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                       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, 2000

         __    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]

As of April 24, 2000,  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.



<PAGE>


                         FINLAY FINE JEWELRY CORPORATION

                                    FORM 10-K

                   FOR THE FISCAL YEAR ENDED JANUARY 29, 2000

                                      INDEX




                                                                         Page(s)
                                                                         -------
PART I
 Item 1.  Business............................................................ 3
 Item 2.  Properties..........................................................15
 Item 3.  Legal Proceedings...................................................15
 Item 4.  Submission of Matters to a Vote of Security Holders.................15

PART II
 Item 5.  Market for the Registrant's Common Equity and Related Stockholder
             Matters..........................................................16
 Item 6.  Selected Consolidated Financial Data................................17
 Item 7.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations..............................19
 Item 7a. Quantitative and Qualitative Disclosures about Market Risk..........28
 Item 8.  Financial Statements and Supplementary Data.........................29
 Item 9.  Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure..............................29

PART III
 Item 10. Directors and Executive Officers of the Registrant..................30
 Item 11. Executive Compensation..............................................34
 Item 12. Security Ownership of Certain Beneficial Owners and Management......42
 Item 13. Certain Relationships and Related Transactions......................45

PART IV
 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....47

SIGNATURES ...................................................................54











                                       2

<PAGE>

                                     PART I

Item 1. Business

The Company

     Finlay Fine Jewelry  Corporation,  a Delaware  corporation,  and its wholly
owned  subsidiaries  ("Finlay  Jewelry") is a wholly owned  subsidiary of Finlay
Enterprises, Inc., a Delaware corporation (the "Holding Company"). References to
"Finlay"  mean,  collectively,  the  Holding  Company,  Finlay  Jewelry  and all
predecessor  businesses.  All references  herein to "Departments"  refer to fine
jewelry   departments   operated   pursuant  to  license   agreements  or  other
arrangements with host department stores.

     Finlay  is one of the  leading  retailers  of fine  jewelry  in the  United
States. Finlay operates leased fine jewelry departments ("Departments") in major
department  stores  for  retailers  such as The May  Department  Stores  Company
("May"), Federated Department Stores ("Federated"), Belk, the Carson Pirie Scott
and Proffitt's  divisions of Saks Incorporated,  Marshall Field's and Dillard's.
With the recent  acquisition  of certain assets of Jay B. Rudolph,  Inc.  ("J.B.
Rudolph"), Finlay also now operates Departments in Bloomingdale's,  Dayton's and
Hudson's.  Finlay sells a broad  selection of  moderately  priced fine  jewelry,
including necklaces,  earrings,  bracelets, rings and watches, and markets these
items principally as fashion accessories with an average domestic sales price of
approximately $170 per item. Average domestic sales per Department were $911,000
in 1999 and the average size of a Department is approximately 700 square feet.

     Finlay's sales have increased from $654.5 million in 1995 to $913.0 million
in 1999,  a compound  annual  growth rate of 8.7%.  Income from  operations  has
increased from $49.1 million to $68.1 million in the same period  (excluding the
1999 Sonab  nonrecurring  charge described below), a compound annual growth rate
of 8.5%.  Finlay has  increased in size from 903  locations at the  beginning of
1995 to 979 Departments and 8 stand-alone  stores,  for a total of 987 locations
at the end of 1999.

     As of January 29, 2000,  Finlay operated its 987 locations in 24 host store
groups,  in 44 states and the District of Columbia.  Finlay's largest host store
relationship is with May, for which Finlay has operated  Departments since 1948.
Finlay  operates the fine  jewelry  departments  in all of May's 406  department
stores.  Finlay's second largest host store relationship is with Federated,  for
which Finlay has operated Departments since 1983. Finlay operates Departments in
155 of  Federated's  403  department  stores.  Over the past three years,  store
groups  owned by May and  Federated  accounted  for an  average  of 48% and 22%,
respectively,  of Finla's domestic sales. Management believes that it maintains
excellent relations with its host store groups, 20 of which have had leases with
Finlay for more than five years  (representing 88% of Finlay's domestic sales in
1999)  and 15 of which  have had  leases  with  Finlay  for more  than ten years
(representing 73% of Finlay's domestic sales in 1999).

     On April 3, 2000,  Finlay  completed the  acquisition  of certain assets of
J.B.  Rudolph (the "J.B.  Rudolph  Acquisition")  for $21.1 million,  subject to
certain  post-closing  adjustments.  By acquiring J.B. Rudolph,  Finlay added 57
Departments that had total sales of approximately  $84 million in 1999, and also
added new host store relationships with  Bloomingdale's,  Dayton's and Hudson's.
Management believes that the J.B. Rudolph Acquisition, in addition to increasing
sales volume, will improve Finlay's results of operations through the leveraging
of expenses and the achievement of other operating synergies.

     On January 3, 2000,  Societe  Nouvelle  d'Achat de  Bijouterie - S.O.N.A.B.
("Sonab"),  Finlay Jewelry's European leased jewelry department subsidiary, sold
the majority of its assets for $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. Finlay Jewelry recorded a pre-tax
charge of


                                       3
<PAGE>

$28.6 million for the write-down of assets for  disposition  and related closure
expenses. The cash portion of this charge was approximately $7.8 million.

     As of January 29, 2000,  Finlay operated eight domestic stand alone jewelry
outlet stores at  nonmetropolitan  outlet shopping center locations in New York,
Florida,  South Carolina,  Pennsylvania,  Georgia and California  under the name
"New York Jewelry Outlet".

     On April 24,  1998,  the Holding  Company  completed  a public  offering of
1,800,000 shares of its common stock, par value $.01 per share ("Common Stock"),
at a price of $27.50 per share (the "1998  Offering"),  of which 567,310  shares
were sold by the  Holding  Company.  Concurrently  with the 1998  Offering,  the
Holding  Company  and Finlay  Jewelry  completed  the public  offering  of $75.0
million aggregate  principal amount of 9% Senior Debentures due May 1, 2008 (the
"Senior  Debentures")  and $150.0 million  aggregate  principal  amount of 83/8%
Senior Notes due May 1, 2008 (the "Senior Notes"), respectively. In addition, on
April 24, 1998,  Finlay's  revolving  credit  agreement (the  "Revolving  Credit
Agreement")  was amended to  increase  the line of credit  thereunder  to $275.0
million and to make certain other changes.

     On May 26,  1998,  the net  proceeds to the Holding  Company  from the 1998
Offering,  the sale of the Senior  Debentures,  together  with  other  available
funds, were used to redeem the Holding Company's 12% Senior Discount  Debentures
due 2005 (the "Old Debentures"), including associated premiums. Also, on May 26,
1998,  Finlay Jewelry used the net proceeds from the sale of the Senior Notes to
redeem  Finlay  Jewelry's  105/8%  Senior  Notes  due 2003  (the  "Old  Notes"),
including  associated  premiums.  The  above  transactions,  excluding  the 1998
Offering, are referred to herein as the "Refinancing".  Finlay Jewelry recorded,
in the second quarter of 1998, a pre-tax  extraordinary  charge of $8.0 million,
including  $5.4  million  for the  redemption  premium on the Old Notes and $2.0
million to write off deferred financing costs associated with the Old Notes.

     On October 6, 1997,  Finlay  completed the acquisition of certain assets of
the Diamond Park Fine Jewelers division of Zale Corporation  ("Diamond Park"), a
leading operator of Departments,  for approximately  $63.0 million. By acquiring
Diamond Park (the "Diamond Park Acquisition"),  Finlay added 139 Departments and
also added new host store  relationships  with  Marshall  Field's,  Parisian and
Dillard's, formerly the Mercantile Stores.

     Finlay's fiscal year ends on the Saturday closest to January 31. References
to 1995,  1996,  1997,  1998, 1999 and 2000 relate to the fiscal years ending on
February 3, 1996,  February 1, 1997, January 31, 1998, January 30, 1999, January
29, 2000 and February 3, 2001,  respectively.  Each of the fiscal years includes
52 weeks except 1995 and 2000, which include 53 weeks.

     Finlay  Jewelry is a wholly owned  subsidiary of the Holding  Company.  The
principal  executive  offices of Finlay Jewelry are located at 529 Fifth Avenue,
New York,  New York  10017 and its  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  Finlay,   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.


                                       4
<PAGE>

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

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

     Industry.  Management  believes that current  trends in jewelry  retailing,
particularly in the department store sector,  provide a significant  opportunity
for Finlay's  growth.  Consumers  spent  approximately  $47.7 billion on jewelry
(including  both fine and  costume  jewelry)  in the United  States in 1999,  an
increase of  approximately  $18.6  billion  over 1989,  according  to the United
States  Department of Commerce.  In the department  store sector in which Finlay
operates,  consumers  spent $4  billion  on fine  jewelry  in  1998.  Management
believes that  demographic  factors such as the maturing of the 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.  Management also believes that jewelry  consumers  today  increasingly
perceive  fine jewelry as a fashion  accessory,  resulting  in  purchases  which
augment  Finlay's gift and special  occasion  sales.  Finlay's  Departments  are
typically located in "high traffic" areas of leading department stores, enabling
Finlay to capitalize on these consumer buying patterns.

     Growth  Strategy.  Finlay  intends to continue to pursue the  following key
initiatives to increase sales and earnings:

     Increase  Comparable  Department  Sales.  In 1997,  1998 and  1999,  Finlay
     achieved domestic  comparable  Department sales increases of 5.7%, 5.4% and
     8.1%,  respectively,  outpacing  the  majority  of its host  stores.  These
     increases were achieved  primarily by emphasizing  key  merchandise  items,
     increasing focus on holiday and event-driven  promotions,  participating in
     host  store  marketing  programs  and  positioning  its  Departments  as  a
     "destination  location" for fine jewelry.  Finlay  believes that comparable
     Department  sales will  continue to benefit  from these  merchandising  and
     marketing strategies, as well as from increasing demand for fine jewelry.

     Add  Departments   Within   Existing  Host  Store  Groups.   Finlay's  well
     established  relationships  with many of its host store groups have enabled
     Finlay to add Departments in new locations  opened by existing host stores.
     Finlay has operated  Departments  in May stores since 1948 and operates the
     fine jewelry departments in all of May's 406 department stores. Finlay also
     has  operated  Departments  in  Federated  stores  since 1983 and  operates
     Departments in 155 of Federated's  403  department  stores.  Based on May's
     expansion  plans,  Finlay  believes  it will have the  opportunity  to open
     approximately  80 new  Departments  in May stores  alone over the next five
     years (excluding possible closings).

     Establish New Host Store  Relationships.  Finlay has an opportunity to grow
     primarily by establishing  new  relationships  with department  stores that
     presently  operate  their own fine  jewelry  departments.  Finlay  seeks to
     establish these new  relationships  by  demonstrating  to department  store
     management  the potential  for improved  financial  performance.  Since the
     beginning of 1992, Finlay has added such host store groups as Burdines, The
     Bon Marche,  Elder Beerman and Stern's.


                                       5
<PAGE>

     Through acquisitions since October 1997, Finlay has added Marshall Field's,
     Parisian,  Dillard's,  Bloomingdale's,  Dayton's  and  Hudson's to its host
     store relationships.

     Continue to Improve Operating Leverage. Selling, general and administrative
     expenses as a percentage  of sales  declined from 43.0% in 1995 to 41.4% in
     1999.  Finlay  seeks to continue to leverage  expenses  both by  increasing
     sales at a faster rate than  expenses and by reducing its current  level of
     certain operating  expenses.  For example,  Finlay has 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,  management believes Finlay will benefit from further investments
     in technology  and  refinements of operating  procedures  designed to allow
     Finlay's  sales  associates  more  time for  customer  sales  and  service.
     Finlay's central distribution  facility,  which became fully operational in
     the Spring of 1998,  has enabled  Finlay to improve the flow of merchandise
     to Departments and to reduce payroll and freight costs.

     Merchandising  Strategy.  Finlay seeks to maximize sales and  profitability
through a unique  merchandising  strategy known as the "Finlay Triangle",  which
integrates store management  (including host store management and Finlay's store
group management),  vendors and Finlay's 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, Finlay's
store group management  contributes to the selection of the specific merchandise
most appropriate to the demographics and customer tastes within their particular
geographical area. Finlay's advertising initiatives and promotional planning are
closely  coordinated  with both host store  management  and Finlay's store group
management to ensure the effective use of Finlay's 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  Finlay.  As a  result,
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 has structured its  relationships  with vendors to encourage sharing
of responsibility for marketing and merchandise management.  Finlay furnishes to
vendors, through on-line access to Finlay's information systems, the same sales,
stock and gross margin  information  that is  available to Finlay's  store group
management  and  central  office  for each of the  vendor's  styles in  Finlay's
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 Finlay's other Departments.  Management  believes that the access
and input which vendors have in the

                                       6
<PAGE>

merchandising  process  results in a better  assortment,  timely  replenishment,
higher turnover and higher sales of inventory,  differentiating  Finlay from its
competitors.

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

Store Relationships

     Host Store  Relationships.  As of January 29,  2000,  Finlay  operated  987
locations  (including eight  stand-alone  stores) in 24 host store groups, in 44
states and the District of Columbia.  By acquiring  Diamond Park in 1997, Finlay
added 139  Departments  in three host store groups,  in 19 states.  By acquiring
J.B.  Rudolph in April 2000,  Finlay  added 57  Departments  in three host store
groups, in 14 states.  Finlay's largest host store relationship is with May, for
which  Finlay has  operated  Departments  since 1948.  Finlay  operates the fine
jewelry  departments  in all of May's 406  department  stores.  Finlay's  second
largest host store relationship is with Federated, for which Finlay has operated
Departments  since 1983.  Finlay operates  Departments in 155 of Federated's 403
department  stores.  Over the past three  years,  store  groups owned by May and
Federated  accounted  for an average of 48% and 22%,  respectively,  of Finlay's
domestic sales.

     Finlay  also  operates in 144  Departments  in store  groups  owned by Saks
Incorporated.  Additionally, Finlay operates in several other host store groups,
such as Belk, The Bon-Ton and Gottschalks. Management believes that it maintains
excellent relations with its host store groups, 20 of which have had leases with
Finlay for more than five years  (representing 88% of Finlay's domestic sales in
1999)  and 15 of which  have had  leases  with  Finlay  for more  than ten years
(representing  73% of Finlay's  domestic sales in 1999). As a consequence of the
strong and, in many instances,  long-term relationships,  host store groups have
routinely  renewed Finlay's lease agreements at their renewal dates.  Management
believes that the majority of its lease  agreements  will continue to be renewed
routinely.












                                       7
<PAGE>

     The  following  table  identifies  the host  store  groups in which  Finlay
operated   Departments   at  January  29,  2000,  the  year  in  which  Finlay's
relationship  with each host store group commenced and the number of Departments
operated by Finlay in each host store  group.  The table also  provides  similar
information regarding Finlay's stand-alone locations.

<TABLE>
<CAPTION>
                                                                        Inception of               Number of
Host Store Group/Location                                              Relationship          Departments/Stores
-------------------------                                              ------------          ------------------
May
<S>                                                                        <C>                      <C>
Robinsons-May..................................................            1948                     55
Filene's.......................................................            1977                     42
Lord & Taylor..................................................            1978                     78
Famous Barr/L.S. Ayres/Jones...................................            1979                     42
Kaufmann's.....................................................            1979                     50
Foley's........................................................            1986                     57
Hecht's/Strawbridge's..........................................            1986                     74
Meier & Frank..................................................            1988                      8
                                                                                                   ---
   Total May Departments.......................................                                                   406

Federated
Rich's/Lazarus/Goldsmith's.....................................            1983                     67
Burdines.......................................................            1992                     45
The Bon Marche.................................................            1993                     20
Stern's........................................................            1994                     23
                                                                                                   ---
   Total Federated Departments.................................                                                   155

Saks Incorporated
Younkers.......................................................            1973                     36
Carson Pirie Scott/Bergner's/Boston Store......................            1977                     51
Proffitt's.....................................................            1991                     16
Parisian.......................................................            1997                     35
Herberger's....................................................            1999                      6
                                                                                                   ---
   Total Saks Incorporated Departments.........................                                                   144

Other Departments
Gottschalks....................................................            1969                     38
Belk...........................................................            1975                     59
Liberty House..................................................            1983                     12
The Bon-Ton....................................................            1986                     46
Elder Beerman..................................................            1992                     35
Dillard's......................................................            1997                     63
Marshall Field's...............................................            1997                     21
                                                                                                   ---
   Total Other Departments.....................................                                                   274
                                                                                                                  ---
   Total Departments...........................................                                                   979

Stand-Alone Stores
New York Jewelry Outlet........................................            1994                                     8
                                                                                                                  ---
     Total Departments and Stand-Alone Stores..................                                                   987
                                                                                                                  ===
</TABLE>

     The following table identifies additional host store groups in which Finlay
operated as of April 3, 2000 as a result of the J.B. Rudolph Acquisition.
<TABLE>
<CAPTION>
                                                                       Inception of              Number of
Host Store Group                                                       Relationship             Departments
----------------                                                       ------------             -----------

<S>                                                                        <C>                      <C>
Bloomingdale's.................................................            2000                     23
Dayton's.......................................................            2000                     13
Hudson's.......................................................            2000                     21
                                                                                                   ---
     Additional Departments from the J.B. Rudolph Acquisition..                                                    57
                                                                                                                  ===
</TABLE>

                                       8
<PAGE>

     Terms of Lease  Agreements.  Finlay's  lease  agreements  typically have an
initial  term of one to five years.  Finlay has,  where  possible,  entered into
five-year lease agreements and expects to continue this practice. Finlay's lease
agreements generally contain renewal options or provisions for automatic renewal
absent prior notice of termination  by either party.  Lease renewals are for one
to five year periods.  In exchange for the right to operate a Department  within
the host store,  Finlay pays each host store group a lease fee,  calculated as a
percentage  of sales  (subject  to a minimum  annual fee in a limited  number of
cases).

     Finlay's  lease  agreements  generally  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 Finlay  approximately  three weeks after the
end of such month.  During the months of November and  December,  however,  most
host store groups remit to Finlay 75% of the estimated months' sales prior to or
shortly  following the end of that month.  Each host store group  withholds from
the  remittance of sales  proceeds a lease fee and other  expenditures,  such as
advertising  costs,  which the host store  group may have  incurred  on Finlay's
behalf.

     Finlay is usually  responsible  for providing and  maintaining any fixtures
and other equipment  necessary to operate its 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.  Finlay's  lease  agreements
typically  provide  that Finlay is  responsible  for the hiring  (subject to the
suitability  of such employees to the host store) and discharge of its sales and
Department supervisory personnel, and substantially all lease agreements require
Finlay to provide its employees with salaries and certain benefits comparable to
those received by the host store's employees.  Many of Finlay's lease agreements
provide that Finlay may operate the  Departments in any new stores opened by the
host store group. In certain instances,  Finlay is operating Departments without
written agreements, although the arrangements in respect of such Departments are
generally in accordance with the terms described herein.

     In many cases,  Finlay is subject to limitations under its lease agreements
which prohibit Finlay 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 Finlay from further  expansion within areas
where  it  currently  operates  Departments,  including  expansion  by  possible
acquisitions.  Certain domestic lease agreements, however, make an exception for
adding  Departments  in stores  established  by groups  with which  Finlay has a
preexisting  lease  arrangement.  In  addition,  Finlay  has  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 Finlay with respect to one  another's  stores.
Further,  Finlay sought and received the consent of certain of its existing host
store groups in connection with the Diamond Park Acquisition.  In certain cases,
Finlay  has  found  that,   notwithstanding  the  absence  of  any  geographical
limitation in a lease  agreement,  it may be limited as a practical  matter from
opening  Departments  for competing host store groups in close proximity to each
other because of the adverse effect such openings might have on its overall host
store group relationships.

     Credit.  Substantially  all consumer credit risk is borne by the host store
rather than by Finlay.  Purchasers of Finlay's  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 Finlay by the host store,  provided that the proper
credit  approvals have been obtained in accordance with the host store's policy.
Accordingly, payment to Finlay in respect of its sales proceeds is generally not
dependent on when, or if, payment is received by the host store.


                                       9
<PAGE>

     Departments  Opened/Closed.  During  1999,  Department  openings  offset by
closings, on a domestic basis, resulted in a net increase of 28 Departments. All
61  openings  were within  existing  store  groups,  with the  exception  of six
Departments in  Herberger's.  The closings  included 14 Departments in Crowley's
and Steinbach due to the  bankruptcy of the host store,  one of Finlay's  outlet
stores and 18 Departments closed within existing store groups. See "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations--1999
Compared with 1998".

     The  following  table  sets  forth data  regarding  the number of  domestic
Departments and stand-alone  stores which Finlay has operated from the beginning
of 1995:
<TABLE>
<CAPTION>

                                                                             Fiscal Year Ended
                                                        ------------------------------------------------------------
                                                        Feb. 3,     Feb. 1,     Jan. 31,      Jan. 30.     Jan. 29,
                                                         1996        1997         1998          1999        2000
                                                       --------    --------    ---------     --------     ---------
   Departments/Stores:
<S>                                                        <C>         <C>          <C>           <C>          <C>
   Open at beginning of period....................         799         834          797           959          959
   Opened during period...........................          66          47          172            68           61
   Closed during period...........................         (31)        (84)         (10)          (68)         (33)
                                                        --------    --------    ---------     --------     ---------
   Open at end of period..........................         834         797          959           959          987
                                                        --------    --------    ---------     --------     ---------
   Net increase (decrease)........................          35         (37)         162          -              28
                                                        ========    ========    =========     ========     =========
</TABLE>

     For the periods presented in the table above,  domestic Department closings
were primarily  attributable  to:  ownership  changes in host store groups;  the
bankruptcy of certain host store groups;  internal consolidation within May; the
closing  or sale by host  store  groups of  individual  stores;  the  closing of
Departments  in a host store group as a result of the opening of  Departments in
another host store group that competes in the same geographic market; host store
group decisions to consolidate with one lessee;  and Finlay's  decision to close
unprofitable  Departments.  To  management's  knowledge,  none  of the  domestic
Department  closings  during the periods  presented in the table above  resulted
from dissatisfaction of a host store group with Finlay's performance.

Products and Pricing

     Each of  Finlay's  Departments  offers  a  broad  selection  of  necklaces,
earrings, bracelets, rings and watches. Other than watches, substantially all of
the fine  jewelry  items sold by Finlay are made from  precious  metals and many
also contain  diamonds or colored  gemstones.  Finlay also provides  jewelry and
watch repair  services.  Finlay does 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,
Finlay  emphasizes  brand name vendors,  including  Seiko,  Citizen,  Movado and
Bulova. Many of Finlay's lease agreements with host store groups restrict Finlay
from selling certain types of merchandise or, in some cases,  selling particular
merchandise below certain price points.









                                       10

<PAGE>

     The following  table sets forth the domestic  sales and percentage of sales
by category of merchandise for 1997, 1998 and 1999:
<TABLE>
<CAPTION>

                                                                  Fiscal Year Ended
                                --------------------------------------------------------------------------------------
                                      Jan. 31, 1998                 Jan. 30, 1999                Jan. 29, 2000
                                ---------------------------    ------------------------    ---------------------------
                                                   % of                        % of                         % of
                                  Sales            Sales         Sales         Sales         Sales           Sales
                                -----------      ----------    ----------    ----------    ----------     ------------
                                                                (Dollars in millions)
<S>                             <C>                 <C>        <C>              <C>        <C>                <C>
   Diamonds..................   $   147.7           20.5%      $   192.0        23.4%      $   219.1          24.7%
   Gemstones.................       169.0           23.4           184.4        22.4           194.5          22.0
   Gold......................       155.1           21.6           182.0        22.1           193.1          21.8
   Watches...................       126.3           17.6           147.0        17.9           151.7          17.1
   Other (1).................       121.5           16.9           116.6        14.2           127.8          14.4
                                -----------      ----------    ----------    ----------    ----------     ------------
   Total Sales...............   $   719.6          100.0%      $   822.0       100.0%      $   886.2         100.0%
                                ===========      ==========    ==========    ==========    ==========     ============
</TABLE>

-------------------------
(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 Finlay employees.

     See  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations".

     Finlay  sells its  merchandise  at  prices  generally  ranging  from $50 to
$1,000.  In 1999, the average price of items sold in the United States by Finlay
was approximately  $170 per item. An average  Department has over 4,000 items in
stock.  Consistent with fine jewelry retailing in general, a substantial portion
of  Finlay's  sales are made at prices  discounted  from listed  retail  prices.
Finlay's  advertising and promotional  planning are closely coordinated with its
pricing  strategy.  Publicized  sales events are an  important  part of Finlay's
marketing  efforts.  A substantial  portion of Finlay's  sales occur during such
promotional  events.  The amount of time during which 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 Finlay's  strategy has been to lower the working
capital investment  required for operating its existing  Departments and opening
new Departments. At any one time, Finlay typically is required to pay in advance
of sale for less than half of its inventory because in recent years, on average,
approximately  50%  of  Finlay's  domestic  merchandise  has  been  obtained  on
consignment  and certain  additional  inventory has been purchased with extended
payment terms. In 1999,  Finlay's net monthly investment in inventory (i.e., the
total cost of  inventory  owned and paid for)  averaged 34% of the total cost of
its on-hand  merchandise.  Finlay is generally granted exchange privileges which
permit Finlay to return or exchange  unsold  merchandise for new products at any
time. In addition, Finlay structures its relationships with vendors to encourage
their participation in and responsibility for merchandise management.  By making
the vendor a participant in Finlay's merchandising strategy,  Finlay has created
opportunities  for the vendor to assist in identifying  fashion trends,  thereby
improving  inventory  turnover and profitability.  As a result,  Finlay's direct
capital investment in inventory has been reduced to levels which it believes are
low for the retail jewelry industry. In addition, Finlay's inventory exposure to
changing  fashion  trends is reduced  because,  in general,  unsold  consignment
merchandise can be returned to the vendor.

     Management  believes  the  willingness  of  vendors to  participate  in the
inventory management process is due, in part, to the large volume of merchandise
which  Finlay  sells  in its  Departments  and the  desire  of  vendors  to take
advantage  of  Finlay's  nationwide  distribution  network.  By  offering  their
merchandise  through  Finlay's  Departments,  vendors  are able to reach a broad
spectrum  of  the  marketplace  in


                                       11
<PAGE>

coordination with national or regional  advertising  campaigns  conducted by the
vendors or their service organizations.

     In 1999, merchandise obtained by Finlay from its 40 largest vendors (out of
a total of approximately  325 vendors)  generated  approximately 76% of domestic
sales,   and  merchandise   obtained  from  Finlay's  largest  vendor  generated
approximately 11% of domestic sales. Finlay does not believe the loss of any one
of its vendors would have a material adverse effect on its business.

     Gold Consignment  Agreement.  Finlay Jewelry is party to a gold consignment
agreement  (the "Gold  Consignment  Agreement"),  which  expires on December 31,
2001. The Gold Consignment  Agreement  enables Finlay to receive  merchandise by
providing gold, or otherwise  making  payment,  to certain vendors who currently
supply Finlay with  merchandise on consignment.  While the merchandise  involved
remains consigned,  title to the gold content of the merchandise  transfers from
the  vendors to the gold  consignor.  Finlay can  obtain,  pursuant  to the Gold
Consignment Agreement,  up to the lesser of (i) 100,000 fine troy ounces or (ii)
$32.0  million  worth of gold,  subject to a formula as  prescribed  by the Gold
Consignment  Agreement.  At January 29, 2000, amounts outstanding under the Gold
Consignment  Agreement totaled 77,538 fine troy ounces,  valued at approximately
$22.2  million.  The  average  amount  outstanding  under  the Gold  Consignment
Agreement was $23.5 million in 1999.

     Under the Gold  Consignment  Agreement,  Finlay is  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,  2000,  was 3.75% per annum.  In  addition,  Finlay is
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.  In  conjunction  with  the  Gold  Consignment
Agreement,  Finlay 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 Finlay's  Departments have between 50 and 150 linear feet
of display  cases (with an average of  approximately  70 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. Most of the Departments utilize up to 260
staff hours per week on a permanent basis,  depending on the Department's  sales
volume,  and employ  additional  sales staff  during the peak  year-end  holiday
season.  Each  Department is open for business during the same hours as its host
store.  Subject to the terms of the applicable host store group lease agreement,
Finlay is generally  responsible for its own operating  decisions within each of
its Department operations, including the hiring and compensation of sales staff.
See "--Store Relationships--Terms of Lease Agreements".

     To  parallel  host store  operations,  Finlay  establishes  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, Finlay services each host store group with
a group manager,  an assistant group manager,  one or more group buyers,  one 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 supervision of up to eight host store groups.
In its continued efforts to improve comparable Department sales through improved
operating efficiency, Finlay has taken steps to minimize administrative tasks at
the  Department  level,  thereby  improving


                                       12
<PAGE>

customer  service and, as a result,  sales. For example,  Finlay  implemented an
interface  between store cash registers and Finlay's  central office,  which has
reduced administrative time.

     Finlay had average domestic sales per linear foot of approximately  $12,100
in 1997,  $12,200 in 1998 and $12,700 in 1999. Finlay  determines  average sales
per linear foot by dividing its sales by the aggregate estimated measurements of
the outer  perimeters of the display cases of Finlay's  Departments.  Finlay had
average  domestic sales per Department of approximately  $820,000,  $857,000 and
$911,000 in 1997, 1998 and 1999, respectively.

     Management  Information  and  Inventory  Control  Systems.  Finlay  and its
vendors use Finlay's  management  information  systems to monitor  sales,  gross
margin and inventory performance by location, merchandise category, style number
and vendor. Using this information, Finlay is able to monitor merchandise trends
and  variances  in  performance  and improve  the  efficiency  of its  inventory
management.  Finlay  also  measures  the  productivity  of its  sales  force  by
maintaining  current  statistics  for  each  employee  such as sales  per  hour,
transactions per hour and transaction size.

     Personnel  and  Training.  Finlay  considers  its  employees  an  important
component of its  operations and devotes  substantial  resources to training and
improving  the  quality  of sales  and  management  personnel.  Finlay  seeks to
motivate its employees by linking a substantial percentage of their compensation
to  performance  standards.  In  most  cases,  individual  sales  personnel  are
compensated  on an hourly  basis  and paid a  commission  on  sales.  Department
managers are generally compensated on the basis of a salary plus a percentage of
their  Department's  sales.  Group  managers and regional  vice  presidents  are
eligible  to  earn  bonuses  of up to  50%  of  their  base  salaries  upon  the
achievement of specified goals.

     As of the end of 1999, Finlay employed  approximately  8,700 persons in the
United  States,  approximately  90% of whom were  regional  and local  sales and
supervisory personnel and the balance of whom were employed in administrative or
executive  capacities.  Of Finlay's 8,700  employees,  approximately  3,800 were
part-time  employees,  working  less  than 32 hours  per  week.  Finlay's  labor
requirements  fluctuate because of the seasonal nature of Finlay's business. See
"--Seasonality".  Management  believes that its relations with its employees are
good. Less than 1% of Finlay's employees are unionized.

     Advertising.  Finlay promotes its products through  four-color  direct mail
catalogs,  using targeted mailing lists,  and newspaper  advertising of the host
store groups.  Finlay maintains an in-house  advertising  staff  responsible for
preparing  a  majority  of  Finlay's  advertisements  and for  coordinating  the
finished  advertisements  with the  promotional  activities  of the host stores.
Finlay's  gross  advertising  expenditures  over the past five fiscal years have
consistently been in excess of 6% of sales, a level which is consistent with the
jewelry  industry's  reliance  on  promotional  efforts to generate  sales.  The
majority of Finlay's lease  agreements  with host store groups require Finlay to
expend certain  specified  minimum  percentages  of the respective  Department's
annual sales on advertising and promotional activities.

     Inventory  Loss  Prevention and Insurance.  Finlay  undertakes  substantial
efforts  to  safeguard  its  merchandise  from  loss  or  theft,  including  the
installation  of  safes  at each  location  and the  taking  of a daily  diamond
inventory.  During 1999,  inventory  shrinkage amounted to approximately 1.0% of
sales.  Finlay maintains  insurance  covering the risk of loss of merchandise in
transit or on Finlay's  premises  (whether owned or on  consignment)  in amounts
that  management  believes are reasonable and adequate for the types and amounts
of merchandise carried by Finlay.



                                       13
<PAGE>

     Gold Hedging. The cost to Finlay 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 Finlay is exposed to the risk of  fluctuations  in the price of gold between
the time Finlay establishes the 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.  In order to hedge  against  this  risk  and to  enable  Finlay  to
determine  the cost of such goods prior to their  sale,  Finlay may elect to fix
the price of gold prior to the sale of such merchandise.  Accordingly, Finlay at
times  enters  into  futures  contracts,  such  as  options  or  forwards  or  a
combination thereof.  The value of gold hedged under such contracts  represented
less  than 3% of  Finlay  Jewelry's  cost of  goods  sold in  1999.  Under  such
contracts, Finlay obtains the right to purchase a fixed number of 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  transactions  costs. When sales of such merchandise are reported
to the  consignment  vendors  and the cost of such  merchandise  becomes  fixed,
Finlay sells its related hedge position. At January 29, 2000, Finlay Jewelry had
two open  positions in futures  contracts,  for gold  totaling  25,000 fine troy
ounces,  valued at $7.3 million,  which expire during the first quarter of 2000.
The fair market value of such contracts was $7.4 million at January 29, 2000.

     The primary effect on liquidity from using futures  contracts is associated
with the  related  margin  requirements.  Historically,  cash  flows  related to
futures  margin  requirements  have not been material to Finlay's  total working
capital  requirements.  Finlay  manages  the  purchase of futures  contracts  by
estimating  and  monitoring  the  quantity of gold that it  anticipates  it will
require in connection with its anticipated  level of sales of the type described
above.  Finlay's  gold  hedging  transactions  are entered into by Finlay in the
ordinary course of its business. Finlay's gold hedging strategies are determined
and monitored on a regular basis by Finlay's senior  management and its Board of
Directors.

Competition

     Finlay  faces  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 the
internet. 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 Lease Agreements" with respect to certain
limitations on Finlay's ability to compete.

Seasonality

     The retail jewelry business is highly seasonal.  See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations-- Seasonality".







                                       14
<PAGE>

Item 2. Properties

     The only real estate owned by Finlay is the central distribution  facility,
totaling 106,200 square feet at 205 Edison Avenue, Orange,  Connecticut.  Finlay
leases 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 its
executive,  accounting,   advertising,  the  majority  of  its  data  processing
operations and other administrative  functions. The leases for such space expire
September 30, 2008.  Finlay leases an additional  2,140 square feet at 521 Fifth
Avenue,  New York,  New York under a lease which  expires  March 31,  2001.  For
certain  operations  at 500  Eighth  Avenue,  New  York,  New York and 500 Fifth
Avenue,  New York, New York, Finlay has leased  approximately  9,200 square feet
under a lease which expires January 31, 2001 and approximately 3,600 square feet
under a lease which  expires  July 31,  2000,  respectively.  Finlay also leases
retail  space for its New York  Jewelry  Outlet  stores.  Generally,  as part of
Finlay's lease  arrangements,  host stores provide office space to Finlay's host
store group management personnel free of charge.

Item 3. Legal Proceedings

     Finlay is involved in certain legal actions  arising in the ordinary course
of business.  Management believes none of these actions,  either individually or
in the  aggregate,  will have a material  adverse  effect on Finlay's  business,
financial position or results of operations.

     Commonly  in  the  retail  jewelry  industry,   a  substantial   amount  of
merchandise is sold at a discount to the "regular" or "original" price. Finlay's
experience  is  consistent  with this  practice.  See  "Business--  Products and
Pricing".  A number of states in which Finlay  operates 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.
Management  believes it is 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 1999.














                                       15
<PAGE>

                                     PART II

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

     Finlay  Jewelry  is a  wholly  owned  subsidiary  of the  Holding  Company.
Accordingly,  there is no established public trading market for Finlay Jewelry's
common stock.

     During 1999,  cash  dividends of $7.2  million were  distributed  by Finlay
Jewelry to the Holding Company.  The distributions are generally utilized to pay
interest on the Senior  Debentures and certain  expenses of the Holding  Company
such as legal,  accounting and directors' fees. Certain restrictive covenants in
the indenture  relating to the Senior Notes,  the Revolving Credit Agreement and
the Gold Consignment  Agreement  currently  restrict annual  distributions  from
Finlay Jewelry to the Holding Company to 0.25% of Finlay Jewelry's net sales for
the preceding fiscal year and also allow distributions to the Holding Company to
enable it to make interest payments on the Senior Debentures.

     There was one record holder of Finlay  Jewelry's  common stock at April 24,
2000.


















                                       16
<PAGE>

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.  See "Index to Consolidated  Financial  Statements".  The balance sheet
data of  Finlay  Jewelry  at  January  30,  1999 and  January  29,  2000 and the
statement  of  operations  data for each of the fiscal  years ended  January 31,
1998,  January 30, 1999 and January  29,  2000 were  derived  from  consolidated
financial  statements of Finlay Jewelry,  which  statements have been audited by
Arthur  Andersen  LLP,  independent  public  accountants,  as indicated in their
report included  elsewhere  herein.  The balance sheet data of Finlay Jewelry at
February 3, 1996,  February 1, 1997 and  January 31, 1998 and the  statement  of
operations data for the fiscal years ended February 3, 1996 and February 1, 1997
were derived from  consolidated  financial  statements of Finlay Jewelry,  which
statements  have  been  audited  by  Arthur  Andersen  LLP,  independent  public
accountants, and which are not included or incorporated herein.
<TABLE>
<CAPTION>

                                                                                  Fiscal Year Ended (1)
                                                        --------------------------------------------------------------------------
                                                          Feb. 3,         Feb. 1,      Jan. 31,      Jan. 30,         Jan. 29,
                                                           1996            1997          1998          1999             2000
                                                        ------------     ----------    ----------    ----------     --------------
                                                                                 (Dollars in thousands)
Statement of Operations Data:
<S>                                                     <C>              <C>           <C>           <C>            <C>
   Sales...........................................     $ 654,491        $ 685,274     $ 769,862     $ 863,428      $   912,978
   Cost of sales...................................       314,029          330,300       371,085       421,450          449,912
   Cost of sales - Sonab inventory write-down (2)..          -               -             -             -                7,839
                                                        ------------     ----------    ----------    ----------     --------------
   Gross margin (3)................................       340,462          354,974       398,777       441,978          455,227
   Selling, general and administrative expenses....       281,693          289,145       325,752       364,002          378,112
   Nonrecurring charges associated with the sale
     and closure of Sonab (2)......................          -               -             -             -               20,792
   Depreciation and amortization...................         9,659           10,840        12,163        15,672           16,895
                                                        ------------     ----------    ----------    ----------     --------------
   Income (loss) from operations...................        49,110           54,989        60,862        62,304           39,428
   Other nonrecurring income (4)...................        (5,000)           -             -             -                -
   Interest expense, net...........................        21,844           22,526        24,413        24,612           22,565
   Nonrecurring interest associated with
     refinancing (5)...............................          -               -             -               417            -
                                                        ------------     ----------    ----------    ----------     --------------
   Income (loss) before income taxes and
     extraordinary charges........................         32,266           32,463        36,449        37,275           16,863
   Provision (benefit) for income taxes............        12,527           14,501        15,528        15,323            7,801
                                                        ------------     ----------    ----------    ----------     --------------
   Income (loss) before extraordinary charges......        19,739           17,962        20,921        21,952            9,062
   Extraordinary charges from early extinguishment
     of debt, net (6).............................           -               -             -             4,755            -
                                                        ------------     ----------    ----------    ----------     --------------
   Net income (loss)...............................     $  19,739        $  17,962     $  20,921     $  17,197      $     9,062
                                                        ============     ==========    ==========    ==========     ==============

Operating and Financial Data:
   Number of Departments (end of period) (7):
     Consolidated...................................          941              939         1,117         1,109              987
     Domestic.......................................          834              797           959           959              987
   Percentage increase in sales.....................         18.5%             4.7%         12.3%         12.2%             5.7%
   Percentage increase in comparable Department
     sales (7)(8):
     Consolidated...................................          5.7%             5.9%          5.5%          3.9%              6.8%
     Domestic.......................................          5.5%             6.0%          5.7%          5.4%              8.1%
   Average domestic sales per Department (9)........    $     744        $     779     $     820     $     857      $        911
   EBITDA (10)......................................       58,769           65,829        73,025        77,976            56,323
   Capital expenditures.............................       14,933           17,533        19,338        14,874            14,972
</TABLE>

                                       17
<PAGE>

<TABLE>
<CAPTION>

                                                                                  Fiscal Year Ended (1)
                                                        --------------------------------------------------------------------------
                                                          Feb. 3,         Feb. 1,      Jan. 31,      Jan. 30,         Jan. 29,
                                                           1996            1997          1998          1999             2000
                                                        ------------     ----------    ----------    ----------     --------------
                                                                                 (Dollars in thousands)
Cash flows provided from (used in):
<S>                                                     <C>              <C>           <C>           <C>            <C>
   Operating activities.............................    $  (4,620)       $  14,197     $  74,314     $ (13,018)     $    46,448
   Investing activities.............................      (17,157)         (18,372)      (79,366)      (23,134)         (21,054)
   Financing activities.............................       24,553           (1,024)       (2,349)       40,067           (7,159)

Balance Sheet Data-End of Period:
   Working capital..................................    $  65,309        $  75,692     $  65,705     $ 126,723      $   132,696
   Total assets.....................................      393,057          416,808       501,454       541,403          554,994
   Short-term debt, including current portion of
     long-term debt.................................          206                2         -             -                -
   Long-term debt, excluding current portion........      135,002          135,000       135,000       150,000          150,000
   Total stockholder's equity (deficit).............       72,387           86,410       101,826       152,083          157,026
</TABLE>
---------------------------
(1)  Each of the fiscal years for which  information  is  presented  includes 52
     weeks except 1995, which includes 53 weeks.
(2)  Included  in 1999 are  nonrecurring  charges  associated  with the sale and
     closure of Sonab totaling $28.6 million.  Included in cost of sales is $7.8
     million for the  write-down of inventory  with the balance of $20.8 million
     recorded as an operating expense. Refer to Note 12 of Notes to Consolidated
     Financial Statements.
(3)  Finlay  utilizes the LIFO method of accounting for  inventories.  If Finlay
     had valued  inventories  at actual cost,  as would have  resulted  from the
     specific identification  inventory valuation method, the gross margin would
     have increased (decreased) as follows:  $0.9 million, $1.9 million,  $(2.3)
     million,  $(1.0) million and $(1.1) million for 1995,  1996, 1997, 1998 and
     1999, respectively.
(4)  Included in 1995 are proceeds of $5.0 million from a life insurance  policy
     Finlay maintained on a senior executive.
(5)  As a result of certain  call  requirements  associated  with the Old Notes,
     Finlay had  outstanding  both the new debt and the old debt for a period of
     twenty-five  days in 1998.  The net effect of the above,  offset by reduced
     interest expense on the borrowings under the Revolving Credit Agreement and
     interest income on excess cash balances, was $0.4 million.
(6)  The  extraordinary  charges of $8.0  million  include  $5.4 million for the
     redemption  premium on the Old Notes and $2.0 million to write off deferred
     financing costs  associated  with the Old Notes.  The income tax benefit on
     the extraordinary charges totaled $3.2 million.
(7)  Includes Departments and stand-alone locations.
(8)  Comparable  Department  sales are  calculated  by comparing  the sales from
     Departments open for the same months in the comparable periods.
(9)  Average  domestic sales per  Department is determined by dividing  domestic
     sales by the  average of the  number of  domestic  Departments  open at the
     beginning and at the end of each period.
(10) EBITDA   represents   income  from  operations   before   depreciation  and
     amortization  expenses.  For 1999, EBITDA includes the nonrecurring  charge
     totaling  $28.6  million  associated  with the sale and  closure  of Sonab.
     Finlay  Jewelry  believes  EBITDA  provides   additional   information  for
     determining  its 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 as  determined  in
     accordance with generally accepted  accounting  principles) for the purpose
     of analyzing  Finlay's operating  performance,  financial position and cash
     flows as EBITDA is not defined by generally accepted accounting principles.
     Finlay  has  presented  EBITDA,  however,  because it is  commonly  used by
     certain  investors  and  analysts to analyze and compare  companies  on the
     basis of  operating  performance  and to  determine a company's  ability to
     service  and/or  incur  debt.  Finlay's  computation  of EBITDA  may not be
     comparable to similar titled measures of other companies.








                                       18
<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

     The following  should be read in conjunction  with  "Selected  Consolidated
Financial  Information"  and the  Consolidated  Financial  Statements  and Notes
thereto included elsewhere in this Form 10-K.

     Certain statements under this caption "Management's Discussion and Analysis
of Financial  Condition and Results of Operations"  constitute  "forward-looking
statements" under the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities  Exchange Act of 1934, as amended (the "Exchange  Act").  See
"Special Note Regarding Forward-Looking Statements".

General

     Since 1997,  sales have  increased by $143.1 million to $913.0  million,  a
compound  annual growth rate of 8.9%,  while  comparable  Department  sales have
increased  by  5.5%,  3.9%  and  6.8% in  1997,  1998  and  1999,  respectively.
Comparable  Department sales include Departments open for the same months during
comparable periods. Domestic comparable Department sales during this same period
increased 5.7%, 5.4% and 8.1%. The increase in total sales during this period is
the result of (i) adding new  Departments,  including 139  Departments  from the
Diamond Park  Acquisition,  and (ii)  increasing  comparable  Department  sales.
Management  attributes its comparable  Department  sales  increases  during this
period to continued focus on the following initiatives: (i) emphasizing its "Key
Item"  and  "Best  Value"  merchandising  programs,  which  provide  a  targeted
assortment of items at competitive  prices; (ii) increasing focus on holiday and
event-driven  promotions  as  well  as  host  store  marketing  programs;  (iii)
positioning Finlay's  Departments as a "destination  location" for fine jewelry;
and iv) refinement of project PRISM (Promptly  Reduce  Inefficiencies  and Sales
Multiply),  a program  designed to allow Finlay's sales associates more time for
customer sales and service.

     Finlay entered the  international  fine jewelry retailing market in October
1994 by  acquiring  Sonab.  In the  second  quarter  of  1998,  Sonab  began  to
experience  lower sales trends due to the transition from a promotional  pricing
strategy to an everyday low price  strategy.  The adverse  impact of such change
continued  throughout  1999. As a result of the  foregoing,  on January 3, 2000,
Sonab sold the  majority  of its assets for $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.  Finlay
Jewelry  recorded a pre-tax charge of $28.6 million for the write-down of assets
for disposition and related closure  expenses in 1999, of which $7.8 million was
recorded  as a  component  of cost of sales as it  related  specifically  to the
write-down  of  inventory,  with the  balance of $20.8  million  recorded  as an
operating expense.

     Gross margin as a percentage of sales has  decreased  from 51.8% in 1997 to
49.9% in 1999.  This  decrease  is  principally  the result of the Sonab cost of
sales  charge of $7.8  million in 1999,  Finlay's  "Key  Item" and "Best  Value"
programs,  which produce  higher sales volume and a slightly lower gross margin,
on average,  than other merchandise,  the integration of the former Diamond Park
Departments  at a lower gross margin and the lower benefit of the LIFO method of
inventory in 1999 compared to 1997.

     Selling,  general and  administrative  expenses ("SG&A") as a percentage of
sales have decreased from 42.3% in 1997 to 41.4% in 1999.  Management attributes
this  improvement to (i) leveraging  operating  expenses through higher domestic
sales, (ii) reducing the level of certain operating expenses through the ongoing
implementation of project PRISM, (iii) reducing payroll expense, as a percentage
of sales,  which  reflects  management's  continued  initiatives  in controlling
payroll  hours and labor rates and (iv) the full year impact of the operation of
the  central  distribution  center in  consolidating  the  inventory  processing
function.  In 1999,  the  favorable  SG&A  improvement  was  offset by  expenses
associated  with  Finlay's  year 2000  remediation  project.  In  addition,  the
leveraging  of  operating  expenses was  negatively  impacted


                                       19
<PAGE>

as a result of the slowdown of sales in France in 1999.  The  components of SG&A
include  payroll  expense,  lease fees, net advertising  expenditures  and other
field and administrative expenses.

     As a result of a series of recapitalization transactions in 1993 (the "1993
Recapitalization")  and  a  1988  reorganization  transaction  involving  Finlay
Jewelry  (the  "1988  Leveraged  Recapitalization"),  Finlay  Jewelry  is highly
leveraged  and, as such,  interest  expense had a  significant  impact on Finlay
Jewelry's  results of  operations.  The  Refinancing  resulted in lower interest
rates on the Senior Notes than the interest rates on the Old Notes. As such, for
1999,  interest expense has been favorably  impacted as compared to 1997. Finlay
also  records  approximately  $3.6  million of  goodwill  amortization  annually
resulting  primarily  from the 1988 Leveraged  Recapitalization  and the Diamond
Park Acquisition.

     On October 6, 1997,  Finlay  completed the acquisition of certain assets of
Diamond  Park,  a leading  operator  of  Departments,  for  approximately  $63.0
million.  By acquiring Diamond Park, Finlay added 139 Departments and also added
new host store  relationships  with  Marshall  Field's,  Parisian and  Dillard's
(formerly the Mercantile Stores).

Results of Operations

     The following table sets forth  operating  results as a percentage of sales
for the periods indicated:
<TABLE>
<CAPTION>
                                                                                Fiscal Year Ended
                                                                 ------------------------------------------------
                                                                  Jan. 31,           Jan. 30,         Jan. 29,
                                                                    1998               1999             2000
                                                                 ------------      -------------     ------------
   Statement of Operations Data:
<S>                                                                  <C>               <C>               <C>
   Sales....................................................         100.0%            100.0%            100.0%
   Cost of sales............................................          48.2              48.8              49.3
   Cost of sales - Sonab inventory write-down (1)...........           -                 -                 0.8
                                                                 ------------      -------------     ------------
     Gross margin...........................................          51.8              51.2              49.9
   Selling, general and administrative expenses.............          42.3              42.2              41.4
   Nonrecurring charges associated with the sale
      and closure of Sonab (1)..............................           -                 -                 2.3
   Depreciation and amortization............................           1.6               1.8               1.9
                                                                 ------------      -------------     ------------
   Income (loss) from operations............................           7.9               7.2               4.3
   Interest expense, net....................................           3.2               2.8               2.5
   Nonrecurring interest associated with refinancing (2)               -                 0.1               -
                                                                 ------------      -------------     ------------
   Income (loss) before income taxes and extraordinary charges
                                                                       4.7               4.3               1.8
   Provision for income taxes...............................           2.0               1.8               0.8
                                                                 ------------      -------------     ------------
   Income (loss) before extraordinary charges...............           2.7               2.5               1.0
   Extraordinary charges from early extinquishment of debt,
      net (3)...............................................            -                0.6               -
                                                                 ------------      -------------     ------------
   Net income (loss)........................................           2.7%              1.9%              1.0%
                                                                 ============      =============     ============

   Other Supplemental Data:
   EBITDA (4)(5)............................................           9.5%              9.0%              6.2%
</TABLE>

(1)  See Note 2 to "Selected Consolidated Financial Data".
(2)  See Note 5 to "Selected Consolidated Financial Data".
(3)  See Note 6 to "Selected Consolidated Financial Data".
(4)  EBITDA   represents   income  from  operations   before   depreciation  and
     amortization   expenses.   Finlay  believes   EBITDA  provides   additional
     information  for  determining  its  ability  to meet  future  debt  service
     requirements. See Note 10 to "Selected Consolidated Financial Data".

                                         (footnotes continued on following page)

                                       20
<PAGE>

(5)  For 1999, EBITDA as a percentage of sales includes the nonrecurring charges
     associated  with the sale and closure of Sonab.  Excluding  these  charges,
     EBITDA as a percentage of sales was 9.3%.

1999 Compared with 1998

     Sales.  Sales increased  $49.6 million,  or 5.7%, in 1999 compared to 1998.
Comparable Department sales increased 6.8%. Domestic comparable Department sales
increased 8.1%.  Management  attributes  this increase in comparable  Department
sales primarily to the "Key Item" and "Best Value" merchandising programs and to
the  marketing  initiatives  discussed  above.  Total  consolidated  sales  were
negatively  impacted by $9.2 million primarily relating to Dillard's purchase of
the  Mercantile  Stores in the fall of 1998 and its  change to an  everyday  low
price strategy as well as the net effect of new store  openings  offset by store
closings.

     During 1999,  Finlay opened 61 Departments and closed 183 Departments.  The
Department openings were comprised of the following:
<TABLE>
<CAPTION>

                                            Number of
                                           Departments/
               Store Group                    Stores                                   Reason
    -----------------------------------    -------------     -----------------------------------------------------------
<S>                                               <C>
    Herberger's.....................              6          New host store.
    Other...........................             55          Department openings within existing store groups.
                                                ---
                                                 61
                                                ===
</TABLE>

      The Department closings were comprised of the following:
<TABLE>
<CAPTION>

                                            Number of
                                           Departments/
               Store Group                    Stores                                   Reason
    -----------------------------------    -------------     -----------------------------------------------------------
<S>                                             <C>          <C>
    All Sonab host stores...........            150          130 closings due to the sale and closure of Sonab's
                                                             operations.
    Crowley's/Steinbach.............             14          Bankruptcy of the host store.
    New York Jewelry Outlet.........              1          Closed upon lease expiration.
    Other...........................             18          Department closings within existing store groups.
                                                ---
                                                183
                                                ===
</TABLE>

     Gross margin.  Gross margin  increased by $13.2 million in 1999 compared to
1998,  however,  as a  percentage  of sales,  gross  margin  decreased  by 1.3%,
primarily  due to (i) a  nonrecurring  charge of $7.8  million  relating  to the
write-down  of  inventory  in  conjunction  with the sale and closure of Sonab's
operations and (ii)  management's  efforts to increase  market  penetration  and
market share  through its pricing  strategy.  Finlay  Jewelry  benefited  from a
decrease in the LIFO  provision of  approximately  $1.0 million in each 1999 and
1998.

     Selling,  general and administrative expenses. SG&A totaled $378.1 million,
an increase of $14.1 million, or 3.9%, in 1999 compared to 1998 due primarily to
payroll expense and lease fees associated with the increase in Finlay  Jewelry's
sales.  SG&A as a percentage  of sales  decreased to 41.4% in 1999 from 42.2% in
1998 as a result of  Finlay  Jewelry's  strong  domestic  comparable  Department
sales, which enabled Finlay Jewelry to leverage administrative and certain other
expenses. Also contributing to the decrease in SG&A as a percentage of sales was
the leveraging of payroll expense, reflecting management's continued initiatives
in  controlling  payroll hours and labor rates,  and the full year impact of the
operation of the central  distribution  center in  consolidating  the  inventory
processing function.  SG&A as a percentage of sales was negatively impacted as a
result of the slowdown of sales in France.


                                       21
<PAGE>

     Nonrecurring  charges  associated  with the sale and closure of Sonab. As a
result of the sale of the majority of Sonab's assets and the  disposition of the
remaining  assets,  Finlay  Jewelry  recorded  a  nonrecurring  charge  of $20.8
million.  The  components  of the charge  relate to the  realization  of foreign
exchange  losses,  payroll and severance  costs,  other close-down costs and the
write-off of undepreciated assets.

     Depreciation and amortization.  Depreciation and amortization  increased by
$1.2  million in 1999  compared  to 1998,  reflecting  $15.0  million in capital
expenditures for the most recent twelve months,  offset by the effect of certain
assets  becoming fully  depreciated.  The increase in fixed assets was primarily
due  to  the  addition  of  new  Departments  and  the  renovation  of  existing
Departments.

     Interest   expense,   net.  Interest  expense  decreased  by  $2.0  million
reflecting a lower  weighted  average  interest  rate (8.0% for 1999 compared to
8.3% for 1998)  relating  to the lower  interest  rates on the  Senior  Notes as
compared  to the Old  Notes,  which were  outstanding  for a portion of the 1998
period. In addition,  there was a decrease in average borrowings ($254.2 million
for 1999 compared to $272.6 million for 1998). The 1998 average  borrowings were
adjusted to exclude the timing impact of the call requirements on the Old Notes,
discussed below.

     Nonrecurring  interest associated with refinancing.  As a result of certain
call  requirements  associated with the Old Notes,  the debt could not be repaid
until May 26, 1998. Thus, for twenty-five  days in 1998,  Finlay was required to
maintain  as  outstanding  both the new debt issued on April 24, 1998 as well as
the old debt retired on May 26, 1998. The net effect of carrying the new and old
debt,  offset by reduced  interest expense on the borrowings under the Revolving
Credit Agreement and interest income on excess cash balances, was an increase to
interest expense of $0.4 million.

     Provision  for income  taxes.  The income tax  provision  for 1999 and 1998
reflects an effective tax rate of 40.5%.

     Extraordinary  charges from early extinguishment of debt, net of income tax
benefit.  In  conjunction  with the repayment of the Old Notes,  Finlay  Jewelry
recorded a pre-tax  extraordinary charge of $8.0 million in 1998, including $5.4
million for the  redemption  premium on the Old Notes and $2.0  million to write
off  deferred  financing  costs  associated  with the Old Notes.  The income tax
benefit on the extraordinary charges totaled $3.2 million.

     Net income.  Net income of $9.1  million for 1999  represents a decrease of
$8.1  million as compared to net income of $17.2  million in 1998 as a result of
the factors  discussed  above.  Excluding  the  nonrecurring  and  extraordinary
charges in 1999 and 1998, income before extraordinary  charges increased by $4.0
million to $26.2 million.

1998 Compared with 1997

     Sales.  Sales increased $93.6 million,  or 12.2%, in 1998 compared to 1997.
Comparable Department sales increased 3.9%. Domestic comparable Department sales
increased 5.4%.  Management  attributes  this increase in comparable  Department
sales primarily to the "Key Item" and "Best Value" merchandising programs and to
the marketing  initiatives  discussed above. Sales from the operation of net new
Departments  contributed $63.5 million,  primarily due to the acquisition of the
former Diamond Park  Departments.  This increase was offset by the net effect of
new  store  openings  and  closings  as well as the  timing  of such  Department
openings and closings.



                                       22
<PAGE>

     During 1998,  Finlay opened 78 Departments and closed 86  Departments.  The
Department openings were comprised of the following:
<TABLE>
<CAPTION>

                                            Number of
                                           Departments/
               Store Group                    Stores                                   Reason
    -----------------------------------    -------------     ------------------------------------------------------------
<S>                                              <C>
    Proffitt's/Parisian/Younkers....             12          Proffitt's/Parisian/Younkers' purchase from Dillard's.
    Famous Barr/L.S. Ayres..........              8          Famous Barr /L.S. Ayres' purchase from Dillard's.
    Belk............................              7          Belk's purchase from Dillard's.
    Foley's.........................              1          Foley's purchase from Dillard's.
    Dillard's.......................              3          Dillard's purchase from Belk.
    Monoprix/Allders/Beatties.......              9          Sonab Department openings.
    Other...........................             38          Department openings within existing store groups.
                                                ---
                                                 78
                                                ===
</TABLE>

      The Department closings were comprised of the following:
<TABLE>
<CAPTION>

                                            Number of
                                           Departments/
               Store Group                    Stores                                 Reason
    -----------------------------------    -------------     --------------------------------------------------------
<S>                                              <C>
    Mercantile Stores...............             28          Departments sold by Dillard's to existing Finlay
                                                               host store groups subsequent to Dillard's
                                                               acquisition of the Mercantile Stores.  Included in
                                                               openings above.
    Dillard's.......................              5          Previous Dillard's Departments prior to Dillard's
                                                               acquisition of the Mercantile Stores.
    Debenhams.......................              7          Mutual agreement to close.
    Monoprix........................              9          Close smaller volume Departments.
    Other...........................             37          Department closings within existing store groups.
                                                ---
                                                 86
                                                ===
</TABLE>

     Gross margin.  Gross margin  increased by $43.2 million in 1998 compared to
1997,  however,  as a  percentage  of sales,  gross  margin  decreased  by 0.6%,
primarily due to (i)  management's  efforts to increase  market  penetration and
market  share  through  its  pricing  strategy  and  (ii)  lower  gross  margins
experienced  by  the  former  Diamond  Park  Departments,  particularly  as  the
merchandise  acquired as part of the Diamond  Park  Acquisition  continued to be
sold in 1998.  During 1998, Finlay Jewelry benefited from a decrease in the LIFO
provision  of $1.0  million,  which was lower  than the  benefit in 1997 of $2.3
million.

     Selling,  general and administrative expenses. SG&A totaled $364.0 million,
an increase of $38.3 million,  or 11.7%,  in 1998 compared to 1997 due primarily
to  payroll  expense  and lease  fees  associated  with the  increase  in Finlay
Jewelry's  sales.  The  increased  sales  generated  by the former  Diamond Park
Departments  and strong  domestic  comparable  Department  sales enabled  Finlay
Jewelry to leverage  administrative and certain other expenses.  Offsetting this
were  higher than  anticipated  expenses  relating  to the central  distribution
facility during its initial start up phase and expenses associated with Finlay's
year 2000 remediation project. In addition, the leveraging of operating expenses
was negatively impacted as a result of the slowdown of sales in France. Also, in
1997,  Finlay  Jewelry  purchased  inventory  from the  Holding  Company and was
charged a service  fee of $1.9  million.  As a result of the  factors  discussed
above, SG&A as a percentage of sales decreased by 0.1% compared to 1997.


                                       23
<PAGE>

     Depreciation and amortization.  Depreciation and amortization  increased by
$3.5  million in 1998  compared  to 1997,  reflecting  $14.9  million in capital
expenditures  for the most recent twelve  months,  depreciation  on Finlay's new
central  distribution  facility  and  amortization  related to the Diamond  Park
Acquisition,  offset by the effect of certain assets becoming fully depreciated.
The  increase  in  fixed  assets  was  primarily  due  to  the  addition  of new
Departments and the renovation of existing Departments.

     Interest   expense,   net.  Interest  expense  increased  by  $0.2  million
reflecting an increase in average  borrowings  ($272.6 million for 1998 compared
to  $242.7  million  for 1997)  offset by a  decrease  in the  weighted  average
interest rate (8.3% for 1998 compared to 9.4% for 1997). The increase in average
borrowings is a result of an increase in the  outstanding  balance of the Senior
Notes as compared to the Old Notes and additional indebtedness outstanding under
the  Revolving  Credit  Agreement  (adjusted to exclude the timing impact of the
call requirements on the Old Notes, discussed below).

     Nonrecurring  interest associated with refinancing.  As a result of certain
call  requirements  associated with the Old Notes,  the debt could not be repaid
until May 26, 1998. Thus, for twenty-five  days in 1998,  Finlay was required to
maintain  as  outstanding  both the new debt issued on April 24, 1998 as well as
the old debt retired on May 26, 1998. The net effect of carrying the new and old
debt,  offset by reduced  interest expense on the borrowings under the Revolving
Credit Agreement and interest income on excess cash balances, was an increase to
interest expense of $0.4 million.

     Provision  for income  taxes.  The income tax  provision  for 1998 and 1997
reflects an effective tax rate of 40.5% and 41.5%, respectively.

     Extraordinary  charges from early extinguishment of debt, net of income tax
benefit.  In  conjunction  with the repayment of the Old Notes,  Finlay  Jewelry
recorded a pre-tax  extraordinary charge of $8.0 million in 1998, including $5.4
million for the  redemption  premium on the Old Notes and $2.0  million to write
off deferred financing costs associated the Old Notes. The income tax benefit on
the extraordinary charges totaled $3.2 million.

     Net income.  Net income of $17.2 million for 1998  represents a decrease of
$3.7  million as compared to net income of $20.9  million in 1997 as a result of
the factors discussed above.  Income before  extraordinary  charges increased by
$1.0 million to $22.0 million in 1998.

Liquidity and Capital Resources

     Finlay's  primary capital  requirements are for funding working capital for
new Departments and for working capital growth of existing Departments and, to a
lesser extent,  capital  expenditures  for opening new  Departments,  renovating
existing Departments and information technology  investments.  For 1999, capital
expenditures  totaled  $15.0 million and in 1998 totaled  $14.9  million.  Total
capital  expenditures for 2000 are estimated to be approximately  $15.0 million,
exclusive of the fixed assets acquired in the J.B. Rudolph Acquisition. Although
capital expenditures are limited by the terms of the Revolving Credit Agreement,
to date this  limitation  has not precluded  Finlay from  satisfying its capital
expenditure requirements.

     Finlay's  operations  substantially  preclude  customer  receivables and in
recent years, on average, approximately 50% of Finlay's domestic merchandise has
been carried on consignment.  Accordingly,  management  believes that relatively
modest  levels of working  capital  are  required  in  comparison  to many other
retailers.  Finlay  Jewelry's  working  capital  balance  was $132.7  million at
January 29,  2000,  an increase  of $6.0  million  from  January 30,  1999.  The
increase  resulted  primarily from the impact of 1999's net income  exclusive of
depreciation  and  amortization  partially  offset by capital  expenditures  and
additions  to  deferred  charges.  Based  on the  seasonal  nature  of  Finlay's
business,  working  capital


                                       24
<PAGE>

requirements  and therefore  borrowings under the Revolving Credit Agreement can
be expected to increase on an interim  basis during the first three  quarters of
any given fiscal year. See "--Seasonality".

     The seasonality of Finlay's business causes working capital requirements to
reach their  highest  level in the months of October,  November  and December in
anticipation of the year-end  holiday season.  Accordingly,  Finlay  experiences
seasonal cash needs as inventory  levels peak.  The Revolving  Credit  Agreement
provides Finlay with a line of credit of up to $275.0 million to finance working
capital needs.  Amounts  outstanding  under the Revolving  Credit Agreement bear
interest at a rate equal to, at Finlay's option,  (i) the Index Rate (as defined
in the Revolving  Credit  Agreement)  plus a margin ranging from zero to 1.0% or
(ii)  adjusted  LIBOR  plus a margin  ranging  from  1.0% to 2.0%,  in each case
depending on the financial performance of Finlay.

     In each year, Finlay is 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, 2000 and January 30, 1999 were
zero. The average amounts  outstanding  under the Revolving Credit Agreement for
1998 and 1999 were  $123.8  million  (adjusted  for the impact of the  temporary
paydown  of the  revolving  credit  facility  due to certain  call  requirements
associated  with the Old Notes) and $104.2  million,  respectively.  The maximum
amount outstanding for 1999 was $158.2 million.

     Finlay does not expect that significant  additional working capital will be
required  with respect to the operation of the former J.B.  Rudolph  Departments
because Finlay purchased the inventory of those J.B. Rudolph  Departments  which
it acquired.  On a going-forward  basis, Finlay expects that inventory purchases
for the  former  J.B.  Rudolph  Departments  will be  financed  in part by trade
payables combined with the utilization of consignment inventory. Finlay financed
the  J.B.  Rudolph  Acquisition  with  borrowings  under  its  Revolving  Credit
Agreement.

     On January 3, 2000, Sonab sold the majority of its assets for approximately
$9.9  million.  As of January 29, 2000,  Sonab had received  $1.2 million of the
sale proceeds.  Sonab received an additional  $6.8 million in February 2000 upon
the  completion  of the  post-closing  audit,  and the  balance of $1.9  million
remains  subject to certain  escrow  arrangements  among the parties.  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.  Finlay
Jewelry recorded a pre-tax charge in the fourth quarter of 1999 of $28.6 million
for the write-down of assets for disposition and related closure  expenses.  The
cash portion of this charge was approximately $7.8 million.

     Finlay's  long-term needs for external financing will depend on its 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 its  vendors.  As of January  29,  2000,  $329.9
million of consignment merchandise from approximately 300 vendors was on hand as
compared to $283.8 million at January 30, 1999. For 1999,  Finlay had an average
balance of  consignment  merchandise of $321.7 million as compared to an average
balance  of $268.5  million in 1998.  See  "Business--Store  Relationships"  and
"Business--Purchasing and Inventory".

     A substantial  amount of Finlay's operating cash flow has been used or will
be required to pay, directly or indirectly,  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.  As of January 29, 2000, Finlay's outstanding borrowings included a
$150.0 million balance under the Senior Notes.


                                       25
<PAGE>

     Finlay Jewelry is party to the Gold Consignment Agreement, which expires on
December 31, 2001.  The Gold  Consignment  Agreement  enables  Finlay Jewelry to
receive  merchandise by providing gold, or otherwise making payment,  to certain
vendors.  Finlay Jewelry can obtain, pursuant to the Gold Consignment Agreement,
up to the lesser of (i) 100,000 fine troy ounces or (ii) $32.0  million worth of
gold, subject to a formula as prescribed by the Gold Consignment  Agreement.  At
January 29,  2000,  amounts  outstanding  under the Gold  Consignment  Agreement
totaled 77,538 fine troy ounces,  valued at  approximately  $22.2  million.  The
average  amount  outstanding  under  the Gold  Consignment  Agreement  was $23.5
million in 1999.

     Many of Finlay's computer systems,  software products,  other systems using
embedded  chips and third party  systems,  accepted only two entries in the date
field to  distinguish  the year.  Beginning in the year 2000,  these date fields
needed to accept four digit entries,  or properly  handle two digit entries,  to
distinguish  21st century dates from 20th century dates.  As a result,  Finlay's
date critical  functions would have been adversely  affected unless the computer
systems and software  products of both Finlay and significant third parties were
year 2000 compliant.

     A  comprehensive  plan was  prepared  so that all  systems  critical to the
operation of Finlay would be year 2000  compliant.  The plan was structured into
five  primary  phases:  identification,  assessment,  remediation,  testing  and
implementation.  Finlay  completed  all phases and  implemented  all  remediated
applications  during the third  quarter  of 1999.  Finlay  continued  to conduct
general  systems  testing  as well as testing of  specific  year 2000  scenarios
through January 2000. In addition,  Finlay formally  communicated  with its host
stores,  vendors and other third parties to determine the extent to which Finlay
may have been vulnerable to the failure of their systems and to obtain year 2000
compliance  certification.  The  year  2000  issue  has  not  posed  significant
operational problems to Finlay.

     Finlay used a combination of internal and external resources to execute its
year 2000 project plan. The costs related to Finlay's year 2000 efforts  totaled
approximately  $4.0 million,  of which  approximately  $2.1 million was spent in
1999. Finlay funded the year 2000 costs through operating cash flows.

     During  1998,  Finlay began  several  information  technology  initiatives,
including  the  design and  development  of a new  merchandising  system and the
upgrade of  point-of-sale  systems  and  related  hardware  in the  majority  of
Finlay's  departments.  These  projects  will serve to support  future growth of
Finlay as well as provide improved  analysis and reporting  capabilities and are
expected to be completed by mid-2001. The cost associated with these projects is
estimated  to be $14.0  million for  software and  implementation  costs,  to be
included in Deferred charges and other assets,  and  approximately  $4.0 million
for hardware and related equipment,  included as a component of Finlay's capital
expenditures and reflected in Fixed assets.  At January 29, 2000,  approximately
$10.3 million was expended and included in Deferred charges and other assets.

     Section 382 of the Internal  Revenue Code of 1986,  as amended (the "Code")
restricts  utilization  of net  operating  loss ("NOL")  carryforwards  after an
ownership  change  exceeding  50%. As a result of the 1993  Recapitalization,  a
change in ownership of the Holding  Company  exceeding  50% occurred  within the
meaning  of  Section  382 of the  Code.  Similar  restrictions  apply  to  other
carryforwards.  Consequently, there is a material limitation on Finlay Jewelry's
annual utilization of its NOLs and other carryforwards which requires a deferral
or loss of the utilization of such NOLs or other  carryforwards.  Finlay Jewelry
had, at October 31, 1999 (Finlay Jewelry's tax year end), a NOL for tax purposes
of  approximately   $7.5  million  which  is  subject  to  an  annual  limit  of
approximately $2.0 million per year. However,  for financial reporting purposes,
no NOL exists as of January 29, 2000.


                                       26
<PAGE>

     From time to time, Finlay enters into futures contracts, such as options or
forwards,  based upon the  anticipated  sales of gold  product in order to hedge
against the risk  arising from its payment  arrangements.  Changes in the market
value of futures contracts are accounted for as an addition to or reduction from
the inventory  cost.  For the year ended  January 29, 2000,  the gain or loss on
open futures contracts was not material. At January 29, 2000, Finlay Jewelry had
two open  positions  in futures  contracts  for gold  totaling  25,000 fine troy
ounces,  valued at $7.3 million,  which expire during the first quarter of 2000.
There can be no assurance  that these hedging  techniques  will be successful or
that hedging  transactions will not adversely affect Finlay Jewelry's results of
operations or financial position.

     Finlay believes that, based upon current  operations,  anticipated  growth,
and availability under the Revolving Credit Agreement,  Finlay Jewelry will, for
the foreseeable future, be able to meet its debt service and anticipated working
capital obligations, and to make distributions to the Holding Company sufficient
to permit the Holding  Company to meet its debt service  obligations  and to pay
certain other  expenses as they come due. No assurances,  however,  can be given
that Finlay  Jewelry's  current  level of  operating  results  will  continue or
improve or that Finlay  Jewelry's  income from  operations  will  continue to be
sufficient to permit Finlay  Jewelry and the Holding  Company to meet their debt
service and other obligations.  Currently,  Finlay Jewelry's principal financing
arrangements  restrict annual  distributions  from Finlay Jewelry to the Holding
Company to 0.25% of Finlay Jewelry's net sales for the preceding fiscal year and
also allow  distributions  to the Holding  Company to enable it to make interest
payments on the Senior Debentures. The amounts required to satisfy the aggregate
of Finlay Jewelry's interest expense and required  amortization payments totaled
$24.5 million and $21.4 million for 1998 and 1999, respectively.

SEASONALITY

     Finlay's  business is highly  seasonal,  with a significant  portion of its
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 43% of Finlay's  domestic sales and 81% of its domestic income
from  operations for 1997, 1998 and 1999.  Finlay has typically  experienced net
losses in the first three  quarters of its 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 10 of Notes to  Consolidated  Financial
Statements of Finlay Jewelry.

     Finlay  Jewelry's  Sales and Income (loss) from operations for each quarter
of 1997, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>

                                                                            Fiscal Quarter
                                                    ---------------------------------------------------------------
                                                        First            Second           Third          Fourth
                                                    --------------     ------------    ------------    ------------
                                                                        (dollars in thousands)
  1997:
<S>                                                 <C>              <C>              <C>             <C>
    Sales.......................................    $   134,592      $   148,060      $   148,770     $   338,440
    Income (loss) from operations...............          1,187            6,838            2,518          50,319
  1998:
    Sales.......................................        160,992          177,366          165,894         359,176
    Income (loss) from operations...............          2,169            6,335            2,061          51,739
  1999:
    Sales.......................................        168,379          183,367          175,280         385,952
    Income (loss) from operations (1)...........          2,577            7,097            3,004          26,750
</TABLE>

----------------------
(1)  The fourth  quarter of 1999 includes  $28.6  million  (pre-tax) of expenses
     associated with the sale and closure of Sonab.

                                       27
<PAGE>

Inflation

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

Special Note Regarding Forward-Looking Statements

     This Annual  Report on Form 10-K ("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 to differ
materially from those reflected in the forward-looking statements.  Factors that
might cause such a difference  include,  but are not limited to, those discussed
under  "Management's  Discussion and Analysis of Financial Condition and Results
of  Operations",  as well as trends in the general economy in the United States,
competition  in the  retail  jewelry  business,  the  seasonality  of the retail
jewelry  business,  Finlay Jewelry's ability to increase  comparable  Department
sales and to open new Departments,  Finlay Jewelry's  dependence on certain host
store  relationships  due to the  concentration  of sales generated by such host
stores,  the availability to Finlay Jewelry of alternate  sources of merchandise
supply  in the  case of an  abrupt  loss  of any  significant  supplier,  Finlay
Jewelry's  ability to continue to obtain  substantial  amounts of merchandise on
consignment,  Finlay  Jewelry's  ability to estimate  the costs  relating to the
closure of Sonab, Finlay Jewelry's dependence on key officers,  Finlay Jewelry's
ability to integrate  future  acquisitions  into its existing  business,  Finlay
Jewelry's  high degree of leverage  and the  availability  to Finlay  Jewelry of
financing and credit on favorable  terms and changes in regulatory  requirements
which are applicable to Finlay Jewelry's business.

     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.  Finlay  Jewelry  undertakes no  obligation to publicly  revise
these  forward-looking  statements to reflect events or circumstances that arise
after the date hereof. In addition to the disclosure  contained herein,  readers
should carefully review any disclosure of risks and  uncertainties  contained in
other  documents  Finlay  Jewelry  files or has filed from time to time with the
Securities and Exchange  Commission (the "Commission")  pursuant to the Exchange
Act.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

     Finlay  Jewelry is exposed to market risk through the interest  rate on its
borrowings under the Revolving Credit  Agreement,  which has a variable interest
rate. In seeking to minimize the risks from interest rate  fluctuations,  Finlay
Jewelry  manages   exposures   through  its  regular   operating  and  financing
activities.  In addition,  the majority of Finlay Jewelry's borrowings are under
fixed  rate  arrangements,  as  described  in Note 4 of  Notes  to  Consolidated
Financial  Statements.  In  addition,  Finlay  Jewelry is exposed to market risk
related to changes in the price of gold, and selectively uses forward  contracts
to manage this risk.  Finlay  Jewelry  enters  into  forward  contracts  for the
purchase of gold to hedge the risk of gold price  fluctuations  for future sales
of gold  consignment  merchandise.  Finlay  Jewelry  does not enter into forward
contracts or other financial  instruments  for speculation or trading  purposes.
The aggregate amount of forward  contracts was $7.3 million at January 29, 2000,
which expire during the first quarter of 2000.




                                       28
<PAGE>

Item 8.  Financial Statements and Supplementary Data

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                            Page
                                                                            ----
Finlay Fine Jewelry Corporation

Report of Independent Public Accountants.....................................F-2

Consolidated Statements of Operations for the years ended January 31, 1998,
 January 30, 1999 and January 29, 2000.......................................F-3

Consolidated Balance Sheets as of January 30, 1999 and January 29, 2000......F-4

Consolidated Statements of Changes in Stockholder's Equity for the years
 ended January 31, 1998, January 30, 1999 and January 29, 2000...............F-5

Consolidated Statements of Cash Flows for the years ended January 31, 1998,
 January 30, 1999 and January 29, 2000.......................................F-6

Notes to Consolidated Financial Statements...................................F-7


Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

     There  have been no  changes  in or  disagreements  with  Finlay  Jewelry's
accountants on matters of accounting or financial disclosure.













                                       29
<PAGE>

                                    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.........   59     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.........   49     Executive Vice President and Chief Operating
                                    Officer of the Holding Company and President
                                    and Chief  Operating  Officer of Finlay
                                    Jewelry
Leslie A. Philip.........   53     Executive Vice President and Chief
                                    Merchandising  Officer of the Holding
                                    Company and Finlay Jewelry
Edward Stein.............   55     Senior  Vice  President and Director of
                                    Stores of Finlay Jewelry
Bruce E. Zurlnick........   48     Senior  Vice   President,   Treasurer  and
                                    Chief  Financial Officer of the Holding
                                    Company and Finlay Jewelry
David B. Cornstein.......   61     Director
Rohit M. Desai...........   61     Director
Michael Goldstein........   58     Director
James Martin Kaplan......   55     Director
John D. Kerin............   61     Director
Thomas H. Lee............   56     Director
Norman S. Matthews.......   67     Director
Hanne M. Merriman........   58     Director
Warren C. Smith, Jr......   43     Director


     The Holding Company,  an affiliate of Thomas H. Lee Company  (together with
its affiliate transferees,  the "Lee Investors"),  partnerships managed by Desai
Capital  Management  Incorporated  (collectively,  the "Desai  Investors"),  Mr.
Cornstein,  Mr.  Reiner  and  certain  others  are  parties  to a  Stockholders'
Agreement (the  "Stockholders'  Agreement") which provides,  among other things,
the parties thereto must vote their shares in favor of certain directors who are
nominated by the Lee  Investors,  the Desai  Investors,  Mr.  Cornstein  and Mr.
Reiner. Notwithstanding the foregoing, the right of various persons to designate
directors  will be  reduced  or  eliminated  at such  time as they own less than
certain specified  percentages of the shares of Common Stock then outstanding or
in certain cases are no longer an employee of the Holding  Company.  The various
designees  currently  serving on the Board of Directors are Messrs.  Lee, Smith,
Desai,  Cornstein,  Kaplan and Reiner. The Stockholders' Agreement also provides
for an  Executive  Committee to consist of at least five  directors,  including,
under  certain  conditions,  designees of Mr. Lee, the Desai  Investors  and Mr.
Cornstein.  The Executive  Committee of the Holding  Company's Board consists at
present of Messrs.  Lee,  Desai,  Matthews,  Cornstein,  Kaplan and Reiner.  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. In December 1999,
the Board of Directors  increased the size of the Board from nine to ten members
and elected Mr.  Kerin to serve as a director  of the Holding  Company.  Messrs.
Desai, Goldstein and Lee are Class I directors; Messrs. Cornstein, Kaplan, Kerin
and  Reiner  are Class II  directors;  and

                                       30
<PAGE>

Messrs.  Matthews and Smith and Ms. Merriman are Class III directors.  The terms
of the Class II, Class III and Class I directors expire at the annual meeting of
stockholders to be held in 2000, 2001 and 2002, 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.

     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 Loehmann's, 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 of the Board 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  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,  which has served as a  consultant  to Finlay since
February 1999.  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. Mr. Cornstein is a director of
TeleHubLink Corporation.


                                       31
<PAGE>

     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,  including  Equity-Linked  Investors,
L.P., 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  partners of each of  Equity-Linked  Investors,  L.P. and  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  The  Rouse  Company,  Sunglass  Hut  International,  Incorporated,
TeleCorp PCS, SITEL Corporation 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 the Chairman of the Board of Toys
"R" Us, Inc.  since  February  1998.  From February 1994 to February  1998,  Mr.
Goldstein was Vice Chairman of the Board and Chief Executive 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 Houghton  Mifflin Company
and United Retail Group Inc.

     James  Martin  Kaplan has been a director  of the Holding  Company,  Finlay
Jewelry and their  predecessors  since 1985.  Mr. Kaplan is a partner of the law
firm of Blank Rome Tenzer  Greenblatt LLP,  counsel to Finlay,  the successor to
Tenzer  Greenblatt  LLP, which he joined in 1998.  From 1977 to 1998, Mr. Kaplan
was a partner  with the law firm of Zimet,  Haines,  Friedman  & Kaplan,  former
counsel to Finlay.

     John D. Kerin has been a director 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.

     Thomas H. Lee has been a director of the Holding Company and Finlay Jewelry
since May 1993. Since 1974, Mr. Lee has been President of Thomas H. Lee Company.
He is a director of Metris Companies,  Inc.,  Safelite Glass  Corporation,  Vail
Resorts, Inc. and Wyndham International, Inc.

     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  President  of
Federated  in  1987-1988.  He is also a  director  of Toys  "R"  Us,  Inc.,  The
Progressive  Corporation,  Lechters, Inc., Eye Care Centers of America, Inc. and
Sunoco, Inc.

     Hanne M. Merriman was elected a director of the Holding  Company and Finlay
Jewelry in December  1997.  Ms.  Merriman  is the  Principal  in Hanne  Merriman
Associates,  a retail  business  consulting  firm.  She is also a director of US
Airways  Group,  Inc.,  Ameren  Corp.,  State Farm Mutual  Automobile  Insurance
Company,  The Rouse  Company,  Ann Taylor Stores  Corporation  and T. Rowe Price
Mutual  Funds.  She is a member of the National  Women's Forum and a director of
the Children's  Hospital  Foundation  (part of the Children's  National  Medical
Center).

     Warren C. Smith,  Jr. has served as a director  of the Holding  Company and
Finlay Jewelry since May 1993. Mr. Smith is a Managing Director of TH Lee Putnam
Internet  Partners,  L.P and has been  employed  by Thomas H. Lee Company or its
affiliates since 1990. He is also a director of Rayovac Corporation and Eye Care
Centers of America, Inc.


                                       32
<PAGE>

Item 11. Executive Compensation

                                            Summary Compensation Table

     The following table sets forth information with respect to the compensation
in 1999, 1998 and 1997 of Finlay's Chief Executive  Officer and each of the four
other mostly highly  compensated  executive  officers of the Holding  Company or
Finlay Jewelry (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>


                                                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(2)  Compensation (3)
------------------------------  -------  -----------  ----------  ----------------  -----------  -------------   ----------------
<S>                               <C>    <C>          <C>         <C>                                            <C>
Arthur E. Reiner                  1999   $   750,000  $  447,825  $      19,292         -              -         $     28,064
  Chairman, President             1998       750,000      -              17,642         -              -              428,016  (4)
  And Chief Executive             1997       750,000     271,425         17,706         -             300,000          28,481
  Officer of the Holding
  Company and Chairman
  And Chief Executive
  Officer of Finlay Jewelry
Joseph M. Melvin (5)              1999   $   372,887  $  183,528         -              -              -         $      8,705
  Executive Vice President        1998       367,100      85,000         -              -              30,000         387,241  (6)
  And Chief Operating             1997       263,200     120,000         -              -              50,000         154,314  (6)
  Officer of the Holding
  Company and President
  And Chief Operating
  Officer of Finlay Jewelry
Leslie A. Philip                  1999   $   383,356  $  193,345         -              -              -         $      9,209
  Executive Vice President        1998       376,700     110,000         -              -              30,000           9,626
  And Chief Merchandising         1997       350,500     127,000         -              -              46,667          10,091
  Officer of the Holding
  Company and
  Finlay Jewelry
Edward Stein                      1999   $   328,720  $  166,028         -              -              20,000    $     10,083
  Senior Vice President and       1998       307,056      70,000         -              -              10,000           9,626
  Director of Stores              1997       292,056     106,000         -              -              12,667          10,091
   Of Finlay Jewelry
Bruce E. Zurlnick                 1999   $   213,333  $  105,000         -              -              10,000    $      8,569
  Senior Vice President,          1998       205,000      25,000         -              -               5,000           8,659
  Treasurer and Chief             1997       195,000      50,000         -              -               3,000           9,098
  Financial Officer of the
  Holding Company and
  Finlay Jewelry
</TABLE>

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

(2)  See "--Option/SAR Grants in 1999".






                                         (Footnotes continued on following page)

                                       33
<PAGE>


(3)  Includes for each Named Executive  Officer the sum of the following amounts
     earned in 1999, 1998 and 1997 for such Named Executive Officer:
<TABLE>
<CAPTION>

                                                                       Life           Retirement         Medical
                                                                  Insurance (a)      Benefits (b)     Benefits (c)
                                                                  ---------------    -------------    --------------
<S>                                                       <C>     <C>                <C>              <C>
    Arthur E. Reiner.................................     1999    $     20,176       $     5,200      $     2,688
                                                          1998          20,176             5,200            2,640
                                                          1997          20,176             5,575            2,730

    Joseph M. Melvin.................................     1999    $        817       $     5,200      $     2,688
                                                          1998           1,079             5,035            2,640
                                                          1997             540            -                 2,048

    Leslie A. Philip.................................     1999    $      1,321       $     5,200      $     2,688
                                                          1998           1,786             5,200            2,640
                                                          1997           1,786             5,575            2,730

    Edward Stein.....................................     1999    $      2,195       $     5,200      $     2,688
                                                          1998           1,786             5,200            2,640
                                                          1997           1,786             5,575            2,730

    Bruce E. Zurlnick................................     1999    $        681       $     5,200      $     2,688
                                                          1998             856             5,200            2,640
                                                          1997             793             5,575            2,730
</TABLE>

     (a)  Insurance  premiums paid by Finlay 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 Finlay's  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 Finlay's Executive Medical Benefits Plan.

(4)  In addition  to the other  compensation  set forth in Note 3 above,  Finlay
     made a payment to Mr. Reiner in an aggregate amount of $400,000, consisting
     of (i) the  reimbursement of Mr. Reiner for the interest paid in respect of
     the loan made by the Holding  Company to him in 1995 for the purpose of his
     purchase  of  shares  of  Common  Stock  of the  Holding  Company  upon the
     commencement  of his  employment  with  Finlay and (ii) a special  bonus of
     $125,000 in connection  with the Holding  Company's 1998 public offering of
     Common Stock and certain related transactions.

(5)  Mr. Melvin  commenced  employment with Finlay on May 1, 1997 and the salary
     above for 1997 reflects only  compensation  for the period from May 1, 1997
     through  January 31, 1998. Mr.  Melvin's  annual salary for 1997 was at the
     rate of $350,000.

(6)  In addition to the other compensation set forth in Note 3 above, Mr. Melvin
     received  $378,487  and  $151,726  in  1998  and  1997,  respectively,  for
     reimbursement of relocation expenses.

     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".




                                       34
<PAGE>

Long-Term Incentive Plans

     The Holding Company currently has two long-term  incentive plans, for which
it has  reserved a total of  1,582,596  shares of Common  Stock for  issuance in
connection with awards. 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  157,744  shares have been issued to date in connection
with  exercises of options  granted  under the 1993 Plan and 538,887  shares are
reserved  for  issuance  upon  exercise of currently  outstanding  options.  The
remaining  35,965  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 (the
"1997 Plan" and, together with the 1993 Plan, the "Incentive  Plans"),  which is
intended as a successor  to 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  currently
available  under the 1993 Plan.  The  maximum  number of shares of Common  Stock
available  for  issuance  under the 1997 Plan is 850,000.  Of this total,  7,600
shares have been issued to date in connection  with exercises of options granted
under the 1997 Plan and 830,982  shares are reserved for issuance  upon exercise
of currently  outstanding  options.  The remaining 11,418 shares of Common Stock
include 2,000  restricted  shares issued to date, an additional 8,000 restricted
shares  reserved for issuance  and 1,418  shares of Common Stock  available  for
future grants under the 1997 Plan. See "--Option/SAR Grants in 1999".


     The Incentive Plans permit 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,  in the case of 1993 Plan,
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 Common Stock in the discretion of the Holding Company's  Compensation
Committee;  or (vi) any  combination of 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 175,000 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  Code,   or   non-incentive   stock   options
("Non-incentive   Options").   Incentive  Options  are  designed  to  result  in
beneficial  tax treatment to the optionee,  but no tax deduction for the Holding
Company.  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 are administered by the  Compensation  Committee of the
Holding  Company's Board of Directors  which,  pursuant to the Incentive  Plans,
consists of at least two  directors.  Subject to the provisions of the Incentive
Plans,  the  Compensation  Committee  has  sole  discretion  (i) to  select  the
individuals to participate  in the Incentive  Plans,  (ii) to determine the form
and substance of grants made under the Incentive Plans to each participant,  and
the conditions and restrictions, if any, subject to which grants are made, (iii)
to interpret the Incentive  Plans and (iv) to adopt,  amend or rescind rules and
regulations for carrying out the Incentive Plans as it may deem appropriate.

     The Incentive  Plans provide that the per share exercise price of an option
granted under the plans shall be determined by the 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

                                       35
<PAGE>

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
nontransferable  (except by will or intestacy on the death of the  optionee) and
during a participant's lifetime are exercisable only by the participant.

     In making  grants to  employees  under the  Incentive  Plans,  the  Holding
Company has on occasion  utilized a uniform  Agreement and Certificate of Option
(the  "Option  Agreement"),  under which the  Holding  Company  grants  ten-year
options,  subject to various vesting periods of up to five years.  Other vesting
schedules  have also been  utilized  by Finlay.  The Option  Agreement  contains
transfer and certain other restrictions and provides that options not vested may
expire,  or shares acquired upon exercise of options may be repurchased at their
exercise  price,  in the  event  of  termination  of  employment  under  certain
circumstances.  In  addition,  the  Option  Agreement  provides  that  (i) if an
optionee's  employment  is  terminated  for  "Cause"  (as  defined in the Option
Agreement),  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 period of 21 days following such  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 period of 21
days following such termination.

     The Incentive  Plans may be amended or terminated by the Board 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. Under the 1993 Plan, the approval of the Holding Company's  stockholders
is  required  for any  amendment  (i) to increase  the maximum  number of shares
subject  to awards  under the 1993  Plan,  (ii) to change  the class of  persons
eligible to participate  and/or receive  incentive  stock options under the 1993
Plan, (iii) to change the requirements for serving on the Compensation Committee
or (iv) to increase  materially the benefits accruing to participants  under the
1993  Plan.  Under  the  1997  Plan,  the  approval  of  the  Holding  Company's
stockholders  is required to amend the 1997 Plan if the  Compensation  Committee
determines  that such approval would be necessary to retain the benefits of Rule
16b-3 under the Exchange Act (with  respect to  participants  who are subject to
Section  16  thereof),  Section  162(m) of the Code (with  respect  to  "covered
employees"  within the meaning of Section  162(m) of the Code) or Section 422 of
the Code (with  respect to Incentive  Options),  or if  stockholder  approval is
otherwise  required  by federal or state law or  regulation  or the rules of any
exchange or  automated  quotation  system on which the Common  Stock may then be
listed or quoted,  or if the Board of Directors  otherwise  determines to submit
the proposed amendment for stockholder approval.

     Subject to certain  limitations  set forth in the Incentive  Plans,  if the
Compensation  Committee  determines  that  any  corporate  transaction  or event
affects the shares of Common Stock (or other  securities or property  subject to
an award under the Incentive Plans) such that an adjustment is determined by the
Compensation  Committee  to be  appropriate  in order  to  prevent  dilution  or
enlargement of the benefits or potential  benefits intended to be made available
under the Incentive Plans, then the Compensation Committee shall, in such manner
as it may deem equitable, adjust any or all of (i) the number and type of shares
(or other  securities  or property)  with respect to which awards may be granted
under  the  Incentive  Plans,  (ii) the  number  and type of  shares  (or  other
securities or property) subject to outstanding  awards under the Incentive Plans
or (iii) the grant or  exercise  price  with  respect  to any  awards  under the
Incentive Plans or, if deemed appropriate,  make provision for a cash payment to
the holder of an outstanding award in consideration for the cancellation of such
award  (which,  in the  case  of an  option,  will  be  equal  to  the


                                       36
<PAGE>

positive  difference,  if any,  between  the  Market  Value (as  defined  in the
Incentive Plans) of the shares covered by such option, as determined immediately
prior to such corporate  transaction or event,  and the exercise price per share
of such option).

Option/SAR Grants in 1999

     In 1999, the Holding  Company granted options to purchase a total of 71,000
shares of Common  Stock,  of which  options to purchase an  aggregate  of 30,000
shares were granted to the Named Executive  Officers.  All of these options were
granted  under  the 1997  Plan.  All of the  options  granted  vest  and  become
exercisable in equal  installments on each of the five anniversaries of the date
of grant.

     The following table provides  information related to the options granted to
the Named  Executive  Officers  during 1999. No stock  appreciation  rights were
issued by the Holding Company in 1999.
<TABLE>
<CAPTION>

                                                        Individual Grants
                             ------------------------------------------------------------------------   Potential Realizable Value
                               Number of      % of Total                                               at Assumed Annual Rates
                              Securities     Options/SARs                                                  Of Stock Price
                              Underlying      Granted to                                                    Appreciation
                             Options/SARs    Employees in     Exercise or Base                          for Option Term ($)
                                                                                                      -------------------------
Name                          Granted (#)    Fiscal Year       Price ($/share)    Expiration Date(s)       5%          10%
---------------------------- -------------- --------------- --------------------- ------------------- ------------- -----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Arthur E. Reiner........           -              -                  -                    -                -            -
Joseph M. Melvin........           -              -                  -                    -                -            -
Leslie A. Philip........           -              -                  -                    -                -            -
Edward Stein............          20,000           28.2            13.4219              09-08-09         168,819     427,820
Bruce E. Zurlnick.......          10,000           14.1            13.5625              12-19-09          85,294     216,151
</TABLE>

Certain Information Concerning Stock Options/SARs

     The following  table sets forth certain  information  with respect to stock
options  exercised  in 1999 as well as the value of stock  options at the fiscal
year end. No stock appreciation rights were exercised during 1999.

Aggregated Option/SAR Exercises in 1999 and Fiscal Year-End Option SAR Value
<TABLE>
<CAPTION>

                                                                   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)
             -----                  -----------   ---------     ----------------   ---------------------
<S>                                                              <C>    <C>
Arthur E. Reiner................          -           -          34,632/300,000            -/-
Joseph M. Melvin................          -           -           22,000/58,000            -/$97,500
Leslie A. Philip................          -           -           45,333/64,667      $51,666/159,167
Edward Stein....................          -           -           22,733/37,267       120,004/84,176
Bruce E. Zurlnick...............          -           -            9,866/16,467        53,199/31,525
</TABLE>

-----------------------------
(1)  The values of Unexercised In-the-Money Options/SARs represent the aggregate
     amount of the excess of $13.125,  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.


                                       37
<PAGE>

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").  The
Compensation  Committee is presently  comprised of Rohit M. Desai, Thomas H. Lee
and Norman S. Matthews.  All decisions  with respect to executive  compensation,
and all benefit  plans  involving  employees,  of both the  Holding  Company and
Finlay Jewelry are currently  made by the  Compensation  Committee.  None of the
present Compensation Committee members were, at any time, an officer or employee
of the Holding Company or any of its subsidiaries.

     In connection with the 1993 Recapitalization,  the Holding Company, the Lee
Investors,  the Desai  Investors,  certain  members of management of the Holding
Company (the "Management  Stockholders") and certain other stockholders  entered
into (i) the Registration  Rights Agreement,  which grants certain  registration
rights to the Lee Investors, the Desai Investors and the Management Stockholders
and (ii) the  Stockholders'  Agreement,  which  granted  certain  rights to, and
imposed  certain  restrictions  on the rights of, the Lee  Investors,  the Desai
Investors,  the  Management  Stockholders  and certain other  stockholders.  See
"Certain Transactions".

     The  Holding  Company  and Finlay  Jewelry  have  entered  into  management
agreements with each of Thomas H. Lee Company (the "Lee  Management  Agreement")
and Desai Capital Management Incorporated (the "Desai Management Agreement" and,
together  with  the Lee  Management  Agreement,  the  "Management  Agreements"),
affiliates of Mr. Lee and Mr. Desai,  respectively.  Pursuant to the  Management
Agreements, Thomas H. Lee Capital LLC (as assignee of Thomas H. Lee Company) and
Desai Capital Management Incorporated receive $180,000 and $60,000 per year plus
expenses, respectively, for consulting and management advisory services rendered
to the Holding  Company and Finlay Jewelry.  Each of the Management  Agreements,
which terminate in May 2000, will be automatically renewable on an annual basis,
unless any party thereto  serves notice of termination at least 90 days prior to
the  renewal  date.  Each  of  the  Management  Agreements  contains  provisions
entitling the managing company to  indemnification  under certain  circumstances
for losses  incurred in the course of service to the  Holding  Company or Finlay
Jewelry.

     Mr. Matthews receives  compensation at the rate of $20,000 per year for his
services as a  director.  For a  discussion  of certain  options  granted to Mr.
Matthews, see "- Directors' Compensation."

     Any future  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.

Employment and Other Agreements and Change of Control Arrangements

     Finlay has entered into an  employment  agreement  with Arthur E. Reiner to
employ Mr.  Reiner as  President  and Chief  Executive  Officer  of the  Holding
Company for a term expiring on January 31, 2001. On February 1, 1999, Mr. Reiner
became Chairman of the Holding  Company.  Pursuant to the employment  agreement,
Mr. Reiner  receives an annual base salary of $750,000,  subject to increases at
the discretion of the Board of Directors of the Holding Company.  In addition to
his annual base salary,  Mr. Reiner is entitled to an annual bonus payment based
on a target  incentive  amount  equal to  one-half  of his base  salary  for the
applicable year (the "Incentive Amount"). The payment of the bonus in respect of
a  particular  year  will be based  on the  achievement  by  Finlay  of  certain
financial  performance  criteria based


                                       38
<PAGE>

on EBITA-FIFO (the "Target Level"),  with 20% of the Incentive Amount payable if
90% of the Target  Level is  achieved,  increasing  incrementally  on a pro rata
basis to 80% of the  Incentive  Amount  payable if 100% of the  Target  Level is
achieved,  increasing  further  incrementally on a pro rata basis to 160% of the
Incentive  Amount  payable if 140% of the Target Level is achieved,  and if over
140% of the Target Level is achieved,  the annual bonus payment shall equal 160%
of the Incentive Amount plus 1% of the Target Level.

     Incentive  Amount  for each  percentage  point by which  Finlay's  measured
performance  exceeds 140% of the Target Level.  Notwithstanding  the  foregoing,
with  respect  to  1997  and  1999,  pursuant  to the  terms  of his  employment
agreement,  Mr. Reiner received  bonuses in the amount of $271,425 and $447,825,
respectively.  No bonus was paid to Mr.  Reiner in 1998 pursuant to the terms of
his employment agreement.

     Under the agreement,  Mr. Reiner received in January 1995 options under the
1993 Plan to purchase  69,263  shares of Common  Stock at an  exercise  price of
$14.00 per share.  Of those  options,  one-half  were  time-based  and  one-half
performance-accelerated,  vesting in ten years  subject to  accelerated  vesting
upon achievement of specified  performance  goals. All of the time-based options
are vested. None of the performance-accelerated options vested.

     Upon the  commencement  of his  employment,  Mr. Reiner  purchased  138,525
shares of Common Stock (the "Purchased Shares") at a purchase price of $7.23 per
share. The aggregate purchase price of the Purchased Shares was paid in the form
of a note issued by Mr.  Reiner to the Holding  Company.  On April 24, 1998,  in
connection with the sale by Mr. Reiner of 100,000 of the Purchased  Shares,  Mr.
Reiner repaid the outstanding  balance of the note. Mr. Reiner was  subsequently
reimbursed  for the interest  paid by him in respect of such note.  In the event
Mr. Reiner's employment is terminated under certain circumstances, the remaining
Purchased  Shares  (together with vested options and shares issued upon exercise
of vested options ("Option  Shares")) are subject to certain call rights. In the
event the Holding  Company does not exercise its call rights,  the rights may be
exercised by the Lee Investors and the Desai Investors,  pro rata based on their
respective  ownership of Common Stock. The remaining Purchased Shares and Option
Shares are subject to certain  restrictions on transfer and registration  rights
set  forth  in  Mr.  Reiner's  employment  agreement  and  are  subject  to  the
Stockholders'  Agreement and the Registration  Rights Agreement,  other than the
provisions   thereof   relating  to  restrictions  on  transfer.   See  "Certain
Transactions - Stockholders' Agreement" and "Certain Transactions - Registration
Rights Agreement."

     Under Mr. Reiner's  agreement,  subject to certain  specified  limitations,
Finlay is required to maintain  life  insurance on the life of Mr. Reiner in the
amount of $5.0 million, payable to his beneficiaries,  and to provide Mr. Reiner
with catastrophic health insurance. In addition, Finlay is required to reimburse
Mr.  Reiner for any income taxes owed by him as a result of the premiums paid by
Finlay  with  respect to such life  insurance.  The  employment  agreement  also
provides for Mr.  Reiner to receive an annual  allowance  for business use of an
automobile of up to $15,000.

     Mr. Reiner's  agreement provides that if his employment is terminated prior
to a "Change of Control" 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 bonus compensation (calculated as though 110% of
the Target Level were achieved) as if such termination had not occurred.  In the
event he is  terminated  without  "Cause"  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 Code). 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 for an additional
three years or otherwise  offer Mr. Reiner a contract on terms no less favorable
than those  provided  under the existing  agreement  providing  for a term of at
least three


                                       39
<PAGE>

years,  or if he terminates his  employment  following a "Change of Control" for
"Good  Reason,"  he will be  entitled  to a  payment  equal to 299% of the "base
amount."  In the  event  that Mr.  Reiner is  terminated  for  "Cause"  or if he
voluntarily  terminates  his  employment  without  "Good  Reason"  prior  to the
occurrence  of a "Change of  Control,"  he shall be entitled to receive his base
salary  through the date of  termination  and any bonus earned with respect to a
previously  completed  fiscal year which  remains  unpaid.  Payments made to Mr.
Reiner upon termination of employment are subject to certain restrictions in the
event  that  such  payments  constitute   "parachute   payments"  under  Section
280G(b)(2) of the Code. In addition,  Mr. Reiner is required to mitigate certain
payments made to him under the agreement under certain limited circumstances.

     Under Mr.  Reiner's  agreement,  a "Change of  Control"  occurs  when (i) a
person  or  group  other  than  certain  of  the  Holding   Company's   existing
stockholders  and certain related parties becomes the beneficial owner of 50% or
more of the  aggregate  voting  power of the  Holding  Company,  (ii) during any
period of two  consecutive  calendar  years,  there are  certain  changes in the
composition of the Holding Company's Board of Directors or (iii) there is a sale
of all or substantially all of the Holding Company's assets.

     A portion of any payments  which may be made upon a "Change of Control" may
be deemed an "excess parachute payment" within the meaning of the Code, in which
event the portion  will not be a  deductible  expense for tax  purposes  for the
Holding Company.

     On February 1, 1999, Finlay and Pinnacle Advisors Limited,  a company as to
which  Mr.  Cornstein  is a  principal  ("Pinnacle"),  entered  into a two  year
consulting   agreement  pursuant  to  which  Pinnacle  was  engaged  to  provide
consulting  services and it was agreed that, if available,  Mr.  Cornstein  will
attempt to act for  Pinnacle  in the  performance  of services  thereunder.  The
consulting  agreement  provides that Pinnacle shall receive  compensation in the
amount of $225,000 per year.

     On May 1,  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. In addition, Mr.
Melvin was paid a $25,000  bonus upon his joining the  Holding  Company  and, in
July 1997, received from Finlay a $295,000  non-interest-bearing loan, which was
repaid in full on July 16, 1998. On May 1, 1997, in connection with Mr. Melvin's
agreement,  Finlay granted to Mr. Melvin options under the 1997 Plan to purchase
50,000  shares of Common Stock at an exercise  price per share equal to $14.875,
vesting in equal  installments  on each of the first five  anniversaries  of the
respective  grant dates.  Mr.  Melvin is also  eligible  for  benefits  that are
available to other  senior  executives  of Finlay,  including  reimbursement  of
moving and  relocation  expenses.  If Mr.  Melvin's  employment is terminated by
Finlay without cause (not including death or disability) 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.  On February 22, 1999, Finlay agreed with Mr. Melvin that in
the event he  continues  to be employed by Finlay or an affiliate on February 1,
2001,  Finlay shall pay to Mr.  Melvin a special  bonus of $125,000,  and in the
event he  continues  to be so employed on February 1, 2002,  Finlay shall pay to
him an additional special bonus of $75,000.

     On February 22, 1999,  Finlay agreed with Ms. Leslie Philip,  the Executive
Vice President and Chief Merchandising Officer of the Holding Company and Finlay
Jewelry,  that in the  event  she  continues  to be  employed  by  Finlay  or an
affiliate on February 1, 2001, Finlay shall pay to Ms. Philip a special bonus of
$200,000  and in the event she  continues to be so employed on February 1, 2002,
Finlay shall pay to her an additional special bonus of $150,000.


                                       40
<PAGE>

Directors' Compensation

     Directors who are employees,  or who receive fees or compensation (directly
or indirectly) other than as directors,  receive no additional  compensation for
serving as members of the Board. Messrs. Lee, Desai, Smith and Kaplan receive no
compensation for serving as directors of the Holding Company and Finlay Jewelry.
For a discussion of certain fees paid to  affiliates  of Messrs.  Lee and Desai,
see "Compensation Committee Interlocks and Insider Participation".

     For serving as a director of the Holding Company and Finlay  Jewelry,  each
independent non-employee director receives aggregate compensation at the rate of
$20,000 per year and, except for Mr. Matthews, also receives a fee of $1,000 for
each regular and special  meeting  attended and a fee of $500 for each committee
meeting attended. In addition,  Ms. Merriman receives an aggregate annual fee of
$3,000 for service as  chairperson  of the audit  committees.  Each  independent
non-employee director generally receives,  with respect to each year of service,
options to purchase 5,000 shares of Common Stock,  at an exercise price equal to
the fair market value on the date of grant.  The options  typically  vest on the
first anniversary of the date of grant, except Mr. Matthews' options are subject
to various vesting periods of up to five years.

     Mr.  Reiner has an  employment  contract  with Finlay,  and a company as to
which Mr. Cornstein is a principal receives compensation from Finlay pursuant to
a  consulting   agreement.   See  information   under  the  caption   "Executive
Compensation--Employment   and  Other   Agreements   and   Change   of   Control
Arrangements".













                                       41
<PAGE>

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The following  table sets forth  information  as to each person who, to the
knowledge of the Holding Company, as of April 24, 2000, was the beneficial owner
of more  than 5% of the  issued  and  outstanding  Common  Stock of the  Holding
Company.
<TABLE>
<CAPTION>
                                                                                  Shares of Common Stock
                                                                                  Beneficially owned (1)
                                                                            -----------------------------------
                                                                              Number of            Percentage
                                   Name                                        Shares               Of Class
    -------------------------------------------------------------------     --------------        -------------
<S>           <C>                                                              <C>                   <C>
    FMR  Corp.(2)..................................................            1,041,000             10.0%
    Mellon Financial Corporation(3)................................            1,014,959              9.7%
    Thomas H. Lee(4)...............................................              984,340              9.4%
    David B. Cornstein(5)..........................................              685,439              6.5%
    Rohit M. Desai(6)..............................................              674,412              6.5%
    Becker Capital Management, Inc.(7).............................              656,100              6.3%
    Neuberger Berman, LLC(8).......................................              529,000              5.1%
</TABLE>
--------------------------
(1)  Except as noted below, each beneficial owner has sole voting power and sole
     investment power, subject (in the case of Messrs. Lee, Desai and Cornstein)
     to the terms of the Stockholders' Agreement.

(2)  These shares represent  shares reported as beneficially  owned by FMR Corp.
     in a joint filing on Amendment No. 1 dated  February 14, 2000 to a Schedule
     13G dated February 1, 1999 filed with the  Commission by FMR Corp.,  Edward
     C.  Johnson 3d,  Abigail P. Johnson and  Fidelity  Management  and Research
     Company. 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.,  representing  approximately 49% of the voting power of
     FMR Corp. Mr.  Johnson 3d owns 12.0% and Abigail  Johnson owns 24.5% of the
     aggregate  outstanding voting stock of FMR Corp. Mr. Johnson 3d is Chairman
     of FMR Corp.  and Abigail P. 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  Management & Research Company  ("Fidelity"),  a wholly-owned
     subsidiary  of  FMR  Corp.  and a  registered  investment  adviser,  is the
     beneficial  owner of the  1,041,000  shares  which are the  subject  of the
     Schedule 13G Amendment as a result of its acting as  investment  adviser to
     Fidelity  Low-Priced  Stock  Fund (the  "Fund"),  a  registered  investment
     company which owns all of such 1,041,000 shares.  Edward C. Johnson 3d, FMR
     Corp., through its control of Fidelity, and the Fund each has sole power to
     dispose of the 1,041,000  shares owned by the Fund.  Neither FMR Corp.  nor
     Edward C. Johnson 3d, Chairman of FMR Corp.,  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. According to the Schedule 13G Amendment, Strategic Advisers, Inc.
     a wholly-owned  subsidiary of FMR Corp. and a registered investment adviser
     ("Strategic   Advisers"),   provides   investment   advisory   services  to
     individuals.  It does not have sole  power to vote or direct  the voting of
     shares of certain  securities  held for  clients  and has sole  dispositive
     power over such securities.  As such, FMR Corp.'s beneficial  ownership may
     include shares  beneficially  owned through  Strategic  Advisers,  Inc. The
     address  for FMR Corp.,  Fidelity,  the Fund and  Strategic  Advisers is 82
     Devonshire Street, Boston, Massachusetts 02109.

(3)  According to Amendment No. 2 dated January 20, 2000 to a Schedule 13G dated
     February 4, 1999 filed with the Commission by Mellon Financial  Corporation
     ("Mellon  Financial"),  (i) Mellon Financial has sole power to vote 828,459
     shares and sole power to dispose  of 900,859  shares,  and shares  power to
     vote 63,100 shares and shares power to dispose of 114,100 shares, (ii) each
     of Boston Group Holdings,  Inc. and The Boston Company, Inc. has sole power
     to vote  646,159  shares and sole  power to  dispose of 718,559  shares and
     shares  power to vote 63,100  shares and shares power to dispose of 114,100

                                    (Footnotes continued on following page)

                                      42
<PAGE>

     shares and (iii) The Boston Company Asset  Management,  Inc. has sole power
     to vote  486,550  shares and sole power to dispose of 558,950  shares,  and
     shares  power to vote 63,100  shares and shares power to dispose of 114,100
     shares.  According to such Schedule 13G Amendment,  Boston Group  Holdings,
     Inc. is a subsidiary  of Mellon  Financial  and is also the parent  holding
     company of The Boston Company,  Inc., and The Boston  Company,  Inc. is the
     parent  holding  company of The Boston  Company Asset  Management,  Inc., a
     registered  investment  advisor All of the shares  reported in the Schedule
     13G Amendment are beneficially  owned by Mellon  Financial  Corporation and
     direct or indirect subsidiaries, including Boston Group Holdings, Inc., The
     Boston  Company,  Inc. and The Boston  Company Asset  Management,  Inc., in
     their  various  fiduciary  capacities.  The  address  for Mellon  Financial
     Corporation is One Mellon Center, Pittsburgh, Pennsylvania 15258.

(4)  Includes  884,455  shares of Common  Stock  held of record by Thomas H. Lee
     Equity Partners, L.P. ("THLEP"), the general partner of which is THL Equity
     Advisors Limited Partnership,  a Massachusetts limited partnership of which
     Mr. Lee is a general  partner,  and 99,885  shares of Common  Stock held of
     record by 1989  Thomas H. Lee  Nominee  Trust (the  "Nominee  Trust"),  979
     shares of which are subject to options granted to others. Mr. Lee's address
     is c/o Thomas H. Lee Company,  L.L.C.,  590 Madison  Avenue,  New York, New
     York 10022.

(5)  Includes  options  to  acquire  66,667  shares  of Common  Stock  having an
     exercise price of $14.00 per share. The address of Mr. Cornstein is c/o the
     Holding Company, 529 Fifth Avenue, New York, New York 10017.

(6)  Mr.  Desai is the sole  stockholder,  Chairman  of the Board of  Directors,
     President and Treasurer of Desai Capital Management  Incorporated ("DCMI").
     DCMI acts as investment adviser to Equity-Linked  Investors-II  ("ELI-II").
     Mr.  Desai is also the managing  partner of the general  partner of ELI-II.
     ELI-II  holds a total of  674,412  shares  of Common  Stock of the  Holding
     Company.  Under the investment advisory agreements between DCMI and ELI-II,
     decisions as to the voting or disposition  of these  securities may be made
     by  DCMI.  DCMI  and  Mr.  Desai  disclaim  beneficial   ownership  of  the
     securities.  The  address  of Mr.  Desai and  ELI-II  is c/o Desai  Capital
     Management Incorporated, 540 Madison Avenue, New York, New York 10022.

(7)  According  to a  Schedule  13G  dated  January  28,  2000  filed  with  the
     Commission  by Becker  Capital  Management,  Inc., a registered  investment
     advisor  ("Becker"),  the  indicated  number of shares is owned by advisory
     clients of Becker;  Becker has sole voting power with respect to 632,600 of
     the shares and sole  dispositive  power with  respect to all of the shares,
     but disclaims  beneficial ownership thereof. The address for Becker Capital
     Management,  Inc. is 1211 SW Fifth  Avenue,  Suite 2185,  Portland,  Oregon
     97204.

(8)  According to Amendment No. 1 dated January 28, 2000 to a Schedule 13G dated
     February 10, 1999 filed with the  Commission by Neuberger  Berman,  LLC and
     Neuberger  Berman,  Inc.,  (collectively,  "Neuberger  Berman"),  Neuberger
     Berman,  LLC is deemed to be a beneficial  owner of the indicated number of
     shares  since it has shared  power to make  decisions  whether to retain or
     dispose of, and in some cases the sole power to vote,  such  shares,  which
     are  held by many  unrelated  clients.  Neuberger  Berman,  LLC  does  not,
     however, have any economic interest in the securities of those clients. The
     clients are the actual owners of the  securities and have the sole right to
     receive and the power to direct the receipt of  dividends  from or proceeds
     from the sale of such  securities.  Neuberger Berman has sole power to vote
     or direct the voting of 429,000 shares,  shared power to vote or direct the
     voting of none of such  shares,  sole  power to  dispose  of or direct  the
     disposition  of none of such  shares,  and  shared  power to  dispose of or
     direct the disposition of 529,000 shares.  Employee(s) of Neuberger Berman,
     LLC and Neuberger  Berman  Management,  Inc. own 35,500 shares in their own
     personal securities  accounts.  Neuberger Berman, LLC disclaims  beneficial
     ownership  of these  shares  since these  shares were  purchased  with each
     employee(s)' personal funds and each employee has exclusive dispositive and
     voting power over the shares held in their respective  accounts.  According
     to the Schedule 13G  Amendment,  Neuberger  Berman,  Inc. owns 100% of both
     Neuberger Berman,  LLC and Neuberger Berman  Management,  Inc. and does not
     own over 1% of the  Holding  Company's  shares.  The  address of  Neuberger
     Berman,  LLC and Neuberger Berman,  Inc. is 605 Third Avenue, New York, New
     York 10158-3698.

                                       43
<PAGE>

     The  following  table  sets  forth  certain  information  with  respect  to
beneficial  ownership  of the Common  Stock as of April 24,  2000 by each of the
Holding  Company's  directors  (other than  Messrs.  Lee,  Desai and  Cornstein,
information  with  respect  to each of whom is  presented  above),  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 by
all directors and executive officers as a group. The Holding Company owns all of
the issued and outstanding capital stock of Finlay Jewelry.
<TABLE>
<CAPTION>

                                                                                  Shares of Common Stock
                                                                                  Beneficially owned (1)
                                                                            -----------------------------------
                                                                              Number of            Percentage
                                   Name                                        Shares               of Class
    -------------------------------------------------------------------     --------------        -------------

<S>                 <C>                                                           <C>
    Arthur E. Reiner(2)(3).........................................               79,279               *
    Norman S. Matthews(4)..........................................               76,000               *
    Leslie A. Philip(2)(5).........................................               57,333               *
    Joseph M. Melvin(2)(6).........................................               34,000               *
    Edward Stein(2)(7).............................................               29,933               *
    Bruce E. Zurlnick(2)(8)........................................               12,933               *
    Warren C. Smith, Jr.(9)........................................               12,590               *
    Michael Goldstein(10)..........................................               12,000               *
    Hanne M. Merriman(11)..........................................               10,000               *
    James Martin Kaplan(2).........................................                4,000               *
    John D. Kerin(2)...............................................                1,000               *
    All directors and executive officers
    as a group (13 persons)(12)....................................            2,673,259             24.9%
</TABLE>

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


(1)  Based on 10,421,353  shares issued and  outstanding  on April 24, 2000. The
     persons  named in the table  have sole  voting  and  investment  power with
     respect  to  all  shares  of  Common  Stock  subject  to the  terms  of the
     Stockholders' Agreement.

(2)  The address of Messrs.  Reiner,  Kaplan,  Kerin, Melvin, Stein and Zurlnick
     and Ms. Philip is c/o the Holding Company,  529 Fifth Avenue, New York, New
     York 10017.

(3)  Includes  options  to  acquire  34,632  shares  of Common  Stock  having an
     exercise price of $14.00 per share.

(4)  Includes  options to acquire an aggregate of 76,000  shares of Common Stock
     having  exercise  prices  ranging  from  $8.50 to  $16.50  per  share.  Mr.
     Matthews' address is 650 Madison Avenue, New York, New York 10022.

(5)  Includes  options to acquire an aggregate of 57,333  shares of Common Stock
     having exercise prices ranging from $11.1875 to $23.1875 per share.

(6)  Includes  options to acquire an aggregate of 34,000  shares of Common Stock
     having exercise prices ranging from $14.875 to $24.3125 per share.

(7)  Includes  options to acquire an aggregate of 28,933  shares of Common Stock
     having exercise prices ranging from $7.23 to $8.25 per share.

(8)  Includes  options to acquire an aggregate of 12,133  shares of Common Stock
     having exercise prices ranging from $7.23 to $8.25 per share.

(9)  Mr. Smith's address is c/o Thomas H. Lee Company, 75 State Street,  Boston,
     Massachusetts 02109.

(10) Includes  options to acquire an  aggregate  of 5,000 shares of Common Stock
     having  an  exercise  price of  $13.4375  per  share.  The  address  of Mr.
     Goldstein  is c/o Toys "R" Us,  Inc.,  461 From Road,  Paramus,  New Jersey
     07652.


                                         (Footnotes continued on following page)

                                       44
<PAGE>

(11) Includes  options to acquire an aggregate of 10,000  shares of Common Stock
     having  exercise  prices  ranging  from $8.50 to  $21.3125  per share.  Ms.
     Merriman's  address  is c/o  Hanne  Merriman  Associates,  3201 New  Mexico
     Avenue, N.W., Washington, DC 20016.


(12) Includes  options to acquire  324,698 shares having exercise prices ranging
     from $7.23 to $24.3125 per share.


Item 13. Certain Relationships and Related Transactions

                              CERTAIN TRANSACTIONS

Stockholders' Agreement

     The Lee Investors, the Desai Investors,  the Management  Stockholders,  all
employees  holding options to purchase Common Stock,  certain private  investors
and the Holding Company are parties to the Stockholders'  Agreement,  which sets
forth certain  rights and  obligations of the parties with respect to the Common
Stock and corporate  governance of the Holding Company.  Any employees of Finlay
not parties to the Stockholders'  Agreement, as amended, who have received or in
the future  receive  options to purchase  Common Stock in connection  with their
employment have also been required or will also be required, as the case may be,
to become parties to the Stockholders'  Agreement.  The Stockholders'  Agreement
provides  that the parties  thereto  must vote their  shares in favor of certain
directors  who are  nominated by the Lee  Investors,  the Desai  Investors,  Mr.
Cornstein and Mr. Reiner.  Notwithstanding  the foregoing,  the right of various
persons to designate  directors  will be reduced or  eliminated  at such time as
they own less than certain  specified  percentages of the shares of Common Stock
then  outstanding  or in certain  cases are no longer an employee of the Holding
Company.  The designees of the Lee Investors  currently  serving on the Board of
Directors are Messrs.  Lee and Smith; the designee of the Desai Investors is Mr.
Desai; the designees of Mr. Cornstein are Messrs.  Cornstein and Kaplan; and Mr.
Reiner is his own designee.  The  Stockholders'  Agreement  also provides for an
Executive  Committee  to consist of at least five  directors,  including,  under
certain conditions, designees of Mr. Lee, the Desai Investors and Mr. Cornstein.
When a  stockholder  or group of  stockholders  loses the right to  designate  a
director,  such  director  is to be  designated  instead  by a  majority  of the
directors  of the  Holding  Company.  The  Executive  Committee  of the  Holding
Company's Board consists at present of Messrs. Lee, Desai, Matthews,  Cornstein,
Kaplan and Reiner.

     In addition, the Stockholders'  Agreement provides that the parties thereto
have (i) certain "come along" rights  allowing  them to  participate  in private
sales of Common Stock by parties  selling at least a majority of the outstanding
shares of Common Stock and (ii) certain "take along" rights allowing parties who
are selling at least a majority  of the  outstanding  shares of Common  Stock to
require  the  other  parties  to the  Stockholders'  Agreement  to sell all or a
portion  of their  shares  of  Common  Stock to the same  purchaser  in the same
transaction on the same terms.

Registration Rights Agreement

     The Registration Rights Agreement grants certain registration rights to the
Lee Investors,  the Desai Investors,  certain other investors and the Management
Stockholders.  Lee Investors and Desai  Investors who together hold at least 15%
of the  outstanding  "Registrable  Securities"  (as defined in the  Registration
Rights Agreement) are entitled to request jointly, and the Holding Company shall
be obligated to effect, up to three  registrations of "Registrable  Securities".
The Lee Investors and the Desai Investors also may demand  registration  without
the other under certain  circumstances.  The Registration  Rights Agreement also
provides that stockholders who are parties thereto (other than the Lee Investors
and  the  Desai  Investors)  holding  in  the  aggregate  at  least  20%  of the
"Registrable Securities" then outstanding will have the right on one occasion to
require the Holding Company to file a registration statement with the Commission
covering  all  or  a  portion  of  their  "Registrable  Securities"  in  certain
circumstances.  In

                                       45
<PAGE>

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"), either for its own account or for the account of
others (other than a registration  statement relating solely to employee benefit
plans),  then each  party to the  Registration  Rights  Agreement  will have the
right,  subject to certain  restrictions  and  priorities,  to request  that the
Holding  Company  register  its shares of Common Stock in  connection  with such
registration.   Under  the  Registration   Rights  Agreement,   the  holders  of
"Registrable  Securities",  on the one hand,  and the  Holding  Company,  on the
other,  agree  to  indemnify  each  other  for  certain  liabilities,  including
liabilities  under the Securities  Act, in connection  with any  registration of
shares subject to the Registration Rights Agreement.

The 1997 Offering

     On October 21, 1997, the Holding  Company  completed a public offering (the
"1997  Offering")  of 3,450,000  shares of Common Stock at a price of $19.00 per
share, of which 2,196,971 shares were issued and sold by the Holding Company and
1,253,029 shares were sold by certain  non-management  selling stockholders.  In
connection with the 1997 Offering,  Messrs. Lee, Desai and Matthews sold 410,325
shares, 953,029 shares and 5,722 shares, respectively.

The 1998 Offering

     On April  24,  1998,  the  Holding  Company  completed  the  1998  Offering
involving the sale of 1,800,000  shares of Common Stock at a price of $27.50 per
share,  of which 567,310  shares were sold by the Holding  Company and 1,232,690
shares were sold by certain  selling  stockholders.  In connection with the 1998
Offering,  Messrs.  Lee,  Reiner,  Smith and a former  employee  sold  1,071,921
shares, 100,000 shares, 13,055 shares and 20,200 shares, respectively. A portion
of the proceeds  received by Mr. Reiner from the sale of such shares was used by
him to repay the  outstanding  balance  of a note  issued  by Mr.  Reiner to the
Holding Company.  See "Executive  Compensation - Summary Compensation Table" and
"- Employment and Other Agreements and Change of Control Arrangements."

Certain Other Transactions

     Finlay has entered into  indemnification  agreements  with each of Finlay's
directors  and  certain  executive  officers.  The  indemnification   agreements
require,  among other things,  that Finlay indemnify its directors and executive
officers 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  the
agreements,  create  and  fund a  trust  for  the  benefit  of  such  indemnitee
sufficient to satisfy reasonably anticipated claims for indemnification.  Finlay
will also cover 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 "--  Compensation  Committee  Interlocks  and Insider
Participation"  and "--  Employment  and Other  Agreements and Change of Control
Arrangements" under the caption "Executive Compensation".


                                       46
<PAGE>


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

   (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
------

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).

3.2  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).

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  Indenture  dated as of April 24,  1998  between  Finlay  Jewelry and Marine
     Midland Bank, as Trustee,  relating to Finlay  Jewelry's 83/8% 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).

4.3  Stock  Purchase  Agreement  dated  as of May 26,  1993  among  the  Holding
     Company, Finlay Jewelry, THL Equity Holding Corp., Equity-Linked Investors,
     L.P. and Equity-Linked  Investors-II  (incorporated by reference to Exhibit
     4.4 filed as part of the Current Report on Form 8-K filed by the Company on
     June 10, 1993).

4.4(a) Amended and Restated  Stockholders'  Agreement  dated as of March 6, 1995
     among the Holding Company, David B. Cornstein,  Arthur E. Reiner, Robert S.
     Lowenstein, Norman S. Matthews, Ronald B. Grudberg, Harold S. Geneen, James
     Martin Kaplan,  Electra Investment Trust, PLC, RHI Holdings,  Inc., Jeffrey
     Branman,   The  Lee  Holders   listed  on  the   signature   page  thereto,
     Equity-Linked Investors, L.P., Equity-Linked Investors-II 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 the Company on April 12, 1995).


                                       47
<PAGE>

Item
Number
------

4.4(b) Omnibus  Amendment to  Registration  Rights and  Stockholders'  Agreement
     (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).

4.5  Registration  Rights  Agreement dated as of May 26, 1993 among the Company,
     David B.  Cornstein,  Harold  S.  Geneen,  Ronald  B.  Grudberg,  Robert S.
     Lowenstein, John C. Belknap, James Martin Kaplan, Electra Investment Trust,
     PLC, RHI Holdings,  Inc.,  Jeffrey Branman,  Andrew U. Belknap,  Timothy H.
     Belknap,  THL Equity  Holding  Corp.,  Equity-Linked  Investors,  L.P.  and
     Equity-Linked  Investors-II (incorporated by reference to Exhibit 4.6 filed
     as part of the Current  Report on Form 8-K filed by the Company on June 10,
     1993).

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 The  Holding  Company's  Retirement  Income  Plan as amended  and  restated
     October 1999.

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(a) Employment Agreement dated as of May 26, 1993 between David B. Cornstein
     and Finlay Jewelry (incorporated by reference to Exhibit 19.2 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).

10.4(b) Amendment to Employment  Agreement dated as of December 20, 1995 between
     David B. Cornstein and Finlay Jewelry (incorporated by reference to Exhibit
     10.1  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).

10.4(c) Amendment to Employment  Agreement between David B. Cornstein and Finlay
     Jewelry  (incorporated  by  reference  to Exhibit 10.9 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).

10.4(d) Letter Agreement dated February 1, 1999 by and among Finlay Jewelry, the
     Holding  Company  and David B.  Cornstein  (incorporated  by  reference  to
     Exhibit  10.5(d)  filed as part of the  Annual  Report on Form 10-K for the
     period ended January 30, 1999, filed by Finlay Jewelry on April 30, 1999).

10.4(e) Consulting  Agreement dated February 1, 1999 among Finlay  Jewelry,  the
     Holding Company and Pinnacle Advisors Limited (incorporated by reference to
     Exhibit  10.5(e)  filed as part of the  Annual  Report on Form 10-K for the
     period ended January 30, 1999, filed by Finlay Jewelry on April 30, 1999).

10.5(a)  Employment  Agreement  dated as of January  3, 1995  among the  Holding
     Company,  Finlay Jewelry and Arthur E. Reiner (incorporated by reference to
     Exhibit  10.7(a)  of Form  S-1  Registration  Statement,  Registration  No.
     33-88938).


                                       48
<PAGE>

Item
Number
------

10.5(b)  Executive  Securities  Purchase  Agreement  dated as of January 3, 1995
     between the Holding Company and Arthur E. Reiner (incorporated by reference
     to Exhibit 10.7(b) of Form S-1  Registration  Statement,  Registration  No.
     33-88938).

10.5(c) Limited Recourse Secured  Promissory Note dated as of January 3, 1995 by
     Arthur E. Reiner in favor of the Holding  Company  (and  satisfied in April
     1998)   (incorporated   by  reference  to  Exhibit   10.7(c)  of  Form  S-1
     Registration Statement, Registration No. 33-88938).

10.5(d) Stock Pledge  Agreement  dated as of January 3, 1995 between the Holding
     Company and Arthur E. Reiner (and  terminated in April 1998)  (incorporated
     by  reference  to  Exhibit  10.7(d)  of Form  S-1  Registration  Statement,
     Registration No. 33-88938).

10.5(e) Amendment  to  Employment  Agreement  dated as of May 17, 1995 among the
     Holding  Company,  Finlay  Jewelry  and Arthur E. Reiner  (incorporated  by
     reference  to Exhibit  10.8(e)  filed as part of the Annual  Report on Form
     10-K for the period ended  February 1, 1997 filed by Finlay  Jewelry on May
     1, 1997).

10.5(f) Amendment No. 2 to Employment  Agreement dated as of March 5, 1997 among
     the Holding Company,  Finlay Jewelry and Arthur E. Reiner  (incorporated by
     reference to Exhibit 10 filed as part of the Quarterly  Report on Form 10-Q
     for the period ended May 3, 1997 filed by Finlay Jewelry on June 17, 1997).

10.5(g) Amendment  No. 3 to  Employment  Agreement  dated July 1, 1997 among the
     Holding  Company,  Finlay  Jewelry  and Arthur E. Reiner  (incorporated  by
     reference  to Exhibit  10.6(g)  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).

10.5(h) Amendment  No. 4 to Employment  Agreement  dated as of February 16, 2000
     among the Holding Company, Finlay Jewelry and Arthur E. Reiner.

10.6(a) Consulting and Option  Agreement dated as of July 7, 1993 by and between
     Finlay Jewelry and Norman S. Matthews (incorporated by reference to Exhibit
     10.00 filed as part of the Annual  Report on Form 10-K for the period ended
     January 29, 1994 filed by Finlay Jewelry on April 27, 1994).

10.6(b) Amendment to Consulting and Option  Agreement  dated as of March 6, 1995
     between Norman S. Matthews and Finlay Jewelry (incorporated by reference to
     Exhibit  10.2  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).

10.7 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).

10.8 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).


                                       49
<PAGE>

Item
Number
------

10.9 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).

10.10Management  Agreement  dated as of May 26, 1993 among the Holding  Company,
     Finlay Jewelry and Desai Capital Management  Incorporated  (incorporated by
     reference to Exhibit  28.1 filed as part of the Current  Report on Form 8-K
     filed by the Company on June 10, 1993).

10.11(a) Long Term Incentive Plan of the 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).

10.11(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).

10.121997 Long Term Incentive Plan  (incorporated  by reference to Exhibit 10.13
     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).

10.13Security  Agreement  dated as of May 26, 1993 by Finlay Jewelry in favor of
     GE Capital,  as agent  (incorporated  by reference to Exhibit 19.9 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).

10.14Security Agreement and Mortgage--Trademarks,  Patents and Copyrights, dated
     as of May 26,  1993 by  Finlay  Jewelry  in favor of GE  Capital,  as agent
     (incorporated  by reference to Exhibit 19.10 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).

10.15(a) Amended and Restated  Credit  Agreement  dated as of September 11, 1997
     among G. E.  Capital,  individually  and in its capacity as agent,  certain
     other lenders and financial  institutions,  the Holding  Company and Finlay
     Jewelry ("Amended  Revolving Credit Agreement")  (incorporated by reference
     to Exhibit 10.2 filed as part of the Quarterly  Report on Form 10-Q for the
     period ended August 2, 1997 filed by Finlay Jewelry on September 16, 1997).

10.15(b) Amendment No. 1 dated as of September 11, 1997 to the Amended Revolving
     Credit  Agreement  (incorporated by reference to Exhibit 10.3 filed as part
     of the  Quarterly  Report on Form 10-Q for the period  ended August 2, 1997
     filed by Finlay Jewelry September 16, 1997).

10.15(c) Amendment No. 2 dated October 6, 1997 to the Amended  Revolving  Credit
     Agreement (incorporated by reference to Exhibit 10.2 as part of the Current
     Report on Form 8-K filed by Finlay Jewelry on October 17, 1997).

10.15(d)  Amendment  No. 3 dated as of April 24, 1998 to the  Amended  Revolving
     Credit  Agreement  (incorporated by reference to Exhibit 10.1 filed as part
     of Finlay  Jewelry's  Current  Report on Form 8-K dated April 24, 1998,  as
     filed on May 11, 1998).


                                       50
<PAGE>

Item
Number
------

10.15(e) Amendment  No. 4 dated as of October 28, 1998 to the Amended  Revolving
     Credit  Agreement  (incorporated  by reference to Exhibit 10.25(e) filed as
     part of the Annual  Report on Form 10-K for the period  ended  January  30,
     1999, filed by Finlay Jewelry on April 30, 1999).

10.15(f) Amendment  No. 5 dated as of October 28, 1998 to the Amended  Revolving
     Credit  Agreement  (incorporated  by reference to Exhibit 10.25(f) filed as
     part of the Annual  Report on Form 10-K for the period  ended  January  30,
     1999, filed by Finlay Jewelry on April 30, 1999).

10.15(g)  Amendment  Agreement  No. 6 dated as of August 3, 1999 to the  Amended
     Revolving Credit Agreement.

10.15(h)  Amendment  Agreement No. 7 and Waiver dated as of December 31, 1999 to
     the Amended Revolving Credit Agreement.

10.15(i) Amendment Agreement No. 8 and Consent dated as of March 30, 2000 to the
     Amended Revolving Credit Agreement.

10.15(j)  Amendment  Agreement  No. 9 dated as of April 20,  2000 to the Amended
     Revolving Credit Agreement.

10.16(a)  Separation  Agreement  and Release dated June 6, 1999 between Barry D.
     Scheckner  and Finlay  Jewelry  (incorporated  by reference to Exhibit 10.1
     filed as part of the  Quarterly  Report on Form 10-Q for the  period  ended
     July 31, 1999 filed by Finlay Jewelry on September 14, 1999).

10.16(b) Consulting Agreement dated as of July 31, 1999 between BFM Advisors LLC
     and Finlay Jewelry (incorporated by reference to Exhibit 10.2 filed as part
     of the  Quarterly  Report on Form 10-Q for the period  ended July 31,  1999
     filed by Finlay Jewelry on September 14, 1999).

10.17Form 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).

10.18(a)  Gold  Consignment  Agreement  dated  as of June 15,  1995  (the  "Gold
     Consignment  Agreement")  between Finlay Jewelry and Rhode Island  Hospital
     Trust  National  Bank ("RIHT")  (incorporated  by reference to Exhibit 10.1
     filed as part of the  Quarterly  Report on Form 10-Q for the  period  ended
     July 29, 1995 filed by Finlay Jewelry on September 9, 1995).

10.18(b) Amendment No. 1 and Limited Consent to the Gold  Consignment  Agreement
     (incorporated  by reference to Exhibit 10.31(b) filed as part of the Annual
     Report on Form 10-K for the period  ended  February 3, 1996 filed by Finlay
     Jewelry on May 3, 1996).


                                       51
<PAGE>

Item
Number
------

10.18(c) Amendment  No. 2 and Limited  Consent dated as of September 10, 1997 to
     the Gold Consignment  Agreement,  as amended, by and between Finlay Jewelry
     and RIHT  (incorporated  by  reference to Exhibit 10.4 filed as part of the
     Quarterly  Report on Form 10-Q for the period ended August 2, 1997 filed by
     Finlay Jewelry on September 16, 1997).

10.18(d) Amendment  No. 3 and Limited  Consent dated as of September 11, 1997 to
     the Gold Consignment  Agreement,  as amended, by and between Finlay Jewelry
     and RIHT  (incorporated  by  reference to Exhibit 10.5 filed as part of the
     Quarterly  Report on Form 10-Q for the period ended August 2, 1997 filed by
     Finlay Jewelry on September 16, 1997).

10.18(e) Amendment No. 4 and Limited  Consent dated as of October 6, 1997 to the
     Gold Consignment  Agreement,  as amended, by and between Finlay Jewelry and
     RIHT  (incorporated  by  reference  to Exhibit  10.3 as part of the Current
     Report on Form 8-K filed by Finlay Jewelry on October 17, 1997).

10.18(f)  Amendment  No. 6 dated as of April  24,  1998 to the Gold  Consignment
     Agreement, as amended, by and between Finlay Jewelry and RIHT (incorporated
     by  reference  to Exhibit  10.2 filed as part of Finlay  Jewelry's  Current
     Report on Form 8-K dated April 24, 1998, as filed on May 11, 1998).

10.18(g)  Amendment  No. 7 and Limited  Consent  dated as of October  28,  1998,
     between Finlay Jewelry and BankBoston,  N.A., as  successor-in-interest  to
     RIHT  (incorporated  by reference to Exhibit  10.27(g) filed as part of the
     Annual  Report on Form 10-K for the period ended  January 30, 1999 filed by
     Finlay Jewelry on April 30, 1999).

10.18(h)  Amendment  No. 8 and Limited  Consent  dated as of December  30, 1999,
     between Finlay Jewelry and BankBoston,  N.A., as  successor-in-interest  to
     RIHT.

10.18(i) Amendment No. 9 and Limited Consent dated as of March 23, 2000, between
     Finlay Jewelry and Fleet National Bank, formerly known as BankBoston, N.A.,
     as successor-in-interest to RIHT.

10.19Security  Agreement  dated as of June 15, 1995 between  Finlay  Jewelry and
     RIHT  (incorporated  by  reference  to  Exhibit  10.2  filed as part of the
     Quarterly  Report on Form 10-Q for the period  ended July 29, 1995 filed by
     Finlay Jewelry on September 9, 1995).

10.20Cash Collateral  Agreement dated as of June 15, 1995 between Finlay Jewelry
     and RIHT  (incorporated  by  reference to Exhibit 10.3 filed as part of the
     Quarterly  Report on Form 10-Q for the period  ended July 29, 1995 filed by
     Finlay Jewelry on September 9, 1995).

10.21Intercreditor  Agreement  dated as of June 15, 1995  between GE Capital and
     RIHT and  acknowledged  by Finlay  Jewelry  (incorporated  by  reference to
     Exhibit  10.5  filed as part of the  Quarterly  Report on Form 10-Q for the
     period ended July 29, 1995 filed by Finlay Jewelry on September 9, 1995).


                                       52
<PAGE>

Item
Number
------

21.1 Subsidiaries of Finlay Jewelry  (incorporated  by reference to Exhibit 21.1
     filed  as part of the  Annual  Report  on Form  10-K for the  period  ended
     January 30, 1999 filed by Finlay Jewelry on April 30, 1999).

27   Financial Data Schedule.

   (b) Reports on Form 8-K

     On January 19, 2000,  Finlay Jewelry filed with the Securities and Exchange
Commission (the "Commission") a Current Report on Form 8-K reporting the sale by
Societe  Nouvelle  D'Achat  De  Bijouterie  -  S.O.N.A.B.,  a French  commercial
partnership which is an indirect wholly-owned  subsidiary of Finlay Enterprises,
Inc. and Finlay Fine Jewelry  Corporation  ("Sonab"),  of certain assets used by
Sonab in connection with its operation of leased fine jewelry departments.

     On April 18,  2000,  Finlay  Jewelry  filed with the  Commission  a Current
Report on Form 8-K reporting the purchase by Finlay Fine Jewelry  Corporation of
certain assets of Jay B. Rudolph,  Inc. relating to the operation of leased fine
jewelry  departments in Dayton's and Hudson's  department stores owned by Target
Corporation and in department stores owned by Bloomingdale's, Inc.














                                       53
<PAGE>

                                   SIGNATURES


     Pursuant  to the  requirements  of  section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       Finlay Fine Jewelry Corporation

Date: April 24, 2000                   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, President,   April 24, 2000
---------------------------
      Arthur E. Reiner        Chief Executive Officer and Director
                              (Principal Executive Officer)

   /s/ BRUCE E. ZURLNICK      Senior Vice President, Treasurer    April 24, 2000
---------------------------   and Chief Financial Officer
     Bruce E. Zurlnick        (Principal Financial and
                              Accounting Officer)

   /s/ DAVID B. CORNSTEIN     Director                            April 24, 2000
---------------------------
     David B. Cornstein

   /s/ NORMAN S. MATTHEWS     Director                            April 24, 2000
---------------------------
     Norman S. Matthews

  /s/ JAMES MARTIN KAPLAN     Director                            April 24, 2000
---------------------------
    James Martin Kaplan

     /s/ ROHIT M. DESAI       Director                            April 24, 2000
---------------------------
       Rohit M. Desai

     /s/ THOMAS H. LEE        Director                            April 24, 2000
---------------------------
       Thomas H. Lee

  /s/ WARREN C. SMITH, JR.    Director                            April 24, 2000
---------------------------
    Warren C. Smith, Jr.

   /s/ HANNE M. MERRIMAN      Director                            April 24, 2000
---------------------------
     Hanne M. Merriman

   /s/ MICHAEL GOLDSTEIN      Director                            April 24, 2000
---------------------------
     Michael Goldstein

     /s/ JOHN D. KERIN        Director                            April 24, 2000
---------------------------
        John D. Kerin


                                       54
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE
                                                                            ----

Report of Independent Public Accountants.....................................F-2

Consolidated Statements of Operations for the years ended
 January 31, 1998, January 30, 1999 and January 29, 2000.....................F-3

Consolidated Balance Sheets as of January 30, 1999 and January 29, 2000......F-4

Consolidated Statements of Changes in Stockholder's Equity for the years
 ended January 31, 1998, January 30, 1999 and January 29, 2000...............F-5

Consolidated Statements of Cash Flows for the years ended
 January 31, 1998, January 30, 1999 and January 29, 2000.....................F-6

Notes to Consolidated Financial Statements...................................F-7
















                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of Finlay Fine Jewelry Corporation:

     We have audited the accompanying consolidated balance sheets of Finlay Fine
Jewelry Corporation (a Delaware  corporation) and subsidiaries as of January 30,
1999  and  January  29,  2000,  and  the  related  consolidated   statements  of
operations,  changes in  stockholder's  equity and cash flows for the  fifty-two
weeks ended  January 31,  1998,  January  30, 1999 and January 29,  2000.  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  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
the audit to obtain reasonable  assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  financial  position  of  Finlay  Fine  Jewelry
Corporation  and  subsidiaries  as of January 30, 1999 and January 29, 2000, and
the results of their  operations  and their cash flows for the  fifty-two  weeks
ended  January 31, 1998,  January 30, 1999 and January 29, 2000,  in  conformity
with accounting principles generally accepted in the United States.


ARTHUR ANDERSEN LLP
New York, New York
March 21, 2000












                                      F-2
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>


                                                                                             Year Ended
                                                                          --------------------------------------------------
                                                                           January 31,       January 30,        January 29,
                                                                              1998              1999              2000
                                                                          -------------    ---------------    --------------

<S>                                                                       <C>              <C>                <C>
Sales................................................................     $    769,862     $    863,428       $    912,978
Cost of sales........................................................          371,085          421,450            449,912
Cost of sales - Sonab inventory write-down...........................          -                 -                   7,839
                                                                          -------------    ---------------    --------------
    Gross margin.....................................................          398,777          441,978            455,227
Selling, general and administrative expenses.........................          325,752          364,002            378,112
Nonrecurring charges associated with the sale and
    closure of Sonab.................................................          -                 -                  20,792
Depreciation and amortization........................................           12,163           15,672             16,895
                                                                          -------------    ---------------    --------------
    Income (loss) from operations....................................           60,862           62,304             39,428
Interest expense, net................................................           24,413           24,612             22,565
Nonrecurring interest associated with refinancing....................          -                    417             -
                                                                          -------------    ---------------    --------------
    Income (loss) before income taxes and
      extraordinary charges..........................................           36,449           37,275             16,863
Provision (benefit) for income taxes.................................           15,528           15,323              7,801
                                                                          -------------    ---------------    --------------
    Income (loss) before extraordinary charges.......................           20,921           21,952              9,062
Extraordinary charges from early extinguishment of debt,
      net of income tax benefit of $3,236............................          -                  4,755             -
                                                                          -------------    ---------------    ---------------
    Net income (loss)................................................     $     20,921     $     17,197       $      9,062
                                                                          =============    ===============    ==============
</TABLE>









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






                                      F-3
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)
<TABLE>
<CAPTION>

                                                                                     January 30,        January 29,
                                                                                         1999              2000
                                                                                     -------------     --------------
                                      ASSETS
Current assets
<S>                                                                                  <C>               <C>
  Cash and cash equivalents....................................................      $    16,631       $    34,758
  Accounts receivable - department stores......................................           19,147            22,574
  Other receivables............................................................           23,349            31,074
  Merchandise inventories......................................................          295,265           279,336
  Prepaid expenses and other...................................................            2,367             2,067
                                                                                     -------------     --------------
     Total current assets......................................................          356,759           369,809
                                                                                     -------------     --------------
Fixed assets
  Equipment, fixtures and leasehold improvements...............................          106,735           110,017
  Less - accumulated depreciation and amortization.............................           36,620            40,439
                                                                                     -------------     --------------
     Fixed assets, net.........................................................           70,115            69,578
                                                                                     -------------     --------------
Deferred charges and other assets..............................................           13,982            18,802
Goodwill.......................................................................          100,547            96,805
                                                                                     -------------     --------------
     Total assets..............................................................      $   541,403       $   554,994
                                                                                     =============     ==============

                       LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities
  Accounts payable - trade.....................................................      $   160,424       $   149,782
  Accrued liabilities:
     Accrued salaries and benefits.............................................           15,760            23,094
     Accrued miscellaneous taxes...............................................            4,704             6,296
     Accrued interest..........................................................            3,448             3,633
     Other.....................................................................           16,075            19,240
  Income taxes payable.........................................................           23,991            28,494
  Deferred income taxes........................................................            2,166             1,674
  Due to parent................................................................            3,468             4,900
                                                                                     -------------     --------------
     Total current liabilities.................................................          230,036           237,113
Long-term debt.................................................................          150,000           150,000
Other non-current liabilities..................................................            9,284            10,855
                                                                                     -------------     --------------
     Total liabilities.........................................................          389,320           397,968
                                                                                     -------------     --------------
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............................................................           73,897            74,051
  Foreign currency translation adjustment......................................           (4,789)            -
                                                                                     -------------     --------------
     Total stockholder's equity................................................          152,083           157,026
                                                                                     -------------     --------------
     Total liabilities and stockholder's equity................................      $   541,403       $   554,994
                                                                                     =============     ==============
</TABLE>


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




                                      F-4
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
                        (in thousands, except share data)


<TABLE>
<CAPTION>


                                             Common Stock                                  Foreign
                                         ------------------    Additional                  Currency        Total
                                           Number               Paid-in      Retained    Translation   Stockholder's   Comprehensive
                                         of shares   Amount     Capital      Earnings     Adjustment       Equity          Income
                                         ---------- -------   -----------   ----------   ------------  --------------  -------------
<S>               <C>                       <C>     <C>       <C>           <C>          <C>           <C>
Balance, February 1, 1997.........          1,000   $  -      $   44,851    $  44,609    $   (3,050)   $    86,410
  Net income (loss)...............            -        -           -           20,921          -            20,921     $     20,921
  Foreign currency translation
     adjustment...................            -        -           -            -            (3,793)        (3,793)          (3,793)
                                                                                                                       -------------
  Comprehensive income............            -        -           -            -              -             -         $     17,128
  Dividends on Common Stock.......            -        -           -           (1,712)         -            (1,712)    =============
                                         ---------- -------   -----------   ----------   ------------  --------------
Balance, January 31, 1998.........          1,000      -          44,851       63,818        (6,843)       101,826
  Net income (loss)...............            -        -           -           17,197          -            17,197     $     17,197
  Capital contribution from parent            -        -          38,124        -              -            38,124
  Foreign currency translation
     adjustment...................            -        -           -            -             2,054          2,054            2,054
                                                                                                                       -------------
  Comprehensive income............            -        -           -            -              -             -         $     19,251
  Dividends on Common Stock.......            -        -           -           (7,118)         -            (7,118)    =============
                                         ---------- -------   -----------   ----------   ------------  --------------
Balance, January 30, 1999.........          1,000      -          82,975       73,897        (4,789)       152,083
  Net income (loss)...............            -        -           -            9,062          -             9,062     $      9,062
  Foreign currency translation
     adjustment...................            -        -           -            -             4,789          4,789            4,789
                                                                                                                       -------------
  Comprehensive income............            -        -           -            -              -            -          $     13,851
  Dividends on Common Stock.......            -        -           -           (8,908)         -            (8,908)    =============
                                         ---------- -------   -----------   ----------   ------------  --------------
Balance, January 29, 2000.........          1,000   $  -      $   82,975    $  74,051    $     -       $   157,026
                                         ========== =======   ===========   ==========   ============  ==============
</TABLE>










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










                                      F-5
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>



                                                                                                 Year Ended
                                                                                ----------------------------------------------
                                                                                 January 31,      January 30,     January 29,
                                                                                    1998             1999            2000
                                                                                -------------    ------------    -------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                             <C>              <C>             <C>
  Net income (loss)........................................................     $   20,921       $   17,197      $    9,062
  Adjustments to reconcile net income (loss) to net cash provided
     from  (used in) operating activities:
  Depreciation and amortization............................................         13,195           16,703          17,749
  Write-off of deferred financing costs....................................          -                2,023           -
  Redemption premium.......................................................          -                5,378           -
  Loss on sale and closure of Sonab........................................          -                -              18,672
  Other, net...............................................................          1,495              381           2,172
  Changes in operating assets and liabilities, net of effects from purchase
     of Diamond Park assets (Note 11) and disposition of Sonab
     assets (Note 12):
     Increase in accounts and other receivables............................         (8,806)         (14,606)         (4,655)
     Increase in merchandise inventories...................................        (15,360)         (10,635)         (2,311)
     (Increase) decrease in prepaid expenses and other.....................            385             (548)            239
     Increase in accounts payable and accrued liabilities..................         22,038           11,367           6,329
     Increase (decrease) in deferred income taxes..........................            416              946            (492)
     Increase (decrease) in due to parent..................................         40,030          (41,224)           (317)
                                                                                -------------    ------------    -------------
        NET CASH PROVIDED FROM (USED IN) OPERATING
          ACTIVITIES.......................................................         74,314          (13,018)         46,448
                                                                                -------------    ------------    --------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements..............        (19,338)         (12,991)        (14,972)
  Payment for purchase of Diamond Park assets..............................        (57,642)          (4,857)          -
  Proceeds from sale of Sonab assets.......................................          -                -               1,155
  Deferred charges and other...............................................         (2,386)          (5,286)         (7,237)
                                                                                -------------    ------------    -------------
        NET CASH USED IN INVESTING ACTIVITIES..............................        (79,366)         (23,134)        (21,054)
                                                                                -------------    ------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility..................................        564,510          735,637         620,286
  Principal payments on revolving credit facility..........................       (564,510)        (735,637)       (620,286)
  Prepayment of Old Notes..................................................          -             (135,000)          -
  Payment of redemption premium............................................          -               (5,378)          -
  Capital contribution from parent.........................................          -               38,124           -
  Proceeds from senior note offering.......................................          -              150,000           -
  Payment of dividends.....................................................          -               (3,506)         (7,159)
  Capitalized financing costs..............................................         (2,347)          (4,173)          -
  Other, net...............................................................             (2)           -               -
                                                                                -------------    ------------    -------------
        NET CASH PROVIDED FROM (USED IN) FINANCING
           ACTIVITIES......................................................         (2,349)          40,067          (7,159)
                                                                                -------------    ------------    -------------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH............................           (336)              61            (108)
                                                                                -------------    ------------    -------------
        INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            (7,737)           3,976          18,127
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............................         20,392           12,655          16,631
                                                                                -------------    ------------    -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD...................................     $   12,655       $   16,631      $   34,758
                                                                                =============    ============    =============
</TABLE>

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

                                      F-6
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--ORGANIZATION OF THE COMPANY AND SIGNIFICANT TRANSACTIONS

     Finlay Fine Jewelry Corporation,  a Delaware corporation (together with its
wholly owned  subsidiaries,  "Finlay Jewelry"),  is a wholly owned subsidiary of
Finlay Enterprises,  Inc. (the "Holding  Company").  References to "Finlay" mean
collectively,  the Holding Company and Finlay  Jewelry.  Finlay is a retailer of
fine jewelry products and operates leased fine jewelry departments in department
stores throughout the United States. All references herein to leased departments
refer  to  departments   operated  pursuant  to  license   agreements  or  other
arrangements with host department stores.

1998 Offering and Refinancing

     On April 24,  1998,  the Holding  Company  completed  a public  offering of
1,800,000 shares of its common stock, par value $.01 per share ("Common Stock"),
at a price of $27.50 per share (the "1998  Offering"),  of which 567,310  shares
were sold by the  Holding  Company.  Concurrently  with the 1998  Offering,  the
Holding  Company  and Finlay  Jewelry  completed  the public  offering  of $75.0
million aggregate  principal amount of 9% Senior Debentures due May 1, 2008 (the
"Senior  Debentures")  and $150.0 million  aggregate  principal  amount of 83/8%
Senior Notes due May 1, 2008 (the "Senior Notes"), respectively. In addition, on
April  24,  1998,  the  revolving  credit   agreement  (the  "Revolving   Credit
Agreement"),  with General Electric Capital Corporation ("G.E. Capital") and the
other  lenders  named  therein,  was  amended  to  increase  the line of  credit
thereunder to $275.0 million and to make certain other changes.

     On May 26,  1998,  the net  proceeds to the Holding  Company  from the 1998
Offering,  the sale of the Senior  Debentures,  together  with  other  available
funds, were used to redeem the Holding Company's 12% Senior Discount  Debentures
due 2005 (the "Old Debentures"), including associated premiums. Also, on May 26,
1998,  Finlay Jewelry used the net proceeds from the sale of the Senior Notes to
redeem  Finlay  Jewelry's  105/8%  Senior  Notes  due 2003  (the  "Old  Notes"),
including  associated  premiums.  The  above  transactions,  excluding  the 1998
Offering, are referred to herein as the "Refinancing".  Finlay Jewelry recorded,
in the second quarter of 1998, a pre-tax  extraordinary  charge of approximately
$8.0 million, including $5.4 million for the redemption premium on the Old Notes
and $2.0 million to write off deferred  financing costs  associated with the Old
Notes.

1997 Public Offering

     On October 21, 1997, the Holding  Company  completed a public offering (the
"1997  Offering")  of 3,450,000  shares of its Common Stock at a price of $19.00
per  share,  of which  2,196,971  shares  were  issued  and sold by the  Holding
Company.  Net  proceeds  to the  Holding  Company  from the 1997  Offering  were
$38,124,000.  The Holding Company purchased inventory using the net proceeds and
subsequently sold this inventory to Finlay Jewelry. In addition,  Finlay Jewelry
was charged a service fee by the Holding Company, in 1997, of $1.9 million which
is included in Selling,  general and administrative expenses in the accompanying
Consolidated Statements of Operations.

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES

     Basis  of  Accounting  and  Presentation:   The  accompanying  Consolidated
Financial  Statements  have been  prepared on the accrual basis of accounting in
accordance with generally  accepted  accounting  principles,  which, for certain
financial statement accounts, requires the use of management's estimates. Actual
results may differ from these estimates.


                                      F-7
<PAGE>

                      FINLAY FINE JEWELRY CORPORATION NOTES
                      TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

     Fiscal Year:  Finlay  Jewelry's fiscal year ends on the Saturday closest to
January 31.  References to 1997,  1998, 1999 and 2000 relate to the fiscal years
ended on January 31, 1998,  January 30,  1999,  January 29, 2000 and February 3,
2001. Each of the fiscal years includes 52 weeks except 2000,  which includes 53
weeks.

     Merchandise  Inventories:  Consolidated inventories are stated at the lower
of cost or market determined by the last-in,  first-out ("LIFO") method.  Market
represents  estimated  realizable  value  after  providing  for a normal  profit
margin.  The cost to  Finlay  of gold  merchandise  sold on  consignment,  which
typically  varies with the price of gold, is not fixed until the  merchandise is
sold.  Finlay  at times  enters  into  futures  contracts,  such as  options  or
forwards,  based upon the  anticipated  sales of gold  product in order to hedge
against  the risk of gold price  fluctuations.  Changes  in the market  value of
futures  contracts  are  accounted  for as an addition to or reduction  from the
inventory  cost.  For the years  ended  January 31,  1998,  January 30, 1999 and
January 29, 2000,  the  gain/loss on open futures  contracts  was not  material.
Finlay Jewelry did not have any open positions in futures  contracts for gold at
January 30, 1999. At January 29, 2000,  Finlay Jewelry had two open positions in
futures  contracts  for gold  totaling  25,000 fine troy ounces,  valued at $7.3
million, which expire during the first quarter of 2000. The fair market value of
such contracts was $7.4 million at January 29, 2000.

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments
and Hedging  Activities",  which is effective for fiscal years  beginning  after
June 15, 2000.  This  Statement  requires  that all  derivative  instruments  be
recorded in the balance  sheet as either an asset or  liability  measured at its
fair  value  and that  changes  in the  derivative's  fair  value be  recognized
currently  in  earnings  or in  comprehensive  income  (as  defined  below),  as
applicable.  Finlay Jewelry is currently  evaluating the impact of adopting SFAS
No. 133.

     Depreciation and Amortization:  Depreciation and amortization, except where
otherwise indicated, are computed by the straight-line method over the estimated
useful lives of the fixed assets  ranging from three to  thirty-nine  years.  In
1997,  Finlay Jewelry  capitalized  $660,000 of interest in connection  with the
construction of its central distribution  facility. The capitalized interest was
recorded  as part of the asset to which it related and is being  amortized  over
the asset's estimated useful life.

     Principles of Consolidation:  The consolidated financial statements include
the  accounts  of  Finlay  Jewelry  and  its  wholly  owned  subsidiaries.   All
significant intercompany transactions have been eliminated in consolidation.

     Software Development Costs:  Software development costs have been accounted
for in accordance  with Statement of Position No. 98-1 (the "SOP"),  "Accounting
for the Costs of Computer  Software  Developed or Obtained  for  Internal  Use",
which Finlay Jewelry  adopted in 1999. 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.


                                      F-8
<PAGE>



                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

     At January 30, 1999 and January 29, 2000,  net  capitalized  software costs
totaled  $7.6  million  and $13.5  million,  respectively,  and are  included in
Deferred  charges  and other  assets in the  accompanying  Consolidated  Balance
Sheets.  In 1999, Finlay Jewelry  capitalized  $560,000 of internal direct costs
and  $300,000 of  interest  in  connection  with the  implementation  of certain
software projects.

     Intangible Assets Arising from Acquisition:  The excess purchase price paid
over the fair market value of net assets acquired  ("Goodwill")  was recorded in
accordance with Accounting  Principles Board ("APB") Opinion No. 16 -"Accounting
for Business  Combinations" and is being amortized on a straight-line basis. The
Goodwill  related to 1988  reorganization  and the Diamond Park  Acquisition (as
defined in Note 11) is being amortized over 40 years and 20 years, respectively.
Finlay Jewelry continually  evaluates the carrying value and the economic useful
life of Goodwill based on Finlay  Jewelry's  operating  results and the expected
future  net cash  flows and will  adjust  the  carrying  value  and the  related
amortization  periods,  if and when  appropriate.  Amortization  of Goodwill for
1997, 1998 and 1999 totaled $3,367,000, $3,724,000 and $3,726,000, respectively.
Accumulated  amortization  of  Goodwill at January 30, 1999 and January 29, 2000
totaled $31,612,000 and $34,539,000, respectively.

     Foreign  Currency  Translation:  Results of operations for Finlay Jewelry's
foreign  subsidiary were translated into U.S. dollars using the average exchange
rates during the period,  while assets and  liabilities  were  translated  using
current rates in accordance  with SFAS No. 52, "Foreign  Currency  Translation".
The resulting  translation  adjustments  were recorded  directly into a separate
component  of  Stockholders'  equity,  the  balance of which was  written off in
conjunction with the 1999 sale and closure of Sonab (refer to Note 12).

     Comprehensive  Income:  In 1998,  Finlay  Jewelry  adopted  SFAS  No.  130,
"Reporting  Comprehensive  Income",  which requires  disclosure of comprehensive
income in a financial statement. Comprehensive income is defined as the total of
net income and all other nonowner changes in equity, which are recorded directly
to stockholders'  equity and, therefore,  bypass net income.  Finlay Jewelry has
chosen to disclose  comprehensive  income,  which encompasses net income and the
foreign  currency  translation  adjustment,  in  the  accompanying  Consolidated
Statements of Changes in Stockholder's Equity.

     Debt Issuance  Costs:  Debt issuance costs are amortized using the straight
line method  over the term of the related  debt  agreements.  Net debt  issuance
costs totaled $5,697,000 at January 30, 1999 and $4,727,000 at January 29, 2000.
The debt  issuance  costs are  reflected as a component of Deferred  charges and
other assets in the accompanying  Consolidated  Balance Sheets.  Amortization of
debt issuance  costs for 1997,  1998 and 1999 totaled  $889,000,  $1,030,000 and
$1,012,000,  respectively,  and have been  recorded as a  component  of Interest
expense, net in the accompanying Consolidated Statements of Operations.

     Revenue  Recognition:  Finlay Jewelry  recognizes  revenue upon the sale of
merchandise,  either owned or consigned, to its host department store customers,
net of anticipated returns.



                                      F-9
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

     Cost of Sales:  Cost of sales includes the cost of merchandise sold, repair
expense,  shipping,  shrinkage and inventory losses.  Buying and occupancy costs
such as  lease  fees are not  included  in Cost of sales  and are  reflected  in
Selling,  general and administrative  expenses 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 1997,  1998 and 1999,  gross
advertising expenses,  before vendor support, were $47,913,000,  $55,287,000 and
$55,053,000,   respectively,   and  are   included  in   Selling,   general  and
administrative   expenses  in  the  accompanying   Consolidated   Statements  of
Operations.

     Statements of Cash Flows:  Finlay Jewelry considers cash on hand,  deposits
in banks  and  deposits  in  money  market  funds as cash and cash  equivalents.
Interest  paid (net of  capitalized  interest),  during 1997,  1998 and 1999 was
$23,347,000,  $24,453,000 and  $21,368,000,  respectively.  Income taxes paid in
1997, 1998 and 1999 totaled $10,630,000, $396,000 and $3,309,000, respectively.

     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.  Marketable  securities are recorded in the  consolidated
financial  statements at current market value, which approximates cost. The fair
value of Finlay Jewelry's debt and off-balance  sheet financial  instruments are
disclosed in Note 4 and in Merchandise Inventories above.

     Stock-Based Compensation:  Stock-based compensation is recognized using the
intrinsic  value  method.  For  disclosure  purposes,  pro forma net  income and
earnings  per share are  disclosed,  in Note 5, as if the fair value  method had
been applied.

     Accounting  for  the  Impairment  of  Long-Lived  Assets:   SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", requires long-lived assets as well as identifiable  intangibles
be reviewed for impairment whenever events or changes in circumstances  indicate
the  carrying  amount of the  assets  may not be  recoverable.  Based  upon this
analysis,  Finlay  Jewelry has not recorded  any  impairment  charges  since the
adoption of this Statement.

     Seasonality:  A significant  portion of Finlay's  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
10 for unaudited quarterly financial data.







                                      F-10
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--MERCHANDISE INVENTORIES

     Merchandise inventories consisted of the following:
<TABLE>
<CAPTION>
                                                                            January 30,             January 29,
                                                                               1999                    2000
                                                                          ----------------       ------------------
                                                                                       (in thousands)
   Jewelry goods - rings, watches and other fine jewelry
<S>                                                                        <C>                   <C>
       (specific identification basis)...............................      $      300,777        $        283,717
   Less:  Excess of specific identification cost over LIFO
       inventory value...............................................               5,512                   4,381
                                                                          ----------------       ------------------
                                                                            $     295,265        $        279,336
                                                                          ================       ==================
</TABLE>

     The LIFO method had the effect of increasing  Income before income taxes in
1997,  1998 and 1999 by  $2,330,000,  $1,011,000 and  $1,131,000,  respectively.
Finlay determines its LIFO inventory value by utilizing  selected producer price
indices published for jewelry and watches by the Bureau of Labor Statistics. Due
to the  application of APB Opinion No. 16,  inventory  valued at LIFO for income
tax  reporting  purposes  is  approximately  $21,000,000  lower  than  that  for
financial reporting purposes at January 29, 2000.

     Approximately $283,793,000 and $329,850,000 at January 30, 1999 and January
29, 2000, respectively, of merchandise received on consignment has been excluded
from  Merchandise  inventories and Accounts  payable-trade  in the  accompanying
Consolidated Balance Sheets.

     Finlay  Jewelry  is  party  to a  gold  consignment  agreement  (the  "Gold
Consignment   Agreement"),   which  expires  on  December  31,  2001.  The  Gold
Consignment Agreement enables Finlay Jewelry to receive merchandise by providing
gold, or otherwise  making  payment,  to certain  vendors who  currently  supply
Finlay with merchandise on consignment.  While the merchandise  involved remains
consigned,  title to the gold  content  of the  merchandise  transfers  from the
vendors to the gold consignor.

     Finlay can obtain,  pursuant to the Gold Consignment  Agreement,  up to the
lesser of (i)  100,000  fine troy  ounces or (ii) $32.0  million  worth of gold,
subject to a formula as prescribed by the Gold Consignment Agreement. At January
30, 1999 and January 29, 2000,  amounts  outstanding  under the Gold Consignment
Agreement  totaled 78,836 and 77,538 fine troy ounces,  respectively,  valued at
approximately $22.5 million and $22.2 million,  respectively. The purchase price
per  ounce is based on the  daily  Second  London  Gold  Fixing.  For  financial
statement   purposes,   the  consigned  gold  is  not  included  in  Merchandise
inventories on Finlay Jewelry's  Consolidated Balance Sheets and, therefore,  no
related  liability  has been  recorded.  Under the Gold  Consignment  Agreement,
Finlay is 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 30, 1999 and
January 29, 2000, was approximately 3.0% and 3.8%,  respectively,  per annum. In
addition,  Finlay  is  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 year ended January 30, 1999 and January 29, 2000 are consignment
fees of $615,000 and $1,007,000, respectively.

     In conjunction with the Gold Consignment Agreement,  Finlay Jewelry 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 G.E. Capital.


                                      F-11
<PAGE>


                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--MERCHANDISE INVENTORIES (continued)

     The Gold  Consignment  Agreement  requires  Finlay  Jewelry to comply  with
certain  covenants,   including   restrictions  on  the  incurrence  of  certain
indebtedness,   the  incurrence  or  creation  of  liens,  engaging  in  certain
transactions  with affiliates and related parties and limitations on the payment
of dividends.  The Gold Consignment  Agreement also contains  various  financial
covenants,  including  fixed  charge  coverage  ratio  requirements  and certain
maximum  debt  limitations.  Finlay  Jewelry was in  compliance  with all of its
financial covenants as of and for the year ended January 29, 2000.

NOTE 4--SHORT AND LONG-TERM DEBT

     The Holding Company and Finlay Jewelry are parties to the Revolving  Credit
Agreement with G.E.  Capital and the other lenders thereto which provides Finlay
with a senior  secured  revolving  line of credit of up to $275.0  million  (the
"Revolving  Credit  Facility"),  a portion of which is  available to the Holding
Company under certain  circumstances.  The Revolving  Credit  Facility  provides
Finlay  with a facility  maturing  in March  2003,  for  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 the lenders). Finlay Jewelry is permitted to use up
to $30 million of the Revolving  Credit  Agreement for the issuance or guarantee
of letters of credit issued for the account of Finlay  Jewelry.  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 Finlay's option, (i) the Index Rate (as defined) plus a margin
ranging from zero to 1.0% or (ii) adjusted LIBOR plus a margin ranging from 1.0%
to 2.0%, in each case depending on the financial  performance of Finlay.  "Index
Rate" is defined as the higher of (i) the rate publicly quoted from time to time
by The Wall Street  Journal as the "base rate on  corporate  loans at large U.S.
money  center  commercial  banks" and (ii) the Federal  Funds Rate plus 50 basis
points per annum. A letter of credit fee of 1.5% per annum 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 up to $225.0  million and 0.25% per annum up to $275.0  million.  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 Finlay Jewelry's (and any subsidiary's)  present and
future tangible and intangible  assets,  excluding any of Finlay Jewelry's lease
agreements which are not assignable without the lessor's consent.


                                      F-12
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4--SHORT AND LONG-TERM DEBT (continued)

     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.  In
addition,  the lenders have the right to approve certain private sales of Common
Stock. The Revolving Credit Agreement also contains various financial covenants,
including  minimum  earnings and fixed charge  coverage ratio  requirements  and
certain  maximum  debt  limitations.  Finlay was in  compliance  with all of its
financial covenants as of and for the year ended January 29, 2000.

     There were no amounts  outstanding  at January 30, 1999 or January 29, 2000
under the Revolving Credit Agreement.  The maximum amounts outstanding under the
Revolving  Credit  Agreement  during  1997,  1998  and 1999  were  $189,200,000,
$176,000,000 and $158,200,000, respectively. The average amounts outstanding for
the same periods were $107,700,000, $123,800,000 (adjusted for the impact of the
temporary  paydown  of  the  Revolving  Credit  Facility  due  to  certain  call
requirements  associated  with  the  Old  Debentures  and  the  Old  Notes)  and
$104,200,000,  respectively. The weighted average interest rates were 7.9%, 7.6%
and 7.4% for 1997, 1998 and 1999, respectively.

     At January  30, 1999 and  January  29,  2000,  Finlay had letters of credit
outstanding  totaling  $6.7  million  and  $2.3  million,  respectively,   which
guarantee various trade activities. The contract amount of the letters of credit
approximate their fair value.
<TABLE>
<CAPTION>

     Long-term debt consisted of the following:
                                                                          January 30,        January 29,
                                                                              1999              2000
                                                                         -------------     --------------
                                                                                 (in thousands)
<S>                                                                      <C>               <C>
         Senior Notes (a).........................................       $    150,000      $    150,000
                                                                         =============     ==============
</TABLE>

------------------------
(a)  On April 24, 1998, as part of the Refinancing,  Finlay Jewelry issued 83/8%
     Senior  Notes  due  May 1,  2008  with an  aggregate  principal  amount  of
     $150,000,000.  Interest on the Senior Notes is payable semi-annually on May
     1 and November 1 of each year, and commenced on November 1, 1998. Except in
     the case of certain equity  offerings,  the Senior Notes are not redeemable
     prior to May 1, 2003. Thereafter,  the Senior Notes will be redeemable,  in
     whole or in part, at the option of Finlay,  at specified  redemption prices
     plus accrued and unpaid interest, if any, to the date of the redemption. In
     the event of a Change of Control (as defined in the  indenture  relating to
     the Senior Notes (the "Senior Note Indenture")),  each holder of the Senior
     Notes  will have the right to require  Finlay  Jewelry  to  repurchase  its
     Senior  Notes at a purchase  price  equal to 101% of the  principal  amount
     thereof plus accrued and unpaid  interest  thereon to the repurchase  date.
     The  Senior  Notes  rank  senior in right of  payment  to all  subordinated
     indebtedness  of Finlay Jewelry and pari passu in right of payment with all
     unsubordinated   indebtedness  of  Finlay  Jewelry.  However,  because  the
     Revolving Credit Agreement is secured by a pledge of substantially  all the
     assets of Finlay Jewelry, the Senior Notes are effectively  subordinated to
     the  borrowings  under the  Revolving  Credit  Agreement.  The Senior  Note
     Indenture  contains  restrictions  relating  to,  among other  things,  the
     payment of dividends,  the issuance of  disqualified  stock,  the making of
     certain  investments  or  other  restricted  payments,  the  incurrence  of
     additional  indebtedness,  the  creation of certain  liens,  entering  into
     certain transactions with affiliates, the disposition of certain assets and
     engaging in mergers and consolidations.


                                      F-13
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4--SHORT AND LONG-TERM DEBT (continued)

     The fair value of the Senior Notes at January 29, 2000, determined based on
     market quotes, was $135,000,000.

     On April 24, 1998, as part of the  Refinancing,  the Holding Company issued
     9% Senior Debentures due May 1, 2008 with an aggregate  principal amount of
     $75,000,000.  Interest on the Senior Debentures is payable semi-annually on
     May 1 and November 1 of each year,  and commenced on November 1, 1998.  The
     Senior  Debentures  are secured by a first  priority  lien on and  security
     interest  in all of the issued  and  outstanding  stock of Finlay  Jewelry.
     However, the operations of the Holding Company are conducted through Finlay
     Jewelry and, therefore, the Holding Company is dependent upon the cash flow
     of Finlay Jewelry to meet its obligations,  including its obligations under
     the Senior  Debentures.  As a result, the Senior Debentures are effectively
     subordinated  to all  indebtedness  and all  other  obligations  of  Finlay
     Jewelry.  The  indenture  relating to the Senior  Debentures  (the  "Senior
     Debenture  Indenture")  contains  restrictions  relating  to,  among  other
     things, the payment of dividends,  the issuance of disqualified  stock, the
     making of certain investments or other restricted payments,  the incurrence
     of additional  indebtedness,  the creation of certain liens,  entering into
     certain transactions with affiliates, the disposition of certain assets and
     engaging in mergers and consolidations.

     Finlay was in compliance  with all of the provisions of the Senior Note and
     Senior Debenture Indentures as of and for the year ended January 29, 2000.

     The aggregate  amounts of long-term  debt payable in each of the five years
in the period ending January 29, 2005 and thereafter are as follows:
<TABLE>
<CAPTION>

                                                               (in thousands)
                                                               ---------------
<S> <C>                                                        <C>
    2000................................................       $     -
    2001................................................             -
    2002................................................             -
    2003................................................             -
    2004................................................             -
    Thereafter..........................................             150,000
                                                               ---------------
                                                               $     150,000
                                                               ===============
</TABLE>

     Interest  expense  for  1997,  1998 and 1999 was  $24,448,000,  $24,898,000
(including  $417,000 of nonrecurring  interest  associated with the Refinancing)
and $22,665,000, respectively. Interest income for the same periods was $35,000,
$108,000 and $100,000, respectively.

NOTE 5-LONG TERM INCENTIVE PLANS AND MANAGEMENT PURCHASE OF COMMON STOCK

     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


                                      F-14
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  5-LONG  TERM  INCENTIVE  PLANS AND  MANAGEMENT  PURCHASE  OF COMMON  STOCK
        (continued)

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 of January 29, 2000,  an aggregate of 732,596
shares of the Holding  Company's  Common  Stock has been  reserved  for issuance
pursuant  to the 1993 Plan,  of which a total of 554,518  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 $21.00 per share.

     On March 6, 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 850,000 shares of the Holding Company's Common Stock that have been
reserved for issuance  pursuant to the 1997 Plan, a total of 583,882 shares,  as
of  January  29,  2000,  are  subject  to  options  granted  to  certain  senior
management,  key employees and  directors.  The exercise  prices of such options
range from $8.25 per share to $24.313 per share.

     Finlay  has  adopted  the  disclosure-only  provisions  of  SFAS  No.  123,
"Accounting for Stock-Based  Compensation,"  which became  effective in 1996. As
permitted by SFAS No. 123, Finlay elected to continue to account for stock-based
compensation  using the intrinsic  value method.  Accordingly,  no  compensation
expense has been recognized for its stock-based compensation plans. 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 have been reduced by $330,000 in
1997, $601,000 in 1998 and $773,000 in 1999. This pro forma impact only reflects
options  granted  since  the  beginning  of 1995  and  therefore  the  resulting
compensation  cost may not be  representative  of that to be  expected in future
years.

     The fair value of  options  granted  in 1997,  1998 and 1999 was  estimated
using the  Black-Scholes  option-pricing  model  based on the  weighted  average
market  price at the grant date of $14.95 in 1997,  $16.15 in 1998 and $11.80 in
1999 and the following weighted average assumptions:  risk free interest rate of
6.57%, 5.17% and 6.03% for 1997, 1998 and 1999,  respectively,  expected life of
seven years for each of 1997,  1998 and 1999 and  volatility of 32.98% for 1997,
44.95% for 1998 and 48.57% for 1999. The weighted  average fair value of options
granted in 1997, 1998 and 1999 was $7.33, $8.88 and $4.54, respectively.








                                      F-15
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  5-LONG  TERM  INCENTIVE  PLANS AND  MANAGEMENT  PURCHASE  OF COMMON  STOCK
(continued)

     The following summarizes the transactions pursuant to the Holding Company's
1993 Plan and 1997 Plan for 1997, 1998 and 1999:
<TABLE>
<CAPTION>


                                                  1997                          1998                            1999
                                       ---------------------------    --------------------------     ---------------------------
                                       Number of       Wtd. Avg.      Number of      Wtd. Avg.        Number of      Wtd. Avg.
                                        Options        Ex. Price       Options       Ex. Price         Options       Ex. Price
                                       -----------     -----------    -----------    -----------     ------------    -----------
<S>                                       <C>          <C>               <C>         <C>               <C>           <C>
Outstanding at beginning of year...       523,767      $    11.93        989,500     $    13.55        1,117,833     $    10.27
Granted............................       505,167           14.95        201,067          16.15           71,000          11.80
Exercised..........................       (23,241)           8.74        (56,993)          8.69          (11,000)          7.23
Forfeited..........................       (16,193)          11.25        (15,741)         13.03          (39,433)         14.14
                                       -----------     -----------    -----------    -----------     ------------    -----------
Outstanding at end of year.........       989,500           13.55      1,117,833          10.27        1,138,400           9.79
                                       ===========     ===========    ===========    ===========     ============    ===========
Exercisable at end of year.........       282,020      $    11.47        349,660     $    11.32          436,801     $    10.88
</TABLE>

     The options  outstanding  at January 29, 2000 have exercise  prices between
$7.23 and $24.31, with a weighted average exercise price of $9.79 and a weighted
average remaining contractual life of 6.73 years. Options generally vest in five
years and expire in ten years from their dates of grant.

     Upon the  commencement  of his  employment,  an  executive  officer  of the
Holding  Company  purchased  138,525  shares of  Common  Stock  (the  "Purchased
Shares"),  at a price of $7.23 per share. The aggregate  purchase price of these
shares  was paid in the form of a note  issued  to the  Holding  Company  in the
amount of $1,001,538.  On April 24, 1998, the executive  officer sold 100,000 of
the Purchased Shares and repaid the note.

NOTE 6--LEASE AGREEMENTS

     Finlay conducts  substantially all of its operations as leased  departments
in department  stores.  All of these leases, as well as rentals for office space
and equipment,  are accounted for as operating  leases. A substantial  number of
such operating leases expire on various dates through 2008.

     Substantially  all of the department store leases provide that the title to
certain fixed assets of Finlay  transfers upon  termination  of the leases,  and
that Finlay will receive the  undepreciated  value of such fixed assets from the
host store in the event such  transfers  occur.  The values of such fixed assets
are recorded at the inception of the lease  arrangement and are reflected in the
accompanying Consolidated Balance Sheets.

     In many cases,  Finlay is subject to limitations under its lease agreements
with host department stores which prohibit Finlay from operating departments for
other store groups within a certain geographical radius of the host store.








                                      F-16
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6--LEASE AGREEMENTS (continued)

     The store leases  provide for the payment of fees based on sales,  plus, in
some instances,  installment payments for fixed assets. Lease expense,  included
in Selling, general and administrative expenses, is as follows (in thousands):
<TABLE>
<CAPTION>

                                                                          Year Ended
                                                         ---------------------------------------------
                                                         January 31,      January 30,     January 29,
                                                             1998            1999            2000
                                                         -------------    ------------    ------------
<S>                                                      <C>              <C>             <C>
           Minimum fees..............................    $     9,732     $     24,824    $     22,264
           Contingent fees...........................        115,331          115,720         126,518
                                                         -------------    ------------    ------------
                Total................................    $   125,063      $   140,544     $   148,782
                                                         =============    ============    ============
</TABLE>

     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, 2000:

<TABLE>
<CAPTION>
                                                                                  (in
                                                                              thousands)
                                                                             --------------
<S>               <C>                                                        <C>
                  2000.................................................      $    15,851
                  2001.................................................            3,530
                  2002                                                             3,510
                  2003                                                             3,270
                  2004                                                             3,244
                  Thereafter...........................................            7,690
                                                                             --------------
                       Total minimum payments required.................       $   37,095
                                                                             ==============
</TABLE>

NOTE 7--PENSION PLAN

     Finlay  maintains  a defined  contribution  profit-sharing  plan to provide
retirement  benefits for all personnel.  This plan provides for company matching
contributions of $.25 for each $1.00 of employee  contribution,  up to 5% of the
employee's salary, as limited by the Code.  Additionally,  Finlay contributes 2%
of the employees' earnings annually, as limited by the Code. Vesting in Finlay's
contributions begins upon completion of three years of employment and accrues at
the rate of 20% per year. The cost of the defined  contribution  plan maintained
by Finlay totaled $1,771,000, $2,043,000 and $2,074,000 for 1997, 1998 and 1999,
respectively.

NOTE 8--INCOME TAXES

     For income tax reporting  purposes,  Finlay  Jewelry has an October 31 year
end.  Finlay  Jewelry files a  consolidated  Federal  income tax return with its
wholly owned subsidiaries and its parent, the Holding Company.  Finlay Jewelry's
provision  for  income  taxes  and  deferred  tax  assets  and  liabilities  was
calculated as if Finlay Jewelry filed its 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.



                                      F-17
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--INCOME TAXES (continued)

     Deferred tax assets and liabilities at year end are as follows:
<TABLE>
<CAPTION>
                                                                                                 Year Ended
                                                                                        ------------------------------
                                                                                        January 30,      January 29,
                                                                                           1999              2000
                                                                                        ------------     -------------
                                                                                               (in thousands)
Deferred Tax Assets
<S>                                                                                     <C>              <C>
  Uniform inventory capitalization...............................................       $     3,483      $     3,483
  Expense not currently deductible...............................................             2,832            3,043
  ITC carryover..................................................................               301               31
  AMT credit.....................................................................               566              566
                                                                                        ------------     -------------
                                                                                              7,182            7,123
  Valuation allowance............................................................               401              131
                                                                                        ------------     -------------
     Total current...............................................................             6,781            6,992
                                                                                        ------------     -------------
  Deferred financing costs-non-current...........................................               191              190
                                                                                        ------------     -------------
     Total non-current...........................................................               191              190
                                                                                        ------------     -------------
        Total deferred tax assets................................................             6,972            7,182
                                                                                        ------------     -------------
Deferred Tax Liabilities
  LIFO inventory valuation.......................................................             8,947            8,666
                                                                                        ------------     -------------
     Total current...............................................................             8,947            8,666
                                                                                        ------------     -------------
  Depreciation...................................................................             9,214           10,795
                                                                                        ------------     -------------
     Total non-current...........................................................             9,214           10,795
                                                                                        ------------     -------------
        Total deferred tax liabilities...........................................            18,161           19,461
                                                                                        ------------     -------------
          Net deferred income tax liabilities....................................       $    11,189      $    12,279
                                                                                        ============     =============
     Net current deferred income tax liabilities.................................       $     2,166      $     1,674
     Net non-current deferred income tax liabilities.............................             9,023           10,605
                                                                                        ------------     -------------
          Net deferred income tax liabilities....................................       $    11,189      $    12,279
                                                                                        ============     =============
</TABLE>
     The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                          Year Ended
                                                         ---------------------------------------------
                                                         January 31,      January 30,     January 29,
                                                             1998            1999            2000
                                                         -------------    ------------    ------------
<S>                                                      <C>              <C>             <C>
           Current domestic taxes....................    $    13,110      $   14,880      $    7,122
           Current foreign taxes.....................            600          (1,759)           (410)
           Deferred taxes............................          1,818           2,202           1,089
                                                         -------------    ------------    ------------
           Income tax expense........................    $    15,528      $   15,323      $    7,801
                                                         =============    ============    ============

</TABLE>






                                      F-18
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8--INCOME TAXES (continued)

     A  reconciliation  of the income tax  provision  computed by  applying  the
federal statutory rate to Income (loss) before income taxes to the Provision for
income taxes on the  accompanying  Consolidated  Statements  of Operations is as
follows (in thousands):
<TABLE>
<CAPTION>

                                                                          Year Ended
                                                         ---------------------------------------------
                                                         January 31,      January 30,     January 29,
                                                             1998            1999            2000
                                                         -------------    ------------    ------------
<S>                                                      <C>              <C>             <C>
     Federal Statutory provision....................     $    12,757      $    13,046     $     5,902
     Foreign taxes..................................             600           (1,759)           (410)
     State tax, net of federal benefit..............           1,589            1,096             714
     Non-deductible amortization....................           1,037            1,037           1,037
     Loss (benefit) of foreign tax credit...........            (600)           1,759             410
     Other..........................................             145              144             148
                                                         -------------    ------------    ------------
     Provision for income taxes.....................     $    15,528      $    15,323     $     7,801
                                                         =============    ============    ============
</TABLE>

     Section 382 of the Code restricts utilization of net operating loss ("NOL")
carryforwards  after an ownership  change  exceeding 50%. As a result of certain
recapitalization  transactions  in 1993,  a change in  ownership  of the Holding
Company  exceeding 50% occurred within the meaning of Section 382 of the Code (a
"Change of Control").  Similar  restrictions will apply to other  carryforwards.
Consequently, there is a material limitation on the annual utilization of Finlay
Jewelry's NOL and other  carryforwards  which requires a deferral or loss of the
utilization of such carryforwards. At October 31, 1999, Finlay Jewelry has a NOL
carryforward for tax purposes of approximately $7,500,000 which is subject to an
annual limit of approximately  $2,000,000 per year, of which $3,500,000  expires
in 2004 and $4,000,000  expires in 2005. At October 31, 1999, Finlay Jewelry had
investment tax credit ("ITC")  carryovers of approximately  $31,000 which expire
in 2000. At October 31, 1999,  Finlay Jewelry also had  Alternative  Minimum Tax
Credit ("AMT")  carryovers of $566,000 which may be used  indefinitely to reduce
federal income taxes.  An additional  change in ownership  within the meaning of
Section  382 of the Code  occurred  as a result of the 1997  Offering.  However,
there were no additional  restrictions  upon Finlay Jewelry's ability to utilize
its NOLs or other carryforwards as a result of such ownership change.

     SFAS No. 109 "Accounting  for Income Taxes,"  requires that the tax benefit
of such  NOLs  and tax  credits  be  recorded  as an asset  to the  extent  that
management  assesses  the  utilization  to be "more  likely  than  not".  As the
accompanying  Consolidated Financial Statements include profits earned after the
tax year end at October 31 (the  profit of the  year-end  holiday  season),  for
financial  reporting  purposes only, the NOL  carryforward  has been absorbed in
full and no NOL carryfoward exists as of January 29, 2000. Management determined
at January 29,  2000,  that based upon  Finlay  Jewelry's  history of  operating
earnings  and its  expectations  for the  future,  no  change  to the  valuation
allowance is  warranted,  with the  exception of amounts  utilized to offset the
expiration during 1999 of an ITC carryover.








                                      F-19
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9--COMMITMENTS AND CONTINGENCIES

     Finlay Jewelry, from time to time, is involved in litigation concerning its
business  affairs.  Management  believes  that  the  resolution  of all  pending
litigation will not have a material adverse effect on the consolidated financial
statements.

     Finlay Jewelry has an employment  agreement with one senior executive which
provides for a minimum salary level as well as incentive  compensation  based on
meeting  specific  financial  goals.  Such agreement has a remaining term of one
year and has a remaining  aggregate  minimum value of $750,000 as of January 29,
2000.

     The Revolving  Credit  Agreement,  the Gold  Consignment  Agreement and the
Senior  Note  Indenture  currently  restrict  annual  distributions  from Finlay
Jewelry to the Holding  Company to 0.25% of Finlay  Jewelry's  net sales for the
preceding  fiscal year and also allow  distributions  to the Holding  Company to
enable it to make  interest  payments  on the Senior  Debentures.  During  1999,
dividends of $8,909,000  were declared and  $7,159,000  was  distributed  to the
Holding  Company.  During  1998,  dividends  of  $7,118,000  were  declared  and
$3,506,000 was  distributed to the Holding  Company.  During 1997,  dividends of
$1,712,000 were declared.

     Finlay  Jewelry's  concentration  of credit risk  consists  principally  of
accounts  receivable.  Approximately 72%, 68% and 68% of Finlay's domestic sales
in 1997, 1998 and 1999, respectively, were from operations in The May Department
Stores  Company  ("May")  and  departments  operated  in store  groups  owned by
Federated Department Stores ("Federated"), of which 49%, 47% and 46% represented
Finlay's  domestic  sales  in May and  23%,  21% and  22%  represented  Finlay's
domestic sales in Federated.  Finlay Jewelry  believes that the risk  associated
with these receivables,  other than those from department store groups indicated
above,  would not have a material adverse effect on Finlay  Jewelry's  financial
position or results of operations.










                                      F-20
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10--QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following  table  summarizes the quarterly  financial data for 1998 and
1999 (dollars in thousands):
<TABLE>
<CAPTION>

                                                                         Year Ended January 30, 1999
                                                      ------------------------------------------------------------------
                                                         First            Second            Third            Fourth
                                                        Quarter         Quarter (a)        Quarter           Quarter
                                                      ------------     --------------    ------------     --------------
<S>                                                   <C>               <C>              <C>              <C>
  Sales..........................................     $   160,992       $    177,366     $   165,894      $    359,176
  Gross margin...................................          82,888             90,057          84,687           184,346
  Net income (loss)..............................          (2,574)            (5,093)         (2,655)           27,519
</TABLE>

<TABLE>
<CAPTION>

                                                                         Year Ended January 29, 2000
                                                      ------------------------------------------------------------------
                                                         First            Second            Third            Fourth
                                                        Quarter           Quarter          Quarter         Quarter (b)
                                                      ------------     --------------    ------------     --------------
<S>                                                   <C>               <C>              <C>              <C>
  Sales..........................................     $   168,379       $    183,367     $   175,280      $    385,952
  Gross margin...................................          86,460             92,929          88,649           187,189
  Net income (loss)..............................          (1,847)               595          (2,145)           12,459

</TABLE>

----------------------
(a)  The second  quarter of 1998  includes  $417,000  of  nonrecurring  interest
     expense   associated   with  the  refinancing  of  the  Old  Notes  and  an
     extraordinary  charge,  net of tax, of $4,755,000 in  conjunction  with the
     repayment of the Old Notes.

(b)  The fourth quarter of 1999 includes a pre-tax  nonrecurring charge totaling
     $28,631,000 associated with sale and closure of Sonab.

NOTE 11--DIAMOND PARK ACQUISITION

     On October 6, 1997,  Finlay  completed the acquisition of certain assets of
the Diamond Park Fine Jewelers division of Zale Corporation  ("Diamond Park"), a
leading operator of leased departments,  for approximately $63.0 million,  which
includes  approximately  $4.9 million for the purchase of  additional  inventory
acquired in March 1998 and the reimbursement of certain expenses incurred by the
Zale  Corporation.  By acquiring  Diamond Park, Finlay added 139 departments and
also added new host store  relationships  with  Marshall  Field's,  Parisian and
Dillard's,  formerly the Mercantile  Stores.  Finlay financed the acquisition of
Diamond  Park  (the  "Diamond  Park  Acquisition")  with  borrowings  under  the
Revolving Credit Agreement.









                                      F-21
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11--DIAMOND PARK ACQUISITION (continued)

     The  Diamond  Park  Acquisition  was  accounted  for  as a  purchase,  and,
accordingly,  the operating  results of the former Diamond Park departments have
been included in Finlay Jewelry's  consolidated  financial  statements since the
date of the acquisition.  Finlay Jewelry has recorded  goodwill of approximately
$12.4 million.

     The purchase price allocation as of January 30, 1999 is as follows:
<TABLE>
<CAPTION>

<S>                                                                                         <C>
         Payment for purchase of Diamond Park assets....................                    $   62,481
           Inventory....................................................     $   47,112
              Fixed assets..............................................          4,443
              Prepaid and other assets..................................            900
              Acquisition and integration costs.........................         (1,520)
              Other.....................................................           (836)
                                                                             -----------
         Fair value of assets acquired and costs incurred...............                        50,099
                                                                                            ------------
         Goodwill.......................................................                    $   12,382
                                                                                            ============
</TABLE>

     Unaudited  pro forma  combined  results  of  operations  for the year ended
January 31, 1998, prepared assuming the Diamond Park Acquisition occurred at the
beginning of the period,  reflects sales of $822.8 million and net income (loss)
of $19.7  million.  This pro forma  information  is provided  for  informational
purposes  only  and is  based  on  historical  information,  as well as  certain
assumptions  and  estimates.  This pro forma  information  does not  necessarily
reflect  the  actual  results  that would have  occurred  nor is it  necessarily
indicative of future results of operations of the combined company.

NOTE 12--SALE AND CLOSURE OF SONAB

     On January 3, 2000,  Societe  Nouvelle  d'Achat de  Bijouterie - S.O.N.A.B.
("Sonab"),  Finlay Jewelry's European leased jewelry department subsidiary, sold
the majority of its assets for  approximately  $9.9  million.  As of January 29,
2000,  Sonab had received  $1.2 million of the sale proceeds with the balance of
$8.7 million included Other receivables in the accompanying Consolidated Balance
Sheets.  Sonab  received an  additional  $6.8 million in February  2000 upon the
completion of the  post-closing  audit,  and the balance of $1.9 million remains
subject to certain escrow  arrangements  among the parties.  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.












                                      F-22
<PAGE>
                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12--SALE AND CLOSURE OF SONAB (continued)

     Finlay  Jewelry  recorded a pre-tax charge in the fourth quarter of 1999 of
$28.6 million for the write-down of assets for  disposition  and related closure
expenses.  The pre-tax  components of the charge, the related income tax effects
and the net cash portion of the charge are as follows (dollars in millions):
<TABLE>
<CAPTION>

<S>                                                                                             <C>
      Costs associated with the write-down of inventory for liquidation................         $    7.8
      Costs associated with the write off of undepreciated fixed assets................              1.5
      Realization of foreign exchange losses...........................................              9.2
      Payroll and severance costs......................................................              5.0
      Other close-down costs (a).......................................................              5.1
                                                                                                -----------

      Sub-total........................................................................             28.6
      Income tax benefit...............................................................            (11.6)
                                                                                                -----------

      Net after tax....................................................................             17.0
      Non cash-Foreign exchange losses above...........................................             (9.2)
                                                                                                -----------

      Net cash portion of charge.......................................................         $    7.8
                                                                                                ===========
</TABLE>

------------------------
(a)  Including  transfer of  inventory,  furniture  removal,  main office  costs
     during close down period, lease termination costs,  outstanding  litigation
     and professional fees.

     Included in the  accompanying  Consolidated  Balance  Sheets at January 29,
2000 under the caption of Accrued  Salaries  and  benefits  is $5.0  million for
payroll and severance  costs and under the caption of Other accrued  liabilities
is approximately $4.5 million for various close-down costs.

NOTE 13--SUBSEQUENT EVENT (UNAUDITED) - JAY B. RUDOLPH, INC. ACQUISITION

     On April 3, 2000, Finlay completed the acquisition of certain assets of Jay
B.  Rudolph,  Inc.  ("J.B.  Rudolph")  for $21.1  million,  subject  to  certain
post-closing adjustments. By acquiring J.B. Rudolph, Finlay added 57 departments
and also added new host store relationships with Bloomingdale's,  Dayton's,  and
Hudson's.  Finlay financed the acquisition of J.B. Rudolph with borrowings under
the Revolving Credit Agreement.

















                                      F-23