares to be received shall be
          adjusted by the Holding Company in such manner as it deems equitable.

     (11) The value of the 2,500 shares of restricted stock awarded to Mr.
          Zurlnick in October 2003, which shares are to be received by him upon
          completion of vesting in September 2007 (or an earlier vesting date
          under certain circumstances), if he is then employed by the Holding
          Company, is based on the closing price on the date of the award. At
          January 29, 2005, such shares would have had an aggregate market value
          of $42,500. To the extent any dividend or other distribution is made
          in the form of shares of Common Stock, the number of shares to be
          received shall be adjusted by the Holding Company in such manner as it
          deems equitable.

     Mr. Reiner was named Chairman of the Holding Company effective February 1,
1999 and, from January 1995 to such date, served as Vice Chairman of the Holding
Company. For a discussion of the employment and other arrangements with Mr.
Reiner, see "--Employment and Other Agreements and Change of Control
Arrangements".


                                       45


LONG-TERM INCENTIVE PLANS

     The Holding Company has long-term incentive plans for which restricted it
has reserved a total of 2,582,596 shares of Common Stock for issuance in
connection with awards of stock and options under such plans. Of this total,
732,596 shares of Common Stock have been reserved for issuance under the Holding
Company's Long Term Incentive Plan (the "1993 Plan"), of which 510,111 shares
have been issued to date in connection with exercises of options granted under
the 1993 Plan and 161,219 shares are reserved for issuance upon exercise of
currently outstanding options. The remaining 61,266 shares of Common Stock are
available for future grants under the 1993 Plan. In 1997, the Holding Company's
Board of Directors and stockholders approved the Holding Company's 1997 Long
Term Incentive Plan (as amended, the "1997 Plan" and, together with the 1993
Plan, the "Incentive Plans"), which was intended to supplement the 1993 Plan.
The 1997 Plan is similar to the 1993 Plan and provides for the grant of the same
types of awards as are available under the 1993 Plan. The maximum number of
shares of Common Stock available for issuance under the 1997 Plan is 1,850,000.
Of this total, 294,494 shares have been issued to date in connection with
exercises of options granted under the 1997 Plan, 156,000 shares have been
issued to date in connection with restricted stock arrangements and 896,415
shares are reserved for issuance upon exercise of currently outstanding options
and 323,710 shares are reserved for issuance in connection with purchases and
awards under the Executive Plan and the Director Plan (as defined below) and
awards of restricted stock. The remaining 335,381 shares of Common Stock are
available for future grants under the 1997 Plan.

     In April 2003, the Board of Directors adopted the Executive Deferred
Compensation and Stock Purchase Plan (the "Executive Plan") and the Director
Deferred Compensation and Stock Purchase Plan (the "Director Plan" and
collectively with the Executive Plan, the "RSU Plans"), which were approved by
the Holding Company's stockholders in June 2003. In addition to giving the
Holding Company the ability to make stock-based awards to current or future key
executives and directors under the RSU Plans, the Holding Company believes that
the RSU Plans create a means to provide deferred compensation to such selected
individuals and to raise the level of stock ownership in the Holding Company by
such executives and directors thereby strengthening the mutuality of interests
between them and the Holding Company's stockholders. Under the RSU Plans, which
are administered by the Compensation Committees of the Holding Company and
Finlay Jewelry, key executives of Finlay and the non-employee directors are
eligible to receive restricted stock units ("RSUs"). An RSU is a unit of
measurement equivalent to one share of common stock, but with none of the
attendant rights of a stockholder of a share of common stock. Two types of RSUs
are awarded under the RSU Plans: (i) participant RSUs, where a plan participant
may elect to defer, in the case of an executive employee, a portion of his or
her actual or target bonus, and in the case of a non-employee director, his or
her retainer fees and committee chairmanship fees, and receive RSUs in lieu
thereof and (ii) matching RSUs, where the Holding Company credits a
participant's plan account with one matching RSU for each participant RSU that a
participant elects to purchase. While participant RSUs are fully vested at all
times, matching RSUs are subject to vesting and forfeiture as set forth in the
RSU Plans, as more fully described below. At the time of distribution under the
RSU Plans, RSUs are converted into actual shares of Common Stock of the Holding
Company. As of January 29, 2005, 98,422 RSUs were awarded and purchased under
the RSU Plans and thereafter an additional 5,538 RSUs have been awarded and
purchased. The shares of Common Stock to be issued under the RSU Plans will be
funded solely by the shares of Common Stock already available for issuance under
the Incentive Plans.

     The Incentive Plans, which are administered by the Compensation Committees
of the Holding Company and Finlay Jewelry, permit the Holding Company to grant
to key employees, consultants and directors of the Holding Company and its and
their subsidiaries, the following: (i) stock options; (ii) stock appreciation
rights in tandem with stock options; (iii) limited stock appreciation rights in
tandem with stock options; (iv) restricted or nonrestricted stock awards,
including purchases and awards under the RSU Plans, subject to such terms and
conditions as the Holding Company's Compensation Committee shall determine; (v)
performance units which are based upon attainment of performance goals during a
period of not less than two nor more than five years and which may be settled in
cash or in Common Stock in the discretion of the Holding Company's Compensation
Committee; or (vi) any combination of


                                       46


the foregoing. The 1997 Plan provides, however, that no participant may be
granted, during any fiscal year, options or other awards relating to more than
200,000 shares of Common Stock.

     Under the Incentive Plans, the Holding Company may grant stock options
which are either "incentive stock options" ("Incentive Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, (the
"Code"), or non-incentive stock options ("Non-incentive Options"). Incentive
Options are designed to result in beneficial tax treatment to the optionee, but
will not entitle the Holding Company to a tax deduction. Nonincentive Options
will not give the optionee the tax benefits of Incentive Options, but generally
will entitle the Holding Company to a tax deduction when and to the extent
income is recognized by the optionee.

     The Incentive Plans provide that the per share exercise price of an option
granted under the plans shall be determined by the Holding Company's
Compensation Committee. The exercise price of an Incentive Option may not,
however, be less than 100% of the fair market value of the Common Stock on the
date the option is granted and the duration of an Incentive Option may not
exceed ten years from the date of grant. In addition, an Incentive Option that
is granted to an employee who, at the time the option is granted, owns stock
possessing more than 10% of the total combined voting power of all classes of
capital stock of the "employer corporation" (as used in the Code) or any parent
or subsidiary thereof shall have a per share exercise price which is at least
110% of the fair market value of the Common Stock on the date the option is
granted and the duration of any such option may not exceed five years from the
date of grant. Options granted under the Incentive Plans become exercisable at
such time or times as the Compensation Committee may determine at the time the
option is granted. Options are generally nontransferable and exercisable only by
the participant.

     Various vesting schedules have been utilized by Finlay. Finlay's grants
typically contain transfer and certain other restrictions and provide that
options not vested may expire in the event of termination of employment under
certain circumstances. In addition, (i) if an optionee's employment is
terminated for cause, such optionee's options will terminate immediately, (ii)
if an optionee's employment is terminated due to death, "disability" or
"retirement" (each as defined in the Incentive Plans), such optionee's options
become fully vested and exercisable for a specific period following termination
and (iii) if an optionee's employment is terminated for any other reason, such
optionee's options remain exercisable to the extent vested for a specific period
following termination.

     The Incentive Plans may be amended or terminated by the Board of Directors
at any time, but no such termination or amendment may, without the consent of a
participant, adversely affect the participant's rights with respect to
previously granted awards.

     Key executives of Finlay are eligible to purchase RSUs under the Executive
Plan. Eligibility under the Executive Plan is determined by the Compensation
Committees of the Holding Company and Finlay Jewelry, in their sole discretion.
Any director of the Holding Company who is not an active employee of the Holding
Company or any of its and their subsidiaries who is selected to receive retainer
fees by the Compensation Committees of the Holding Company and Finlay Jewelry is
eligible to purchase RSUs under the Director Plan.

     At the times set forth in the Executive Plan, a participant may elect to
defer 25% of his or her annual actual or target bonus, or the greater of the
actual or target bonus as elected by a participant, that would otherwise be paid
in cash to the participant under the Holding Company's management bonus
opportunity plan, and receive RSUs in lieu thereof. Participant RSUs generally
will be credited under the Executive Plan to a participant's account on or about
April 25th of each plan year in an amount equal to: (i) 25% of the participant's
actual or target bonus, or the greater of the actual or target bonus as elected
by a participant, to be received as an award of participant RSUs divided by (ii)
the fair market value (as defined in the Executive Plan) of a share of Common
Stock on the award date.

     At the times set forth in the Director Plan, a participant may elect to
defer 100% of his or her eligible director fees (which are annual fees received
by a participant for services as chairperson of any


                                       47


committee of the Board of Directors and any retainer fees) that would otherwise
be paid to the participant in cash for a fiscal year, and receive RSUs in lieu
thereof. Participant RSUs will be credited to a participant's account on the
first business day of each quarter in an amount equal to: (i) 100% of the
participant's eligible director fees that the participant elects to receive as
an award of participant RSUs divided by (ii) the fair market value (as defined
in the Director Plan) of a share of Common Stock on the award date.

     On each award date, with respect to each participant RSU that a participant
elects to purchase under the RSU Plans, the Holding Company will credit a
participant's account with one matching RSU. At the time of distribution, RSUs
are converted into actual shares of Common Stock.

     Participant RSUs are fully vested at all times. Matching RSUs under the
Executive Plan vest three years after the applicable award date, provided the
participant is continuously employed by the Holding Company or a subsidiary from
the award date through the applicable vesting date. In the event a participant's
employment is terminated for any reason (other than by the Holding Company
without "cause" or as a result of death, "disability," "retirement" or a "change
in control" (as each such term is defined in the Executive Plan)) prior to the
applicable vesting date, all unvested matching RSUs will be forfeited.
Notwithstanding the foregoing, upon a participant's death, "disability" or
"change in control," in each case while employed by the Holding Company or a
subsidiary, all unvested matching RSUs will become 100% vested. Upon a
termination of a participant's employment by the Holding Company or a subsidiary
without "cause" or upon "retirement" (as each such term is defined in the
Executive Plan), a participant's unvested matching RSUs will be subject to
pro-rata vesting, based on the number of whole years employed in a particular
vesting period, and any remaining unvested matching RSUs will be forfeited.
Matching RSUs under the Director Plan will vest on the one year anniversary of
the award date, provided the participant continuously serves as a director of
the Company from the award date through the applicable vesting date. In the
event a participant's directorship is terminated for any reason (other than
death, "disability," or "change in control" (as each such term is defined in the
Director Plan)) all unvested matching RSUs will be forfeited. Upon a
participant's death, "disability" or "change in control," all unvested matching
RSUs will become 100% vested.

     For each participant RSU, a participant will receive one share of Common
Stock (and cash in lieu of fractional shares) as soon as practicable following
the earlier of: (i) a participant's termination of employment or directorship or
(ii) the expiration of the deferral period elected by the participant (i.e.,
three, five or seven years after an award date, or as extended or terminated
early in accordance with the applicable RSU Plans).

     For each vested matching RSU, a participant will receive one share of
Common Stock (and cash in lieu of fractional shares) as soon as practicable
following the earlier of: (i) a participant's termination of employment or
directorship or (ii) the expiration of the deferral period elected by the
participant, provided that if a participant's employment or directorship is
terminated for any reason other than due to death, "disability", or a "change in
control" or a termination of the RSU Plan, each vested matching RSU in a
participant's account will be distributed twelve months after such termination.

     If a participant engages in "detrimental activity" (as defined in the RSU
Plans) while employed or serving as a director, or during a period commencing on
the participant's termination date and ending one year following the date that a
participant terminates employment or a directorship: (i) the participant will
forfeit vested and unvested matching RSUs to the extent not yet paid to a
participant and (ii) the Holding Company may recover from a participant, the
value of any shares of Common Stock that were distributed under the applicable
RSU Plan as a result of any matching RSUs, valued at the greater of the "fair
market value" on the date a participant received payment under such RSU Plan or
the date that a participant engaged in "detrimental activity."

     The Holding Company has the right to amend or terminate the RSU Plans at
any time, by action of its Board of Directors or its Compensation Committee,
provided that no such action will adversely affect a participant's rights under
such RSU Plan with respect to RSUs purchased or awarded and vested before


                                       48


the date of such action. No amendment will be effective unless approved by the
stockholders of the Holding Company if stockholder approval of such amendment is
required to comply with any applicable law, regulation or stock exchange rule.

     In July 2004, the Board of Directors of the Holding Company, upon the
recommendation of the Compensation Committee, adopted, subject to stockholder
approval, an amendment to the 1997 Plan as described below to allow for awards
based on performance to be deductible under Section 162(m) of the Code. The
amendment was approved by stockholders in September 2004. Compliance with the
requirements of Section 162(m) would enable the Holding Company to deduct
compensation associated with awards under the plan which qualifies as
"performance-based" for purposes of Section 162(m) of the Code.

     If the Compensation Committee determines, at the time an award is granted
to a participant who is then an officer, that such participant is, or is likely
to be as of the end of the taxable year in which the Holding Company would
ordinarily claim a tax deduction in connection with such award, a covered
employee (as defined below), then the Compensation Committee may provide that
the distribution of cash, shares or other property pursuant to the 1997 Plan
shall be subject to the achievement of one or more objective performance goals
established by the Compensation Committee, which shall be based on the
attainment of specified levels of one or any variation or combination of the
following: revenues, net revenues, cost reductions and savings, operating
income, income before taxes, net income, adjusted net income, earnings before
interest, taxes, depreciation and amortization ("EBITDA"), earnings per share,
adjusted earnings per share, operating margins, stock price, working capital
measures, return on assets, return on revenues or productivity, return on
equity, return on invested capital, cash flow measures, market share,
stockholder return or economic value added. In addition, the Compensation
Committee may establish, as an additional performance measure, the attainment by
a participant in the 1997 Plan of one or more personal objectives and/or goals
that the Compensation Committee deems appropriate, including but not limited to
implementation of Holding Company policies, negotiations of significant
corporate transactions, development of long-term business goals or strategic
plans for the Holding Company, or exercise of specific areas of managerial
responsibility. The Compensation Committee will not have discretion to increase
awards over the level determined by application of the performance goal
formula(s) and will be required to certify, prior to payment, that the
performance goals underlying the awards have been satisfied. The performance
goals set by the Compensation Committee may be expressed on an absolute and/or
relative basis, may include comparisons with past performance of the Holding
Company (including one or more divisions, if any) and/or the current or past
performance of other companies. The performance goals shall be set by the
Compensation Committee within the time period prescribed by, and shall otherwise
comply with the requirements of, Section 162(m) of the Code, or any successor
provision thereto, and the regulations thereunder.

     The measures used in performance goals set under the 1997 Plan shall be
determined in a manner consistent with generally accepted accounting principles
("GAAP") and in a manner consistent with the methods of reporting used in the
Holding Company's Annual Reports on Form 10-K and Quarterly Reports on Form
10-Q, without regard, however, to special, unusual or non-recurring items or
events, items related to the disposal or acquisition of business, or to changes
in accounting principles or law, except as may otherwise be determined by the
Compensation Committee. To the extent that any objective performance goals are
expressed using any earnings or revenue-based measures that require deviations
from GAAP, such deviations will be at the discretion of the Compensation
Committee.


CASH BONUS PLAN

     Under Section 162(m) of the Code, the Holding Company's Federal income tax
deductions for certain compensation paid to designated executives is limited to
$1 million per taxable year. Section 162(m) denies to a publicly held
corporation a deduction, in determining its taxable income, for "covered
compensation" in excess of $1 million paid in any taxable year to those
individuals who, at the end of the taxable year, are "covered employees"
(defined to mean the Holding Company's Chief Executive Officer and other Holding
Company employees whose total compensation for the taxable year is required to
be reported to stockholders under the Exchange Act), by reason of such employees
being among the four highest compensated officers for the taxable year, other
than the Chief Executive Officer). "Covered compensation" does not include
amounts payable upon the attainment of performance goals established by a
committee of outside directors if the material terms of the performance goals
are to be approved by the stockholders.

                                       49


     In July 2004, the Board of Directors of the Holding Company, upon the
recommendation of the Compensation Committee, adopted, subject to stockholder
approval, the Finlay Enterprises, Inc. 2004 Cash Bonus Plan (the "Cash Bonus
Plan") so as to qualify bonuses paid under the Cash Bonus Plan as
"performance-based" for purposes of Section 162(m) of the Code. The Cash Bonus
Plan is intended to provide annual incentives to certain senior executive
officers in a manner designed to reinforce the Holding Company's performance
goals; to link a significant portion of participants' compensation to the
achievement of such goals; and to continue to attract, motivate and retain key
executives on a competitive basis, while seeking to preserve for the benefit of
the Holding Company, to the extent practicable, the associated Federal income
tax deduction for payments of qualified "performance-based" compensation. The
Cash Bonus Plan was approved by stockholders in September 2004. Under the Cash
Bonus Plan, the Compensation Committee will be able to pay cash bonuses which
would qualify as performance-based compensation under the Code.

     The participants in the Cash Bonus Plan will be those key executives who
are designated by the Compensation Committee to participate in the Cash Bonus
Plan from time to time. The Compensation Committee reserves the right to
establish alternative incentive compensation arrangements for otherwise eligible
executives if it determines that it would be in the best interests of the
Holding Company and its stockholders to do so, even if the result is a loss of
deductibility for certain compensation payments.

     Specific performance goals for participating executives will be selected
from among the business criteria described below. These goals must be
established for each participant by the Compensation Committee prior to the 91st
day of each performance period, but no later than the expiration of the first
25% of a performance period having a duration of less than one year for
determining the participant's business criteria target.

     Under the Cash Bonus Plan, the Compensation Committee must set one or more
objective performance goals for each participant, using one or more such goals
established by the Compensation Committee, which shall be based on the
attainment of specified levels of one or any variation or combination of the
following: revenues, net revenues, cost reductions and savings, operating
income, income before taxes, net income, EBITDA, adjusted net income, earnings
per share, adjusted earnings per share, operating margins, stock price, working
capital measures, return on assets, return on revenues or productivitiy, return
on equity, return on invested capital, cash flow measures, market share,
stockholder return or economic value added. In addition, the Compensation
Committee may establish, as an additional performance measure, the attainment by
a participant in the Cash Bonus Plan of one or more personal objectives and/or
goals that the Compensation Committee deems appropriate, including but not
limited to implementation of Holding Company policies, negotiation of
significant corporate transactions, development of long-term business goals or
strategic plans for the Holding Company, or the exercise of specific areas of
managerial responsibility. The Compensation Committee will not have discretion
to increase bonus amounts over the level determined by application of the
performance goal formula(s) and will be required to certify, prior to payment,
that the performance goals underlying the bonus payments have been satisfied.
The performance goals set by the Compensation Committee may be expressed on an
absolute and/or relative basis, and may include comparisons with the past
performance of the Holding Company (including one or more divisions thereof, if
any) and/or the current or past performance of other companies.

     The measures used in performance goals set under the Cash Bonus Plan shall
be determined in a manner consistent with GAAP and in a manner consistent with
the methods of reporting used in the Holding Company's Annual Reports on Form
10-K and Quarterly Reports on Form 10-Q, without regard, however, to special,
unusual or non-recurring items or events, items related to the disposal or
acquisition of a business or to changes in accounting principles or law, except
as may otherwise be determined by the Compensation Committee. To the extent that
any objective performance goals are expressed using any earnings or
revenue-based measures that require deviations from GAAP, such deviations will
be at the discretion of the Compensation Committee.

     In general, the benefits under the Cash Bonus Plan will consist of a cash
bonus payable to participants provided the performance goals established by the
Compensation Committee are met (and, if met, the extent to which such goals are
met.) The bonus opportunity for each participant under the Cash Bonus Plan each
performance period will be related by a specific formula to the participant's
base salary at the start of such performance period, provided that the maximum
bonus paid under the plan to any individual in respect of any fiscal year shall
not exceed $2 million.

     The Cash Bonus Plan will be administered by the Compensation Committee,
which at all times shall be composed solely of at least two directors who are
"outside directors" within the meaning of Section 162(m). All determinations of
the Compensation Committee with respect to the Cash Bonus Plan will be in its
discretion and be binding. The expenses of administering the Cash Bonus PLan
will be borne by the Holding Company.

                                       50


     The Board of Directors may at any time terminate or suspend the Cash Bonus
Plan or revise it in any respect, provided that (i) no amendment shall be made
which would cause bonuses payable under the plan to fail to qualify for the
exemption from the limitations of Section 162(m) of the Code and (ii) no such
action shall adversely affect a participant's rights under the Cash Bonus Plan
with respect to bonus arrangements agreed to by the Holding Company and the
participant, pursuant to a written agreement or otherwise, before the date of
such action, without the consent of the participant.

OPTION/SAR GRANTS IN 2004/LONG-TERM INCENTIVE PLAN AWARDS IN 2004

     There were no options granted or stock appreciation rights issued, or any
long-term incentive plan awards, by the Holding Company in 2004 to the Named
Executive Officers.

CERTAIN INFORMATION CONCERNING STOCK OPTIONS/SARS

     The following table sets forth certain information with respect to stock
options exercised in 2004 as well as the value of stock options at the fiscal
year end. No stock appreciation rights were exercised during 2004.

AGGREGATED OPTION/SAR EXERCISES IN 2004 AND FISCAL YEAR-END OPTION SAR VALUE



                                                                    NUMBER OF
                                                                   SECURITIES             VALUE OF
                                                                   UNDERLYING            UNEXERCISED
                                                                   UNEXERCISED          IN-THE-MONEY
                                                                  OPTIONS/SARS         OPTIONS/SARS AT
                                       SHARES                      AT YEAR-END           YEAR-END ($)
                                      ACQUIRED       VALUE        EXERCISABLE/           EXERCISABLE/
               NAME                  ON EXERCISE   REALIZED       UNEXERCISABLE      UNEXERCISABLE (1)(2)
               ----                  -----------   --------       -------------      --------------------

Arthur E. Reiner................       74,632      $625,938      416,000 /44,000    $1,618,235 / $323,800
Joseph M. Melvin................       18,000      $219,960      112,200 /14,800    $  510,440 / $124,460
Leslie A. Philip................       43,333      $348,581      124,667 /22,000    $  686,634 / $184,700
Edward J. Stein.................        8,333      $ 95,330      59,667 /  8,000    $  393,449 / $ 68,200
Bruce E. Zurlnick...............        3,333      $ 38,230      31,000 /  7,000    $  210,925 / $ 63,950


----------
(1)  The value of Unexercised In-the-Money Options/SARs represents the aggregate
     amount of the excess of $17.00, the closing price for a share of Common
     Stock at year end, over the relevant exercise price of all "in-the-money"
     options.

(2)  The options granted under the 1997 Plan generally vest over periods of up
     to five years. Other vesting schedules have also been utilized by Finlay.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Board of Directors of each of the Holding Company and Finlay Jewelry
have established a Compensation Committee. The Compensation Committee of each of
the Board of Directors of the Holding Company and Finlay Jewelry is presently
comprised of Norman S. Matthews, Michael Goldstein, John D. Kerin and Ellen R.
Levine. All decisions with respect to executive compensation and benefit plans
involving employees of the Holding Company and Finlay Jewelry are currently made
by the Compensation Committee. None of the present members of either
Compensation Committee were, at any time, an officer or employee of the Holding
Company or any of its subsidiaries and no "compensation committee interlocks"
existed during 2004.

EMPLOYMENT AND OTHER AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS

     In 2004, the Holding Company entered into an employment agreement with Mr.
Reiner pursuant to which he is serving as Chairman of the Board, President and
Chief Executive Officer of the Holding Company.

     Pursuant to the new employment agreement, Mr. Reiner will continue to serve
as Chairman, President and Chief Executive Officer of the Holding Company and
Chairman and Chief Executive Officer of Finlay Jewelry for a period commencing
on January 30, 2005 and ending on January 31, 2009, unless earlier terminated in
accordance with the provisions of the employment agreement. The employment



                                       51


agreement provides for the payment of an initial annual base salary of
$1,005,000. In addition to his annual base salary, Mr. Reiner is entitled to
receive cash incentive compensation ("Cash Incentive Compensation") and stock
incentive compensation ("Stock Incentive Compensation" and collectively with the
Cash Incentive Compensation, the "Incentive Compensation") based on the
attainment of financial objectives developed by senior management and approved
by the Holding Company's Board of Directors.

     Commencing with the 2005 fiscal year, the target amount of Cash Incentive
Compensation shall be based on the base salary for such year and, if EBITA (as
defined in the employment agreement) in any fiscal year is 80% of the Target
Level (as defined in the employment agreement) for such fiscal year, the Cash
Incentive Compensation shall be 33.333% of the Target Cash Incentive Amount (as
defined in the employment agreement). If EBITA exceeds 80% of the Target Level,
the percentage of the Target Cash Incentive Amount payable in respect of such
fiscal year shall increase 3.333% for each percentage point by which EBITA in
such fiscal year exceeds 80% of the Target Level. If EBITA levels exceed 100% of
the target, the Cash Incentive Compensation can exceed the base salary.

     Additionally, commencing with the 2005 fiscal year, the maximum amount of
Stock Incentive Compensation payable in respect of any fiscal year during the
employment term shall be that number of restricted shares of Common Stock of the
Holding Company ("Restricted Stock") having an aggregate fair market value (as
defined) nearest to $400,000 ("Target Stock Incentive Amount"), with the actual
amount to be based on whether the specified EBITA levels are met for such year.
If EBITA in any fiscal year is 80% of the Target Level for such fiscal year, the
Stock Incentive Compensation payable in respect of such fiscal year shall be
33.333% of the Target Stock Incentive Amount. If EBITA exceeds 80% of the Target
Level, the percentage of the Target Stock Incentive Amount payable in respect of
such fiscal year shall increase 3.333% for each percentage point by which EBITA
in such fiscal year exceeds 80% of the Target Level. Commencing with the 2005
fiscal year, Mr. Reiner shall also be entitled to receive, for each fiscal year
during the employment term, in addition to the Stock Incentive Compensation,
shares of Restricted Stock having an aggregate market value (as defined) nearest
to $500,000 ("Restricted Stock Time-Based Bonus"). Under the employment
agreement, Mr. Reiner is also entitled to certain insurance and other ancillary
benefits.

     If, at the scheduled or, under specified circumstances, earlier expiration
of the employment term, Mr. Reiner and the Holding Company cannot agree upon the
terms to continue Mr. Reiner's employment, or if his employment is terminated
without "cause" or by Mr. Reiner for "good reason" (as such terms are defined in
the employment agreement), he would be entitled to receive, in addition to other
payments and benefits under the employment agreement, a severance payment in an
amount equal to one year's base salary plus the amount of Cash Incentive
Compensation for the most recently completed fiscal year, which shall not be
less than one year's base salary ("Severance Amount").

     Mr. Reiner's employment agreement provides that if his employment is
terminated prior to a "change of control" (as defined in the employment
agreement) either by the Holding Company without "cause" or by Mr. Reiner for
"good reason," Mr. Reiner will continue to receive his base salary for the
balance of the term and Incentive Compensation (calculated as though 110% of the
Target Level were achieved) as if such termination had not occurred. Mr. Reiner
will also be entitled to receive, on the date of termination, all of the
Restricted Stock Time-Based Bonus, plus the Severance Amount and insurance and
other benefits.

     In the event Mr. Reiner's employment is terminated by the Holding Company
without "cause" or by Mr. Reiner for "good reason" and coincident with or
following a "change of control," Mr. Reiner shall be entitled to a lump sum
payment equal to 299% of his "base amount" (as defined in Section 280G(b)(3) of
the Internal Revenue Code of 1986), subject to certain restrictions, and all of
the Restricted Stock issuable under the terms of the employment agreement. In
the event that Mr. Reiner voluntarily terminates his employment within one year
following a "change of control" in connection with which the acquirer did not
expressly assume Mr. Reiner's agreement and extend its term so the unexpired
portion is not less than


                                       52


three years, or otherwise offers Mr. Reiner a contract on terms no less
favorable than those provided under the agreement providing for a term of at
least three years, he will be entitled to a payment equal to 299% of the "base
amount."

     In May 1997, the Holding Company appointed Mr. Melvin to serve as Executive
Vice President and Chief Operating Officer of the Holding Company and President
and Chief Operating Officer of Finlay Jewelry. The Holding Company has agreed to
pay to Mr. Melvin an annual base salary of at least $350,000 as well as an
annual bonus based on the achievement of certain targets. If Mr. Melvin's
employment is terminated by Finlay without cause or his title is changed to a
lesser title, he is entitled to receive a lump sum payment equal to one year's
base salary.

     For information relating to the awards of restricted stock in October 2003
and April 2004 under the 1997 Plan to Mr. Melvin, Leslie A. Philip, Executive
Vice President and Chief Merchandising Officer of the Holding Company and Finlay
Jewelry, Edward J. Stein, Senior Vice President and Director of Stores of Finlay
Jewelry and Bruce E. Zurlnick, Senior Vice President, Treasurer and Chief
Financial Officer of the Holding Company and Finlay Jewelry, which stock will be
issued in September 2007 and April 2006, respectively, (or an earlier vesting
date under certain circumstances, including a change of control (as defined in
such plan) so long as the respective officers are then employed by Finlay, see
-- Summary Compensation Table" and "Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters" including, "--
Equity Compensation Plan Table".

DIRECTORS' COMPENSATION

     Directors of Finlay Jewelry, who are employees, receive no additional
compensation for serving as members of the Board.

     For serving as a director of the Holding Company and Finlay Jewelry during
2004, each non-employee director received aggregate compensation at the rate of
$25,000 per year plus $1,000 for each meeting of the Board and each committee
meeting attended in person, and $500 for each meeting attended by conference
telephone call, with the chairman of the Audit Committee receiving an aggregate
annual fee at the rate of $6,000 and the chairmen for the Compensation and
Nominating and Corporate Governance committees receiving an aggregate annual fee
at the rate of $3,000 each.

     Commencing in August 2003, each non-employee director was allowed to elect,
under the Holding Company's Director Deferred Compensation and Stock Purchase
Plan, to defer 100% of his or her eligible director fees that would otherwise be
paid in cash and receive restricted stock units (i.e., RSUs). The participant
RSUs are awarded and credited to a director participant's account quarterly in
an amount based on a formula which divides the cash amount deferred by the fair
market value of a share of Common Stock on the award date. On each award date,
the Company will credit a participant's account with one matching RSU for each
participant RSU purchased by the director. The following non-employee directors
own RSUs in the amounts set forth below:

                                   Participant RSUs   Matching RSUs(1)
                                   ----------------   ----------------
        Rohit M. Desai                    2,527              2,527
        Norman S. Matthews                2,831              2,831
        Michael Goldstein                 3,134              3,134
        John D. Kerin                     2,527              2,527
        Richard E. Kroon                  2,527              2,527
        Ellen R. Levine                   1,711              1,711
        Thomas M. Murnane                 2,733              2,733

----------
(1)  The matching RSUs include vested and unvested RSUs.


                                       53


     The number of RSUs owned by each such director includes the following
amounts of RSUs acquired during 2004: Mr. Desai: 1,341 participant RSUs and
1,341 matching RSUs; Mr. Matthews: 1,502 participant RSUs and 1,502 matching
RSUs; Mr. Goldstein: 1,663 participant RSUs and 1,663 matching RSUs; Mr. Kerin:
1,341 participant RSUs and 1,341 matching RSUs; Mr. Kroon: 1,341 participant
RSUs and 1,341 matching RSUs; Mr. Murnane: 1,502 participant RSUs and 1,502
matching RSUs; and Ms. Levine: 1,341 participant RSUs and 1,341 matching RSUs.
See "-- Long-Term Incentive Plans".

     Mr. Reiner has an employment contract with Finlay. See information under
the caption "Employment and Other Agreements and Change of Control
Arrangements".



                                       54


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

     The following table sets forth certain information with respect to
beneficial ownership of the Common Stock of the Holding Company as of April 8,
2005 by (i) each person who, to the knowledge of the Holding Company, was the
beneficial owner of more than 5% of the outstanding Common Stock of the Holding
Company, (ii) each of the Holding Company's directors, the Holding Company's
Chief Executive Officer and each of the four other most highly compensated
executive officers of the Holding Company or Finlay Jewelry, and (iii) all
current directors and executive officers as a group. The Holding Company owns
all of our issued and outstanding capital stock.



                                                                      SHARES OF COMMON STOCK
                                                                      BENEFICIALLY OWNED (1)
                                                                      -----------------------
                                                                      NUMBER OF    PERCENTAGE
                                NAME                                   SHARES       OF CLASS
    ---------------------------------------------------------------   ----------   ----------

    FMR Corp.(2)...................................................   1,153,652         12.8%
    Wells Fargo & Company(3) ......................................     911,380         10.1%
    Prides Capital Partners, L.L.C. (4)............................     726,103          8.1%
    Dimensional Fund Advisors LLC(5)...............................     723,328          8.0%
    Arthur E. Reiner(1)(6).........................................     600,355          6.4%
    Investment Counselors of Maryland, LLC(7) .....................     581,173          6.5%
    David B. Cornstein(1)..........................................     407,700          4.5%
    Leslie A. Philip(1)(8).........................................     128,303          1.4%
    Joseph M. Melvin(1)(9).........................................     120,675          1.3%
    Edward J. Stein(1)(10).........................................      65,913          *
    Norman S. Matthews(1) (11).....................................      55,828          *
    Bruce E. Zurlnick(1)(12).......................................      39,717          *
    Michael Goldstein (1)(13)......................................      34,659          *
    Rohit M. Desai (1)(14).........................................      10,756          *
    Thomas M. Murnane(1) (15)......................................       9,012          *
    John D. Kerin(1)(16)...........................................       3,756          *
    Richard E. Kroon(1) (17) ......................................       3,756          *
    Ellen R. Levine (1)(18) .......................................       2,124          *
    All directors and executive officers
    as a group (13 persons)(19)....................................   1,482,554         15.0%


----------
     *    Less than one percent.

     (1)  Based on 9,006,710 shares outstanding on April 8, 2005. A person is
          deemed to be the beneficial owner of securities that can be acquired
          by such person within 60 days from April 8, 2005 upon the exercise of
          options. Each beneficial owner's percentage ownership is determined by
          assuming that options that are held by such person and which are
          exercisable within 60 days of April 8, 2005 have been exercised.
          Except as noted below, each beneficial owner has sole voting power and
          sole investment power, subject (in the case of the Holding Company's
          directors and executive officers) to the terms of the Amended and
          Restated Stockholders' Agreement dated as of March 6, 1995, as amended
          (the "Stockholders' Agreement"), by and among the Holding Company and
          certain securityholders of the Holding Company. The address for the
          beneficial owners named in the table, unless specified otherwise in a
          subsequent footnote, is c/o the Holding Company, 529 Fifth Avenue, New
          York, New York 10017.

     (2)  These shares represent shares reported as beneficially owned by FMR
          Corp. in a joint filing on Amendment No. 5 dated February 14, 2005 to
          a Schedule 13G dated February 1, 1999, as amended, filed with the
          Commission by FMR Corp., Edward C. Johnson 3d, Abigail P. Johnson,
          Fidelity Management & Research Company ("Fidelity") and Fidelity Low
          Priced Stock Fund (the "Fund"). According to said Schedule 13G
          Amendment, members of the Edward C. Johnson 3d family are the
          predominant owners of Class B shares of common stock of FMR Corp.,


                                       55


          representing approximately 49% of the voting power of FMR Corp. Mr.
          Johnson 3d owns 12.0% and Ms. Johnson owns 24.5% of the aggregate
          outstanding voting stock of FMR Corp. Mr. Johnson 3d is Chairman of
          FMR Corp. and Ms. Johnson is a Director of FMR Corp. The Johnson
          family group and all other Class B shareholders have entered into a
          shareholders' voting agreement under which all Class B shares will be
          voted in accordance with the majority vote of Class B shares.
          Accordingly, through their ownership of voting common stock and the
          execution of the shareholders' voting agreement, members of the
          Johnson family may be deemed, under the Investment Company Act of
          1940, to form a controlling group with respect to FMR Corp. The
          Schedule 13G Amendment further states that Fidelity, a wholly-owned
          subsidiary of FMR Corp. and a registered investment adviser, is the
          beneficial owner of the 1,047,800 shares which are the subject of the
          Schedule 13G Amendment as a result of its acting as investment adviser
          to the Fund, an investment company which owns all of such 1,153,652
          shares. Mr. Johnson 3d, FMR Corp., through its control of Fidelity,
          and the Fund each has sole power to dispose of the 1,153,652 shares
          owned by the Fund. FMR Corp. has the sole power to vote or direct the
          voting of 2,030 of the shares beneficially owned by FMR Corp. Neither
          FMR Corp. nor Mr. Johnson 3d has the sole power to vote or direct the
          voting of the shares owned directly by the Fund, which power resides
          with the Fund's Board of Trustees. Fidelity carries out the voting of
          the shares under written guidelines established by the Fund's Board of
          Trustees. The address for FMR Corp., Fidelity and the Fund is 82
          Devonshire Street, Boston, Massachusetts 02109.

     (3)  According to Amendment No. 2, dated January 21, 2005, to a Schedule
          13G dated January 23, 2004, as amended, filed with the Commission by
          Wells Fargo & Company and Wells Capital Management Incorporated, Wells
          Fargo & Company has sole power to vote 882,625 shares and sole power
          to dispose of 885,380 shares and Wells Capital Management Incorporated
          has sole power to vote 856,625 shares and sole power to dispose of
          885,380 shares. The address of Wells Fargo & Company is 420 Montgomery
          Street, San Francisco, California 94104 and the address for Wells
          Capital Management Incorporated is 525 Market Street, 10th Floor, San
          Francisco, California 94104.

     (4)  According to Amendment No. 2, dated March 25, 2005, to a joint filing
          on a Schedule 13D, dated July 1, 2004, as amended, filed with the
          Commission by Prides Capital Partners, L.L.C., Kevin A. Richardson,
          II, Henry J. Lawlor, Jr., Murray A. Indick, Charles E. McCarthy and
          Christian Puscasiu, these shares represent shares reported as
          beneficially owned by Prides Capital Partners, L.L.C. which has sole
          voting and investment power over these shares. The address for Prides
          Capital Partners, L.L.C., Kevin A. Richardson, II, Henry J. Lawlor,
          Jr., Murray A. Indick, Charles E. McCarthy, and Christian Puscasiu is
          200 High Street, Ste. 700, Boston, Massachusetts 02110.

     (5)  According to a Schedule 13G dated February 9, 2005 filed with the
          Commission by Dimensional Fund Advisors Inc. ("Dimensional"),
          Dimensional may be deemed to beneficially own, have sole power to vote
          or to direct the vote and sole power to dispose or to direct the
          disposition of the 723,328 shares. Dimensional is an investment
          advisor registered under Section 203 of the Investment Advisors Act of
          1940. Dimensional furnishes investment advice to four investment
          companies registered under the Investment Company Act of 1940 and
          serves as investment manager to certain other commingled group trusts
          and separate accounts (collectively, the investment companies, trusts
          and accounts are the "Funds"). In its role as investment advisor or
          manager, Dimensional may be deemed to be a beneficial owner of the
          723,328 shares and to possess sole investment and/or sole voting power
          over the 723,328 shares owned directly by the Funds. The address of
          Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica, California
          90401.

     (6)  Includes options to acquire an aggregate of 436,000 shares of Common
          Stock having exercise prices ranging from $7.05 to $14.00 per share.
          Also includes 25,000 shares of restricted stock and 7,986 participant
          restricted stock units, or RSUs (as herein defined), and excludes
          7,986 matching RSUs, which are not yet vested.

     (7)  According to Amendment No. 3, dated February 5, 2005, to a Schedule
          13G, dated February 6, 2003, as amended, filed with the Commission by
          Investment Counselors of Maryland, LLC ("Investment Counselors"),
          Investment Counselors has sole power to vote 467,073 shares and sole
          power to dispose of all the indicated shares, and shares power to vote
          114,100 shares and shares power to dispose of none of such shares. All
          of the indicated shares are owned by various investment advisory
          clients of Investment Counselors, which is deemed to be a beneficial
          owner


                                       56


          of the shares due to its discretionary power to make investment
          decisions over such shares for its clients and its ability to vote
          such shares. In all cases, persons other than Investment Counselors
          have the right to receive, or the power to direct the receipt of,
          dividends from, or the proceeds from the sale of the shares. According
          to the Schedule 13G Amendment, no individual client of Investment
          Counselors holds more than five percent of the class. The address for
          Investment Counselors of Maryland, LLC is 803 Cathedral Street,
          Baltimore, Maryland 21201-5297.

     (8)  Includes options to acquire an aggregate of 124,667 shares of Common
          Stock having exercise prices ranging from $7.05 to $23.1875 per share.
          Also includes 3,636 participant RSUs and excludes 3,636 matching RSUs,
          which are not yet vested. Excludes 5,000 shares of restricted stock
          awarded in October 2003, which shares are to be received by Ms. Philip
          upon completion of vesting in September 2007 (or an earlier vesting
          date under certain circumstances), if then employed by the Holding
          Company. Also excludes 5,000 shares of restricted stock awarded in
          April 2004, which shares are to be received by Ms. Philip upon
          completion of vesting in April 2006 (or an earlier vesting date under
          certain circumstances) if then employed by the Holding Company.

     (9)  Includes options to acquire an aggregate of 116,200 shares of Common
          Stock having exercise prices ranging from $7.05 to $24.3125 per share.
          Also includes 3,475 participant RSUs and excludes 3,475 matching RSUs,
          which are not yet vested. Excludes 5,000 shares of restricted stock
          awarded in October 2003, which shares are to be received by Mr. Melvin
          upon completion of vesting in September 2007 (or an earlier vesting
          date under certain circumstances), if then employed by the Holding
          Company. Also excludes 5,000 shares of restricted stock awarded in
          April 2004, which shares are to be received by Mr. Melvin upon
          completion of vesting in April 2006 (or an earlier vesting date under
          certain circumstances) if then employed by the Holding Company.

     (10) Includes options to acquire an aggregate of 61,667 shares of Common
          Stock having exercise prices ranging from $7.05 to $13.4219 per share.
          Also includes 3,046 participant RSUs and excludes 3,046 matching RSUs,
          which are not yet vested. Excludes 2,500 shares of restricted stock
          awarded in October 2003, which shares are to be received by Mr. Stein
          upon completion of vesting in September 2007 (or an earlier vesting
          date under certain circumstances), if then employed by the Holding
          Company. Also excludes 2,500 shares of restricted stock awarded in
          April 2004, which shares are to be received by Mr. Stein upon
          completion of vesting in April 2006 (or an earlier vesting date under
          certain circumstances) if then employed by the Holding Company.

     (11) Includes options to acquire an aggregate of 20,000 shares of Common
          Stock having exercise prices ranging from $9.85 to $12.75 per share.
          Also includes 4,208 participant and vested matching RSUs and excludes
          1,454 matching RSUs, which are not yet vested.

     (12) Includes options to acquire an aggregate of 32,000 shares of Common
          Stock having exercise prices ranging from $7.05 to $13.5625 per share.
          Also includes 2,417 participant RSUs and excludes 2,417 matching RSUs,
          which are not yet vested. Excludes 2,500 shares of restricted stock
          awarded in October 2003, which shares are to be received by Mr.
          Zurlnick upon completion of vesting in September 2007 (or an earlier
          vesting date under certain circumstances), if then employed by the
          Holding Company. Also excludes 2,500 shares of restricted stock
          awarded in April 2004, which shares are to be received by Mr. Zurlnick
          upon completion of vesting in April 2006 (or an earlier vesting date
          under certain circumstances) if then employed by the Holding Company.

     (13) Includes options to acquire an aggregate of 20,000 shares of Common
          Stock having exercise prices ranging from $9.85 to $13.4375 per share.
          Also includes 4,659 participant and vested matching RSUs and excludes
          1,609 matching RSUs, which are not yet vested.

     (14) Includes options to acquire an aggregate of 5,000 shares of Common
          Stock having an exercise price of $15.877 per share. Also includes
          3,756 participant and vested matching RSUs and excludes 1,298 matching
          RSUs, which are not yet vested.


                                       57


     (15) Includes options to acquire an aggregate of 5,000 shares of Common
          Stock having an exercise price of $12.939 per share. Also includes
          4,012 participant and vested matching RSUs and excludes 1,454 matching
          RSUs, which are not yet vested.

     (16) Includes 3,756 participant and vested matching RSUs and excludes 1,298
          matching RSUs, which are not yet vested.

     (17) Includes 3,756 participant and vested matching RSUs and excludes 1,298
          matching RSUs, which are not yet vested.

     (18) Includes 2,124 participant and vested matching RSUs and excludes 1,298
          matching RSUs, which are not yet vested.

     (19) Includes options to acquire an aggregate of 820,534 shares of Common
          Stock having exercise prices ranging from $7.05 to $24.3125 per share.
          Also includes 46,831 participant and vested matching RSUs. Excludes
          30,269 matching RSUs, which are not yet vested and 15,000 shares of
          restricted stock awarded in October 2003, which shares are to be
          received upon completion of vesting in September 2007 (or an earlier
          vesting date under certain circumstances), if the respective officers
          are then employed by the Holding Company. Also excludes 15,000 shares
          of restricted stock awarded in April 2004, which shares are to be
          received upon completion of vesting in April 2006 (or an earlier
          vesting date under certain circumstances) if the respective officers
          are then employed by the Holding Company.

EQUITY COMPENSATION PLAN TABLE

     Options to purchase Common Stock, restricted stock and RSUs have been
granted by the Holding Company to employees and non-employee directors under
various stock-based compensation plans. See Note 6 of Notes to Consolidated
Financial Statements. The following table summarizes the number of stock options
issued, shares of restricted stock and RSUs awarded, the weighted-average
exercise price and the number of securities remaining to be issued under all
outstanding equity compensation plans as of January 29, 2005.



                                                                                                        (C)
                                                                                               NUMBER OF SECURITIES
                                                 (A)                         (B)              REMAINING AVAILABLE FOR
                                       NUMBER OF SECURITIES TO BE     WEIGHTED-AVERAGE         FUTURE ISSUANCE UNDER
                                        ISSUED UPON EXERCISE OF       EXERCISE PRICE OF      EQUITY COMPENSATION PLANS
                                          OUTSTANDING OPTIONS,       OUTSTANDING OPTIONS,     (EXCLUDING SECURITIES
            PLAN CATEGORY                 WARRANTS AND RIGHTS        WARRANTS AND RIGHTS     REFLECTED IN COLUMN (A))
-------------------------------------- --------------------------    -------------------     ------------------------

Equity compensation plans
  approved by security holders.........        1,237,139                  $ 10.46                    402,185
Equity compensation plans not
  approved by security holders. .......           --                        --                          --
                                               ---------                 --------                    -------
Total..................................        1,237,139                  $ 10.46                    402,185
                                               =========                 ========                    =======


----------
(1)  Awards are permitted under the Incentive Plans in the form of (i) stock
     options; (ii) stock appreciation rights in tandem with stock options; (iii)
     limited stock appreciation rights in tandem with stock options; (iv)
     restricted or nonrestricted stock awards, including purchases and awards
     under the RSU Plans, subject to such terms and conditions as the Holding
     Company's Compensation Committee shall determine; (v) performance units
     which are based upon attainment of performance goals during a period of not
     less than two nor more than five years and which may be settled in cash or
     in Common Stock in the discretion of the Holding Company's Compensation
     Committee; or (vi) any combination of the foregoing. See "Item 11. --
     Long-Term Incentive Plans".

(2)  As of January 29, 2005, an aggregate of 156,000 shares of restricted stock
     have been issued under the 1997 Plan. Pursuant to awards made in October
     2003 and April 2004 under the 1997 Plan, an additional 31,250 and 32,500
     shares, respectively, of restricted stock will be issued to certain
     executive officers of the Holding Company on September 30, 2007 and April
     30, 2006, respectively (or an earlier vesting date under certain
     circumstances, provided the respective officers are then employed by the
     Holding Company).


                                       58


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
         ----------------------------------------------

STOCKHOLDERS' AGREEMENT

     Certain members of management (the "Management Stockholders"), directors
and employees holding options to purchase Common Stock or RSUs, certain private
investors and the Holding Company are parties to a stockholders' agreement
("Stockholders' Agreement"), which sets forth certain rights and obligations of
the parties with respect to the Common Stock (including certain "come along" and
"take along" rights relating to sales of Common Stock) and corporate governance
of the Holding Company. The Stockholders' Agreement provides that the parties
thereto must vote their shares in favor of certain directors who are nominated
by Mr. Cornstein and Mr. Reiner. Mr. Cornstein is his own director designee and
Mr. Reiner is his own director designee.

REGISTRATION RIGHTS AGREEMENT

     A registration rights agreement, dated as of May 26, 1993, as amended, (the
"Registration Rights Agreement") with the Holding Company, grants certain
registration rights to certain Management Stockholders and other investors.
Management Stockholders may demand registration under certain circumstances. In
addition, under the Registration Rights Agreement, if the Holding Company
proposes to register shares of Common Stock under the Securities Act of 1933, as
amended (the "Securities Act"), then each party to the Registration Rights
Agreement will have the right, subject to certain restrictions, priorities and
exceptions to request that the Holding Company register its shares of Common
Stock in connection with such registration. Under the Registration Rights
Agreement, the parties agreed to indemnify each other for certain liabilities in
connection with any registration of shares subject to the Registration Rights
Agreement.

CERTAIN OTHER TRANSACTIONS

     Finlay has entered into indemnification agreements which require, among
other things, that Finlay indemnify directors and executive officers who are
parties to such agreements against certain liabilities and associated expenses
arising from their service as directors and executive officers of Finlay and
reimburse certain related legal and other expenses. In the event of a Change of
Control (as defined therein), Finlay will, upon request by an indemnitee under
his or her agreements, create and fund a trust for the benefit of such
indemnitee sufficient to satisfy reasonably anticipated claims for
indemnification. Finlay also covers each director and certain executive officers
under a directors and officers liability policy maintained by Finlay in such
amounts as the Board of Directors of the Holding Company finds reasonable.
Although the indemnification agreements offer coverage similar to the provisions
in the Holding Company's Restated Certificate of Incorporation and the Delaware
General Corporation Law, they provide greater assurance to directors and
officers that indemnification will be available because, as contracts, they
cannot be modified unilaterally in the future by the Board of Directors or by
the stockholders to eliminate the rights they provide.

     For information relating to certain transactions involving members of
management or others, see "-- Employment and Other Agreements and Change of
Control Arrangements" under the caption "Executive Compensation".

     Any transactions between the Holding Company and/or Finlay Jewelry and the
officers, directors and affiliates thereof will be on terms no less favorable to
the Holding Company and Finlay Jewelry than can be obtained from unaffiliated
third parties, and any material transactions with such persons will be approved
by a majority of the disinterested directors of the Holding Company or Finlay
Jewelry, as the case may be.



                                       59


                                     PART IV

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
         --------------------------------------

     AUDIT FEES. The aggregate fees billed by Deloitte & Touche LLP for
professional services rendered for the audit of our annual financial statements
and management's assessment of the effectiveness of internal control over
financial reporting for the fiscal years ended January 29, 2005 and January 31,
2004 and the reviews of the financial statements included in our Forms 10-Q for
fiscal years 2004 and 2003 totaled $650,000 and $405,000, respectively.
Additionally, during 2003, Deloitte & Touche LLP performed audit procedures of
Finlay's annual financial statements for the fiscal year ended February 2, 2002
and billed fees totaling $104,110 for those professional services.

     AUDIT-RELATED FEES. The aggregate fees billed by Deloitte & Touche LLP for
assurance and related services that are reasonably related to the performance of
the audit or review of Finlay's financial statements for the fiscal years ended
January 29, 2005 and January 31, 2004 and that are not disclosed in the
paragraph captioned "Audit Fees" above, were $20,000 and $50,500, respectively.
In 2004, audit related services were performed by Deloitte & Touche LLP in
connection with their audit of Finlay's employee benefit plan. In 2003, the fees
relate to the audit of Finlay's employee benefit plan, consulting on financial
accounting and reporting standards and advice with respect to the requirements
of the Sarbanes-Oxley Act of 2002 relating to internal controls.

     TAX FEES. The aggregate fees billed by Deloitte & Touche LLP for
professional services rendered for tax compliance, tax advice and tax planning
for the fiscal years ended January 29, 2005 and January 31, 2004 were $25,681
and $21,848, respectively. The services performed by Deloitte & Touche LLP in
connection with these fees consisted of assistance with the tax treatment of
vendor concessions.

     The Audit Committee has established pre-approval policies and procedures,
pursuant to which the Audit Committee approved the foregoing audit and
permissible non-audit services provided by Deloitte & Touche LLP in 2004.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
         ---------------------------------------

(a)  Documents filed as part of this report:

     (1)  Financial Statements.

     See Financial Statements Index included in Item 8 of Part II of this
     Form 10-K.

     (2)  Financial Statement Schedules. None.

     (3)  Exhibits.

     (Exhibit Number referenced to Item 601 of Regulation S-K).

ITEM
NUMBER   DESCRIPTION
------   -----------

1.1      Purchase Agreement, dated as of May 27, 2004, among Finlay Jewelry,
         Credit Suisse First Boston LLC, J.P. Morgan Securities Inc. and SG
         Americas Securities, LLC (incorporated by reference to Exhibit 1.1
         filed as part of the Quarterly Report on Form 10-Q for the period ended
         May 1, 2004 filed by Finlay Jewelry on June 10, 2004).

3.1      Certificate of Incorporation, as amended, of Finlay Jewelry
         (incorporated by reference to Exhibit 3.1 of Form S-1 Registration
         Statement, Registration No. 33-59580).


                                       60


3.2(a)   By-laws of Finlay Jewelry (incorporated by reference to Exhibit 4.1
         filed as part of the Current Report on Form 8-K filed by the Registrant
         on June 10, 1993).

3.2(b)   Second Amendment, dated as of September 10, 2003, to the Amended and
         Restated By-Laws of Finlay Jewelry (incorporated by reference to
         Exhibit 3.2 filed as part of the Quarterly Report on Form 10-Q for the
         period ended November 1, 2003 filed by Finlay Jewelry on December 10,
         2003).

4.1      Article Fourth of the Restated Certificate of Incorporation and
         Articles II and VI of the Bylaws (incorporated by reference to Exhibit
         4.1 of Form S-1 Registration Statement, Registration No. 33-59380).

4.2(a)   Indenture dated as of April 24, 1998 between Finlay Jewelry and Marine
         Midland Bank, as Trustee, relating to Finlay Jewelry's 8-3/8% Senior
         Notes due May 1, 2008 issued by Finlay Jewelry (including form of
         Senior Note) (incorporated by reference to Exhibit 4.1 filed as part of
         the Current Report on Form 8-K filed by Finlay Jewelry on May 11,
         1998).

4.2(b)   First Supplemental Indenture dated as of August 8, 2002 among Finlay
         Jewelry and HSBC Bank USA (formerly known as Marine Midland Bank), as
         Trustee (incorporated by reference to Exhibit 4.1 filed as part of the
         Quarterly Report on Form 10-Q for the period ended August 3, 2002 filed
         by Finlay Jewelry on September 17, 2002).

4.3(a)   Amended and Restated Stockholders' Agreement dated as of March 6, 1995
         among the Holding Company, David B. Cornstein, Arthur E. Reiner and
         certain other security holders (incorporated by reference to Exhibit
         4.9 filed as part of the Annual Report on Form 10-K for the period
         ended January 28, 1995 filed by Finlay Jewelry on April 12, 1995).

4.3(b)   Omnibus Amendment to Registration Rights and Stockholders' Agreements
         (incorporated by reference to Exhibit 10.10 filed as part of the
         Quarterly Report on Form 10-Q for the period ended November 1, 1997
         filed by Finlay Jewelry on December 16, 1997).

4.4      Registration Rights Agreement dated as of May 26, 1993 among the
         Company, David B. Cornstein and certain other security holders
         (incorporated by reference to Exhibit 4.6 filed as part of the Current
         Report on Form 8-K filed by Finlay Jewelry on June 10, 1993).

4.5      Indenture dated as of June 3, 2004 between Finlay Jewelry and HSBC Bank
         USA, as Trustee, relating to Finlay Jewelry's 8-3/8% Senior Notes due
         June 1, 2012 (incorporated by reference to Exhibit 4.1 filed as part of
         the Quarterly Report on Form 10-Q for the period ended May 1, 2004
         filed by Finlay Jewelry on June 10, 2004).

4.6      Form of Finlay Jewelry's 8-3/8% Senior Notes due 2012 issued under Rule
         144A of the Securities Act (incorporated by reference to Exhibit 4.2
         filed as part of the Quarterly Report on Form 10-Q for the period ended
         May 1, 2004 filed by Finlay Jewelry on June 10, 2004).

4.7      Form of Finlay Jewelry's 8-3/8% Senior Notes due 2012 issued under
         Regulation S of the Securities Act (incorporated by reference to
         Exhibit 4.3 filed as part of the Quarterly Report on Form 10-Q for the
         period ended May 1, 2004 filed by Finlay Jewelry on June 10, 2004).

4.8      Registration Rights Agreement, dated as of June 3, 2004, between Finlay
         Jewelry and Credit Suisse First Boston LLC, J.P. Morgan Securities Inc.
         and SG Americas Securities,


                                       61


         LLC (incorporated by reference to Exhibit 4.4 filed as part of the
         Quarterly Report on Form 10-Q for the period ended May 1, 2004 filed by
         Finlay Jewelry on June 10, 2004).

10.1     Form of Agreement and Certificate of Option Pursuant to the Long Term
         Incentive Plan of the Holding Company (incorporated by reference to
         Exhibit 10.1 filed as part of the Quarterly Report on Form 10-Q for the
         period ended July 31, 1993 filed by Finlay Jewelry on September 14,
         1993).

10.2(a)  The Holding Company's Retirement Income Plan as amended and restated
         February 2002 (incorporated by reference to Exhibit 10.2 filed as part
         of the Annual Report on Form 10-K for the period ended February 2, 2002
         filed by Finlay Jewelry on April 29, 2002).

10.2(b)  Amendment No. 1, dated April 1, 2003, to the Holding Company's
         Retirement Income Plan, as amended and restated February 2002
         (incorporated by reference to Exhibit 10.1 filed as part of the
         Quarterly Report on Form 10-Q for the period ended May 3, 2003 filed by
         Finlay Jewelry on June 17, 2003).

10.2(c)  Amendment No. 2, dated May 29, 2003, to the Holding Company's
         Retirement Income Plan, as amended and restated February 2002
         (incorporated by reference to Exhibit 10.2 filed as part of the
         Quarterly Report on Form 10-Q for the period ended May 3, 2003 filed by
         Finlay Jewelry on June 17, 2003).

10.3     Executive Medical Benefits Plan of Finlay Jewelry and the Holding
         Company (incorporated by reference to Exhibit 10.3 of Form S-1
         Registration Statement, Registration No. 33-59380).

10.4     Employment Agreement, dated as of January 30, 2005, among the Holding
         Company, Finlay Jewelry and Arthur E. Reiner (incorporated by reference
         to Exhibit 10.5 filed as part of the Quarterly Report on Form 10-Q for
         the period ended October 30, 2004 filed by Finlay Jewelry on December
         9, 2004).

10.5     Employment Agreement dated as of April 18, 1997 between Joseph M.
         Melvin and Finlay Jewelry (incorporated by reference to Exhibit 10.8
         filed as part of the Annual Report on Form 10-K for the period ended
         January 31, 1998 filed by Finlay Jewelry on March 24, 1998).

10.6     Tax Allocation Agreement dated as of November 1, 1992 between the
         Holding Company and Finlay Jewelry (incorporated by reference to
         Exhibit 19.5 filed as part of the Quarterly Report on Form 10-Q for the
         period ended May 1, 1993 filed by the Company on June 30, 1993).

10.7(a)  Management Agreement dated as of May 26, 1993 among the Holding
         Company, Finlay Jewelry and Thomas H. Lee Company (incorporated by
         reference to Exhibit 28.2 filed as part of the Current Report on Form
         8-K filed by Finlay Jewelry on June 10, 1993).

10.7(b)  Amendment to Management Agreement dated as of January 21, 2002 among
         the Holding Company, Finlay Jewelry and Thomas H. Lee Capital, LLC
         (incorporated by reference to Exhibit 10.9(b) filed as part of the
         Annual Report on Form 10-K for the period ended February 2, 2002 filed
         by Finlay Jewelry on April 29, 2002).

10.8(a)  Long Term Incentive Plan of the Holding Company (incorporated by
         reference to Exhibit 19.5 filed as part of the Quarterly Report on Form
         10-Q for the period ended May 1, 1993 filed by Finlay Jewelry on June
         30, 1993).


                                       62


10.8(b)  Amendment No. 1 to the Holding Company's Long Term Incentive Plan
         (incorporated by reference to Exhibit 10.14(b) of the Form S-1
         Registration Statement, Registration No. 33-88938).

10.8(c)  Amendment to the Holding Company's Long Term Incentive Plan
         (incorporated by reference to Exhibit 10.11(c) filed as part of the
         Annual Report on Form 10-K for the period ended February 2, 2002 filed
         by Finlay Jewelry on April 29, 2002).

10.9(a)  1997 Long Term Incentive Plan, as amended (incorporated by reference to
         Exhibit 10.12 filed as part of the Annual Report on Form 10-K for the
         period ended February 2, 2002 filed by Finlay Jewelry on April 29,
         2002).

10.9(b)  Amendment to the Holding Company's 1997 Long Term Incentive Plan
         (incorporated by reference to Exhibit 10.2 filed as part of the Current
         Report on Form 8-K filed by Finlay Jewelry on September 10, 2004).

10.10(a) The Holding Company's Executive Deferred Compensation and Stock
         Purchase Plan (incorporated by reference to Exhibit 10.1 filed as part
         of the Quarterly Report on Form 10-Q for the period ended August 2,
         2003 filed by Finlay Jewelry on September 16, 2003).

10.10(b) Amendment No. 1, dated June 19, 2003, to the Holding Company's
         Executive Deferred Compensation and Stock Purchase Plan (incorporated
         by reference to Exhibit 10.2 filed as part of the Quarterly Report on
         Form 10-Q for the period ended August 2, 2003 filed by Finlay Jewelry
         on September 16, 2003).

10.11(a) The Holding Company's Director Deferred Compensation and Stock Purchase
         Plan (incorporated by reference to Exhibit 10.3 filed as part of the
         Quarterly Report on Form 10-Q for the period ended August 2, 2003 filed
         by Finlay Jewelry on September 16, 2003).

10.11(b) Form of 2003 Deferral Agreement under the Holding Company's Director
         Deferred Compensation and Stock Purchase Plan (incorporated by
         reference to Exhibit 10.4 filed as part of the Quarterly Report on Form
         10-Q for the period ended November 1, 2003 filed by Finlay Jewelry on
         December 10, 2003).

10.11(c) Form of 2003 Deferral Agreement under the Holding Company's Executive
         Deferred Compensation and Stock Purchase Plan (incorporated by
         reference to Exhibit 10.5 filed as part of the Quarterly Report on Form
         10-Q for the period ended November 1, 2003 filed by Finlay Jewelry on
         December 10, 2003).

10.12(a) Second Amended and Restated Credit Agreement, dated as of January 22,
         2003 among General Electric, Finlay Jewelry, the Holding Company,
         General Electric Capital Corporation ("G.E. Capital"), individually and
         in its capacity as administrative agent, Fleet Precious Metals, Inc.,
         individually and as documentation agent, and certain other banks and
         financial institutions (the "Second Amended and Restated Credit
         Agreement") (incorporated by reference to Exhibit 10.10 filed as part
         of the Annual Report on Form 10-K for the period ended February 1, 2003
         filed by Finlay Jewelry on May 1, 2003).

10.12(b) Amendment No. 1, dated July 6, 2003, to the Second Amended and Restated
         Credit Agreement (incorporated by reference to Exhibit 10.4 filed as
         part of the Quarterly Report on Form 10-Q for the period ended August
         2, 2003 filed by Finlay Jewelry on September 16, 2003).


                                       63


10.12(c) Consent and Amendment No. 2, dated as of May 26, 2004, to the Second
         Amended and Restated Credit Agreement (incorporated by reference to
         Exhibit 10.2 filed as part of the Quarterly Report on Form 10-Q for the
         period ended July 31, 2004 filed by Finlay Jewelry on September 9,
         2004).

10.12(d) Consent and Amendment No. 3, dated as of November 19, 2004 to the
         Second Amended and Restated Credit Agreement (incorporated by reference
         to Exhibit 10.1 filed as part of the Current Report on Form 8-K filed
         by Finlay Jewelry on November 24, 2004).

10.13    Amended and Restated Guaranty, dated as of January 22, 2003, by Finlay
         Jewelry, Inc. ("FJI"), Finlay Merchandising & Buying, Inc. ("Finlay
         Merchandising & Buying") and eFinlay, Inc. ("eFinlay") (incorporated by
         reference to Exhibit 10.11 filed as part of the Annual Report on Form
         10-K for the period ended February 1, 2003 filed by Finlay Jewelry on
         May 1, 2003).

10.14    Amended and Restated Security Agreement dated as of January 22, 2003,
         by and among Finlay Jewelry, FJI, Finlay Merchandising & Buying,
         eFinlay and G.E. Capital, individually and as agent (incorporated by
         reference to Exhibit 10.12 filed as part of the Annual Report on Form
         10-K for the period ended February 1, 2003 filed by Finlay Jewelry on
         May 1, 2003).

10.15    Amended and Restated Pledge Agreement dated as of January 22, 2003, by
         and among Finlay Jewelry, FJI, Finlay Merchandising & Buying, eFinlay
         and G.E. Capital, as agent (incorporated by reference to Exhibit 10.13
         filed as part of the Annual Report on Form 10-K for the period ended
         February 1, 2003 filed by Finlay Jewelry on May 1, 2003).

10.16    Amended and Restated Trademark Security Agreement dated as of January
         22, 2003 by Finlay Jewelry, FJI, Finlay Merchandising & Buying, eFinlay
         and G.E. Capital, as agent (incorporated by reference to Exhibit 10.14
         filed as part of the Annual Report on Form 10-K for the period ended
         February 1, 2003 filed by Finlay Jewelry on May 1, 2003).

10.17    Amended and Restated Patent Security Agreement dated as of January 22,
         2003 by Finlay Jewelry, FJI, Finlay Merchandising & Buying and eFinlay
         in favor of G.E. Capital, as agent (incorporated by reference to
         Exhibit 10.15 filed as part of the Annual Report on Form 10-K for the
         period ended February 1, 2003 filed by Finlay Jewelry on May 1, 2003).

10.18    Amended and Restated Copyright Security Agreement dated as of January
         22, 2003 by Finlay Jewelry, FJI, Finlay Merchandising & Buying and
         eFinlay in favor of G.E. Capital, as agent (incorporated by reference
         to Exhibit 10.16 filed as part of the Annual Report on Form 10-K for
         the period ended February 1, 2003 filed by Finlay Jewelry on May 1,
         2003).

10.19    Second Amended and Restated Open-End Mortgage Deed and Security
         Agreement from Finlay Jewelry to G.E. Capital, dated February 20, 2003,
         effective as of January 22, 2003 (incorporated by reference to Exhibit
         10.17 filed as part of the Annual Report on Form 10-K for the period
         ended February 1, 2003 filed by Finlay Jewelry on May 1, 2003).

10.20    Form of Officer's and Director's Indemnification Agreement
         (incorporated by reference to Exhibit 10.4 filed as part of the
         Quarterly Report on Form 10-Q for the period ended April 29, 1995 filed
         by Finlay Jewelry on June 3, 1995).


                                       64


10.21(a) Amended and Restated Gold Consignment Agreement dated as of March 30,
         2001 (the "Amended and Restated Gold Consignment Agreement") between
         Finlay Jewelry, eFinlay, Inc. ("eFinlay") and Sovereign Bank (as
         successor to Fleet National Bank, f/k/a BankBoston, N.A., f/k/a The
         First National Bank of Boston, as successor to Rhode Island Hospital
         Trust National Bank) ("Sovereign Bank"), and the other parties which
         are or may become parties thereto (incorporated by reference to Exhibit
         10.1 filed as part of the Quarterly Report on Form 10-Q for the period
         ended May 5, 2001 filed by Finlay Jewelry on June 18, 2001).

10.21(b) First Amendment to the Amended and Restated Gold Consignment Agreement
         (incorporated by reference to Exhibit 10.17(b) filed as part of the
         Annual Report on Form 10-K for the period ended February 2, 2002 filed
         by Finlay Jewelry on April 29, 2002).

10.21(c) Second Amendment, dated September 30, 2002, to the Amended and Restated
         Gold Consignment Agreement (incorporated by reference to Exhibit 10
         filed as part of the Quarterly Report on Form 10-Q for the period ended
         November 2, 2002 filed by Finlay Jewelry on December 13, 2002).

10.21(d) Third Amendment, dated April 4, 2003, to the Amended and Restated Gold
         Consignment Agreement (incorporated by reference to Exhibit 10.19(d)
         filed as part of the Annual Report on Form 10-K for the period ended
         February 1, 2003 filed by Finlay Jewelry on May 1, 2003).

10.21(e) Fourth Amendment, dated as of July 6, 2003, to the Amended and Restated
         Gold Consignment Agreement (incorporated by reference to Exhibit 10.1
         filed as part of the Quarterly Report on Form 10-Q for the period ended
         November 1, 2003 filed by Finlay Jewelry on December 10, 2003).

10.21(f) Fifth Amendment, dated as of May 27, 2004, to the Amended and Restated
         Gold Consignment Agreement (incorporated by reference to Exhibit 10.3
         filed as part of the Quarterly Report on Form 10-Q for the period ended
         May 1, 2004 filed by Finlay Jewelry on June 10, 2004).

10.21(g) Sixth Amendment, dated as of August 20, 2004, to the Amended and
         Restated Gold Consignment Agreement (incorporated by reference to
         Exhibit 10.1 filed as part of the Quarterly Report on Form 10-Q for the
         period ended July 31, 2004 filed by Finlay Jewelry on September 9,
         2004).

10.21(h) Seventh Amendment, dated as of November 22, 2004, to the Amended and
         Restated Gold Consignment Agreement (incorporated by reference to
         Exhibit 10.2 filed as part of the Current Report on Form 8-K filed by
         Finlay Jewelry on November 24, 2004).

10.22    Amended and Restated Security Agreement dated as of March 30, 2001
         between Finlay Jewelry, eFinlay and Sovereign Bank, as agent,
         (incorporated by reference to Exhibit 10.2 filed as part of the
         Quarterly Report on Form 10-Q for the period ended May 5, 2001 filed by
         Finlay Jewelry on June 18, 2001).

10.23    Amended and Restated Intercreditor Agreement dated as of March 30, 2001
         between Sovereign Bank, as agent, and G.E. Capital, as agent, and
         acknowledged by Finlay Jewelry and eFinlay (incorporated by reference
         to Exhibit 10.3 filed as part of the Quarterly Report on Form 10-Q for
         the period ended May 5, 2001 filed by Finlay Jewelry on June 18, 2001).

10.24(a) Letter Agreement, dated March 8, 2004, by and between David Cornstein
         and the Holding Company (incorporated by reference to Exhibit 10.22(a)
         filed as part of the


                                       65


         Annual Report on Form 10-K for the period ended January 31, 2004 filed
         by Finlay Jewelry on April 15, 2004).

10.24(b) Letter Agreement dated March 8, 2004, by and between The David and
         Sheila Cornstein Foundation and the Holding Company (incorporated by
         reference to Exhibit 10.22(b) filed as part of the Annual Report on
         Form 10-K for the period ended January 31, 2004 filed by Finlay Jewelry
         on April 15, 2004).

10.25    Restricted Stock Agreement, dated as of August 14, 2003, between the
         Holding Company and Arthur E. Reiner (incorporated by reference to
         Exhibit 10.2 filed as part of the Quarterly Report on Form 10-Q for the
         period ended November 1, 2003 filed by Finlay Jewelry on December 10,
         2003).

10.26    Form of Restricted Stock Agreement entered into by the Holding Company,
         in connection with October 2003 awards of restricted stock
         (incorporated by reference to Exhibit 10.3 filed as part of the
         Quarterly Report on Form 10-Q for the period ended November 1, 2003
         filed by Finlay Jewelry on December 10, 2003).

10.27    Form of Restricted Stock Agreement entered into by the Holding Company,
         in connection with restricted stock awards under the Holding Company's
         1997 Long Term Incentive Plan.

10.28    The Holding Company's 2004 Cash Bonus Plan (incorporated by reference
         to Exhibit 10.1 filed as part of the Quarterly Report on Form 10-Q for
         the period ended July 31, 2004 filed by Finlay Jewelry on September 9,
         2004).

10.29    Description of Director and Named Executive Officer Compensation.

18       Preferability letter from Deloitte & Touche LLP regarding change in
         inventory valuation methodology (incorporated by reference to Exhibit
         18 filed as part of the Quarterly Report on Form 10-Q for the period
         ended October 30, 2004 filed by Finlay Jewelry on December 9, 2004).

21.1     Subsidiaries of Finlay Jewelry.

31.1     Certification of principal executive officer pursuant to the
         Sarbanes-Oxley Act of 2002, Section 302.

31.2     Certification of principal financial officer pursuant to the
         Sarbanes-Oxley Act of 2002, Section 302.

32.1     Certification of principal executive officer pursuant to the
         Sarbanes-Oxley Act of 2002, Section 906.

32.2     Certification of principal financial officer pursuant to the
         Sarbanes-Oxley Act of 2002, Section 906.


                                       66


                                   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.

                                       Finlay Fine Jewelry Corporation

Date: April 8, 2005                    By:     /s/ ARTHUR E. REINER
                                           ---------------------------
                                                Arthur E. Reiner
                                             Chairman of the Board

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED:



           NAME                                    TITLE                       DATE
           ----                                    -----                       ----

   /s/ ARTHUR E. REINER          Chairman of the Board,                      April 8, 2005
---------------------------      Chief Executive Officer and Director
     Arthur E. Reiner            (Principal Executive Officer)

  /s/ BRUCE E. ZURLNICK          Senior Vice President, Treasurer and        April 8, 2005
---------------------------      Chief Financial Officer (Principal
    Bruce E. Zurlnick            Financial and Accounting Officer)

  /s/ DAVID B. CORNSTEIN         Director                                    April 8, 2005
---------------------------
    David B. Cornstein

    /s/ ROHIT M. DESAI           Director                                    April 8, 2005
---------------------------
      Rohit M. Desai

  /s/ MICHAEL GOLDSTEIN          Director                                    April 8, 2005
---------------------------
    Michael Goldstein

    /s/ JOHN D. KERIN            Director                                    April 8, 2005
---------------------------
      John D. Kerin

   /s/ RICHARD E. KROON          Director                                    April 8, 2005
---------------------------
     Richard E. Kroon

   /s/ ELLEN R. LEVINE           Director                                    April 8, 2005
---------------------------
     Ellen R. Levine

  /s/ NORMAN S. MATTHEWS         Director                                    April 8, 2005
---------------------------
    Norman S. Matthews

  /s/ THOMAS M. MURNANE          Director                                    April 8, 2005
---------------------------
    Thomas M. Murnane



                                       67`

`FINLAY FINE JEWELRY CORPORATION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




                                                                                            PAGE
                                                                                            ----

Report of Independent Registered Public Accounting Firm......................................F-2

Consolidated Statements of Operations for the years ended January 29, 2005,
   January 31, 2004 and February 1, 2003.....................................................F-3

Consolidated Balance Sheets as of January 29, 2005 and January 31, 2004......................F-4

Consolidated Statements of Changes in Stockholder's Equity and Comprehensive Income
   for the years ended January 29, 2005, January 31, 2004 and February 1, 2003...............F-5

Consolidated Statements of Cash Flows for the years ended January 29, 2005,
   January 31, 2004 and February 1, 2003.....................................................F-6

Notes to Consolidated Financial Statements for the years ended January 29, 2005,
   January 31, 2004 and February 1, 2003.....................................................F-7



                                      F-1


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
of Finlay Fine Jewelry Corporation:

We have audited the accompanying consolidated balance sheets of Finlay Fine
Jewelry Corporation and subsidiaries (the "Company") as of January 29, 2005 and
January 31, 2004, and the related consolidated statements of operations, changes
in stockholder's equity and comprehensive income and cash flows for each of the
three fiscal years in the period ended January 29, 2005. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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, such consolidated financial statements present fairly, in all
material respects, the financial position of Finlay Fine Jewelry Corporation and
subsidiaries as of January 29, 2005 and January 31, 2004, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 29, 2005, in conformity with accounting principles
generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of January 29, 2005, based on the
criteria established in Internal Control--Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated April 11, 2005 expressed an unqualified opinion on management's assessment
of the effectiveness of the Company's internal control over financial reporting
and an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.

As discussed in Notes 2 and 3 to the consolidated financial statements, in 2004,
the Company changed their method of determining price indices used in the
valuation of LIFO inventories. In addition, as discussed in Note 2 to the
consolidated financial statements, in 2002, the Company changed their method of
accounting for cash consideration received from a vendor to conform to Emerging
Issues Task Force Issue No. 02-16.


DELOITTE & TOUCHE LLP

New York, New York
April 11, 2005


                                      F-2


                         FINLAY FINE JEWELRY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)



                                                                            YEAR ENDED
                                                              -----------------------------------------
                                                              JANUARY 29,    JANUARY 31,     FEBRUARY 1,
                                                                 2005           2004           2003
                                                              ----------     ----------      ----------

Sales ....................................................     $ 923,606      $ 902,416      $ 877,296
Cost of sales ............................................       454,391        440,517        424,846
                                                               ---------      ---------      ---------
    Gross margin .........................................       469,215        461,899        452,450
Selling, general and administrative expenses .............       396,185        387,501        378,095
Credit associated with the closure of Sonab ..............          (364)          --           (1,432)
Depreciation and amortization ............................        17,319         17,026         16,827
                                                               ---------      ---------      ---------
    Income from operations ...............................        56,075         57,372         58,960
Interest expense, net ....................................        20,179         16,556         17,678
Other expense - debt extinguishment costs ................         5,962           --             --
                                                               ---------      ---------      ---------
     Income from continuing operations before income taxes
         and cumulative effect of accounting change ......        29,934         40,816         41,282
Provision for income taxes ...............................        10,447         16,035         16,064
                                                               ---------      ---------      ---------
     Income from continuing operations before cumulative
         effect of accounting change .....................        19,487         24,781         25,218
Discontinued operations, net of tax ......................          --          (11,537)         3,810
Cumulative effect of accounting change, net of tax .......          --             --          (17,209)
                                                               ---------      ---------      ---------
    Net income ...........................................     $  19,487      $  13,244      $  11,819
                                                               =========      =========      =========


                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                      F-3


                         FINLAY FINE JEWELRY CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



                                                                    JANUARY 29,  JANUARY 31,
                                                                       2005         2004
                                                                    ----------   ----------

                                       ASSETS
Current assets:
  Cash and cash equivalents ......................................   $  61,957    $  89,481
  Accounts receivable - department stores ........................      22,598       21,602
  Other receivables ..............................................      35,747       38,457
  Merchandise inventories ........................................     278,589      272,948
  Prepaid expenses and other .....................................       2,958        2,596
  Deferred income taxes ..........................................        --          6,564
                                                                     ---------    ---------
    Total current assets .........................................     401,849      431,648
                                                                     ---------    ---------
Fixed assets:
  Building, equipment, fixtures and leasehold improvements .......     113,039      117,631
  Less - accumulated depreciation and amortization ...............      50,558       51,506
                                                                     ---------    ---------
    Fixed assets, net ............................................      62,481       66,125
                                                                     ---------    ---------
Deferred charges and other assets, net ...........................      16,859       17,263
Goodwill .........................................................      77,288       77,288
                                                                     ---------    ---------
    Total assets .................................................   $ 558,477    $ 592,324
                                                                     =========    =========

                        LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities:
  Accounts payable - trade .......................................   $ 102,994    $ 122,976
  Accrued liabilities:
    Accrued salaries and benefits ................................      14,654       18,756
    Accrued miscellaneous taxes ..................................       7,242        7,179
    Accrued interest .............................................       3,120        3,615
    Deferred income ..............................................       8,449        9,515
    Deferred income taxes ........................................       6,593         --
    Other ........................................................      10,539       14,631
  Income taxes payable ...........................................      16,479       49,320
  Due to parent ..................................................       1,893        8,359
                                                                     ---------    ---------
    Total current liabilities ....................................     171,963      234,351
Long-term debt ...................................................     200,000      150,000
Deferred income taxes ............................................      21,070       21,992
Other non-current liabilities ....................................         587          881
                                                                     ---------    ---------
    Total liabilities ............................................     393,620      407,224
                                                                     ---------    ---------
Commitments and contingencies (Note 12)
Stockholder's equity:
  Common Stock, par value $.01 per share; authorized 5,000 shares;
    issued and outstanding 1,000 shares ..........................        --           --
  Additional paid-in capital .....................................      82,975       82,975
  Retained earnings ..............................................      81,994      102,210
  Accumulated other comprehensive income .........................        (112)         (85)
                                                                     ---------    ---------
    Total stockholder's equity ...................................     164,857      185,100
                                                                     ---------    ---------
    Total liabilities and stockholder's equity ...................   $ 558,477    $ 592,324
                                                                     =========    =========


                 The accompanying notes are an integral part of
                       these consolidated balance sheets.


                                      F-4


                         FINLAY FINE JEWELRY CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
                            AND COMPREHENSIVE INCOME
                        (IN THOUSANDS, EXCEPT SHARE DATA)



                                              COMMON STOCK                               ACCUMULATED
                                         -------------------    ADDITIONAL                  OTHER           TOTAL
                                          NUMBER                 PAID-IN     RETAINED    COMPREHENSIVE   STOCKHOLDER'S COMPREHENSIVE
                                         OF SHARES    AMOUNT     CAPITAL     EARNINGS    INCOME (LOSS)       EQUITY       INCOME
                                         ---------    ------    ----------   --------    -------------   ------------- -------------

Balance, February 2, 2002 ..............   1,000      $  --     $  82,975     $ 110,525     $    96       $ 193,596

  Net income ...........................    --           --          --          11,819         --          11,819      $11,819

  Change in fair value of gold
    forward contracts, net of tax ......    --           --          --           --           (41)            (41)         (41)
                                                                                                                        -------
  Comprehensive income .................                                                                                $11,778
                                                                                                                        =======
  Dividends on common stock ............    --           --          --         (17,558)         --         (17,558)
                                           -----      -------   ---------     ---------     -------       ---------
Balance, February 1, 2003 ..............   1,000         --        82,975       104,786          55         187,816

  Net income ...........................    --           --          --          13,244          --          13,244     $13,244

  Change in fair value of gold
    forward contracts, net of tax ......    --           --          --           --          (140)           (140)        (140)
                                                                                                                        -------
  Comprehensive income .................                                                                                $13,104
                                                                                                                        =======
  Dividends on common stock ............    --           --          --         (15,820)        --         (15,820)
                                           -----      -------   ---------     ---------     -------       ---------
Balance, January 31, 2004 ..............   1,000         --        82,975       102,210        (85)        185,100

  Net income ...........................    --           --          --          19,487         --          19,487      $19,487

  Change in fair value of gold
    forward contracts, net of tax ......    --           --          --           --           (27)            (27)         (27)
                                                                                                                        -------
  Comprehensive income .................                                                                                $19,460
                                                                                                                        =======
  Dividends on common stock ............    --           --          --         (39,703)         --         (39,703)
                                           -----      -------   ---------     ---------     -------       ---------
Balance, January 29, 2005 ..............   1,000      $  --     $  82,975     $  81,994     $  (112)      $ 164,857
                                           =====      =======   =========     =========     =======       =========


                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                      F-5


                         FINLAY FINE JEWELRY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)



                                                                                             YEAR ENDED
                                                                                 --------------------------------------
                                                                                 JANUARY 29,  JANUARY 31,   FEBRUARY 1,
                                                                                    2005         2004          2003
                                                                                 -----------  -----------   -----------

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income ..................................................................   $  19,487    $  13,244    $  11,819
  Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
  Write-down of goodwill included in discontinued operations ..................        --         13,758         --
  Cumulative effect of accounting change, net of tax ..........................        --           --         17,209
  Depreciation and amortization ...............................................      17,319       18,716       17,566
  Amortization of deferred financing costs ....................................       1,058          828        1,040
  Amortization of restricted stock compensation and restricted stock units ....       1,358          531          304
  Loss on extinguishment of debt ..............................................       5,962         --           --
  Credit associated with the closure of Sonab .................................        (364)        --         (1,432)
  Deferred income tax provision ...............................................      12,235        6,759        3,982
  Other, net ..................................................................       1,877           (7)         255
  Changes in operating assets and liabilities:
    (Increase) decrease in accounts and other receivables .....................       1,714       (7,501)      (7,406)
    (Increase) decrease in merchandise inventories ............................      (5,641)      (9,404)      24,348
    (Increase) decrease in prepaid expenses and other .........................        (362)         664         (886)
    Increase (decrease) in accounts payable and accrued liabilities ...........     (60,382)      10,656      (14,471)
    Increase (decrease) in due to parent ......................................      (8,433)          35          (37)
                                                                                  ---------    ---------    ---------
      NET CASH PROVIDED BY (USED IN) OPERATING
        ACTIVITIES ............................................................     (14,172)      48,279       52,291
                                                                                  ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements .................     (12,667)     (12,934)     (12,489)
  Deferred charges and other, net .............................................        --           --         (3,261)
                                                                                  ---------    ---------    ---------
      NET CASH USED IN INVESTING ACTIVITIES ...................................     (12,667)     (12,934)     (15,750)
                                                                                  ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility .....................................     590,311      683,750      654,459
  Principal payments on revolving credit facility .............................    (590,311)    (683,750)    (654,459)
  Proceeds from issuance of New Senior Notes ..................................     200,000         --           --
  Purchase and redemption of Senior Notes .....................................    (154,647)        --           --
  Capitalized financing costs .................................................      (5,088)        (431)      (1,875)
  Bank overdraft ..............................................................      (1,247)        (424)         249
  Payment of dividends ........................................................     (39,703)     (13,494)     (15,652)
                                                                                  ---------    ---------    ---------
      NET CASH USED IN FINANCING ACTIVITIES ...................................        (685)     (14,349)     (17,278)
                                                                                  ---------    ---------    ---------
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................     (27,524)      20,996       19,263
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ..................................      89,481       68,485       49,222
                                                                                  ---------    ---------    ---------
CASH AND CASH EQUIVALENTS, END OF YEAR ........................................   $  61,957    $  89,481    $  68,485
                                                                                  =========    =========    =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Interest paid ...............................................................   $  19,616    $  16,042    $  16,751
                                                                                  =========    =========    =========
  Income taxes paid (refunded) ................................................   $  (6,073)   $  10,861    $   8,964
                                                                                  =========    =========    =========



                 The accompanying notes are an integral part of
                    these consolidated financial statements.


                                      F-6


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION OF THE COMPANY

     Finlay Fine Jewelry Corporation, a Delaware corporation (together with its
wholly-owned subsidiaries ("Finlay Jewelry", the "Registrant", "we", "us" and
"our"), is a wholly-owned subsidiary of Finlay Enterprises, Inc. ("the Holding
Company"). References to "Finlay" mean collectively, the Holding Company and
Finlay Jewelry. We are a retailer of fine jewelry products and operate licensed
fine jewelry departments in department stores throughout the United States. All
references herein to licensed departments refer to fine jewelry departments
operated pursuant to license agreements with host department stores.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

     CONSOLIDATION: The accompanying consolidated financial statements include
the accounts of Finlay Jewelry and our wholly-owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.

     USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates include
merchandise inventories, vendor allowances, useful lives of finite-lived assets,
future cash flows used to evaluate goodwill, self-insurance reserves, income
taxes and other accruals. Actual results may differ from those estimates.

     FISCAL YEAR: Our fiscal year ends on the Saturday closest to January 31.
References to 2005, 2004, 2003 and 2002 relate to the fiscal years ended on
January 28, 2006, January 29, 2005, January 31, 2004 and February 1, 2003. Each
of the fiscal years includes 52 weeks.

     RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform with the current year presentation.

     CASH AND CASH EQUIVALENTS: We consider cash on hand, deposits in banks and
deposits in money market funds as cash and cash equivalents.

     MERCHANDISE INVENTORIES: Consolidated inventories are stated at the lower
of cost or market determined by the last-in, first-out ("LIFO") method. See Note
3 for information regarding our change in method of determining price indices
used in the valuation of LIFO inventories from external indices published by the
Bureau of Labor Statistics ("BLS") to an internally developed index in 2004.
Inventory is reduced for estimated obsolescence or unmarketable inventory equal
to the difference between the cost of inventory and the estimated market value
based upon assumptions about future demand and market conditions.

     The cost to us of gold merchandise sold on consignment, which typically
varies with the price of gold, is not fixed until the merchandise is sold. We,
at times, enter into forward contracts based upon the anticipated sales of gold
product in order to hedge against the risk of gold price fluctuations. Such
contracts typically have durations ranging from one to nine months. For the
years ended January 29, 2005, January 31, 2004 and February 1, 2003, the
gain/loss on open forward contracts was not material. At both January 29, 2005
and January 31, 2004, we had several open positions in gold forward contracts
totaling 37,000 fine troy ounces and 25,000 fine troy ounces, respectively, to
purchase gold for $16.1 million and $10.2 million, respectively. The fair value
of gold under such contracts was $15.8 million and $10.0 million at January 29,
2005 and January 31, 2004, respectively.


                                      F-7


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     HEDGING: Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. Under SFAS No. 133, all derivatives, whether designated in
hedging relationships or not, are required to be recorded on the balance sheet
at fair value. SFAS No. 133 defines requirements for designation and
documentation of hedging relationships, as well as ongoing effectiveness
assessments, which must be met in order to qualify for hedge accounting. For a
derivative that does not qualify as a hedge, changes in fair value would be
recorded in earnings immediately.

     We have designated our existing derivative instruments, consisting of gold
forward contracts, as cash flow hedges. For derivative instruments designated as
cash flow hedges, the effective portion of the change in the fair value of the
derivative is recorded in accumulated other comprehensive income, a separate
component of stockholder's equity, and is reclassified into cost of sales when
the offsetting effects of the hedged transaction impact earnings. Changes in the
fair value of the derivative attributable to hedge ineffectiveness are recorded
in earnings immediately. At January 29, 2005, the fair value of the gold forward
contracts resulted in the recognition of a liability of $0.2 million. The amount
recorded in accumulated other comprehensive income of $0.1 million, net of tax,
is expected to be reclassified into earnings during 2005.

     We have documented all relationships between hedging instruments and hedged
items, as well as our risk management objectives and strategy for undertaking
various hedge transactions. We also assess, both at the hedge's inception and on
an ongoing basis, whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in cash flows of hedged items. We
believe that the designated hedges will be highly effective.

     DEPRECIATION AND AMORTIZATION: Depreciation and amortization are computed
by the straight-line method over the estimated useful lives of the fixed assets;
generally, four years for displays, three to 15 years for fixtures, computers
and equipment and 39 years for our distribution center building. Fixed assets
located in our licensed departments are depreciated over the shorter of the
estimated useful lives of the fixed assets or the expected term of the license
agreements.

     SOFTWARE DEVELOPMENT COSTS: Software development costs have been accounted
for in accordance with Statement of Position (the "SOP") No. 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use". The
SOP states that software development costs that are incurred in the preliminary
project stage are expensed as incurred. Once the specified criteria of the SOP
have been met, internal and external direct costs incurred in developing or
obtaining computer software as well as related interest costs are capitalized.
Training and data conversion costs are expensed as incurred. In addition, costs
incurred for the routine operation and maintenance of management information
systems and software are expensed as incurred. Amortization is computed by the
straight-line method over the estimated useful lives of the software ranging
from three to seven years.

     Included in Deferred charges and other assets, net in the accompanying
Consolidated Balance Sheets at both January 29, 2005 and January 31, 2004, are
capitalized software costs of $23.0 million and accumulated amortization of
$12.6 million and $9.3 million, respectively.

     GOODWILL: In 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible
Assets". This Statement requires that goodwill no longer be amortized over its
estimated useful life but tested for impairment on an annual basis. As of the
date of adoption, we determined that we had one reporting unit for purposes of
applying SFAS No. 142 based on our reporting structure and made our initial
assessment of impairment for the transition period as of February 2, 2002 and
again at each subsequent year-end. We


                                      F-8


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

perform an annual assessment of goodwill impairment at the end of each fiscal
year or as impairment indicators arise.

     DEFERRED FINANCING COSTS: Deferred financing costs are amortized over the
term of the related debt agreements using the straight line method, which
approximates the effective interest method. Net deferred financing costs totaled
$6.1 million at January 29, 2005 and $3.1 million at January 31, 2004, net of
accumulated amortization of $1.5 million and $7.7 million, respectively. The
deferred financing costs are reflected as a component of Deferred charges and
other assets, net in the accompanying Consolidated Balance Sheets. Amortization
of deferred financing costs for 2004, 2003 and 2002 totaled $1.1 million, $0.8
million and $1.0 million, respectively, and have been recorded as a component of
Interest expense, net in the accompanying Consolidated Statements of Operations.
Refer to Note 5 for additional information regarding deferred financing costs.

     REVENUE RECOGNITION: We recognize revenue upon the sale of merchandise,
either owned or consigned, to our customers, net of anticipated returns. The
provision for sales returns is based on our historical return rate.

     COST OF SALES: Cost of sales includes the cost of merchandise sold, repair
expense, shipping, shrinkage and inventory losses. Store payroll, buying and
occupancy costs such as license fees are reflected in Selling, general and
administrative expenses ("SG&A") in the accompanying Consolidated Statements of
Operations.

     ADVERTISING COSTS: All costs associated with advertising are expensed in
the month that the advertising takes place. For 2004, 2003 and 2002, gross
advertising expenses were $45.4 million, $47.1 million and $46.6 million,
respectively, and are included in SG&A in the accompanying Consolidated
Statements of Operations.

     VENDOR ALLOWANCES: We receive allowances from our vendors through a variety
of programs and arrangements, including cooperative advertising. Vendor
allowances are recognized as a reduction of cost of sales upon the sale of
merchandise or SG&A when the purpose for which the vendor funds were intended to
be used has been fulfilled. Accordingly, a reduction in vendor allowances has an
inverse impact on cost of sales and/or SG&A.

     Vendor allowances have been accounted for in accordance with Emerging
Issues Task Force ("EITF") Issue No. 02-16, "Accounting by a Customer (Including
a Reseller) for Cash Consideration Received from a Vendor" ("EITF 02-16"). EITF
02-16 addresses the accounting treatment for vendor allowances and provides that
cash consideration received from a vendor should be presumed to be a reduction
of the prices of the vendors' product and should therefore be shown as a
reduction in the purchase price of the merchandise. Further, these allowances
should be recognized as a reduction in cost of sales when the related product is
sold. To the extent that the cash consideration represents a reimbursement of a
specific, incremental and identifiable cost, then those vendor allowances should
be used to offset such costs.

     In accordance with EITF 02-16, we recorded a cumulative effect of
accounting change as of February 3, 2002, the date of adoption, that decreased
net income for 2002 by $17.2 million, net of tax of $11.7 million. As of January
29, 2005 and January 31, 2004, deferred vendor allowances totaled (i) $14.8
million and $17.1 million, respectively, for owned merchandise, which allowances
are included as an offset to Merchandise inventories on our Consolidated Balance
Sheets, and (ii) $8.4 million and $9.5 million, respectively, for merchandise
received on consignment, which allowances are included as Deferred income on our
Consolidated Balance Sheets.


                                      F-9


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     FAIR VALUE OF FINANCIAL INSTRUMENTS: Cash, accounts receivable, short-term
borrowings, accounts payable and accrued liabilities are reflected in the
Consolidated Financial Statements at fair value due to the short-term maturity
of these instruments. The fair value of our debt and off-balance sheet financial
instruments are disclosed in Note 5 and in Merchandise inventories above.

     STOCK-BASED COMPENSATION: SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" amends SFAS No. 123 "Accounting for
Stock-Based Compensation", to provide alternative methods of transition for an
entity that voluntarily changes to the fair value method of accounting for stock
options. As permitted by SFAS No. 123, we have elected to account for stock
options using the intrinsic value method. In accordance with the provisions of
SFAS No. 148 and APB No. 25, we have not recognized compensation expense related
to our stock options. However, deferred stock-based compensation is amortized
using the straight-line method over the vesting period. Had the fair value
method of accounting been applied to the Holding Company's stock option plans,
which requires recognition of compensation cost ratably over the vesting period
of the stock options, Net income would be as follows:



                                                                       FISCAL YEAR ENDED
                                                              ---------------------------------------
                                                              JANUARY 29,   JANUARY 31,   FEBRUARY 1,
                                                                 2005          2004         2003
                                                              -----------   -----------   ----------
                                                                           (IN THOUSANDS)

          NET INCOME:
          Reported net income ..............................   $ 19,487      $ 13,244      $ 11,819
          Add: Stock-based employee compensation
            expense included in reported net income,
            net of tax .....................................        841           466           304
          Deduct: Stock-based employee compensation
            expense determined under the fair value
            method, net of tax .............................     (1,162)         (934)         (995)
                                                               --------      --------      --------
          Pro forma net income .............................   $ 19,166      $ 12,776      $ 11,128
                                                               ========      ========      ========


     The fair value of options granted in 2004, 2003 and 2002 was estimated
using the Black-Scholes option-pricing model based on the weighted average
market price at the grant date of $18.60 in 2004, $15.63 in 2003 and $12.01 in
2002 and the following weighted average assumptions: risk free interest rate of
3.78%, 3.59% and 4.73% for 2004, 2003 and 2002, respectively, expected life of
seven years for each of 2004, 2003 and 2002 and volatility of 58.62% for 2004,
58.46% for 2003 and 56.56% for 2002. The weighted average fair value of options
granted in 2004, 2003 and 2002 was $6.30, $5.20 and $4.33, respectively. Options
generally vest in five years and expire in ten years from their dates of grant.

     In December 2004, the FASB issued SFAS No. 123(R), "Accounting for
Stock-Based Compensation". This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. SFAS 123(R) requires that the fair value of such equity
instruments be recognized as expense in the historical financial statements as
services are performed. Currently, only certain pro forma disclosures of fair
value are required. This Statement is effective as of the beginning of the first
annual or interim period beginning after June 15, 2005. We will adopt SFAS
123(R) prospectively on July 30, 2005, the beginning of our third fiscal
quarter. Although we are in the process of determining the impact of this
Statement on our results of operations, the historical impact under SFAS No. 123
is shown in the table above.

     ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS: SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This Statement extends the reporting requirements to include reporting
separately as discontinued operations, components of an entity that have either
been disposed of


                                      F-10


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

or classified as held-for-sale. Refer to Note 11 for additional information
regarding discontinued operations.

     ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES: We record
liabilities for costs associated with exit or disposal activities when the
liabilities are incurred.

     SEASONALITY: A significant portion of our revenues are generated in the
fourth quarter due to the seasonality of the retail industry. As such, results
for interim periods are not indicative of annual results. Refer to Note 13 for
unaudited quarterly financial data.

NOTE 3--MERCHANDISE INVENTORIES

Merchandise inventories consisted of the following:



                                                                        JANUARY 29,    JANUARY 31,
                                                                           2005           2004
                                                                        -----------    -----------
                                                                              (IN THOUSANDS)

          Jewelry goods - rings, watches and other fine jewelry
              (first-in, first-out ("FIFO") basis) ...................   $297,266       $289,546
          Less:  Excess of FIFO cost over LIFO inventory value .......     18,677         16,598
                                                                         --------       --------
                                                                         $278,589       $272,948
                                                                         ========       ========


     In accordance with EITF 02-16, the FIFO basis of merchandise inventories
have been reduced by $14.8 million and $17.1 million at January 29, 2005 and
January 31, 2004, respectively, to reflect the vendor allowances as a reduction
in the cost of merchandise.

     During the third quarter of 2004, we changed our method of determining
price indices used in the valuation of LIFO inventories. Prior to the third
quarter of fiscal 2004, we determined our LIFO inventory value by utilizing
selected producer price indices published for jewelry and watches by the BLS.
During the third quarter of fiscal 2004, we began applying internally developed
indices that we believe more accurately measure inflation or deflation in the
components of our merchandise and our merchandise mix than the BLS producer
price indices. Additionally, we believe that this accounting change is an
alternative accounting method that is preferable under the circumstances
described above. Under the new accounting method, the LIFO charge for the year
ended January 29, 2005 was approximately $2.1 million. The LIFO charge for the
year ended January 29, 2005 would have been approximately $8.0 million under the
former LIFO method. Had we not changed our method of determining price indices,
the net income under the former LIFO method for the year ended January 29, 2005
would have been approximately $15.9 million. The cumulative effect of this
change on retained earnings at the beginning of 2004 and the pro forma impact of
applying the new method in the periods prior to 2004 are not determinable and,
therefore, the prior years presented have not been restated to reflect this
change in accounting method.

     Approximately $349.7 million and $364.5 million at January 29, 2005 and
January 31, 2004, respectively, of merchandise received on consignment is not
included in Merchandise inventories and Accounts payable-trade in the
accompanying Consolidated Balance Sheets.

     We are a party to an amended and restated gold consignment agreement (as
amended, the "Gold Consignment Agreement"), which enables us to receive
consignment merchandise by providing gold, or otherwise making payment, to
certain vendors. While the merchandise involved remains consigned, title to the
gold content of the merchandise transfers from the vendors to the gold
consignor.


                                      F-11


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--MERCHANDISE INVENTORIES (CONTINUED)

     Our Gold Consignment Agreement matures on July 31, 2005, and permits us to
consign up to the lesser of (i) 165,000 fine troy ounces or (ii) $50.0 million
worth of gold, subject to a formula as prescribed by the Gold Consignment
Agreement. At January 29, 2005 and January 31, 2004, amounts outstanding under
the Gold Consignment Agreement totaled 116,687 and 116,835 fine troy ounces,
respectively, valued at approximately $49.8 million and $46.7 million,
respectively. In the event this agreement is terminated, we will be required to
return the gold or purchase the outstanding gold at the prevailing gold rate in
effect on that date. For financial statement purposes, the consigned gold is not
included in Merchandise inventories on our Consolidated Balance Sheets and,
therefore, no related liability has been recorded.

     Under the Gold Consignment Agreement, we are required to pay a daily
consignment fee on the dollar equivalent of the fine gold value of the ounces of
gold consigned thereunder. The daily consignment fee is based on a floating rate
which, as of both January 29, 2005 and January 31, 2004, was approximately 2.8%
per annum. In addition, we are required to pay a fee of 0.5% if the amount of
gold consigned has a value equal to or less than $12.0 million. Included in
interest expense for the years ended January 29, 2005, January 31, 2004 and
February 1, 2003 are consignment fees of $1.2 million, $1.1 million and $1.2
million, respectively.

     In conjunction with the Gold Consignment Agreement, we granted the gold
consignor a first priority perfected lien on, and a security interest in,
specified gold jewelry of participating vendors approved under the Gold
Consignment Agreement and a lien on proceeds and products of such jewelry
subject to the terms of an intercreditor agreement between the gold consignor
and General Electric Capital Corporation ("G.E. Capital").

     The Gold Consignment Agreement requires us to comply with certain
covenants, including restrictions on the incurrence of certain indebtedness, the
creation of liens, engaging in transactions with affiliates and limitations on
the payment of dividends. In addition, the Gold Consignment Agreement also
contains various financial covenants, including minimum earnings and fixed
charge coverage ratio requirements and certain maximum debt limitations. We were
in compliance with all of our covenants as of and for the year ended January 29,
2005.

NOTE 4--FIXED ASSETS

     Fixed assets consists of the following:



                                                      JANUARY 29,     JANUARY 31,
                                                         2005            2004
                                                      -----------     -----------
                                                              (IN THOUSANDS)

          Land and building ......................     $   9,736        $   9,727
          Fixtures ...............................        75,938           72,997
          Displays ...............................         8,639            9,511
          Computers and equipment ................        18,518           21,454
          Construction in progress ...............           208            3,942
                                                       ---------        ---------
                                                         113,039          117,631
          Less: accumulated depreciation and
                amortization .....................       (50,558)         (51,506)
                                                       ---------        ---------
          Net fixed assets .......................     $  62,481        $  66,125
                                                       =========        =========



                                      F-12


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5--SHORT AND LONG-TERM DEBT

     On January 22, 2003, our revolving credit agreement with G.E. Capital and
certain other lenders was amended and restated (the "Revolving Credit
Agreement"). The Revolving Credit Agreement, which matures in January 2008,
provides us with a senior secured revolving line of credit up to $225.0 million
(the "Revolving Credit Facility"). The Revolving Credit Facility allows
borrowings based on an advance rate of (i) up to 85% of eligible accounts
receivable and (ii) up to 60% of eligible owned inventory after taking into
account such reserves or offsets as G.E. Capital may deem appropriate (the
"Borrowing Base"). Eligibility criteria are established by G.E. Capital, which
retains the right to adjust the Borrowing Base in its reasonable judgement by
revising standards of eligibility, establishing reserves and/or increasing or
decreasing from time to time the advance rates (except that any increase in the
borrowing base rate percentage shall require the consent of other lenders). We
are permitted to use up to $30 million of the Revolving Credit Facility for the
issuance of letters of credit issued for our account. The outstanding revolving
credit balance and letter of credit balance under the Revolving Credit Agreement
are required to be reduced each year to $50 million or less and $20 million or
less, respectively, for a 30 consecutive day period (the "Balance Reduction
Requirement"). Funds available under the Revolving Credit Agreement are utilized
to finance working capital needs.

     Amounts outstanding under the Revolving Credit Agreement bear interest at a
rate equal to, at our option, (i) the Index Rate (as defined) plus a margin
ranging from zero to 1.0% or (ii) adjusted Eurodollar rate plus a margin ranging
from 1.0% to 2.0%, in each case depending on our financial performance. "Index
Rate" is defined as the higher of (i) the prime rate and (ii) the Federal Funds
Rate plus 50 basis points per annum. A letter of credit fee which could range
from 1.0% to 2.0%, per annum, depending on our financial performance, of the
face amount of letters of credit guaranteed under the Revolving Credit Agreement
is payable monthly in arrears. An unused facility fee on the average unused
daily balance of the Revolving Credit Facility is payable monthly in arrears
equal to 0.375% per annum. Upon the occurrence (and during the continuance) of
an event of default under the Revolving Credit Agreement, interest would accrue
at a rate which is 2% in excess of the rate otherwise applicable, and would be
payable upon demand.

     The Revolving Credit Agreement is secured by a first priority perfected
security interest in all of our (and any of our subsidiary's) present and future
tangible and intangible assets. The Revolving Credit Agreement contains
customary covenants, including limitations on or relating to capital
expenditures, liens, indebtedness, investments, mergers, acquisitions, affiliate
transactions, management compensation and the payment of dividends and other
restricted payments. The Revolving Credit Agreement also contains various
financial covenants, including minimum earnings and fixed charge coverage ratio
requirements and certain maximum debt limitations. We were in compliance with
all of our covenants as of and for the year ended January 29, 2005.

     There were no amounts outstanding at both January 29, 2005 and January 31,
2004 under the Revolving Credit Agreement. The maximum amounts outstanding under
the Revolving Credit Agreement during 2004, 2003 and 2002 were $99.8 million,
$93.5 million and $111.4 million, respectively. The average amounts outstanding
for the same periods were $50.6 million, $42.7 million and $61.2 million,
respectively. The weighted average interest rates were 4.0%, 3.4% and 3.9% for
2004, 2003 and 2002, respectively.


                                      F-13


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5--SHORT AND LONG-TERM DEBT (CONTINUED)

     At January 29, 2005 and January 31, 2004, we had letters of credit
outstanding totaling $11.7 million and $8.9 million, respectively, which
guarantee various trade activities. The contract amounts of the letters of
credit approximate their fair value.

     Long-term debt consisted of the following:



                                                     JANUARY 29,     JANUARY 31,
                                                        2005            2004
                                                     -----------     -----------
                                                             (IN THOUSANDS)

          New Senior Notes (a) ...................     $200,000       $   --
          Senior Notes ...........................         --          150,000
                                                       --------       --------
                                                       $200,000       $150,000
                                                       ========       ========


----------
(a)  The fair value of the New Senior Notes, determined based on market quotes,
     was approximately $207.0 million at January 29, 2005.

     On May 7, 2004, we and the Holding Company each commenced an offer to
purchase for cash any and all of our 8-3/8% Senior Notes, due May 1, 2008,
having an aggregate principal amount of $150.0 million (the "Senior Notes") and
the Holding Company's 9% Senior Debentures, due May 1, 2008, having an aggregate
principal amount of $75.0 million (the "Senior Debentures"), respectively. In
conjunction with the tender offers, we and the Holding Company each solicited
consents to effect certain proposed amendments to the indentures governing the
Senior Notes and the Senior Debentures. On May 20, 2004, we and the Holding
Company announced that holders of approximately 98% and 79% of the outstanding
Senior Notes and the outstanding Senior Debentures, respectively, tendered their
securities and consented to the proposed amendments to the related indentures.

     On June 3, 2004, we completed the sale of 8-3/8% Senior Notes, due June 1,
2012, having an aggregate principal amount of $200.0 million (the "New Senior
Notes"). Interest on the New Senior Notes is payable semi-annually on June 1 and
December 1 of each year and commenced on December 1, 2004. We used the net
proceeds from the offering of the New Senior Notes, together with drawings from
our Revolving Credit Facility, to repurchase the tendered Senior Notes and to
make consent payments and to distribute $77.3 million to enable the Holding
Company to repurchase the tendered Senior Debentures and to make consent
payments. Additionally, on June 3, 2004, we and the Holding Company called for
the redemption of all of the untendered Senior Notes and Senior Debentures,
respectively, and these securities were repurchased on July 2, 2004.

     We incurred approximately $5.2 million in costs, including $5.0 million
associated with the sale of the New Senior Notes, which have been deferred and
are being amortized over the term of the New Senior Notes. In June 2004, we
recorded pre-tax charges of approximately $6.0 million, including $4.4 million
for redemption premiums paid on the Senior Notes, $1.3 million to write-off
deferred financing costs related to the refinancing of the Senior Notes and $0.3
million for other expenses. These costs are included in Other expense - debt
extinguishment costs in the accompanying Consolidated Statements of Operations.

     In September 2004, for the purpose of an exchange offer and in accordance
with the requirements of the New Senior Notes, we registered notes with terms
identical to the New Senior Notes under the Securities Act of 1933. We completed
the exchange offer in the third quarter of 2004 and 100% of the original notes
were exchanged for the registered notes.


                                      F-14


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5--SHORT AND LONG-TERM DEBT (CONTINUED)

The New Senior Notes are unsecured senior obligations and rank equally in right
of payment with all of our existing and future unsubordinated indebtedness and
senior to any of our future indebtedness that is expressly subordinated to the
New Senior Notes. The New Senior Notes are effectively subordinated to our
secured indebtedness, including obligations under our Revolving Credit Agreement
and our Gold Consignment Agreement, to the extent of the value of the assets
securing such indebtedness, and effectively subordinated to the indebtedness and
other liabilities (including trade payables) of our subsidiaries. We may redeem
the New Senior Notes, in whole or in part, at any time on or after June 1, 2008
at specified redemption prices, plus accrued and unpaid interest, if any, to the
date of the redemption. In addition, before June 1, 2007, we may redeem up to
35% of the aggregate principal amount of the New Senior Notes with the net
proceeds of certain equity offerings at 108.375% of the principal amount
thereof, plus accrued interest to the redemption date. Upon certain change of
control events, each holder of the New Senior Notes may require us to purchase
all or a portion of such holder's New Senior Notes at a purchase price equal to
101% of the principal amount thereof, plus accrued interest to the purchase
date.

     The indenture governing the New Senior Notes contains restrictions relating
to, among other things, the payment of dividends, redemptions or repurchases of
capital stock, the incurrence of additional indebtedness, the making of certain
investments, the creation of certain liens, the sale of certain assets, entering
into transactions with affiliates, engaging in mergers and consolidations and
the transfer of all or substantially all assets. We were in compliance with all
of our covenants as of and for the year ended January 29, 2005.

     The aggregate amounts of long-term debt payable in each of the five years
in the period ending January 30, 2009 are as follows:



                                                                (IN THOUSANDS)
                                                                ---------------

                2005.........................................     $    --
                2006.........................................          --
                2007.........................................          --
                2008.........................................          --
                2009.........................................          --
                Thereafter...................................       200,000
                                                                ---------------
                                                                  $ 200,000
                                                                ===============


     Interest expense for 2004, 2003 and 2002 was $20.2 million, $16.6 million
and $17.8 million, respectively. Interest income for the same periods was $0.2
million, $0.1 million and $0.1 million, respectively.

NOTE 6--LONG -TERM INCENTIVE PLANS AND OTHER

     The Holding Company's Long Term Incentive Plan (the "1993 Plan") permits
the Holding Company to grant to key employees of the Holding Company and its
subsidiaries, consultants and certain other persons, and directors of the
Holding Company (other than members of the Compensation Committee of the Holding
Company's Board of Directors), the following: (i) stock options; (ii) stock
appreciation rights in tandem with stock options; (iii) limited stock
appreciation rights in tandem with stock options; (iv) restricted or
nonrestricted stock awards subject to such terms and conditions as the
Compensation Committee shall determine; (v) performance units which are based
upon attainment of performance goals during a period of not less than two nor
more than five years and which may be settled in cash or in the Holding
Company's common stock, par value $.01 per share ("Common Stock"), at the
discretion of the Compensation Committee; or (vi) any combination of the
foregoing. Under the 1993 Plan, the Holding Company may grant stock options
which are either incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), or non-incentive
stock options. As


                                      F-15


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6--LONG -TERM INCENTIVE PLANS AND OTHER (CONTINUED)

of January 29, 2005, an aggregate of 732,596 shares of the Holding Company's
Common Stock have been reserved for issuance pursuant to the 1993 Plan, of which
a total of 161,219 shares are subject to options granted to certain senior
management, key employees and a director. The exercise prices of such options
range from $7.23 per share to $16.50 per share.

     In March 1997, the Board of Directors of the Holding Company adopted the
1997 Long-Term Incentive Plan (the "1997 Plan"), which was approved by the
Holding Company's stockholders in June 1997. The 1997 Plan, which is similar to
the 1993 Plan, is intended as a successor to the 1993 Plan and provides for the
grant of the same types of awards as are currently available under the 1993
Plan. Of the 1,850,000 shares of the Holding Company's Common Stock that have
been reserved for issuance pursuant to the 1997 Plan, a total of 896,415 shares,
as of January 29, 2005, are subject to options granted to certain senior
management, key employees and directors and 323,710 shares are subject to
purchases and awards of restricted stock and restricted stock units. The
exercise prices of such options range from $7.05 per share to $24.31 per share.

     The following table summarizes the transactions pursuant to the Holding
Company's 1993 Plan and 1997 Plan for 2004, 2003 and 2002:



                                                  2004                          2003                            2002
                                       ---------------------------    --------------------------     ---------------------------
                                       NUMBER OF       WTD. AVG.      NUMBER OF      WTD. AVG.        NUMBER OF      WTD. AVG.
                                        OPTIONS        EX. PRICE       OPTIONS       EX. PRICE         OPTIONS       EX. PRICE
                                       -----------     -----------    -----------    -----------     ------------    -----------

Outstanding at beginning of year...     1,431,368      $     11.70     1,590,335     $     11.46       1,650,035      $    11.26
Granted............................        14,000            18.60        10,000           15.63          35,000           12.01
Exercised..........................      (364,201)           10.87      (149,500)           8.85         (87,627)           8.04
Forfeited..........................        (6,200)           19.66       (19,467)          15.73          (7,073)          10.78
                                       -----------     -----------    -----------    -----------     ------------    -----------
Outstanding at end of year.........     1,074,967      $     12.03     1,431,368      $    11.70       1,590,335      $    11.46
                                       ===========     ===========    ===========    ===========     ============    ===========
Exercisable at end of year.........       900,267      $     12.30     1,101,208      $    12.27       1,078,482      $    12.27


     The following table summarizes information concerning options outstanding
and exercisable at January 29, 2005:



                                OPTIONS OUTSTANDING                                       OPTIONS EXERCISABLE
  ------------------------------------------------------------------------------    ---------------------------------
                                                 WTD. AVG.
      EXERCISE                NUMBER             REMAINING         WTD. AVG.          NUMBER              AVERAGE
    PRICE RANGE             OUTSTANDING         CONTRACTUAL        EX. PRICE        EXERCISABLE          EXERCISE
                                                   LIFE                                                    PRICE
---------------------      --------------     ----------------    -------------    --------------      --------------

    $  7.05-$14.00            960,967               4.13          $    11.35           814,267          $    11.71
    $14.59-$19.50              84,000               4.78               15.71            56,000               14.98
    $21.00-$24.31              30,000               3.14               23.56            30,000               23.56
                           --------------     ----------------    -------------    --------------      --------------
    $  7.05-$24.31           1,074,967              4.15          $    12.03           900,267          $    12.30
                           ==============     ================    =============    ==============      ==============


     Pursuant to the Holding Company's stock repurchase program the Holding
Company may, at the discretion of management, purchase up to an additional $12.6
million of its Common Stock, from time to time, through September 30, 2005. The
extent and timing of stock repurchases will depend upon general business and
market conditions, stock prices, availability under the Revolving Credit
Facility, compliance with certain restrictive covenants and the Holding
Company's cash position and requirements going forward. The repurchase program
may be modified, extended or terminated by the Board of Directors at any time.
As of January 29, 2005, and from inception of the program to date, the Holding
Company has repurchased a total of 2,207,904 shares for $27.4 million.

     In February 2001, an executive officer of Finlay was issued 100,000 shares
of Common Stock of the Holding Company, subject to restrictions ("Restricted
Stock"), pursuant to a restricted stock agreement. The Restricted Stock became
fully vested on January 29, 2005 and was accounted for as a component of the
Holding Company's stockholders' equity. Compensation expense of approximately
$1.2 million has been amortized over four years and totaled approximately $0.3
million in each of 2004, 2003 and 2002.


                                      F-16


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6--LONG -TERM INCENTIVE PLANS AND OTHER (CONTINUED)

     In August 2003, an executive officer of Finlay was issued an additional
50,000 shares of Restricted Stock, pursuant to a restricted stock agreement.
Fifty percent of the Restricted Stock became fully vested on January 31, 2005
and was accounted for as a component of stockholders' equity. Compensation
expense of approximately $0.4 million has been amortized over the vesting period
and totaled approximately $0.3 million and $0.1 million in 2004 and 2003,
respectively. The remaining 50% of the Restricted Stock becomes fully vested on
June 30, 2007 and has been accounted for as a component of stockholders' equity.
Compensation expense of approximately $0.4 million is being amortized over the
vesting period and totaled approximately $0.1 million in each of 2004 and 2003.

     In October 2003, certain executives of Finlay were awarded a total of
31,250 shares of Restricted Stock, pursuant to restricted stock agreements. The
Restricted Stock becomes fully vested after four years of continuous employment
with Finlay and is accounted for as a component of the Holding Company's
stockholders' equity with respect to unamortized restricted stock compensation.
However, such shares are not considered outstanding. Compensation expense of
approximately $0.5 million is being amortized over four years and totaled
approximately $0.1 million in each of 2004 and 2003.

     In April 2004, certain executives of Finlay were awarded a total of 32,500
shares of Restricted Stock, pursuant to restricted stock agreements. The
Restricted Stock becomes fully vested after two years of continuous employment
with Finlay and is accounted for as a component of the Holding Company's
stockholders' equity with respect to unamortized restricted stock compensation.
However, such shares are not considered outstanding. Compensation expense of
approximately $0.6 million is being amortized over two years and totaled
approximately $0.2 million in 2004.

NOTE 7--EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION AND STOCK PURCHASE PLANS

     In April 2003, the Board of Directors of the Holding Company adopted the
Executive Deferred Compensation and Stock Purchase Plan and the Director
Deferred Compensation and Stock Purchase Plan, which was approved by the Holding
Company's stockholders on June 19, 2003 (the "RSU Plans"). Under the RSU Plans,
key executives and non-employee directors, as directed by the Holding Company's
Compensation Committee, are eligible to acquire restricted stock units ("RSUs").
An RSU is a unit of measurement equivalent to one share of common stock, but
with none of the attendant rights of a stockholder of a share of Common Stock.
Two types of RSUs are awarded under the RSU Plans: (i) participant RSUs, where a
plan participant may elect to defer, in the case of an executive employee, a
portion of his or her actual or target bonus, and in the case of a non-employee
director, his or her retainer fees and Committee chairmanship fees, and receive
RSUs in lieu thereof and (ii) matching RSUs, where the Holding Company will
credit a participant's plan account with one matching RSU for each participant
RSU that a participant elects to purchase. While participant RSUs are fully
vested at all times, matching RSUs are subject to vesting and forfeiture as set
forth in the RSU Plans. At the time of distribution under the RSU Plans, RSUs
are converted into actual shares of Common Stock of the Holding Company. As of
January 29, 2005 and January 31, 2004, 98,422 and 10,380 RSUs, respectively,
have been awarded under the RSU Plans. Amortization totaled approximately $0.4
million and $0.1 million for 2004 and 2003, respectively.


                                      F-17


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--LICENSE AGREEMENTS WITH DEPARTMENT STORES AND LEASE AGREEMENTS

     We conduct substantially all of our operations as licensed departments in
department stores. All of the department store licenses provide that, except
under limited circumstances, the title to certain of our fixed assets transfers
upon termination of the licenses, and that we will receive certain
reimbursements for the undepreciated value of such fixed assets from the host
store in the event such transfers occur. The value of such fixed assets are
recorded at the inception of the license arrangement and are reflected in the
accompanying Consolidated Balance Sheets.

     In several cases, we are subject to limitations under our license
agreements with host department stores which prohibit us from operating
departments for other store groups within a certain geographical radius of the
host store.

     The department store license agreements provide for the payment of fees
based on sales (i.e., contingent fees in the table below), plus, in some
instances, installment payments for fixed assets. Our operating leases consist
primarily of office space rentals and these expire on various dates through
2008. Minimum fees, in the table below, represent the rent paid on these
operating leases. License fees and lease expense, included in Selling, general
and administrative expenses, are as follows (in thousands):



                                           FISCAL YEAR ENDED
                                  --------------------------------------
                                  JANUARY 29,  JANUARY 31,   FEBRUARY 1,
                                     2005         2004         2003
                                  -----------  -----------   -----------

          Minimum fees .......     $  2,028     $  1,974     $  2,129
          Contingent fees ....      154,268      149,346      144,710
                                   --------     --------     --------
               Total .........     $156,296     $151,320     $146,839
                                   ========     ========     ========


     Future minimum payments under noncancellable operating leases having
initial or remaining noncancellable lease terms in excess of one year are as
follows as of January 29, 2005:



                                                           (IN THOUSANDS)
                                                           --------------

          2005 .............................................   $1,942
          2006 .............................................    1,917
          2007 .............................................    1,917
          2008 .............................................    1,278
          Thereafter .......................................     --
                                                               ------
               Total minimum payments required .............   $7,054
                                                               ======


NOTE 9--PROFIT SHARING PLAN

     We maintain a defined contribution profit-sharing plan to provide
retirement benefits for all personnel. This plan provides for company matching
contributions of $0.25 for each $1.00 of employee contribution, up to 5% of the
employee's salary, as limited by the Code, which begin to vest upon the
completion of two years of employment and accrues at the rate of 20% per year.
Additionally, we contribute 2% of the employees' earnings annually, as limited
by the Code, which begin to vest upon the completion of three years of
employment and accrues at the rate of 20% per year. Company contributions
totaled $2.3 million, $2.1 million and $2.0 million for 2004, 2003 and 2002,
respectively.


                                      F-18


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10--INCOME TAXES

     For income tax reporting purposes, we have an October 31 year end. We file
a consolidated Federal income tax return with our wholly-owned subsidiaries and
our parent, the Holding Company. Our provision for income taxes and deferred tax
assets and liabilities was calculated as if we filed our tax return on a
stand-alone basis.

     Deferred income taxes at year end reflect the impact of temporary
differences between amounts of assets and liabilities for financial and tax
reporting purposes.

     Deferred tax assets and liabilities at year end are as follows:



                                                                               JANUARY 29,  JANUARY 31,
                                                                                  2005         2004
                                                                               -----------  -----------
                                                                                   (IN THOUSANDS)

          Deferred Tax Assets
            Vendor allowances .............................................     $   --       $ 10,754
            Uniform inventory capitalization ..............................        3,416        3,747
            Expenses not currently deductible .............................        1,693        1,739
                                                                                --------     --------
                                                                                   5,109       16,240
            Valuation allowance ...........................................          100          100
                                                                                --------     --------
               Total current ..............................................        5,009       16,140
                                                                                --------     --------
            Deferred financing costs-non-current ..........................         --            103
                                                                                --------     --------
               Total non-current ..........................................         --            103
                                                                                --------     --------
                  Total deferred tax assets ...............................        5,009       16,243
                                                                                --------     --------
          Deferred Tax Liabilities
            LIFO inventory valuation ......................................       11,602        9,576
                                                                                --------     --------
               Total current ..............................................       11,602        9,576
                                                                                --------     --------
          Depreciation and amortization ...................................       21,070       22,095
                                                                                --------     --------
               Total non-current ..........................................       21,070       22,095
                                                                                --------     --------
                  Total deferred tax liabilities ..........................       32,672       31,671
                                                                                --------     --------
                    Net deferred income tax liabilities ...................     $ 27,663     $ 15,428
                                                                                ========     ========
               Net current deferred income tax (assets) liabilities .......     $  6,593     $ (6,564)
               Net non-current deferred income tax liabilities ............       21,070       21,992
                                                                                --------     --------
                    Net deferred income tax liabilities ...................     $ 27,663     $ 15,428
                                                                                ========     ========


     The components of income tax expense, before the cumulative effect of
accounting change, are as follows (in thousands):



                                                             FISCAL YEAR ENDED
                                                 ------------------------------------------
                                                 JANUARY 29,     JANUARY 31,    FEBRUARY 1,
                                                    2005            2004           2003
                                                 -----------     -----------    -----------

          Current taxes .....................     $ (1,788)       $  9,276       $ 12,082
          Deferred taxes ....................       12,235           6,759          3,982
                                                  --------        --------       --------
          Provision for income taxes ........     $ 10,447        $ 16,035       $ 16,064
                                                  ========        ========       ========


     A reconciliation of the income tax provision computed by applying the
federal statutory rate to Income from continuing operations before income taxes
and cumulative effect of accounting change to the Provision for income taxes on
the accompanying Consolidated Statements of Operations is as follows (in
thousands):


                                      F-19


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10--INCOME TAXES (CONTINUED)



                                                                         FISCAL YEAR ENDED
                                                               ---------------------------------------
                                                               JANUARY 29,    JANUARY 31,  FEBRUARY 1,
                                                                  2005           2004        2003
                                                               -----------    -----------  -----------

          Federal statutory provision ......................     $ 10,478      $ 14,286     $ 14,449
          Foreign tax refund ...............................       (1,800)         --           --
          Redetermination of foreign tax credits ...........        1,200          --           --
          State and local taxes, net of federal benefit ....        1,121         1,343        1,393
          Reversal of tax accruals no longer required ......       (1,025)         --           --
          Other ............................................          473           406          222
                                                                 --------      --------     --------
          Provision for income taxes .......................     $ 10,447      $ 16,035     $ 16,064
                                                                 ========      ========     ========


     During 2004, a benefit of approximately $1.0 million was recorded
associated with the reversal of tax accruals no longer required, primarily as
the result of the closing of open tax years. Total current deferred tax assets
decreased by approximately $11.1 million in 2004, primarily as a result of the
utilization of deferred tax assets related to the approval from the Internal
Revenue Service of a favorable change of accounting method regarding vendor
allowances. Further, in 2004, we recorded refunds claimed for foreign taxes
originally paid in 1995 and 1996, together with an adjustment for foreign tax
credits previously used to reduce U.S. income tax liability. This resulted in a
net recovery of foreign tax of approximately $0.6 million. In 2002, we recorded
an income tax benefit of $11.7 million in connection with the cumulative effect
of an accounting change.

     A number of years may elapse before a particular matter, for which we have
established an accrual, is audited and finally resolved. While it is often
difficult to predict the final outcome or the timing of resolution of any
particular tax matter, we believe that our accruals reflect the probable outcome
of tax contingencies. The favorable or unfavorable settlement of any particular
issue will be recognized as a decrease or an increase to our income tax expense
in the year of resolution. Our tax accruals are presented in the balance sheet
with income and other taxes.

NOTE 11--DISCONTINUED OPERATIONS

     During 2003, Federated Department Stores, Inc. ("Federated") announced that
it would not renew our license agreement in its Burdines department store
division due to the consolidation of the Burdines and Macy's fine jewelry
departments in 2004. The termination of the license agreement in January 2004
resulted in the closure of 46 Finlay departments in the Burdines department
store division. In 2003, we generated approximately $55.0 million in sales from
the Burdines departments. The results of operations of the Burdines department
store division have been segregated from those of continuing operations, net of
tax, and classified as discontinued operations for the years ended January 31,
2004 and February 1, 2003.

     A summary of statements of operations information relating to the
discontinued operations is as follows (in thousands):



                                                        FISCAL YEAR ENDED
                                                   --------------------------
                                                   JANUARY 31,    FEBRUARY 1,
                                                      2004          2003
                                                   ----------     ----------

Sales .......................................      $ 55,006       $ 53,413
Income before income taxes (1) (2) ..........         3,676          6,255
Discontinued operations, net of tax (3) .....       (11,537)         3,810


----------
(1)    Includes an allocation of $0.2 million of interest expense related to the
       Revolving Credit Agreement for each of 2003 and 2002.

(2)    The results of operations of the Burdines departments excludes
       allocations of general and administrative expenses and interest expense
       related to the Senior Notes and the Senior Debentures.


                                      F-20


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11--DISCONTINUED OPERATIONS (CONTINUED)

(3)  The loss from discontinued operations includes a write-down of goodwill of
     $13.8 million during the year ended January 31, 2004, as a result of the
     department closings.

     The assets of the Burdines departments are as follows (in thousands):



                                                         JANUARY 31,
                                                            2004
                                                         ----------

          Cash and cash equivalents ...................   $     9
          Accounts receivable-department stores .......     1,999
          Merchandise inventories .....................     9,432
                                                          -------
          Total assets ................................   $11,440
                                                          =======


NOTE 12--COMMITMENTS AND CONTINGENCIES

     From time to time, we are involved in litigation arising out of our
operations in the normal course of business. As of April 8, 2005, we are not a
party to any legal proceedings that, individually or in the aggregate, are
reasonably expected to have a material adverse effect on our business, results
of operations, financial condition or cash flows. However, the results of these
matters cannot be predicted with certainty, and an unfavorable resolution of one
or more of these matters could have a material adverse effect on our
consolidated financial statements.

     In November 2004, we entered into a new employment agreement with a senior
executive. The new employment agreement has a term of four years commencing on
January 30, 2005 and ending on January 31, 2009, unless earlier terminated, in
accordance with the provisions of the employment agreement. The new employment
agreement provides an annual salary level of approximately $1.0 million as well
as incentive compensation based on meeting specific financial goals, which are
not yet determinable.

     The New Senior Notes, the Revolving Credit Agreement and the Gold
Consignment Agreement currently restrict the amount of annual distributions to
the Holding Company, including those required to fund stock repurchases. During
2004, we declared $39.7 million of dividends and $39.7 million was distributed
to the Holding Company. During 2003, we declared $15.8 million of dividends and
$13.5 million was distributed to the Holding Company. During 2002, we declared
$17.6 million of dividends and $15.7 million was distributed to the Holding
Company.

     Our concentration of credit risk consists principally of accounts
receivable. Over the past three years, store groups owned by The May Department
Stores Company ("May") and Federated accounted for 54% (including Marshall
Field's for the 2004 fiscal year) and 18%, respectively, of our sales. We
believe that the risk associated with these receivables, other than those from
department store groups indicated above, would not have a material adverse
effect on our financial position or results of operations. Refer to Note 16 for
subsequent event information regarding May and Federated.

     We have not provided any third-party financial guarantees as of January 29,
2005 and January 31, 2004 and for each of the three fiscal years in the period
ended January 29, 2005.


                                      F-21


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table summarizes the quarterly financial data for 2004 and
2003 (dollars in thousands). The 2003 quarterly financial data has been revised
to reflect the Burdines department store division as a discontinued operation.



                                                        FISCAL YEAR ENDED JANUARY 29, 2005
                                                -----------------------------------------------------
                                                  FIRST         SECOND         THIRD        FOURTH
                                                QUARTER (a)   QUARTER (a)     QUARTER       QUARTER
                                                -----------   -----------    ---------     ----------

  Sales .....................................    $ 187,572     $ 188,638     $ 166,841     $ 380,555
  Gross margin ..............................       95,729        96,164        84,612       197,210
  Selling, general and administrative
    expenses ................................       88,181        87,286        82,629       138,089
  Income (loss) from operations .............        3,159         4,504        (2,315)       50,727
  Net income (loss) (b) .....................         (530)       (3,330)       (4,828)       28,175




                                                        FISCAL YEAR ENDED JANUARY 31, 2004
                                                 --------------------------------------------------
                                                   FIRST        SECOND        THIRD        FOURTH
                                                  QUARTER       QUARTER      QUARTER       QUARTER
                                                 ---------     ---------     --------     ---------

Sales .......................................    $ 175,427     $ 182,229    $ 165,784     $ 378,976
Gross margin ................................       90,766        92,796       84,717       193,620
Selling, general and administrative
  expenses ..................................       83,909        84,117       80,426       139,049
Income (loss) from operations ...............        2,669         4,502          (62)       50,263
Income (loss) from continuing operations ....         (845)          195       (2,589)       28,020
Discontinued operations, net of tax (c) .....          611           450         (123)      (12,475)
Net income (loss) ...........................         (234)          645       (2,713)       15,546


----------
(a)  The thirteen week periods ended May 1, 2004 and July 31, 2004 have been
     restated to reflect the change in our method of determining price indices
     used in the valuation of LIFO inventories.

(b)  Net income (loss) includes debt extinguishment costs of $6.0 million, on a
     pre-tax basis, related to the refinancing of the Senior Notes in the second
     quarter of 2004.

(c)  Discontinued operations includes the after-tax operations of the Burdines
     departments and the write-down of goodwill of $13.8 million in the fourth
     quarter of 2003.

NOTE 14--DEPARTMENT CLOSINGS

     In July 2003, May announced its intention to divest 32 Lord & Taylor
stores, as well as two other stores in its Famous-Barr division resulting in the
closure of 18 departments in 2004, which generated approximately $10.6 million
in sales. Through January 29, 2005, a total of 27 stores have closed. During
2004 and 2003, we recorded charges of $1.0 million and $0.5 million,
respectively relating to the accelerated depreciation of fixed assets, the loss
on disposal of fixed assets and severance.

NOTE 15--SALE AND CLOSURE OF SONAB

     In January 2000, Societe Nouvelle d' Achat de Bijouterie - S.O.N.A.B.
("Sonab"), our European leased jewelry department subsidiary, sold the majority
of its assets for approximately $9.9 million. After the sale, the buyer operated
more than 80 locations previously included in Sonab's 130-location base in
France. The remaining departments were closed.


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                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15--SALE AND CLOSURE OF SONAB (CONTINUED)

     As of January 29, 2005, our exit plan has been completed with the exception
of certain legal matters and we are in the process of liquidating the
subsidiary. During the fourth quarter of 2004, we revised our estimate of
closure expenses to reflect our remaining liability and, as a result, reduced
our accrual by $0.4 million. To date, we have charged a total of $26.4 million
against our revised estimate of $26.8 million. We do not believe future
operating results will be materially impacted by any remaining payments.

NOTE 16--SUBSEQUENT EVENTS

     On February 28, 2005, Federated and May announced that they have entered
into a merger agreement whereby Federated would acquire May. The transaction is
expected to close in the third quarter of 2005. The completion of the merger is
contingent upon regulatory review and approval by the shareholders of both
companies. Finlay's license agreements with May are terminable at various dates
over the next three years. Finlay's license agreements with Federated are
terminable at various dates over the next two years. There is no assurance that
our host store relationships with May and Federated or future results of
operations will not be adversely impacted as a result of this transaction.

     On March 1, 2005, the Holding Company announced that it is in advanced
discussions regarding a possible acquisition of Carlyle & Co. Jewelers
("Carlyle"). Carlyle is a privately-owned regional chain, located primarily in
the southeastern United States, with 32 jewelry stores and annual sales of
approximately $80.0 million (unaudited). Finlay is presently engaged in its due
diligence review of Carlyle.


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