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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  February 3, 2001

         __    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 25, 2001,  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 FEBRUARY 3, 2001

                                      INDEX

<TABLE>
<CAPTION>
                                                                                       Page(s)
                                                                                       -------
<S>                                                                                     <C>
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.................................28
    Item 9.    Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure......................................28

PART III
    Item 10.   Directors and Executive Officers of the Registrant..........................29
    Item 11.   Executive Compensation......................................................32
    Item 12.   Security Ownership of Certain Beneficial Owners and Management..............39
    Item 13.   Certain Relationships and Related Transactions..............................42

PART IV
    Item 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K.............45

SIGNATURES        .........................................................................52
</TABLE>

                                       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 completion of the acquisition of certain assets of Jay B. Rudolph, Inc.
("J.B.   Rudolph")   in  April  2000,   Finlay  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  $180 per item.  Average sales per
Department  were  $981,000  in 2000  and the  average  size of a  Department  is
approximately 720 square feet.

     On a  domestic  basis,  excluding  operating  results  of  Finlay's  former
international  division,  Finlay's  sales have  increased from $634.9 million in
1996 to $1.0 billion in 2000,  a compound  annual  growth rate of 12.0%.  Income
from  operations  has increased  from $49.5 million to $77.3 million in the same
period,  a compound  annual  growth rate of 11.8%.  Finlay has increased in size
from 834  locations at the  beginning  of 1996 to 1,053  locations at the end of
2000.

     As of February 3, 2001,  Finlay  operated  its 1,053  locations  in 25 host
store groups,  in 46 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  421
department  stores.  Finlay's  second  largest host store  relationship  is with
Federated, for which Finlay has operated Departments since 1983. Finlay operates
Departments in 179 of Federated's  428 department  stores.  On February 8, 2001,
Federated  announced its plans to close its Stern's  division.  Finlay currently
operates  Departments  in 23 Stern's  stores and expects the  closings to reduce
sales in 2001 by an estimated  $22.0 million.  Over the past three years,  store
groups  owned by May and  Federated  accounted  for an  average  of 47% and 22%,
respectively,  of Finlay'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 79% of Finlay's sales in 2000) and
15 of which have had leases  with  Finlay for more than ten years  (representing
69% of Finlay's sales in 2000).

     On April 3, 2000,  Finlay  completed the  acquisition  of certain assets of
J.B.  Rudolph for $20.6  million,  consisting  primarily of inventory  and fixed
assets. By acquiring J.B. Rudolph (the "J.B. Rudolph Acquisition"), Finlay added
57 Departments and also added new host store relationships with  Bloomingdale's,
Dayton's  and  Hudson's.  Finlay  financed  the J.B.  Rudolph  Acquisition  with
borrowings  under Finlay's  revolving  credit  agreement  with General  Electric
Capital  Corporation  and the  other  lenders  thereto  (the  "Revolving  Credit
Agreement").  The J.B. Rudolph Acquisition was accounted for as a purchase, and,
accordingly,  the operating results of the former J.B. Rudolph  departments have
been included in Finlay Jewelry's  consolidated  financial  statements since the
date of acquisition.

                                       3
<PAGE>

     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 in 1999. Finlay Jewelry recorded a
pre-tax charge 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.

     On  December  1, 2000,  the  Holding  Company  announced  that its Board of
Directors had approved a stock  repurchase  program to acquire up to $20 million
of outstanding  common stock, par value $.01 per share ("Common  Stock").  Under
the program,  the Holding  Company may, from time to time, at the  discretion of
management,  purchase its Common Stock on the open market through  September 29,
2001. The extent and timing of repurchases will depend upon general business and
market  conditions,  stock prices,  availability under Finlay's revolving credit
facility and its cash position and requirements going forward.

     On April 24,  1998,  the Holding  Company  completed  a public  offering of
1,800,000  shares of its 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 8"%  Senior  Notes due May 1, 2008 (the  "Senior
Notes"), respectively. In addition, on April 24, 1998, Finlay's 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 10"% Senior Notes due 2003 (the "Old Notes"),  including
associated premiums.  The above transactions,  excluding the 1998 Offering,  are
referred to herein as the "Refinancing".

     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 1996,  1997,  1998,  1999, 2000 and 2001 relate to the fiscal years ending on
February 1, 1997, January 31, 1998, January 30, 1999, January 29, 2000, February
3, 2001 and February 2, 2002, respectively. Each of the fiscal years includes 52
weeks except 2000, which includes 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.

                                       4

<PAGE>

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.

     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  $52.6 billion on jewelry
(including  both fine and  costume  jewelry)  in the United  States in 2000,  an
increase of  approximately  $22.3  billion  over 1990,  according  to the United
States  Department of Commerce.  In the department  store sector in which Finlay
operates,  consumers  spent  $4.6  billion on fine  jewelry in 1999.  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:

o    Increase  Comparable  Department  Sales.  In 1998,  1999 and  2000,  Finlay
     achieved domestic  comparable  Department sales increases of 5.4%, 8.1% and
     2.1%,  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.

o    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 421 department stores.  Finlay has
     also  operated  Departments  in  Federated  stores  since 1983 and operates
     Departments in 179 of Federated's 428 department stores (before the closing
     of Stern's).
                                       5

<PAGE>


o    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 or have an interest in
     opening   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 and Elder Beerman.
     Through   acquisitions   Finlay  has  added  Marshall  Field's,   Parisian,
     Dillard's,  Bloomingdale's,   Dayton's  and  Hudson's  to  its  host  store
     relationships.

o    Continue to Improve Operating Leverage. Selling, general and administrative
     expenses as a percentage  of sales  declined from 42.2% in 1996 to 40.9% in
     2000.  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.

                                       6
<PAGE>

                               The Finlay Triangle

                                   [GRAPHIC]


     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  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 February 3, 2001,  Finlay  operated 1,053
locations  (including  two  stand-alone  stores) in 25 host store groups,  in 46
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 421  department  stores.  Finlay's  second
largest host store relationship is with Federated, for which Finlay has operated
Departments  since 1983.  Finlay operates  Departments in 179 of Federated's 428
department  stores  (before the closing of Stern's).  Over the past three years,
store groups owned by May and Federated accounted for an average of 47% and 22%,
respectively, of Finlay's domestic sales.

     Finlay  also  operates  140  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 79% of Finlay's sales in 2000) and
15 of which have had leases  with  Finlay for more than ten years  (representing
69% of  Finlay's  sales in 2000).  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 February 3, 2001, 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
-------------------------                                           ------------        ------------------
<S>                                                                     <C>                     <C>            <C>
May
Robinsons-May..............................................             1948                    55
Filene's...................................................             1977                    42
Lord & Taylor..............................................             1978                    82
Famous Barr/L.S. Ayres/Jones...............................             1979                    42
Kaufmann's.................................................             1979                    51
Foley's....................................................             1986                    60
Hecht's/Strawbridge's......................................             1986                    74
Meier & Frank..............................................             1988                    15
                                                                                              ------
    Total May Departments..................................                                                    421

Federated
Rich's/Lazarus/Goldsmith's.................................             1983                    68
Burdines...................................................             1992                    45
The Bon March..............................................             1993                    20
Stern's (1) ...............................................             1994                    23
Bloomingdale's.............................................             2000                    23
                                                                                              ------
    Total Federated Departments............................                                                    179

Saks Incorporated
Younkers...................................................             1973                    32
Carson Pirie Scott/Bergner's/Boston Store..................             1977                    51
Proffitt's.................................................             1991                    16
Parisian...................................................             1997                    35
Herberger's................................................             1999                     6
                                                                                              ------
   Total Saks Incorporated Departments.....................                                                    140

Other Departments
Gottschalks................................................             1969                    39
Belk.......................................................             1975                    63
Liberty House..............................................             1983                    12
The Bon-Ton................................................             1986                    45
Elder Beerman..............................................             1992                    34
Dillard's..................................................             1997                    63
Marshall Field's/Dayton's/Hudson's (2).....................          1997/2000                  55
                                                                                              ------
   Total Other Departments.................................                                                    311
                                                                                                           ---------
   Total Departments.......................................                                                  1,051

Stand-Alone Stores
New York Jewelry Outlet....................................             1994                                     2
                                                                                                           ---------
     Total Departments and Stand-Alone Stores..............                                                  1,053
                                                                                                           =========
</TABLE>

------------------------------------------------------------------
(1) Federated has announced that it will be closing these locations in 2001.
(2) The relationship with Dayton's and Hudson's commenced in 2000 as a result of
    the J.B. Rudolph Acquisition.

                                       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 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 and the J.B. Rudolph Acquisition.

     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  2000,  Department  openings  offset by
closings  resulted in a net increase of 66 Departments.  The openings totaled 86
and included 57 Departments as a result of the J.B. Rudolph  Acquisition,  seven
Departments as a result of May's  acquisition of ZCMI and 22 Departments  within
existing store groups. The closings,  which totaled 20, were all within existing
store  groups,  including  six of Finlay's  outlet stores which were sold in May
2000.  See  "Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations--2000 Compared with 1999".

     The  following  table  sets  forth data  regarding  the number of  domestic
Departments and stand-alone  stores which Finlay has operated from the beginning
of 1996:

<TABLE>
<CAPTION>
                                                                    Fiscal Year Ended
                                               -------------------------------------------------------
                                                Feb. 1,   Jan. 31,    Jan. 30,   Jan. 29,    Feb. 3,
                                                 1997       1998        1999       2000        2001
                                               --------  ---------    --------   ---------   ---------
<S>                                               <C>        <C>         <C>        <C>       <C>
Departments/Stores:
Open at beginning of period .............         834        797         959        959          987
Opened during period ....................          47        172          68         61           86
Closed during period ....................         (84)       (10)        (68)       (33)         (20)
                                                 ----       ----        ----       ----       ------
Open at end of period ...................         797        959         959        987        1,053
                                                 ----       ----        ----       ----       ------
Net increase (decrease) .................         (37)       162          --         28           66
                                                 ====       ====        ====       ====       ======
</TABLE>

     For the periods  presented in the table  above,  Department  closings  were
primarily   attributable  to:  ownership  changes  in  host  store  groups;  the
bankruptcy  of certain host store  groups;  internal  consolidation  within host
store  groups;  the closing or sale by host store groups of  individual  stores;
host store group decisions to consolidate with one lessee; and Finlay's decision
to  close  unprofitable  Departments.  To  management's  knowledge,  none of the
Department  closings  during the periods  presented in the table above  resulted
from dissatisfaction of a host store group with 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 1998, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                  Fiscal Year Ended
                                -----------------------------------------------------------------------------------
                                      Jan. 30, 1999                 Jan. 29, 2000                 Feb. 3, 2001
                                -------------------------    ------------------------    --------------------------
                                                % of                        % of                            % of
                                  Sales          Sales         Sales         Sales           Sales          Sales
                                ----------     ----------    ----------    ----------    -----------      --------
                                                              (Dollars in millions)
<S>                               <C>             <C>         <C>             <C>         <C>                <C>
Diamonds ...................      $  192.0         23.4%      $  219.1         24.7%      $    267.7         26.7%
Gold .......................         182.0         22.1          193.1         21.8            222.3         22.2
Gemstones ..................         184.4         22.4          194.5         22.0            209.5         21.0
Watches ....................         147.0         17.9          151.7         17.1            167.9         16.8
Other (1) ..................         116.6         14.2          127.8         14.4            132.7         13.3
                                    ------        -----         ------        -----         --------        -----
Total Sales ................      $  822.0        100.0%      $  886.2        100.0%      $  1,000.1        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 2000,  the average  price of items sold by Finlay was  approximately
$180 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 2000,  Finlay's net monthly investment in inventory (i.e., the
total cost of  inventory  owned and paid for)  averaged 31% 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 2000, merchandise obtained by Finlay from its 40 largest vendors (out of
a total of approximately 500 vendors) generated  approximately 76% of sales, and
merchandise obtained from Finlay's largest vendor generated approximately 11% of
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) 130,000 fine troy ounces or (ii)
$37.0  million  worth of gold,  subject to a formula as  prescribed  by the Gold
Consignment  Agreement.  At February 3, 2001, amounts outstanding under the Gold
Consignment  Agreement totaled 118,597 fine troy ounces, valued at approximately
$31.4  million.  The  average  amount  outstanding  under  the Gold  Consignment
Agreement was $28.0 million in 2000.

     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  February  3, 2001,  was 2.8% 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  72 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  customer  service and, as a result,
sales.

                                       12

<PAGE>

     Finlay had average domestic sales per linear foot of approximately  $12,200
in 1998,  $12,700 in 1999 and $13,600 in 2000. 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  $857,000,  $911,000 and
$981,000 in 1998, 1999 and 2000, 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 2000, Finlay employed  approximately  8,000 persons in the
United  States,  approximately  95% 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 8,000  employees,  approximately  4,400 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 2000,  inventory  shrinkage amounted to approximately 1.2% 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
approximately  4.5% of Finlay  Jewelry's cost of goods sold in 2000.  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 February 3, 2001, Finlay Jewelry had
several open positions in futures contracts,  for gold totaling 46,300 fine troy
ounces, valued at $12.6 million, which expire during 2001. The fair market value
of such contracts was $12.3 million at February 3, 2001.

     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  September 30, 2001. For
certain  operations at 500 Eighth Avenue,  New York, New York, Finlay has leased
approximately  9,200 square feet under a lease which  expires  January 31, 2002.
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 2000.

                                       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 2000,  cash  dividends of $7.6  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 25,
2001.


                                       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  29,  2000 and  February  3,  2001 and the
statement  of  operations  data for each of the fiscal  years ended  January 30,
1999,  January 29,  2000 and  February 3, 2001 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 1, 1997,  January 31,  1998 and January 30, 1999 and the  statement  of
operations data for the fiscal years ended February 1, 1997 and January 31, 1998
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. 1,    Jan. 31,    Jan. 30,    Jan. 29,      Feb. 3,
                                                                     1997        1998        1999        2000         2001
                                                                   --------    --------    --------    --------    ----------
                                                                                      (Dollars in thousands)
<S>                                                                <C>         <C>         <C>         <C>         <C>
Statement of Operations Data:
   Sales .......................................................   $685,274    $769,862    $863,428    $912,978    $1,000,120
   Cost of sales ...............................................    330,300     371,085     421,450     449,912       496,291
   Cost of sales - Sonab inventory write-down (2) ..............         --          --          --       7,839            --
                                                                   --------    --------    --------    --------      --------
   Gross margin (3) ............................................    354,974     398,777     441,978     455,227       503,829
   Selling, general and administrative expenses ................    289,145     325,752     364,002     378,112       409,019
   Nonrecurring charges associated with the sale
     and closure of Sonab (2) ..................................         --          --          --      20,792            --
   Depreciation and amortization ...............................     10,840      12,163      15,672      16,895        17,549
                                                                   --------    --------    --------    --------      --------
   Income (loss) from operations ...............................     54,989      60,862      62,304      39,428        77,261
   Interest expense, net .......................................     22,526      24,413      24,612      22,565        23,117
   Nonrecurring interest associated with
     refinancing (4) ...........................................         --          --         417          --            --
                                                                   --------    --------    --------    --------      --------
   Income (loss) before income taxes and
     extraordinary charges .....................................     32,463      36,449      37,275      16,863        54,144
   Provision (benefit) for income taxes ........................     14,501      15,528      15,323       7,801        22,715
                                                                   --------    --------    --------    --------      --------
   Income (loss) before extraordinary charges ..................     17,962      20,921      21,952       9,062        31,429
   Extraordinary charges from early extinguishment
     of debt, net (5) ..........................................         --          --       4,755          --            --
                                                                   --------    --------    --------    --------      --------
   Net income (loss) ...........................................   $ 17,962    $ 20,921    $ 17,197    $  9,062    $   31,429
                                                                   ========    ========    ========    ========      ========

Operating and Financial Data:
   Number of Departments (end of period) (6):
     Consolidated ..............................................        939       1,117       1,109         987         1,053
     Domestic ..................................................        797         959         959         987         1,053
   Percentage increase in sales ................................        4.7%       12.3%       12.2%        5.7%          9.5%
   Percentage increase in comparable Department sales (6)(7):
     Consolidated ..............................................        5.9%        5.5%        3.9%        6.8%          2.1%
     Domestic ..................................................        6.0%        5.7%        5.4%        8.1%          2.1%
   Average domestic sales per Department (8) ...................   $    779    $    820    $    857    $    911    $      981
   EBITDA (9) ..................................................     65,829      73,025      77,976      56,323        94,810
   Capital expenditures ........................................     17,533      19,338      14,874      14,972        18,118

</TABLE>

                                       17

<PAGE>

<TABLE>
<CAPTION>
                                                                                Fiscal Year Ended (1)
                                                        ----------------------------------------------------------------------
                                                          Feb. 1,        Jan. 31,      Jan. 30,      Jan. 29,        Feb. 3,
                                                           1997            1998          1999          2000            2001
                                                        ------------     ----------    ----------    ----------     ----------
                                                                                       (Dollars in thousands)
<S>                                                      <C>            <C>           <C>            <C>            <C>
Cash flows provided from (used in):
   Operating activities .............................    $   14,197     $   74,314    $   (13,018)   $   46,448     $   34,455
   Investing activities .............................       (18,372)       (79,366)       (23,134)      (21,054)       (30,403)
   Financing activities .............................        (1,024)        (2,349)        40,067        (7,159)        (7,640)

Balance Sheet Data-End of Period:
   Working capital ..................................    $   75,692     $   65,705    $   126,723    $  132,696     $  152,003
   Total assets .....................................       416,808        501,454        541,403       554,994        604,500
   Short-term debt, including current portion of
     long-term debt .................................             2             --             --            --             --
   Long-term debt, excluding current portion ........       135,000        135,000        150,000       150,000        150,000
   Total stockholder's equity (deficit) .............        86,410        101,826        152,083       157,026        179,423

</TABLE>

----------------

(1)  Each of the fiscal years for which  information  is  presented  includes 52
     weeks except 2000, 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: $1.9 million, $(2.3) million, $(1.0)
     million,  $(1.1) million and $1.8 million for 1996,  1997,  1998,  1999 and
     2000, respectively.

(4)  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.

(5)  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.

(6)  Includes Departments and stand-alone locations.

(7)  Comparable  Department  sales are  calculated  by comparing  the sales from
     Departments open for the same months in the comparable periods.

(8)  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.

(9)  EBITDA   represents   income  from  operations   before   depreciation  and
     amortization   expenses.   For  1999,   consolidated  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 1998,  sales have  increased  by $136.7  million to $1.0  billion,  a
compound  annual growth rate of 7.6%,  while  comparable  Department  sales have
increased  by  3.9%,  6.8%  and  2.1% in  1998,  1999  and  2000,  respectively.
Comparable  Department sales include Departments open for the same months during
comparable periods. Domestic comparable Department sales during this same period
increased 5.4%, 8.1% and 2.1%. The increase in total sales during this period is
the result of (i) adding new Departments, including 57 Departments from the J.B.
Rudolph 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;  and (iii)  positioning
Finlay's Departments as a "destination location" for fine jewelry.

     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 51.2% in 1998 to
50.4% in 2000.  This decrease is  principally  the result of Finlay's "Key Item"
and "Best  Value"  programs,  which  produce  higher sales volume and a slightly
lower gross margin, on average, than other merchandise and the LIFO provision in
2000 compared to a LIFO benefit in 1998.

     Selling,  general and  administrative  expenses ("SG&A") as a percentage of
sales have decreased from 42.2% in 1998 to 40.9% in 2000.  Management attributes
this  improvement to (i) leveraging  operating  expenses through higher domestic
sales, (ii) reducing payroll expense,  as a percentage of sales,  which reflects
management's  continued initiatives in controlling payroll hours and labor rates
and (iii) the impact of the  operation  of the  central  distribution  center in
consolidating the inventory processing function,  as it became fully operational
in the Spring of 1998. The  components of SG&A include  payroll  expense,  lease
fees, net advertising expenditures and other field and administrative expenses.

                                       19

<PAGE>

     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
2000,  interest expense has been favorably  impacted as compared to 1998. Finlay
also  records  approximately  $3.7  million of  goodwill  amortization  annually
resulting  primarily  from the 1988 Leveraged  Recapitalization  and the Diamond
Park Acquisition.

     On April 3, 2000,  Finlay  completed the  acquisition  of certain assets of
J.B.  Rudolph,  a leading  operator  of  departments,  for  approximately  $20.6
million.  By acquiring J.B. Rudolph,  Finlay added 57 Departments and also added
new host store relationships with Bloomingdale's, Dayton's and Hudson's.

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. 30,       Jan. 29,       Feb. 3,
                                                                                   1999           2000          2001
                                                                               ------------  -------------  ----------
<S>                                                                            <C>           <C>            <C>
Statement of Operations Data:
Sales ......................................................................       100.0%        100.0%         100.0%
Cost of sales ..............................................................        48.8          49.3           49.6
Cost of sales - Sonab inventory write-down (1) .............................        --             0.8             --
                                                                                   -----         -----          -----
  Gross margin .............................................................        51.2          49.9           50.4
Selling, general and administrative expenses ...............................        42.2          41.4           40.9
Nonrecurring charges associated with the sale and closure of Sonab (1) .....          --           2.3             --
Depreciation and amortization ..............................................         1.8           1.9            1.8
                                                                                   -----         -----          -----
Income (loss) from operations ..............................................         7.2           4.3            7.7
Interest expense, net ......................................................         2.8           2.5            2.3
Nonrecurring interest associated with refinancing (2) ......................         0.1            --             --
                                                                                   -----         -----          -----
Income (loss) before income taxes and extraordinary charges ................         4.3           1.8            5.4
Provision for income taxes .................................................         1.8           0.8            2.3
                                                                                   -----         -----          -----
Income (loss) before extraordinary charges .................................         2.5           1.0            3.1
Extraordinary charges from early extinquishment of debt, net (3) ...........         0.6            --             --
                                                                                   -----         -----          -----
Net income (loss) ..........................................................         1.9%          1.0%           3.1%
                                                                                   =====         =====          =====
Other Supplemental Data:
EBITDA (4)(5) ..............................................................         9.0%          6.2%           9.5%

</TABLE>

----------------

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

(2)  See Note 4 to "Selected Consolidated Financial Data".

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

(4)  EBITDA   represents   income  from  operations   before   depreciation  and
     amortization  expenses.  Finlay Jewelry believes EBITDA provides additional
     information  for  determining  its  ability  to meet  future  debt  service
     requirements. See Note 9 to "Selected Consolidated Financial Data".

(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%.

                                       20
<PAGE>

2000 Compared with 1999

     Sales.  Sales increased  $87.1 million,  or 9.5%, in 2000 compared to 1999.
Comparable  Department sales increased 2.1%. 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. These
factors  were offset by a general  softening  in the retail  environment  in the
latter part of 2000. Sales from the operation of net new Departments contributed
$68.0 million,  primarily  relating to the J.B. Rudolph  Acquisition and the net
effect of new store  openings  and  closings  offset by the sale and  closure of
Sonab at the end of 1999. Excluding Sonab's sales which totaled $26.8 million in
1999, sales on a domestic basis increased 12.9% in 2000.

     During 2000,  Finlay opened 86 Departments and closed 20  Departments.  The
Department openings were comprised of the following:

<TABLE>
<CAPTION>
                                            Number of
                                           Departments/
               Store Group                    Stores                              Reason
    -----------------------------------    -------------     -------------------------------------------------
<S>                                        <C>               <C>
    Bloomingdale's..................             23          J.B. Rudolph Acquisition.
    Hudson's........................             21          J.B. Rudolph Acquisition.
    Dayton's........................             13          J.B. Rudolph Acquisition.
    Meier & Frank...................              7          May's acquisition of ZCMI.
    Other...........................             22          Department openings within existing store groups.
                                               ----
                                                 86
                                               ====
</TABLE>

      The Department closings were comprised of the following:

<TABLE>
<CAPTION>
                                            Number of
                                           Departments/
               Store Group                    Stores                              Reason
    -----------------------------------    -------------     -------------------------------------------------
<S>                                        <C>               <C>
    New York Jewelry Outlet.........              6          Sold in May 2000.
    Other...........................             14          Department closings within existing store groups.
                                               ----
                                                 20
                                               ====
</TABLE>

     Gross margin.  Gross margin  increased by $48.6 million in 2000 compared to
1999 and, as a percentage of sales,  gross margin  increased by 0.5%,  primarily
due to a nonrecurring  charge in 1999 of $7.8 million relating to the write-down
of  inventory  in  conjunction  with the sale and closure of Sonab's  operations
offset by (i) management's  continued efforts to increase market penetration and
market share  through its pricing  strategy and (ii) a charge of $1.8 million in
the LIFO provision compared to the prior year's benefit of $1.0 million.

     Selling,  general and administrative expenses. SG&A totaled $409.0 million,
an increase of $30.9 million, or 8.2%, in 2000 compared to 1999 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 40.9% in 2000 from 41.4% in
1999 as a result of the negative  impact of Sonab's 1999 SG&A as a percentage of
sales in addition to expenses related to Finlay's year 2000 remediation  project
of approximately $2.0 million in 1999. On a domestic basis, SG&A as a percentage
of sales improved 0.1%.

     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
in 1999.  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.

                                       21

<PAGE>

     Depreciation and amortization.  Depreciation and amortization  increased by
$0.7  million in 2000  compared  to 1999,  reflecting  $18.1  million in capital
expenditures  and an increase in capitalized  software costs for the most recent
twelve months.  These costs were offset by the effect of certain assets becoming
fully  depreciated,  as well as the  disposition  and write-off of Sonab's fixed
assets.  On a domestic basis,  depreciation and  amortization  increased by $1.3
million.  The increase in fixed assets was  primarily due to the addition of new
Departments,  the  renovation of existing  Departments  and the inclusion of the
cost of fixed assets acquired in connection with the J.B. Rudolph Acquisition.

     Interest   expense,   net.  Interest  expense  increased  by  $0.6  million
reflecting a higher  weighted  average  interest rate (8.5% for 2000 compared to
8.0% for 1999)  offset  slightly  by a decrease  in average  borrowings  ($246.6
million for 2000 compared to $254.2 million for 1999).

     Provision  for income  taxes.  The income tax  provision  for 2000 and 1999
reflects an effective tax rate of 40.5%.

     Net income.  Net income of $31.4 million for 2000 represents an increase of
$22.4  million as compared to net income of $9.1  million in 1999 as a result of
the factors discussed above. Excluding the nonrecurring charges in 1999 relating
to the sale and  closure of Sonab,  net income  for 2000,  on a domestic  basis,
increased by $1.5 million.


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>         <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>

                                       22

<PAGE>

     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.

     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  redemption  premiums 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.

                                       23

<PAGE>

     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.

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 and 2000,
capital  expenditures  totaled $15.0 million and $14.1 million (exclusive of the
fixed  assets  acquired in the J.B.  Rudolph  Acquisition,  which  totaled  $4.0
million),  respectively. Total capital expenditures for 2001 are estimated to be
approximately  $15.0 million.  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 $152.0  million at
February 3, 2001,  an increase  of $19.3  million  from  January 29,  2000.  The
increase resulted  primarily from the impact of 2000'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  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,  which  includes a $50.0 million  acquisition  facility.  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 February 3, 2001 and January 29, 2000 were
zero. The average amounts  outstanding  under the Revolving Credit Agreement for
1999 and 2000  $104.2  million  and  $96.6,  respectively.  The  maximum  amount
outstanding  for 2000 was  $155.6  million,  at which  point the  unused  excess
availability was $65.0 million, excluding the acquisition facility.

     On  December  1, 2000,  the  Holding  Company  announced  that its Board of
Directors had approved a stock  repurchase  program to acquire up to $20 million
of outstanding  Common Stock.  Under the program,  the Holding Company may, from
time to time, at the discretion of management,  purchase its Common Stock on the
open market  through  September 29, 2001.  The extent and timing of  repurchases
will  depend  upon  general  business  and  market  conditions,   stock  prices,
availability  under Finlay's revolving credit facility and its cash position and
requirements going forward.

                                       24

<PAGE>

     On April 3, 2000,  Finlay  completed the  acquisition  of certain assets of
J.B.  Rudolph for $20.6  million,  consisting  primarily of inventory  and fixed
assets.  The J.B. Rudolph  Acquisition  required  additional  working capital to
increase the inventory  levels in anticipation  of the year-end  holiday season.
Inventory  purchases for the former J.B. Rudolph  departments are being 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 $7.6 million in 2000 and the balance
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  February  3, 2001,  $381.7
million of consignment merchandise from approximately 300 vendors was on hand as
compared to $329.9 million at January 29, 2000. For 2000,  Finlay had an average
balance of  consignment  merchandise of $372.9 million as compared to an average
balance  of $321.7  million in 1999.  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 February 3, 2001,  Finlay Jewelry's  outstanding  borrowings
included a $150.0 million balance under the Senior Notes.

     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) 130,000 fine troy ounces or (ii) $37.0  million worth of
gold, subject to a formula as prescribed by the Gold Consignment  Agreement.  At
February  3, 2001,  amounts  outstanding  under the Gold  Consignment  Agreement
totaled 118,597 fine troy ounces,  valued at  approximately  $31.4 million.  The
average  amount  outstanding  under  the Gold  Consignment  Agreement  was $28.0
million in 2000.

     The year  2000  issue  did not pose  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.

     Finlay is in the process of  implementing  several  information  technology
initiatives,  including the design and development of a new merchandising system
and a point-of-sale system for Finlay's  Departments.  These projects will serve
to support  future  growth of Finlay as well as provide  improved  analysis  and
reporting  capabilities  and more  timely  sales and  inventory  information  to
facilitate  merchandising  solutions.  These systems will provide the foundation
for future productivity and expense control initiatives.  At February 3, 2001, a
total  of  approximately  $14.5  million  has been  expended  for  software  and
implementation  costs and is  included in  Deferred  charges  and other  assets.
Approximately  $4.0 million for hardware and related  equipment  was expended in
1999 to upgrade  Finlay's  Departments

                                       25

<PAGE>

and is reflected in Fixed assets.  Finlay  expects these systems to be completed
by mid-2001 and anticipates it will spend an additional $5.0 to $7.5 million.

     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, 2000 (Finlay Jewelry's tax year end), a NOL for tax purposes
of  approximately   $5.5  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 February 3, 2001.

     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  February 3, 2001,  the gain or loss on
open futures contracts was not material. At February 3, 2001, Finlay Jewelry had
several open positions in futures  contracts for gold totaling  46,300 fine troy
ounces,  valued at $12.6  million,  which expire  during  2001.  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
$21.4 million and $22.2 million for 1999 and 2000, 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 42% of Finlay's  domestic sales and 78% of its domestic income
from  operations for 1998, 1999 and 2000.  Finlay has typically  experienced net
losses in the first three quarters of its fiscal year,  although  Finlay Jewelry
did achieve a net profit in the second  quarter of 2000.  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.

                                       26
<PAGE>

     Finlay  Jewelry's  Sales and Income (loss) from operations for each quarter
of 1998, 1999 and 2000 were as follows:

<TABLE>
<CAPTION>
                                                                            Fiscal Quarter
                                                    -------------------------------------------------------------
                                                         First          Second           Third          Fourth
                                                     ------------    ------------    ------------    ------------
                                                                        (dollars in thousands)
<S>                                                  <C>           <C>             <C>             <C>
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
2000:
  Sales ........................................        178,614         211,229         189,728         420,549
  Income (loss) from operations ................          4,580          10,263           5,649          56,769

</TABLE>

----------------

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

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 compliance with applicable contractual covenants,
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.  Other factors include the ability of
the Holding  Company to complete the  repurchases  contemplated  under its stock
repurchase  program,  the adequacy of Finlay's  working  capital to complete the
repurchases,  the  availability  and liquidity of the Holding  Company's  Common
Stock, and overall market conditions for the Holding Company's Common Stock.

     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

                                       27
<PAGE>

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 $12.6 million at February 3, 2001,
which expire during 2001.

Item 8.  Financial Statements and Supplementary Data


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                            Page
<S>                                                                                         <C>
Finlay Fine Jewelry Corporation

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

Consolidated Statements of Operations for the years ended January 30, 1999,
  January 29, 2000 and February 3, 2001......................................................F-3

Consolidated Balance Sheets as of January 29, 2000 and February 3, 2001......................F-4

Consolidated Statements of Changes in Stockholder's Equity for the years
  ended January 30, 1999, January 29, 2000 and February 3, 2001..............................F-5

Consolidated Statements of Cash Flows for the years ended January 30, 1999,
  January 29, 2000 and February 3, 2001......................................................F-6

Notes to Consolidated Financial Statements...................................................F-7
</TABLE>

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.

                                       28
<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.

<TABLE>
<CAPTION>
                 Name                        Age                                Position
----------------------------------------    -------    ------------------------------------------------------------
<S>                                           <C>      <C>
Arthur E. Reiner....................          60       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....................          50       Executive  Vice  President and Chief  Operating  Officer of
                                                       the  Holding  Company  and  President  and Chief  Operating
                                                       Officer of Finlay Jewelry
Leslie A. Philip....................          54       Executive  Vice President and Chief  Merchandising  Officer
                                                       of the Holding Company and Finlay Jewelry
Edward Stein........................          56       Senior  Vice  President  and  Director  of Stores of Finlay
                                                       Jewelry
Bruce E. Zurlnick...................          49       Senior  Vice  President,   Treasurer  and  Chief  Financial
                                                       Officer of the Holding Company and Finlay Jewelry
David B. Cornstein..................          62       Director
Rohit M. Desai......................          62       Director
Michael Goldstein...................          59       Director
James Martin Kaplan.................          56       Director
John D. Kerin.......................          62       Director
Thomas H. Lee.......................          57       Director
Norman S. Matthews..................          68       Director
Hanne M. Merriman...................          59       Director
Warren C. Smith, Jr.................          44       Director

</TABLE>

     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".

                                       29
<PAGE>

     Under the Holding  Company's  Restated  Certificate of  Incorporation,  the
Holding  Company's  Board of Directors is  classified  into three  classes.  The
members of each class will serve  staggered  three-year  terms.  Messrs.  Desai,
Goldstein and Lee are Class I directors;  Messrs.  Cornstein,  Kaplan, Kerin and
Reiner are Class II directors;  and Messrs.  Matthews and Smith and Ms. Merriman
are  Class III  directors.  The  terms of the  Class  III,  Class I and Class II
directors  expire at the annual meeting of stockholders to be held in 2001, 2002
and  2003,  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.

     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. 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.

                                       30
<PAGE>

Cornstein was President, Chief Executive Officer and a director of a predecessor
of the Holding Company. Mr. Cornstein is a director of TeleHubLink Corporation.

     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-II,
Private Equity  Investors  III, L.P. and Private  Equity  Investors IV, L.P. Mr.
Desai  is  also  the  managing   general  partner  of  the  general  partner  of
Equity-Linked  Investors-II  and the managing member of the general  partners of
Private Equity  Investors  III, L.P. and Private  Equity  Investors IV, L.P. Mr.
Desai serves as a director of The Rouse Company, 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.,  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.

                                       31
<PAGE>

Item 11. Executive Compensation

                           Summary Compensation Table

     The following table sets forth information with respect to the compensation
in 2000, 1999 and 1998 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>         <C>               <C>
Arthur E. Reiner                  2000    $750,000    $145,875       $19,292             --          100,000           $ 28,453
  Chairman, President             1999     750,000     447,825        19,292             --               --             28,064
  and Chief Executive             1998     750,000          --        17,642             --               --            428,016 (4)
  Officer of the Holding
  Company and Chairman
  and Chief Executive
  Officer of Finlay Jewelry
Joseph M. Melvin                  2000    $387,059    $ 75,283          --               --           20,000           $133,277 (5)
  Executive Vice President        1999     372,887     183,528          --               --               --              8,705
  and Chief Operating             1998     367,100      85,000          --               --           30,000            387,241 (6)
  Officer of the Holding
  Company and President
  and Chief Operating
  Officer of Finlay Jewelry
Leslie A. Philip                  2000    $406,691    $ 79,101          --               --           30,000           $208,277 (7)
  Executive Vice President        1999     383,356     193,345          --               --               --              9,209
  and Chief Merchandising         1998     376,700     110,000          --               --           30,000              9,626
  Officer of the Holding
  Company and
  Finlay Jewelry
Edward Stein                      2000    $347,052    $ 67,503          --               --           10,000           $  8,277
  Senior Vice President and       1999     328,720     166,028          --               --           20,000             10,083
  Director of Stores              1998     307,056      70,000          --               --           10,000              9,626
   of Finlay Jewelry
Bruce E. Zurlnick                 2000    $249,996    $ 50,095          --               --            5,000           $  8,277
  Senior Vice President,          1999     213,333     105,000          --               --           10,000              8,569
  Treasurer and Chief             1998     205,000      25,000          --               --            5,000              8,659
  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 2000".

(3)  Includes for each Named Executive  Officer the sum of the following amounts
     earned in 2000, 1999 and 1998 for such Named Executive Officer:

                                       32
<PAGE>

<TABLE>
<CAPTION>
                                                       Life          Retirement       Medical
                                                   Insurance (a)    Benefits (b)    Benefits (c)
                                                   -------------    ------------    ------------
<S>                                         <C>       <C>               <C>            <C>
Arthur E. Reiner ......................     2000      $20,176           $5,200         $3,077
                                            1999       20,176            5,200          2,688
                                            1998       20,176            5,200          2,640

Joseph M. Melvin ......................     2000      $    --           $5,200         $3,077
                                            1999          817            5,200          2,688
                                            1998        1,079            5,035          2,640

Leslie A. Philip ......................     2000      $    --           $5,200         $3,077
                                            1999        1,321            5,200          2,688
                                            1998        1,786            5,200          2,640

Edward Stein ..........................     2000      $    --           $5,200         $3,077
                                            1999        2,195            5,200          2,688
                                            1998        1,786            5,200          2,640

Bruce E. Zurlnick .....................     2000      $    --           $5,200         $3,077
                                            1999          681            5,200          2,688
                                            1998          856            5,200          2,640

</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)  Included in the other compensation set forth in Note 3 above, was a special
     bonus of $125,000 in accordance with a retention  agreement entered into in
     February  1999 that Finlay  paid to Mr.  Melvin in  February  2001.  See "-
     Employment and Other Agreements and Change of Control Arrangements".

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

(7)  Included in the other compensation set forth in Note 3 above, was a special
     bonus of $200,000 in accordance with a retention  agreement entered into in
     February  1999 that Finlay  paid to Ms.  Philip in  February  2001.  See "-
     Employment and Other Agreements and Change of Control Arrangements".

     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".

                                       33
<PAGE>

Long-Term Incentive Plans

     The Holding Company currently has two long-term  incentive plans, for which
it has  reserved a total of  2,582,596  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  165,777  shares have been issued to date in connection
with  exercises of options  granted  under the 1993 Plan and 531,854  shares are
reserved  for  issuance  upon  exercise of currently  outstanding  options.  The
remaining  34,965  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 (as
amended,  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 1,850,000.  Of this
total,  7,600 shares have been issued to date in  connection  with  exercises of
options granted under the 1997 Plan,  104,000 shares have been issued to date in
connection with restricted  stock  arrangements  and 827,782 shares are reserved
for issuance  upon  exercise of currently  outstanding  options.  The  remaining
910,618 shares of Common Stock available for issuance  include 6,000  restricted
shares  reserved for issuance and 904,618  shares of Common Stock  available for
future grants under the 1997 Plan. See "--Option/SAR Grants in 2000".

     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,  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 addition, an Incentive Option that is granted to an employee who, at the time
the option is granted, owns

                                       34
<PAGE>

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  positive
difference, if any, between the Market Value (as defined in the Incentive Plans)
of the shares

                                       35
<PAGE>

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 2000

     In 2000, the Holding Company granted options to purchase a total of 272,100
shares of Common  Stock,  of which  options to purchase an  aggregate of 165,000
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 2000. No stock  appreciation  rights were
issued by the Holding Company in 2000.

<TABLE>
<CAPTION>
                                                     Individual Grants                                   Potential Realizable Value
                             --------------------------------------------------------------------------    at Assumed Annual Rates
                               Number of      % of Total                                                        Of Stock Price
                              Securities     Options/SARs                                                         Appreciation
                              Underlying      Granted to                                                       for Option Term ($)
                             Options/SARs    Employees in    Exercise or Base Price                      --------------------------
Name                          Granted (#)    Fiscal Year           ($/share)         Expiration Date(s)         5%             10%
-----------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>               <C>               <C>                  <C>                <C>           <C>
Arthur E. Reiner ............    100,000           36.8              12.75                02-15-10           801,841       2,032,022
Joseph M. Melvin ............     20,000            7.4              12.75                02-15-10           160,368         406,404
Leslie A. Philip ............     30,000           11.0              12.75                02-15-10           240,552         609,606
Edward Stein ................     10,000            3.7              12.75                02-15-10            80,184         203,202
Bruce E. Zurlnick ...........      5,000            1.8              12.75                02-15-10            40,092         101,601
</TABLE>

Certain Information Concerning Stock Options/SARs

     The following  table sets forth certain  information  with respect to stock
options  exercised  in 2000 as well as the value of stock  options at the fiscal
year end. No stock appreciation rights were exercised during 2000.

Aggregated Option/SAR Exercises in 2000 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>        <C>                  <C>
Arthur E. Reiner................          -            -         334,632 / 100,000          - / -
Joseph M. Melvin................          -            -          44,000 /  56,000   $ 39,375 / $39,375
Leslie A. Philip................          -            -          76,333 /  63,667   $ 92,396 / $59,063
Edward Stein....................          -            -          32,933 /  37,067   $123,104 / $43,576
Bruce E. Zurlnick...............          -            -          14,133 /  17,200   $ 52,874 / $16,538
</TABLE>

----------------

(1)  The values of Unexercised In-the-Money Options/SARs represent the aggregate
     amount of the excess of $12.188,  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.

                                       36
<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  decisions  with respect to benefit  plans,  involving  employees of 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 Thomas H. Lee Capital LLC (the "Lee  Management  Agreement") and
DCMI (collectively, the "Management Agreements"),  affiliates of Mr. Lee and Mr.
Desai,  respectively.  Pursuant  to the  Management  Agreements,  Thomas  H. Lee
Capital  LLC and DCMI  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 2002,  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

     Mr. Reiner is party to an employment agreement dated as of January 3, 1995,
as last amended in November 2000, pursuant to which he is serving as Chairman of
the Board,  President and Chief  Executive  Officer of the Holding Company for a
term expiring on January 31, 2005. In accordance with the agreement,  Mr. Reiner
received an annual base salary of $750,000  through  January 31, 2001, and since
that  date  his  salary  has  been at an  annual  rate of  $900,000.  Under  the
agreement,  his base salary is hereafter to be  increased in  increments  of not
less than  $35,000  per year.  In  addition to his base  salary,  Mr.  Reiner is
entitled  to an annual  bonus  payment  based on the  satisfaction  by Finlay of
certain financial performance criteria. Under Mr. Reiner's agreement,  Finlay is
required  to provide Mr.  Reiner  with  certain  insurance  and other  ancillary
benefits.

                                       37
<PAGE>

     In connection  with the extension of Mr. Reiner's  employment  agreement to
January 31, 2005,  the Holding  Company issued to Mr. Reiner in February 2001 an
aggregate of 100,000  shares of  restricted  stock which will become  vested and
nonforfeitable if Mr. Reiner is continuously  employed by Finlay through January
31, 2005. If Mr.  Reiner's  employment is terminated  without cause or for other
specified circumstances, a pro rata portion of the restricted stock would become
nonforfeitable.  If Mr. Reiner's  employment is terminated  prior to a change of
control (as defined in the agreement)  without cause,  or under other  specified
circumstances,  Mr.  Reiner  would  continue  to receive his base salary for the
balance  of the term  and  bonus  compensation  as if such  termination  had not
occurred.  In the event his employment is terminated under certain circumstances
following  a change of  control,  Mr.  Reiner  would be  entitled  to a lump sum
payment equal to 299% of his "base amount" (as defined in Section  280G(b)(3) of
the Code), subject to certain restrictions. In addition, upon termination of his
employment  coincident  with  or  following  a  change  of  control,  all of his
restricted stock would become nonforfeitable.

     If at the  expiration  of the term of  employment  (or a renewal  term) Mr.
Reiner and Finlay cannot agree upon terms to continue his employment,  or if his
employment  is  terminated  without cause or for other  specified  reasons,  Mr.
Reiner  would be entitled to receive a severance  payment in an amount  equal to
one year's base salary, together with certain insurance benefits.

     Upon the  commencement  of his  employment,  Mr. Reiner  purchased  138,525
shares of Common Stock at a price of $7.23 per share. The aggregate price of the
purchased  shares  was paid in the form of a note  issued  by Mr.  Reiner to the
Holding  Company.  In April 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.

     In February 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 provided consulting services to
Finlay for compensation of $225,000 per year.

     In May 1997, the Holding Company appointed Mr. Melvin to serve as Executive
Vice President and Chief Operating  Officer of the Holding Company and President
and Chief Operating Officer of Finlay Jewelry. The Holding Company has agreed to
pay to Mr.  Melvin an annual  base  salary  of at least  $350,000  as well as an
annual bonus based on the  achievement  of certain  targets.  In  addition,  Mr.
Melvin received from Finlay in July 1997 a $295,000  non-interest-bearing  loan,
which was repaid in full in July 1998.  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 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. In February 1999,
Finlay  agreed with Mr.  Melvin that in the event he continued to be employed by
Finlay in February  2001,  Finlay would pay to him 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.  Accordingly,  in
February 2001, Mr. Melvin received the $125,000 bonus.

     In February 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  continued  to be employed by Finlay in February
2001,  Finlay would pay to her 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.  Accordingly, in February 2001, Ms. Philip
received the $200,000 bonus.

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

                                       38
<PAGE>

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  has  received  compensation  from  Finlay
pursuant to a consulting agreement. See information under the caption "Executive
Compensation--Employment   and  Other   Agreements   and   Change   of   Control
Arrangements".


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 25, 2001, was the beneficial owner
of more than 5% of the issued and outstanding Common Stock of the Company.

<TABLE>
<CAPTION>
                                                                         Shares of Common Stock
                                                                         Beneficially owned (1)
                                                                   -----------------------------------
                                                                     Number of            Percentage
                                   Name                               Shares               of Class
    ---------------------------------------------------------      --------------        -------------
<S>                                                                   <C>                      <C>
    FMR  Corp.(2)............................................         1,042,200                10.1%
    Thomas H. Lee(3).........................................           984,340                 9.5%
    Mellon Financial Corporation(4)..........................           901,359                 8.7%
    Neuberger Berman, LLC(5).................................           877,800                 8.5%
    David B. Cornstein(6)....................................           685,439                 6.6%
    Rohit M. Desai(7)........................................           667,812                 6.4%
    Becker Capital Management, Inc.(8).......................           521,275                 5.0%
</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. 2 dated  February 14, 2001 to a Schedule
     13G dated  February 1, 1999, as amended,  filed with the  Commission by FMR
     Corp.,  Edward C. Johnson 3d, Abigail P. Johnson and Fidelity  Management &
     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


                                         (Footnotes continued on following page)

                                       39

<PAGE>

     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 1,042,200 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
     1,042,200 shares.  Edward C. Johnson 3d, FMR Corp.,  through its control of
     Fidelity,  and the Fund each has sole  power to  dispose  of the  1,042,200
     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. The address
     for FMR  Corp.,  Fidelity  and the Fund is 82  Devonshire  Street,  Boston,
     Massachusetts 02109.

(3)  Includes  884,455  shares of Common  Stock  held of record by Thomas H. Lee
     Equity Partners,  L.P., 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,  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.

(4)  According to Amendment No. 3 dated January 16, 2001 to a Schedule 13G dated
     February 4, 1999, as amended, filed with the Commission by Mellon Financial
     Corporation  ("Mellon  Financial"),  (i) Mellon Financial has sole power to
     vote 819,559 shares and sole power to dispose of 901,359 shares, and shares
     power to vote  69,600  shares and  shares  power to dispose of none of such
     shares, (ii) The Boston Company, Inc. has sole power to vote 643,659 shares
     and sole  power to  dispose of  725,459  shares,  and shares  power to vote
     69,600  shares and shares power to dispose of none of such shares and (iii)
     The Boston  Company  Asset  Management,  LLC has sole power to vote 459,150
     shares and sole power to dispose  of 540,950  shares,  and shares  power to
     vote  69,600  shares  and shares  power to dispose of none of such  shares.
     According to such Schedule 13G Amendment,  The Boston Company,  Inc. is the
     parent  holding  company of The Boston  Company  Asset  Management,  LLC, a
     registered  investment company.  All of the shares reported in the Schedule
     13G Amendment are beneficially  owned by Mellon  Financial  Corporation and
     direct or indirect subsidiaries, including The Boston Company, Inc. and The
     Boston  Company  Asset   Management,   LLC,  in  their  various   fiduciary
     capacities.  The address  for Mellon  Financial  Corporation  is One Mellon
     Center, Pittsburgh, Pennsylvania 15258.

(5)  According to Amendment No. 2 dated February 5, 2001 to a Schedule 13G dated
     February  10,  1999,  as amended  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 696,300 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 877,800  shares.  Employee(s) of Neuberger
     Berman,  LLC and Neuberger  Berman  Management,  Inc. own 273,000 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.

                                         (Footnotes continued on following page)

                                       40
<PAGE>

(6)  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.

(7)  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  held a total of  667,812  shares  of  Common  Stock of the  Holding
     Company as of April 25,  2001.  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.  On April 9, 2001,  ELI-II entered into a plan
     to sell a portion of the shares  beneficially  owned by it. The plan, which
     is intended to qualify under Rule10b5-1 promulgated under the Exchange Act,
     contemplates  the sale by ELI-II of up to  100,000  shares of Common  Stock
     from April 16 to July 15, 2001 in accordance with a specified formula.  The
     address  of  Mr.  Desai  and  ELI-II  is  c/o  Desai   Capital   Management
     Incorporated, 540 Madison Avenue, New York, New York 10022.

(8)  According  to an Amendment  dated  January 29, 2001 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 494,275  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.

     The  following  table  sets  forth  certain  information  with  respect  to
beneficial  ownership  of the Common  Stock as of April 25,  2001 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)...................................          499,279              4.7%
    Leslie A. Philip(2)(4)...................................           87,667               *
    Norman S. Matthews(5)....................................           86,000               *
    Joseph M. Melvin(2)(6)...................................           61,000               *
    Edward Stein(2)(7) ......................................           40,467               *
    Bruce E. Zurlnick(2)(8)..................................           17,533               *
    Michael Goldstein(9).....................................           17,000               *
    Hanne M. Merriman(10)....................................           15,000               *
    Warren C. Smith, Jr.(11).................................           12,590               *
    John D. Kerin(2)(12).....................................            6,000               *
    James Martin Kaplan(2)...................................            4,000               *
    All directors and executive officers
    as a group (14 persons)(13)..............................        3,184,126              28.6%
</TABLE>

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

(1)  Based on 10,372,806 shares outstanding on April 25, 2001. 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.

                                         (Footnotes continued on following page)


                                       41

<PAGE>

(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 354,632 shares of Common Stock having exercise
     prices  ranging  from  $12.75 to $14.00 per share.  Also  includes  100,000
     shares of restricted stock.

(4)  Includes  options to acquire an aggregate of 87,667  shares of Common Stock
     having exercise prices ranging from $8.25 to $23.1875 per share.

(5)  Consists  of options to acquire  an  aggregate  of 86,000  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.

(6)  Includes  options to acquire an aggregate of 60,000  shares of Common Stock
     having exercise prices ranging from $8.25 to $24.3125 per share.

(7)  Includes  options to acquire an aggregate of 39,467  shares of Common Stock
     having exercise prices ranging from $7.23 to $13.4219 per share.

(8)  Includes  options to acquire an aggregate of 16,733  shares of Common Stock
     having exercise prices ranging from $7.23 to $13.5625 per share.

(9)  Includes  options to acquire an aggregate of 10,000  shares of Common Stock
     having  exercise  prices  ranging  from $12.75 to $13.4375  per share.  The
     address of Mr. Goldstein is c/o Toys "R" Us, Inc., 461 From Road,  Paramus,
     New Jersey 07652.

(10) Includes  options to acquire an aggregate of 15,000  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.

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

(12) Includes options to acquire an aggregate of 5,000 shares having an exercise
     price of $14.5938 per share.

(13) Includes  options to acquire  741,165 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

                                       42

<PAGE>

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",
subject to the terms and limitations of the Registration  Rights Agreement.  The
Lee Investors and the Desai Investors also may demand  registration  without the
other under  certain  circumstances.  The  Registration  Rights  Agreement  also
provides that Management  Stockholders  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 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 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.

                                       43

<PAGE>

Reiner to the Holding  Company.  See  "Executive  Compensation  - 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".

                                       44

<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 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).

                                       45
<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  (incorporated  by  reference to Exhibit 10.2 filed as
            part of the Annual  Report on Form 10-K for the period ended January
            29, 2000 filed by Finlay Jewelry on April 28, 2000).

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)  -  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(b)  -  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).

10.5(b)  -  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(c)  -  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).

                                       46
<PAGE>

Item
Number

10.5(d)  -  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(e)  -  Amendment  No. 4 to  Employment  Agreement  dated as of February 16,
            2000 among the Holding Company,  Finlay Jewelry and Arthur E. Reiner
            (incorporated  by reference to Exhibit  10.5(h) filed as part of the
            Annual  Report on Form 10-K for the period  ended  January  29, 2000
            filed by Finlay Jewelry on April 28, 2000).

10.5(f)  -  Amendment  No. 5 to  Employment  Agreement  dated as of November 29,
            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).

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).

10.10    -  Management  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).

10.12    -  1997 Long Term Incentive Plan, as amended.

                                       47
<PAGE>

Item
Number

10.13    -  Security  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).

10.14    -  Security 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 the  Current  Report on Form 8-K dated  April 24,  1998,  as
            filed by Finlay Jewelry on May 11, 1998).

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  (incorporated  by reference to Exhibit
            10.15(g)  filed as part of the  Annual  Report  on Form 10-K for the
            period ended  January 29, 2000 filed by Finlay  Jewelry on April 28,
            2000).

10.15(h) -  Amendment  Agreement  No. 7 and Waiver dated as of December 31, 1999
            to the Amended Revolving Credit Agreement (incorporated by reference
            to Exhibit  10.15(h) filed as part of the Annual Report on Form 10-K
            for the period  ended  January 29,  2000 filed by Finlay  Jewelry on
            April 28, 2000).

                                       48
<PAGE>

Item
Number

10.15(i) -  Amendment  Agreement No. 8 and Consent dated as of March 30, 2000 to
            the Amended Revolving Credit Agreement (incorporated by reference to
            Exhibit 10.15(i) filed as part of the Annual Report on Form 10-K for
            the period ended  January 29, 2000 filed by Finlay  Jewelry on April
            28, 2000).

10.15(j) -  Amendment  Agreement No. 9 dated as of April 20, 2000 to the Amended
            Revolving  Credit  Agreement  (incorporated  by reference to Exhibit
            10.15(j)  filed as part of the  Annual  Report  on Form 10-K for the
            period ended  January 29, 2000 filed by Finlay  Jewelry on April 28,
            2000).

10.15(k) -  Amendment  No. 10 and Consent  dated as of September 29, 2000 to the
            Amended Revolving Credit Agreement.

10.16    -  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).

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

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).

10.18(c) -  Amendment  No. 2 and Limited  Consent dated as of September 10, 1997
            to the Gold Consignment Agreement  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, 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,  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).

                                       49
<PAGE>

Item
Number

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

10.18(g) -  Amendment No. 7 and Limited  Consent dated as of October 28, 1998 to
            the Gold  Consignment  Agreement,  by and 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 to
            the Gold  Consignment  Agreement,  by and between Finlay Jewelry and
            BankBoston,  N.A., as successor-in-interest to RIHT (incorporated by
            reference to Exhibit  10.18(h) filed as part of the Annual Report on
            Form 10-K for the  period  ended  January  29,  2000 filed by Finlay
            Jewelry on April 28, 2000).

10.18(i) -  Amendment No. 9 and  Limited Consent  dated  as of March 23, 2000 to
            the Gold  Consignment  Agreement,  by and  between  Finlay   Jewelry
            and  Fleet National  Bank,  formerly  known  as BankBoston, N.A., as
            successor-in-interest   to   RIHT   (incorporated  by  reference  to
            Exhibit 10.18(i) filed as part of the Annual Report on Form 10-K for
            the  period  ended   January 29, 2000 filed  by  Finlay  Jewelry  on
            April 28, 2000).

10.18(j) -  Amendment No. 10 and Limited Consent,  dated as of April 21, 2000 to
            the Gold  Consignment  Agreement,  by and between Finlay Jewelry and
            Sovereign Bank, as successor to Fleet National Bank,  formerly known
            as BankBoston, N.A., as successor to RIHT.

10.18(k) -  Amendment No. 11 and Limited  Consent dated as of September 29, 2000
            to the Gold Consignment Agreement, by and between Finlay Jewelry and
            Sovereign Bank, as successor to Fleet National Bank,  formerly known
            as BankBoston, N.A., as successor to RIHT.

10.19    -  Security  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).

10.20    -  Cash  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).

10.21    -  Intercreditor   Agreement   dated   as  of  June   15,   1995   (the
            "Intercreditor   Agreement")   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).

10.22    -  Amendment No. 1 dated as of September 29, 2000 to the  Intercreditor
            Agreement.

21.1     -  Subsidiaries of Finlay Jewelry



                                       50

<PAGE>

     (b)  Reports on Form 8-K

     No reports on Form 8-K were filed during the fourth quarter of 2000.

                                       51
<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 27, 2001                          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:

<TABLE>
<CAPTION>
              Name                                    Title                                 Date
              ----                                    -----                                 ----
<S>                                      <C>                                           <C>
      /s/ ARTHUR E. REINER               Chairman of the Board, Chief                  April 27, 2001
------------------------------------     Executive Officer and Director
        Arthur E. Reiner                 (Principal Executive Officer)


     /s/ BRUCE E. ZURLNICK               Senior Vice President, Treasurer and          April 27, 2001
------------------------------------     Chief Financial Officer (Principal
       Bruce E. Zurlnick                 Financial and Accounting Officer)


     /s/ DAVID B. CORNSTEIN              Director                                      April 27, 2001
------------------------------------
       David B. Cornstein

     /s/ NORMAN S. MATTHEWS              Director                                      April 27, 2001
------------------------------------
       Norman S. Matthews

     /s/ JAMES MARTIN KAPLAN             Director                                      April 27, 2001
------------------------------------
      James Martin Kaplan

     /s/ ROHIT M. DESAI                  Director                                      April 27, 2001
------------------------------------
         Rohit M. Desai

     /s/ THOMAS H. LEE                   Director                                      April 27, 2001
------------------------------------
         Thomas H. Lee

     /s/ WARREN C. SMITH, JR.            Director                                      April 27, 2001
------------------------------------
      Warren C. Smith, Jr.

                                         Director                                      April 27, 2001
------------------------------------
       Hanne M. Merriman

     /s/ MICHAEL GOLDSTEIN               Director                                      April 27, 2001
------------------------------------
       Michael Goldstein

     /s/ JOHN D. KERIN                   Director                                      April 27, 2001
------------------------------------
         John D. Kerin

</TABLE>

                                       52
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>                                                                                       <C>

Finlay Fine Jewelry Corporation

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

Consolidated Statements of Operations for the years ended January 30, 1999,
   January 29, 2000 and February 3, 2001..................................................F-3

Consolidated Balance Sheets as of January 29, 2000 and February 3, 2001...................F-4

Consolidated Statements of Changes in Stockholder's Equity for the years ended
   January 30, 1999, January 29, 2000 and February 3, 2001................................F-5

Consolidated Statements of Cash Flows for the years ended January 30, 1999,
   January 29, 2000 and February 3, 2001..................................................F-6

Notes to Consolidated Financial Statements................................................F-7
</TABLE>


                                      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 29,
2000  and  February  3,  2001,  and  the  related  consolidated   statements  of
operations,  changes in stockholder's equity and cash flows for the fiscal years
ended January 30, 1999,  January 29, 2000 and February 3, 2001.  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 29, 2000 and February 3, 2001, and the results of
their  operations  and their cash flows for the fiscal  years ended  January 30,
1999,  January 29, 2000 and  February 3, 2001,  in  conformity  with  accounting
principles generally accepted in the United States.


                                                            ARTHUR ANDERSEN LLP
New York, New York
March 20, 2001


                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                       Year Ended
                                                                    -------------------------------------------------
                                                                    January 30,        January 29,        February 3,
                                                                        1999               2000              2001
                                                                    -------------     -------------     -------------
<S>                                                                  <C>               <C>               <C>
Sales ..........................................................     $    863,428      $    912,978      $  1,000,120
Cost of sales ..................................................          421,450           449,912           496,291
Cost of sales - Sonab inventory write-down .....................               --             7,839                --
                                                                       ----------        ----------        ----------
    Gross margin ...............................................          441,978           455,227           503,829
Selling, general and administrative expenses ...................          364,002           378,112           409,019
Nonrecurring charges associated with the sale and
    closure of Sonab ...........................................               --            20,792                --
Depreciation and amortization ..................................           15,672            16,895            17,549
                                                                       ----------        ----------        ----------
    Income (loss) from operations ..............................           62,304            39,428            77,261
Interest expense, net ..........................................           24,612            22,565            23,117
Nonrecurring interest associated with refinancing ..............              417                --                --
                                                                       ----------        ----------        ----------
    Income (loss) before income taxes and
      extraordinary charges ....................................           37,275            16,863            54,144
Provision (benefit) for income taxes ...........................           15,323             7,801            22,715
                                                                       ----------        ----------        ----------
    Income (loss) before extraordinary charges .................           21,952             9,062            31,429
Extraordinary charges from early extinguishment of debt,
      net of income tax benefit of $3,236 ......................            4,755                --                --
                                                                       ----------        ----------        ----------
    Net income (loss) ..........................................     $     17,197      $      9,062      $     31,429
                                                                       ==========        ==========        ==========
</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 29,         February 3,
                                                                                         2000                2001
                                                                                     ------------       -------------
                                      ASSETS
<S>                                                                                   <C>                 <C>
Current assets
  Cash and cash equivalents ..................................................        $    34,758         $    31,249
  Accounts receivable - department stores ....................................             22,574              23,677
  Other receivables ..........................................................             31,074              30,856
  Merchandise inventories ....................................................            279,336             326,511
  Prepaid expenses and other .................................................              2,067               2,880
                                                                                         --------            --------
     Total current assets ....................................................            369,809             415,173
                                                                                         --------            --------
Fixed assets
  Equipment, fixtures and leasehold improvements .............................            110,017             117,871
  Less - accumulated depreciation and amortization ...........................             40,439              44,028
                                                                                         --------            --------
     Fixed assets, net .......................................................             69,578              73,843
                                                                                         --------            --------
Deferred charges and other assets ............................................             18,802              20,685
Goodwill .....................................................................             96,805              94,799
                                                                                         --------            --------
     Total assets ............................................................        $   554,994         $   604,500
                                                                                         ========            ========

                       LIABILITIES AND STOCKHOLDER'S EQUITY

Current liabilities
  Accounts payable - trade ...................................................        $   149,782         $   162,242
  Accrued liabilities:
     Accrued salaries and benefits ...........................................             23,094              20,806
     Accrued miscellaneous taxes .............................................              6,296               4,117
     Accrued interest ........................................................              3,633               3,583
     Other ...................................................................             19,240              17,734
  Income taxes payable .......................................................             28,494              46,433
  Deferred income taxes ......................................................              1,674               3,097
  Due to parent ..............................................................              4,900               5,158
                                                                                         --------            --------
     Total current liabilities ...............................................            237,113             263,170
Long-term debt ...............................................................            150,000             150,000
Other non-current liabilities ................................................             10,855              11,907
                                                                                         --------            --------
     Total liabilities .......................................................            397,968             425,077
                                                                                         --------            --------
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 ..........................................................             74,051              96,448
                                                                                         --------            --------
     Total stockholder's equity ..............................................            157,026             179,423
                                                                                         --------            --------
     Total liabilities and stockholder's equity ..............................        $   554,994         $   604,500
                                                                                         ========            ========
</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, 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
  Net income (loss) ....................        --        --           --      31,429           --        31,429        $ 31,429
                                                                                                                        --------
  Comprehensive income .................        --        --           --          --           --            --        $ 31,429
                                                                                                                        ========
  Dividends on common stock ............        --        --           --      (9,032)          --        (9,032)
                                             -----       ----   ---------   ---------     --------      --------
Balance, February 3, 2001 ..............     1,000     $  --    $  82,975   $  96,448     $     --      $179,423
                                             =====       ====   =========   =========     ========      ========
</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 30,     January 29,     February 3,
                                                                                        1999            2000             2001
                                                                                     ----------      ----------      ----------
<S>                                                                                      <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss) ............................................................     $   17,197      $    9,062      $   31,429
  Adjustments to reconcile net income (loss) to net cash provided
     from  (used in) operating activities:
  Depreciation and amortization ................................................         16,703          17,749          18,562
  Write-off of deferred financing costs ........................................          2,023              --              --
  Redemption premium ...........................................................          5,378              --              --
  Loss on sale and closure of Sonab ............................................             --          18,672              --
  Other, net ...................................................................            381           2,172           1,538
  Changes in operating assets and liabilities, net of effects from purchase
     of J.B. Rudolph assets (Note 11) and disposition of Sonab assets
     (Note 12):
     Increase in accounts and other receivables ................................        (14,606)         (4,655)         (9,165)
     Increase in merchandise inventories .......................................        (10,635)         (2,311)        (30,892)
     (Increase) decrease in prepaid expenses and other .........................           (548)            239            (814)
     Increase in accounts payable and accrued liabilities ......................         11,367           6,329          23,508
       Increase (decrease) in deferred income taxes ............................            946            (492)          1,423
     Decrease in due to parent .................................................        (41,224)           (317)         (1,134)
                                                                                      ---------       ---------       ---------
        NET CASH PROVIDED FROM (USED IN) OPERATING
          ACTIVITIES ...........................................................        (13,018)         46,448          34,455
                                                                                      ---------       ---------       ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of equipment, fixtures and leasehold improvements ..................        (12,991)        (14,972)        (14,120)
  Deferred charges and other ...................................................         (5,286)         (7,237)         (4,022)
  Payment for purchase of Diamond Park assets ..................................         (4,857)             --              --
  Proceeds from sale of Sonab assets ...........................................             --           1,155           7,592
  Payment for purchase of J.B. Rudolph assets ..................................             --              --         (20,605)
  Proceeds from sale of outlet assets ..........................................             --              --             752
                                                                                      ---------       ---------       ---------
        NET CASH USED IN INVESTING ACTIVITIES ..................................        (23,134)        (21,054)        (30,403)
                                                                                      ---------       ---------       ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from revolving credit facility ......................................        735,637         620,286         743,852
  Principal payments on revolving credit facility ..............................       (735,637)       (620,286)       (743,852)
  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)         (7,640)
  Capitalized financing costs ..................................................         (4,173)             --              --
  Other, net ...................................................................             --              --              --
                                                                                      ---------       ---------       ---------
        NET CASH PROVIDED FROM (USED IN) FINANCING
           ACTIVITIES ..........................................................         40,067          (7,159)         (7,640)
                                                                                      ---------       ---------       ---------
        EFFECT OF EXCHANGE RATE CHANGES ON CASH ................................             61            (108)             79
                                                                                      ---------       ---------       ---------
        INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......................          3,976          18,127          (3,509)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................................         12,655          16,631          34,758
                                                                                      ---------       ---------       ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................................     $   16,631      $   34,758      $   31,249
                                                                                      =========       =========       =========
</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 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 10"% 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 writeoff deferred financing costs associated with the Old Notes.


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 United States generally accepted accounting  principles,  which,
for certain  financial  statement  accounts,  requires  the use of  management's
estimates. Actual results may differ from these estimates.

     Fiscal Year:  Finlay  Jewelry's fiscal year ends on the Saturday closest to
January 31.  References to 1998,  1999, 2000 and 2001 relate to the fiscal years
ended on January 30, 1999,  January 29,  2000,  February 3, 2001 and February 2,
2002. Each of the fiscal years includes 52 weeks except 2000,  which includes 53
weeks.


                                      F-7
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (continued)

     Merchandise  Inventories:  Consolidated inventories are stated at the lower
of cost or market determined by the last-in, first-out ("LIFO") method. 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 30,  1999,  January  29,  2000 and  February 3, 2001,  the
gain/loss on open futures  contracts was not material.  At both January 29, 2000
and  February 3, 2001,  Finlay  Jewelry had several  open  positions  in futures
contracts for gold totaling 25,000 fine troy ounces and 46,300 fine troy ounces,
respectively,  valued at $7.3 million and $12.6 million,  respectively. The fair
market value of such contracts was $12.3 million at February 3, 2001.

     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments
and  Hedging  Activities"  in  June  1998.  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
instrument's fair value be recognized  currently in earnings or in comprehensive
income.  SFAS No. 133 is  effective  for fiscal years  beginning  after June 15,
2000. Finlay has determined that the existing derivative instruments, consisting
of forward  contracts,  will be designated and accounted for as cash flow hedges
as of the February 4, 2001 adoption date.  Upon adoption,  the fair value of the
forward  contracts have been recorded,  as either an asset or liability,  with a
corresponding  adjustment to other comprehensive income, a separate component of
stockholder's  equity. At February 3, 2001 the open forward contracts would have
resulted in a reduction to stockholder's equity of approximately  $170,000,  net
of tax. Finlay believes that the designated  hedges will be highly effective and
the related hedge accounting will not have a material impact on Finlay Jewelry's
results of operations.  There are no other  freestanding or embedded  derivative
instruments  that have been  identified  by Finlay as of  February  3, 2001 and,
accordingly,  Finlay does not expect to record any other adjustments as a result
of the adoption of 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.

     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 29, 2000 and February 3, 2001,  net  capitalized  software costs
totaled  $13.5  million and $16.5  million,  respectively,  and are  included in
Deferred  charges  and other  assets in the  accompanying  Consolidated  Balance
Sheets.  In 1999 and 2000, Finlay Jewelry  capitalized  $560,000 and $380,000 of
internal  direct  costs,  respectively,  and  $300,000 and $400,000 of interest,
respectively,   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 Finlay's 1988  reorganization,  the Diamond Park Acquisition
(as defined in Note 13) and the J.B. Rudolph Acquisition (as defined in Note 11)
is being  amortized over 40 years, 20 years and 10 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 1998, 1999 and
2000 totaled $3,724,000,  $3,726,000 and $3,711,000,  respectively.  Accumulated
amortization  of  Goodwill at January  29,  2000 and  February  3, 2001  totaled
$34,539,000 and $38,250,000, 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  Stockholder's  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 stockholder's  equity and, therefore,  bypass net income.  Finlay Jewelry has
chosen to disclose  comprehensive  income,  which encompasses net income and, in
1998 and 1999, the foreign currency translation adjustment,  in the accompanying
Consolidated  Statements of Changes in Stockholder's Equity. In 2000, there were
no such adjustments and therefore,  comprehensive  income was the same as Finlay
Jewelry's net income.

     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 $4,727,000 at January 29, 2000 and $3,812,000 at February 3, 2001.
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 1998, 1999 and 2000 totaled  $1,030,000,  $1,012,000 and
$1,014,750,  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 1998,  1999 and 2000,  gross
advertising expenses,  before vendor support, were $55,287,000,  $55,053,000 and
$59,434,000,   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  during  1998,  1999 and 2000 was  $24,453,000,  $21,368,000  and
$22,154,000,  respectively.  Income  taxes paid in 1998,  1999 and 2000  totaled
$396,000, $3,309,000 and $4,622,000, 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 29,       February 3,
                                                                         2000              2001
                                                                     --------------    -------------
                                                                              (in thousands)
<S>                                                                      <C>              <C>
   Jewelry goods - rings, watches and other fine jewelry
       (specific identification basis)..........................         $  283,717       $  332,693
   Less:  Excess of specific identification cost over LIFO
       inventory value..........................................              4,381            6,182
                                                                        -----------      ------------
                                                                         $  279,336       $  326,511
                                                                        ===========      ============
</TABLE>

     The LIFO method had the effect of increasing  Income before income taxes in
1998 and 1999 by $1,011,000 and $1,131,000,  respectively, and decreasing income
before income taxes in 2000 by $1,801,000.  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  $22,500,000 lower than that for financial  reporting  purposes at
February 3, 2001.

     Approximately  $329,850,000  and  $381,724,000  at  January  29,  2000  and
February 3, 2001, 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)  130,000  fine troy  ounces or (ii) $37.0  million  worth of gold,
subject to a formula as prescribed by the Gold Consignment Agreement. At January
29, 2000 and February 3, 2001,  amounts  outstanding  under the Gold Consignment
Agreement totaled 77,538 and 118,597 fine troy ounces,  respectively,  valued at
approximately $22.2 million and $31.4 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 29, 2000 and
February 3, 2001, was approximately 3.8% and 2.8%,  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 29, 2000 and February 3, 2001 are consignment
fees of $1,007,000 and $979,000, respectively.


                                      F-11
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3--MERCHANDISE INVENTORIES (continued)

     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.

     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 February 3, 2001.

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 other 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.


                                      F-12
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

     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.

     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 February 3, 2001.

     There were no amounts  outstanding  at January 29, 2000 or February 3, 2001
under the Revolving Credit Agreement.  The maximum amounts outstanding under the
Revolving  Credit  Agreement  during  1998,  1999  and 2000  were  $176,000,000,
$158,200,000 and $155,559,000, respectively. The average amounts outstanding for
the same periods were  $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),  $104,200,000  and
$96,612,000,  respectively.  The weighted average interest rates were 7.6%, 7.4%
and 8.6% for 1998, 1999 and 2000, respectively.

     At January  29,  2000 and  February  3, 2001,  Finlay had letters of credit
outstanding  totaling  $2.3  million  and  $4.3  million,  respectively,   which
guarantee various trade activities. The contract amount of the letters of credit
approximate their fair value.

     Long-term debt consisted of the following:

                                              January 29,        February 3,
                                                 2000               2001
                                              ------------     -------------
                                                      (in thousands)
         Senior Notes (a)................     $    150,000     $    150,000
                                              ============     =============

------------
(a)  On April 24, 1998, as part of the  Refinancing,  Finlay  Jewelry issued 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


                                      F-13
<PAGE>

                    FINLAY FINE JEWELRY CORPORATION NOTES TO
                        CONSOLIDATED FINANCIAL STATEMENTS

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

     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.

     The fair value of the Senior Notes at February 3, 2001, determined based on
     market quotes, was approximately $137,000,000.

     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 February 3, 2001.

     The aggregate  amounts of long-term  debt payable in each of the five years
in the period ending February 3, 2006 and thereafter are as follows:

                                                          (in thousands)
                                                          -------------
          2001.....................................       $     --
          2002.....................................             --
          2003.....................................             --
          2004.....................................             --
          2005.....................................             --
          Thereafter...............................             150,000
                                                          -------------
                                                          $     150,000
                                                          =============

     Interest  expense  for  1998,  1999  and 2000  was  $24,898,000  (including
$417,000 of nonrecurring interest associated with the Refinancing),  $22,665,000
and  $23,229,000,  respectively.  Interest  income  for  the  same  periods  was
$108,000, $100,000 and $112,000, respectively.


                                      F-14
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 5--LONG-TERM INCENTIVE PLANS AND OTHER

     The Holding  Company's  Long Term  Incentive Plan (the "1993 Plan") permits
the Holding  Company to grant to key  employees  of the Holding  Company and its
subsidiaries,  consultants  and certain  other  persons,  and  directors  of the
Holding Company (other than members of the Compensation Committee of the Holding
Company's  Board of  Directors),  the following:  (i) stock options;  (ii) stock
appreciation   rights  in  tandem  with  stock  options;   (iii)  limited  stock
appreciation   rights  in  tandem  with  stock  options;   (iv)   restricted  or
nonrestricted  stock  awards  subject  to  such  terms  and  conditions  as  the
Compensation  Committee shall determine;  (v) performance  units which are based
upon  attainment of  performance  goals during a period of not less than two nor
more than five years and which may be settled in cash or in 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 February 3, 2001,  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 533,254 shares are subject to options  granted to
certain senior management,  key employees and a director. The exercise prices of
such options range from $7.23 per share to $16.50 per share.

     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 1,850,000  shares of the Holding  Company's  Common Stock that have
been reserved for issuance pursuant to the 1997 Plan, a total of 827,782 shares,
as of  February  3,  2001,  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".  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 $601,000 in 1998,  $773,000 in 1999 and $2.0
million in 2000.  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 1998,  1999 and 2000 was  estimated
using the  Black-Scholes  option-pricing  model  based on the  weighted  average
market price at the grant date of $16.15 in 1998,  $11.80 in 1999, and $12.75 in
2000 and the following weighted average assumptions:  risk free interest rate of
5.17%, 6.03% and 6.80% for 1998, 1999 and 2000,  respectively,  expected life of
seven years for each of 1998,  1999 and 2000 and  volatility of 44.95% for 1998,
48.57% for 1999 and 49.48% for 2000. The weighted  average fair value of options
granted in 1998, 1999 and 2000 was $8.88, $4.54 and $5.22, respectively.


                                      F-15
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5--LONG-TERM INCENTIVE PLANS AND OTHER (continued)

     The following summarizes the transactions pursuant to the Holding Company's
1993 Plan and 1997 Plan for 1998, 1999 and 2000:

<TABLE>
<CAPTION>
                                                              1998                     1999                        2000
                                                  -------------------------  -------------------------   -------------------------
                                                   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 ..........         989,500       $ 13.55     1,117,833       $ 10.27    $  101,138         9.79
Granted ...................................         201,067         16.15        71,000         11.80       272,100        12.75
Exercised .................................         (56,993)         8.69       (11,000)         7.23       (10,633)        7.94
Forfeited .................................         (15,741)        13.03       (39,433)        14.14       (38,831)       13.73
                                                  ---------       -------     ---------        ------     ---------       ------
Outstanding at end of year ................       1,117,833         10.27     1,138,400          9.70     1,361,036        12.10
                                                  =========       =======     =========        ======     =========       ======
Exercisable at end of year ................         349,660       $ 11.32       436,801       $ 10.80       880,282      $ 11.89

</TABLE>


     The options  outstanding  at February 3, 2001 have exercise  prices between
$7.23 and  $24.313,  with a  weighted  average  exercise  price of $12.10  and a
weighted average  remaining  contractual life of 6.36 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 Receivable Repayment").

     On  December  1, 2000,  the  Holding  Company  announced  that its Board of
Directors had approved a stock  repurchase  program to acquire up to $20 million
of outstanding Common Stock. Under the program,  the Holding Company,  from time
to time, at the discretion of  management,  may purchase its Common Stock on the
open market  through  September 29, 2001.  The extent and timing of  repurchases
will  depend  upon  general  business  and  market  conditions,   stock  prices,
availability  under Finlay's revolving credit facility and its cash position and
requirements going forward. The repurchase program may be modified,  extended or
terminated  by the Board of  Directors  at any  time.  In  fiscal  2000,  Finlay
repurchased  92,000  shares at a cost of  approximately  $1,119,000  under  this
program.

     On  February 4, 2001,  an  executive  officer of Finlay was issued  100,000
shares of Common Stock, subject to restrictions  ("Restricted Stock"),  pursuant
to a restricted stock agreement. The Restricted Stock becomes fully vested after
four years of continuous employment by Finlay.

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.


                                      F-16
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6--LEASE AGREEMENTS (continued)

     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.

     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):

                                                      Year Ended
                                    --------------------------------------------
                                     January 30,     January 29,     February 3,
                                       1999             2000            2001
                                    ---------        ---------       ---------
Minimum fees ................       $ 24,8244         $22,2644        $15,8514
Contingent fees .............         115,720          126,518         149,245
                                    ---------        ---------       ---------
     Total ..................       $140,544$          148,782        $165,096
                                    =========        =========       =========

     Future  minimum  payments  under  noncancellable  operating  leases  having
initial or  remaining  noncancellable  lease  terms in excess of one year are as
follows as of February 3, 2001:
                                                                 (in thousands)
                                                                 -------------
       2001.................................................      $   10,151
       2002.................................................           3,501
       2003                                                            3,607
       2004                                                            3,734
       2005                                                            3,710
       Thereafter...........................................           5,113
                                                                  ----------
            Total minimum payments required.................       $  29,816
                                                                  ==========

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 $2,043,000, $2,074,000 and $1,989,000 for 1998, 1999 and 2000,
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>
                                                                     January 29,       February 3,
                                                                         2000             2001
                                                                     -----------       -----------
                                                                            (in thousands)
<S>                                                                  <C>               <C>
Deferred Tax Assets
  Uniform inventory capitalization ............................      $     3,483       $     3,990
  Expense not currently deductible ............................            3,043             1,560
  Investment tax credit carryover .............................               31                --
  AMT credit ..................................................              566               566
                                                                         -------           -------
                                                                           7,123             6,116
  Valuation allowance .........................................              131               100
                                                                         -------           -------
     Total current ............................................            6,992             6,016
                                                                         -------           -------
  Deferred financing costs-non-current ........................              190               173
                                                                         -------           -------
     Total non-current ........................................              190               173
                                                                         -------           -------
        Total deferred tax assets .............................            7,182             6,189
                                                                         -------           -------
Deferred Tax Liabilities
  LIFO inventory valuation ....................................            8,666             9,113
                                                                         -------           -------
     Total current ............................................            8,666             9,113
                                                                         -------           -------
  Depreciation ................................................           10,795            11,846
                                                                         -------           -------
     Total non-current ........................................           10,795            11,846
                                                                         -------           -------
        Total deferred tax liabilities ........................           19,461            20,959
                                                                         -------           -------
          Net deferred income tax liabilities .................      $    12,279       $    14,770
                                                                         =======           =======
     Net current deferred income tax liabilities ..............      $     1,674       $     3,097
     Net non-current deferred income tax liabilities ..........           10,605            11,673
                                                                         -------           -------
          Net deferred income tax liabilities .................      $    12,279       $    14,770
                                                                         =======           =======
</TABLE>


     The components of income tax expense are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  Year Ended
                                                 --------------------------------------------
                                                 January 30,      January 29,     February 3,
                                                     1999            2000             2001
                                                 -------------    ------------    -----------
<S>                                               <C>              <C>             <C>
     Current domestic taxes..............         $   14,8804      $    7,122      $   20,224
     Current foreign taxes...............              (1,759)           (410)             --
     Deferred taxes......................               2,202           1,089           2,491
                                                     --------        --------         -------
     Income tax expense..................         $    15,323      $    7,801      $   22,715
                                                     ========        ========         =======
</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 30,    January 29,     February 3,
                                                               1999           2000           2001
                                                           -----------    -----------     -----------
<S>                                                          <C>           <C>              <C>
     Federal Statutory provision.......................      $ 13,0464     $  5,9024        $ 18,950
     Foreign taxes.....................................         (1,759)         (410)             --
     State tax, net of federal benefit.................          1,096           714           2,566
     Non-deductible amortization.......................          1,037         1,037           1,037
     Loss (benefit) of foreign tax credit..............          1,759           410              --
     Other.............................................            144           148             162
                                                               -------       -------         -------
     Provision of income taxes.........................      $  15,323     $   7,801        $ 22,715
                                                               =======       =======         =======

</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 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, 2000, Finlay Jewelry has a NOL
carryforward for tax purposes of approximately $5,500,000 which is subject to an
annual limit of approximately  $2,000,000 per year, of which $1,500,000  expires
in 2004 and $4,000,000 expires in 2005. At October 31, 2000, Finlay Jewelry also
had Alternative  Minimum Tax Credit ("AMT")  carryovers of $566,000 which may be
used indefinitely to reduce federal income taxes.

     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 February 3, 2001. Management determined
at  February  3, 2001,  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 2000 of an ITC carryover.


                                      F-19
<PAGE>

                         FINLAY FINE JEWERLY 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 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 four years and
has a remaining aggregate minimum value of $3,810,000 as of February 3, 2001.

     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  1998,
dividends of $7,118,000  were declared and  $3,506,000  was  distributed  to the
Holding  Company.  During  1999,  dividends  of  $8,909,000  were  declared  and
$7,159,000 was  distributed to the Holding  Company.  During 2000,  dividends of
$9,032,000 were declared and $7,640,000 was distributed to the Holding Company.

     Finlay  Jewelry's  concentration  of credit risk  consists  principally  of
accounts  receivable.  Approximately 68%, 68% and 69% of Finlay's domestic sales
in 1998, 1999 and 2000, 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 47%, 46% and 47% represented
Finlay's  domestic  sales  in May and  21%,  22% 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.

NOTE 10--QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following  table  summarizes the quarterly  financial data for 1999 and
2000 (dollars in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                  Year Ended January 29, 2000
                                               -------------------------------------------------------------
                                                  First            Second         Third           Fourth
                                                 Quarter           Quarter        Quarter        Quarter (a)
                                               ------------     ------------    ------------     -----------
<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


<CAPTION>

                                                                   Year Ended February 3, 2001
                                               --------------------------------------------------------------
                                                  First            Second         Third            Fourth
                                                 Quarter           Quarter        Quarter          Quarter
                                               ------------     ------------    ------------     -----------
<S>                                              <C>              <C>             <C>             <C>
      Sales.................................     $ 178,614        $ 211,229       $ 189,728       $ 420,549
      Gross margin..........................        91,278          106,179          96,495         209,877
      Net income (loss).....................          (515)           2,312            (617)         30,249

</TABLE>

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


                                      F-20
<PAGE>

                               FINLAY FINE JEWELRY
             CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11--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 $20.6 million,  consisting  primarily of
inventory of approximately  $16.3 million and fixed assets of approximately $4.0
million.  By acquiring J.B.  Rudolph (the "J.B.  Rudolph  Acquisition"),  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.  The J.B. Rudolph
Acquisition  was accounted for as a purchase,  and,  accordingly,  the operating
results of the former  J.B.  Rudolph  departments  have been  included in Finlay
Jewelry's  consolidated  financial  statements  since  the date of  acquisition.
Finlay Jewelry has recorded goodwill of $1.7 million.

     The  following   summarized,   unaudited  pro  forma  combined  results  of
operations  for the years ended  January 29, 2000 and February 3, 2001 have been
prepared assuming the J.B. Rudolph Acquisition  occurred at the beginning of the
respective  periods.  The pro forma  information  is provided for  informational
purposes  only.  It is  based  on  historical  information,  as well as  certain
assumptions and estimates,  and 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 (dollars in thousands):

                                                      (Unaudited)
                                                      Year Ended
                                            -----------------------------
                                              January 29,     February 3,
                                                  2000            2001
                                            ------------     ------------
Sales..................................     $   997,192      $  1,010,911
Net income (loss)......................           8,771            27,009


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 in Other  receivables  in the  accompanying  Consolidated
Balance  Sheets.  Sonab received an additional $7.6 million during 2000, and the
balance 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.


                                      F-21
<PAGE>

                         FINLAY FINE JEWELRY CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13--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.

     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's  consolidated  financial  statements since the date of
the acquisition. Finlay has recorded goodwill of approximately $12.4 million.


                                      F-22