FRIEDMANS INC, 10-K, 1999-12-29

FRIEDMANS INC
10-K, 1999-12-29
JEWELRY STORES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___

Commission file number 0-22356

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

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

4 West State Street
Savannah, Georgia 31401
(Address of principal executive offices)
(912) 233-9333
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, $.01 Par Value
(Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X___ No___

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the Class A Common Stock held by
non-affiliates of the registrant (assuming, for purposes of this calculation,
without conceding, that all executive officers and directors are "affiliates")
was $97,622,647 at December 15, 1999, based on the closing sale price of $7.38
per share for the Class A Common Stock on such date on the Nasdaq National
Market.

The number of shares of the registrant's Class A Common Stock outstanding
at December 15, 1999, was 13,228,001. The number of shares of the registrants
Class B Common Stock outstanding at December 15, 1999, was 1,196,283.

Documents Incorporated by Reference

Portions of the Proxy Statement for the Annual Meeting of Stockholders to
be held on March 2, 2000, are incorporated by reference in Part III.

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Friedman's Inc.
Annual Report on Form 10-K
For the Fiscal Year Ended September 30, 1999

Table of Contents

Item Page
Number Number
- --------------------------------------------------------------------------------
PART I

1. Business 1

2. Properties 9

3. Legal Proceedings 9

4. Submission of Matters to a Vote of Security Holders 9

PART II

5. Market for the Registrant's Common Equity
and Related Stockholder Matters 10

6. Selected Financial Data 10

7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12

7(A). Quantitative and Qualitative Disclosures About Market Risk 22

8. Financial Statements and Supplementary Data 22

9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 22

PART III

10. Directors and Executive Officers of the Registrant 22

11. Executive Compensation 22

12. Security Ownership of Certain Beneficial Owners and Management 23

13. Certain Relationships and Related Transactions 23

PART IV

14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 24

SIGNATURES
EXHIBIT INDEX
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PART I.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this document and in documents
incorporated by reference herein, including matters discussed under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," may constitute forward-looking statements for purposes of the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, and as such may involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
Friedman's Inc. ("Friedman's" or the "Company") to be materially different from
future results, performance or achievements expressed or implied by such
forward-looking statements. The words "expect," "anticipate," "intend," "plan,"
"believe," "seek," "estimate," and similar expressions are intended to identify
such forward-looking statements. The Company's actual results may differ
materially from the results anticipated in these forward-looking statements due
to a variety of factors, including without limitation those discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Performance" in Item 7 hereof. All
written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by these cautionary statements.

ITEM 1. BUSINESS.

General

Friedman's is a specialty retailer of fine jewelry and, as of the 1999
Christmas season, operated 564 stores in 21 states primarily in the southern
United States. The Company positions itself as "The Value Leader(R)" of
specialty retail fine jewelry by offering competitive prices, a broad
merchandise selection and a high level of customer service that appeals to its
target market of low to middle income consumers aged 18 to 45 years old. The
Company's real estate expansion strategy focuses primarily on opening new stores
in power strip centers in small cities and towns. Friedman's believes it has
developed a distinctive franchise based on its value orientation, loyal customer
base and strong name recognition, having served the southeast since 1920.

Store Locations

The Company plans to continue its store expansion by opening new stores in
both existing and new markets, focusing primarily on power strip centers with
selective expansion into regional malls. The Company typically expands from
existing markets into contiguous new markets and attempts to concentrate its
stores within a market in order to leverage advertising and supervisory costs.
As defined by the Company, power strip centers are shopping centers which are
anchored by major discount retailers such as Wal-Mart, Target or K-Mart and
often include other mass merchandisers.

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The following table sets forth the Company's store openings and closings
for its last five fiscal years:

<TABLE>
<CAPTION>
Fiscal Year Ended
September 30,
------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Stores
Beginning of Period..... 471 384 301 215 141
Opened.................. 80 95 90 90 77
Closed.................. 20 8 7 4 3
-------- ------- ------- ------ ------
Total at Period End..... 531 471 384 301 215
======== ======= ======= ====== ======

Percentage growth over prior period 12.7% 22.7% 27.6% 40.0% 52.5%

</TABLE>

The Company's general policy is to allow a new store two Christmas seasons
to attain the profitability and sales goals set by the Company before it will
consider closing the store.

As of September 30, 1999, the Company operated 531 stores in 21 states. The
following table provides information regarding the location by state and number
of stores operated by the Company at the end of the Company's last five fiscal
years.

<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------------
State 1999 1998 1997 1996 1995
- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Georgia.................... 77 68 61 58 53
North Carolina............. 66 57 54 50 40
South Carolina............. 48 42 38 34 29
Virginia................... 44 38 22 14 7
Tennessee.................. 40 35 23 16 10
Texas...................... 37 30 22 8 1
Florida.................... 35 25 21 19 19
Alabama.................... 31 24 18 17 11
Louisiana.................. 24 23 22 21 13
Mississippi................ 23 21 21 21 19
Kentucky................... 23 20 16 12 5
Arkansas................... 19 18 13 8 4
Maryland................... 16 19 11 1 0
Oklahoma................... 12 14 13 6 0
Missouri................... 8 10 9 6 1
Indiana.................... 8 6 5 2 0
Ohio....................... 7 7 7 5 3
West Virginia.............. 6 6 1 1 0
Illinois................... 4 4 4 1 0
Delaware................... 2 2 2 0 0
Pennsylvania............... 1 1 0 0 0
Iowa....................... 0 1 1 1 0
---- ---- ---- ---- ----
Total............. 531 471 384 301 215
==== ==== ==== ==== ====

</TABLE>

For the 1999 Christmas selling season, the Company operated 564 stores of
which 351 stores were in power strip centers and 213 stores were in regional
malls.

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Crescent Jewelers

As part of the Company's overall business strategy, the Company has
maintained a strategic relationship with Crescent Jewelers, an affiliate of the
Company, since 1996. Crescent Jewelers ("Crescent") is a specialty retailer of
fine jewelry based in Oakland, California, and operates a total of 150 stores in
seven western states as of December 31, 1999. Management believes that Crescent
is strategically located in one of the largest and fastest growing markets in
the United States, operating significantly more stores in the state of
California than its nearest competitor. With the completion of Crescent's recent
restructuring and new financing, management believes that Crescent is positioned
to improve its financial stability, liquidity and the merchandising of its
stores, and resume unit growth. In addition, the Company intends to further
strengthen its strategic relationship with Crescent through the realization of
certain operating synergies, and has already initiated these efforts in the
financial and investor relations management functions.

See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operation - Liquidity and Capital Resources," the information
incorporated by reference into Item 13. "Certain Relationships and Related
Transactions" and Note 8 to the Notes to the Consolidated Financial Statements.

Customer Service

Friedman's has been dedicated for 80 years to providing quality customer
service to its customer base, which is comprised primarily of low to middle
income consumers in the 18 to 45 year-old age group. The Company offers its
customers a flexible trade-in and 30-day return policy, a credit program for
qualified purchasers, guaranteed trade-ins on all Friedman's diamond merchandise
and numerous customer appreciation events throughout each year. Pursuant to
Company guidelines, "Store Partners" (discussed below) are primarily responsible
for cultivating and maintaining relationships with customers. Friedman's
believes that in the highly competitive retail jewelry industry, customer
satisfaction cannot be emphasized enough and that its customer satisfaction
program is the essential element in creating and maintaining successful customer
relationships.

Credit Operations

The Company's credit programs are an integral part of its business
strategy. Approximately 54% of the Company's net merchandise sales in fiscal
1999 were generated by credit sales on the Company's proprietary credit cards.
Opening a credit account allows Friedman's sales personnel to build
relationships with customers that the Company believes engender customer loyalty
and facilitate repeat purchases. To support this strategy, the Company has
developed a standardized system for extending credit and collecting accounts
receivable according to its strict credit disciplines. Credit applications are
processed at each store, which provides customers access to convenient credit.
The Company encourages its credit customers to make monthly payments in person
at a store and the majority do so, generating store traffic, encouraging
additional purchases and strengthening customer relationships. The Company also
accepts major credit cards and accounts for these credit card purchases as cash
sales.

Consistent with industry practice, Friedman's encourages the purchase of
credit insurance products in connection with sales of merchandise on credit. The
Company sells such products as an agent for a third-party insurance company and
maintains a reinsurance contract with the insurance company .

As of September 30, 1999, the Company had approximately 259,000 credit
accounts with an average net principal balance per account of approximately
$378.

Credit Extension. As a customer service and control measure, credit
applications, references and credit bureau reports are evaluated by store
personnel using the Company's proprietary computer-based credit analysis system.
The system allows the Store Partner to assess the risk level for each customer
on a

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statistically objective basis and assists the Company in determining the
appropriate credit limit as well as stipulations regarding the type of credit
contract, suggested down payment and terms for which the customer is eligible.
Compliance with Company policies is reviewed and non-compliance addressed daily.

Collections. Collection of accounts is, to a large extent, managed at the
store level. Accounts are processed five times each month in the Company's
central office. The first three past due notices are sent to customers from the
central office. An installment contract is considered delinquent if the customer
is seven days past due, at which time the customer receives the first of the
three notices from the central office. When an account is 14 days past due, the
customer incurs a late charge. If a payment is not received within 21 days after
the due date, a more forceful reminder is sent to the customer, which is the
final notice sent from the central office. If a payment has not been received by
the due date, the central office generates a report known as a delinquency
report and distributes it to the appropriate store, and the store takes over
collection activity. This collection activity consists of phone calls and
further notices being sent at seven day intervals. When the Company deems it
appropriate, the supervisor (Senior Partner) may approve legal action, such as
pursuing remedies in small claims or other courts.

The Company's policy is generally to write-off in full any credit account
receivable if no payments have been received for 120 days on a recency basis,
any other credit accounts receivable, regardless of payment history, if judged
uncollectible (for example, in the event of fraud in the credit application or
bankruptcy) and all accounts 100% contractually past-due and for which no
payments have been received for 60 days. Effective July 1999, the Company
amended its credit policy to write-off in full any credit accounts receivable if
no payments have been received for 90 days for stores opened after July 1, 1999.
The Company made the change because the Company believed the costs and time
incurred by its employees in efforts to collect the accounts were
disproportionate in relation to the amounts to be recovered. After the account
has been written off, it is referred to an outside collection agency. The
Company maintains an allowance for uncollectible accounts based in part on
historical experience. As of September 30, 1999, the allowance was maintained at
10.0% of the accounts receivable balance. The Company expects that any downturn
in general economic conditions in the markets in which it operates would
adversely affect its collection of outstanding credit accounts receivable.

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The following table presents certain information related to the Company's
credit operations for the last five fiscal years:

Fiscal Year Ended September 30, (1)
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except for percentages and information relating to
customer accounts)
<S> <C> <C> <C> <C> <C>
Revenues attributable to credit
sales(2).......................... $199,965 $171,324 $145,703 $119,981 $85,150
Accounts receivable(3)................. $108,642 $95,972 $82,678 $68,491 $48,741
Credit sales as a percentage of
net merchandise sales............. 53.7% 55.0% 56.9% 58.8% 58.7%

Net receivable revenues(4)............. $40,823 $33,417 $27,156 $20,409 $13,362
Provision for doubtful accounts........ $32,006 $29,767 $22,892 $15,594 $9,255
Gross income before credit
expenses.......................... $8,817 $3,650 $4,264 $4,815 $4,107
Gross yield before credit
expenses(5) ...................... 7.7% 3.5% 4.9% 7.0% 9.0%

Active number of customer
accounts ......................... 258,672 244,903 225,701 190,547 140,444
Balance per customer account(6)........ $378 $351 $330 $323 $312
Average credit ticket.................. $221 $204 $200 $192 $190
Average accounts receivable(7)......... $114,516 $103,609 $87,406 $68,736 $45,695
Average monthly collection
percentage........................ 12.0% 11.2% 11.1% 11.4% 11.9%
Net charge-offs as a percentage
of net sales(8)................... 10.8% 10.8% 10.0% 7.8% 6.0%
Net charge-offs as a percentage
of credit revenues(8)............. 16.6% 16.3% 14.8% 11.4% 8.8%
Allowance for doubtful accounts
as a percentage of accounts
receivable ....................... 10.0% 10.5% 10.0% 10.0% 10.0%
Accounts receivable greater than
90 days past due(9) .............. 4.7% 7.1% 7.7% 9.1% 6.7%
Accounts receivable less than
30 days past due(9) .............. 83.8% 80.5% 79.8% 77.9% 80.1%

</TABLE>
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(1) As more fully described in Note 2 of the Notes to Consolidated Financial
Statements, the Company changed its accounting policy relating to revenue
recognition for diamond and gold product warranties. As a result of the
change in accounting policy, the Company has restated the financial
information in this table for the years ended September 30, 1998, 1997,
1996 and 1995.

(2) Revenues attributable to credit sales constitute merchandise sold pursuant
to the Company's proprietary credit program as well as earned finance
charges, product warranties and credit insurance.

(3) Accounts receivable is stated net of unearned finance charges, diamond and
gold bond product warranties and credit insurance.

(4) The sum of finance charge income, insurance commissions and other credit
revenues.

(5) Reflected as a percentage of average accounts receivable, net of unearned
finance charges, diamond and gold bond product warranties and credit
insurance.

(6) Average customer account balance as of September 30, net of allowance for
doubtful accounts.

(7) Represents the average accounts receivable balance outstanding during the
fiscal year.

(8) Includes the accelerated write-off of specific accounts aggregating $2.7
million associated with a change in the Company's credit policy effective
September 30, 1998. Excluding this change in

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credit policy, net charge-offs as a percentage of net sales and credit
revenues were 9.8% and 14.8%, respectively, for the fiscal year ended
September 30, 1998.

(9) Reported on a recency basis.

The Company's policy is to review delinquency and net write-offs on a
monthly basis and adjust the provision for doubtful accounts so that the
accounts are stated at estimated net realizable value.

Store Management

Each of the Company's stores is operated under the direction of a Store
Partner, a title which reflects the Company's philosophy that each store should
be operated as an independent business unit to the greatest extent possible.
Store Partners are responsible for the management of all store-level operations
including sales, credit extension and collection, and payroll and personnel
matters. Store Partners are assisted by a staff which includes an assistant
manager and two to five sales associates. The Company operates a manager
training and development program, which is one of the principal sources for
future Store Partners. Sales associates are provided with written manuals
containing Company policies and procedures and other training materials and are
also trained on-site by supervisory personnel. Forty-one "Senior Partners," each
responsible for approximately 12 stores, and 15 "District Partners," each
responsible for approximately four stores including their own, oversee the
operations of the Company's stores and evaluate the performance of the Store
Partners. Senior Partners report to ten Regional Vice Presidents, each
responsible for approximately 20 to 60 stores, and four Division Presidents,
each responsible for approximately 100 to 200 stores. Senior Partners, Regional
Vice Presidents and Division Presidents interact on a daily basis with the
Company's senior management to review individual store performance. The Company
believes that its decentralized store management structure enables senior
management, Senior Partners, Regional Vice Presidents and Division Presidents to
focus on the Company's daily operating disciplines and the needs of its target
customers while allowing the Company to continue expanding.

The Company believes that the quality of its sales personnel is a key to
its success in the highly competitive jewelry industry. The Company seeks to
motivate its store employees by linking a substantial percentage of their
compensation to store performance, specifically sales and cash flow, as well as
by offering opportunities for promotion within the Company. Friedman's also
offers an employee stock purchase plan to substantially all of its employees.

Advertising and Promotions

Friedman's advertising seeks to position the Company as "The Value
Leader(R)" in the specialty retail fine jewelry business in the markets that it
serves. Frequent special promotions such as diamond remount events and clearance
sales are designed to increase traffic through the Company's stores and generate
an urgency for customers to make purchases. Store "grand openings" are an
important aspect of the Company's overall advertising plan. The Company has
formulated a unique "work the town" advertising effort around store grand
openings in which Store Partners personally invite key local residents and
businesses to attend.

The Company's principal advertising vehicles consist of direct mailings,
promotions within stores, television and radio commercials, local and regional
newspaper advertisements and advertising circulars. The Company believes that
increasing store density in its major advertising markets enhances the
efficiency of its advertising activities.

Merchandising

Each Friedman's store offers a wide variety of affordable jewelry products,
including diamonds, gemstones, rings, gold jewelry and chains, watches and other
fine jewelry. The Company principally sells diamonds and gemstones, and for
fiscal 1999, 1998 and 1997, these products represented approximately

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71.4%, 67.1% and 66.7%, respectively, of the Company's net merchandise sales.
Friedman's stores offer a broad range of diamonds up to one carat and
occasionally place special orders for larger diamonds.

The gold jewelry sold in the Company's stores is primarily 10 and 14 karat,
and for fiscal 1999, 1998 and 1997, these products represented approximately
19.3%, 22.8% and 24.0% of the Company's net merchandise sales.

Sales of wedding-related products accounted for approximately 34.8%, 32.7%
and 30.7% of the Company's net merchandise sales in fiscal 1999, 1998 and 1997,
respectively. Although the Company's wide range of products and prices is
designed to appeal to a broad customer base, its wedding-related and other
products particularly attract young adults.

Purchasing

The Company does not manufacture its merchandise. The Company purchases
complete diamond and other gemstone jewelry, watches and gold jewelry from
vendors in the United States and abroad. The Company also subcontracts with
jewelry finishers to set loose gems into rings and jewelry, using styles
selected by Friedman's. The Company maintains a quality control program, with
all finished items being inspected upon receipt at the Company's offices after
setting. The Company believes that it is not reliant upon any one supplier or
subcontractor, because it could replace any single supplier or subcontractor
with a competing firm without material difficulty.

The jewelry industry generally is affected by fluctuations in the prices of
gold and diamonds and, to a lesser extent, other precious and semi-precious
metals and stones. The Company does not maintain long-term inventories or
otherwise hedge against fluctuations in the cost of diamonds and gold. A
significant increase in prices or decrease in the availability of gold or
diamonds could have a material adverse effect on the Company's business. The
supply and price of diamonds in the principal world markets are influenced by a
single entity, the Central Selling Organization (the "CSO"), a marketing arm of
DeBeers Consolidated Mines Ltd. of South Africa. The availability of diamonds to
the CSO and the Company's suppliers is to some extent dependent on the political
situation in diamond producing countries, such as South Africa, Botswana, Zaire,
the former Soviet republics and Australia, and on the continuance of the
prevailing supply and marketing arrangements for raw diamonds. Until alternate
sources could be developed, any sustained interruption in the supply of diamonds
from these producing countries could adversely affect the Company and the retail
jewelry industry as a whole.

Systems and Controls

The Company's management information systems utilize an IBM AS/400-based
system. The management information systems use customized software which was
specifically designed for the retail jewelry industry. In fiscal 1999 the
Company implemented a new retail enterprise, state-of-the-art software system
that significantly enhances the Company's ability to plan, manage, allocate,
control and distribute its inventories. The systems also enable management to
monitor the Company's credit operations. Supervisors and senior management can
review and analyze credit activity by store, amount of sale, terms of sale or
employees who approved the sale. The entire credit extension and collection
process is automated and the system maintains all customer data to facilitate
future credit transactions.

Utilizing the management information systems, senior management and
regional supervisors can monitor each store's and each employee's productivity
and performance. The systems automatically provide a daily reconciliation of
such store's transactions so that Store Partners can investigate discrepancies
on a timely basis. Overall, the systems provide information that enables the
Company to monitor merchandise trends and variances in performance and improve
the efficiency of its inventory and personnel management.

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Competition

The retail jewelry industry is highly competitive. Management believes that
the primary elements of competition in the industry are selection of merchandise
offered, pricing, quality of sales personnel, advertising, the ability to offer
in-house credit, store location and reputation. The ability to compete
effectively is also dependent on volume purchasing capability, regional market
focus and credit control and information systems.

The Company is the sole retail jewelry store in the majority of the power
strip centers in which it operates. However, Friedman's power strip center
stores face competition from small independent jewelers in the local area, many
of which are family owned. The Company believes that its ability to offer
greater breadth and depth of product selection, generally lower prices, more
extensive advertising and promotion and proprietary customer credit programs
provides Friedman's with a competitive advantage over these local jewelers.

The Company's mall stores compete with major national jewelry chains, such
as Zale Corporation, which includes the Zale's and Gordon's operations;
Sterling, Inc., which includes Kay Jewelers; Whitehall Jewelers, Inc; Helzberg's
Diamond Shops, Inc.; regional jewelry chains; independent jewelers, and major
department stores. Typically, one or more of these competitors, including
jewelry kiosks such as Piercing Pagoda are located in the same regional mall as
the Company's mall stores. In addition, recently some of the Company's
competitors have established non-mall based stores in major metropolitan areas
which offer a large selection of jewelry products. The Company also competes
with catalog showrooms, discount stores, direct suppliers, home-shopping
television programs and jewelry retailers who make sales through Internet sites,
as well as credit card companies and other providers of consumer credit. Certain
of the Company's competitors are substantially larger and have greater financial
resources than the Company. The Company also believes that it competes for
consumers' discretionary spending dollars with retailers that offer merchandise
other than fine jewelry. The foregoing competitive conditions may adversely
affect the Company's revenues, profitability and ability to expand.

Tradename

The Company, or its predecessors, have been doing business under the
"Friedman's Jewelers" tradename for approximately 80 years. The Company also
uses the "Regency Jewelers" tradename in three locations as of September 30,
1999. The Company first began use of this tradename in 1979 when the Company
opened a second retail jewelry store in the same mall, but decided it did not
want to operate both stores under the same tradename. With the acquisition of
all the rights of A.A. Friedman Co., Inc. of Augusta, Georgia, ("AAFCO") to the
Friedman's Jewelers tradename, the Company changed all but three of the Regency
Jewelers stores to Friedman's Jewelers stores during the first quarter of 1999.
The cost of this conversion was not material.

Employees

As of September 30, 1999, the Company had 4,390 employees. None of the
Company's employees are members of unions. The Company believes that its
relations with its employees are good.

Government Regulations

The extension of credit to consumers is a highly regulated area of the
Company's business. Numerous federal and state laws impose disclosure and other
requirements upon the Company's origination, servicing and enforcement of credit
accounts. These laws include the Federal Truth in Lending Act, Equal Credit
Opportunity Act and Federal Trade Commission Act. State laws can impose
limitations on the maximum amount of finance charges that may be charged by a
credit provider, such as Friedman's, and also impose other restrictions on
creditors (including restrictions on collection and enforcement) in consumer
credit transactions. Friedman's periodically reviews its contracts and

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procedures for compliance with consumer credit laws with a view to making any
changes required to comply with such laws. Failure on the part of the Company to
comply with such laws could expose it to substantial penalties and claims for
damages and, in certain circumstances, may require the Company to refund finance
charges already paid, and to forego finance charges not yet paid under
non-complying contracts. Management believes that the Company is in material
compliance with such laws, and to date the Company has not experienced any
penalties or losses associated with such laws.

The sale of credit life, health and property and casualty insurance
products by the Company is also highly regulated. State laws currently impose
disclosure obligations with respect to the Company's sales of credit and other
insurance products similar to those required by the Federal Truth in Lending
Act, impose restrictions on the amount of premiums that may be charged and also
require licensing of certain Company employees. The Company believes it is in
compliance in all material respects with all applicable laws and regulations
relating to its insurance business.

ITEM 2. PROPERTIES.

The Company leases all of its stores. The Company's typical mall lease is
for a period of seven to ten years and includes a minimum base rent, a
percentage rent based on store sales and a significant common area maintenance
charge. The Company's power strip store leases typically have a three-year lease
term with several three-year options to renew the lease and have lower occupancy
costs than the mall store leases. Generally, under the terms of all of its
leases, the Company is required to maintain and conform its usage of the
premises to agreed standards, often including required advertising expenditures
as a percentage of sales.

The Company also leases the buildings in which its headquarters are
located. The Company paid rent of approximately $143,000 in fiscal 1999 for use
of the space it occupies in these buildings. The buildings in which the
Company's headquarters are located contain approximately 27,700 square feet of
office and administrative space.

ITEM 3. LEGAL PROCEEDINGS.

The Company is involved in certain legal actions arising in the ordinary
course of business, but management believes that none of these actions, either
individually or in the aggregate, will have a material adverse effect on
Friedman's business, financial condition or results of operations.

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

No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year ended September 30, 1999.

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PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

Common Stock Price

The Company has two classes of Common Stock -- Class A Common Stock and
Class B Common Stock. The Company's Class A Common Stock is traded on the Nasdaq
National Market (trading symbol "FRDM") and began trading publicly on October
14, 1993. There is no established public trading market for the Class B Common
stock. The following table sets forth the quarterly high and low last sales
prices per share of the Class A Common Stock as reported by The Nasdaq Stock
Market for the latest two full fiscal years.

High Low
---- ---
Fiscal Year Ended September 30, 1999
First Quarter......................... $10.00 $5.00
Second Quarter ....................... $13.25 $7.88
Third Quarter......................... $10.75 $7.88
Fourth Quarter ....................... $10.00 $8.00

High Low
---- ---
Fiscal Year Ended September 30, 1998
First Quarter......................... $19.50 $13.50
Second Quarter ....................... $20.75 $13.50
Third Quarter ........................ $22.00 $14.38
Fourth Quarter ....................... $16.50 $5.38
- ----------------
As of December 15, 1999, the closing price per share on the Nasdaq
National Market was $7.38.

Holders

As of December 15, 1999, there were approximately 78 record holders of the
Class A Common Stock and two record holders of the Class B Common Stock. The
Company estimates that there are approximately 2,300 beneficial owners of the
Class A Common Stock.

Dividend Policy

The Company paid a cash dividend of $0.0125 per share of Class A Common
Stock and Class B Common Stock in each of the second, third and fourth fiscal
quarters of 1999. Future dividends, if any, will be determined by the Board of
Directors and will be based upon the earnings, capital requirements and
operating and financial condition of the Company, among other factors, at the
time any such dividends are considered. The Company's ability to pay dividends
in the future is restricted by its credit facilities, which prescribe certain
income and asset tests that affect the amount of any dividend payments. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" and Note 2 of Notes to
Consolidated Financial Statements.

ITEM 6. SELECTED FINANCIAL DATA.

The following statement of income and balance sheet data for fiscal years
ended September 30, 1995 through September 30, 1999 were derived from the
audited Consolidated Financial Statements of the Company. This data should be
read in conjunction with the Consolidated Financial Statements and Notes

-10-
<PAGE>

thereto and "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere herein.

In connection with the preparation of the financial statements for fiscal
1999, the Company changed its accounting policy relating to revenue recognition
for diamond and gold bond product warranties. The Company concluded that revenue
from the sale of diamond and gold bond product warranties should be deferred and
recognized ratably over the estimated life of the contracts. The financial
statements for fiscal 1998 and fiscal 1997 have been restated and the discussion
that follows reflects the effect of this change. Also, the Company restated its
financial statements for the fiscal years ended September 30, 1996 and 1995 to
reflect the result of this change.

In addition, the Company has changed the presentation of its statement of
income. Certain balances as of September 30, 1998 through September 30, 1995,
have been reclassified to conform to the current year income statement
presentation and also conform to retail industry financial reporting practices.
Specifically, the Company has reclassified finance charge income and insurance
commissions, previously included in revenues, as a reduction of selling, general
and administrative expenses. The Company reclassified the provision for doubtful
accounts to selling, general and administrative expenses, netting this expense
against the finance charge and insurance commission income discussed above. The
Company has also reclassified certain inventory-related expenses from selling,
general and administrative expenses to cost of goods sold. These expenses
include inventory shortages and related accruals, outbound freight and inventory
capitalization costs.

Fiscal Year Ended September 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:

Net sales.............................. $308,385 $259,146 $214,255 $173,717 $124,968
Cost of goods sold, including
occupancy, distribution and
buying ............................. 163,983 135,412 109,352 87,863 63,117
Selling, general and administrative
expenses............................ 110,665 100,506 71,127 55,693 42,247
Depreciation and amortization.......... 6,379 5,269 4,177 3,321 2,516
Interest (income) expense, net ........ 1,421 874 (665) 2,197 4,102
------- ------- ------- ------- -------
Income before extraordinary item
and income taxes(1)................. 25,937 17,085 30,264 24,643 12,986
Income tax expense..................... 9,454 6,491 11,498 9,383 2,873
------- ------- ------- ------- -------
Income before extraordinary item....... 16,483 10,594 18,766 15,260 10,113
Extraordinary item (net of taxes) (1).. -- -- -- (1,696) --
------- ------- ------- ------- -------
Net income ............................ $16,483 $10,594 $18,766 $13,564 $10,113
======= ======= ======= ======= =======
Basic earnings per share before
extraordinary item ................. $1.13 $0.72 $1.30 $1.19 $0.96
Diluted earnings per share before
extraordinary item ................. $1.13 $0.72 $1.29 $1.17 $0.94
Weighted average common shares
outstanding -basic..................14,590,000 14,620,000 14,408,000 12,779,000 10,503,000
Weighted average common shares
outstanding -diluted................14,590,000 14,762,000 14,539,000 13,031,000 10,722,000

Other Operating Data:

Number of stores (end of periods)...... 531 471 384 301 215
Percentage increase in number of stores
(end of periods).................... 12.7% 22.7% 27.6% 40.0% 52.5%
Percentage increase (decrease) in
comparable store sales (2) ......... 8.7% (1.1%) (1.5%) 2.9% 13.3%
Income from operations as a
percentage of net sales ............ 8.8% 6.9% 13.8% 15.5% 13.7%
Net income as a percentage of net
sales............................... 5.3% 4.1% 8.8% 7.8% 8.1%

</TABLE>

-11-
<PAGE>

September 30,
-------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:

Accounts receivable, net............ $ 97,780 $ 85,900 $ 74,410 $ 61,614 $ 43,847
Inventories......................... 114,128 105,586 78,683 64,307 45,175
Working capital..................... 167,390 175,865 124,963 121,245 77,052
Total assets........................ 275,296 267,883 221,786 174,618 121,011
Long-term debt...................... 28,184 66,969 19,397 -- 22,369
Stockholders' equity................ 191,904 178,514 170,051 146,358 74,236

</TABLE>
- -----------------------------

(1) Extraordinary item in fiscal 1996 of $1.7 million net of applicable income
taxes reflects the payment of a make whole amount of $2.8 million relating
to the early repayment of the Company's 14.25% Senior Subordinated Debt.
(2) A new store becomes a comparable store in the first full month following
the anniversary of the opening of such store.

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

As used herein, the terms "fiscal 1999," "fiscal 1998," and "fiscal 1997"
refer to the Company's fiscal years ended September 30, 1999, 1998 and 1997,
respectively.

Results of Operations

The following table sets forth certain percentage relationships based on
the Company's Consolidated Income Statements for the periods indicated.

-12-
<PAGE>

Fiscal Year Ended September 30,
-----------------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of goods sold including occupancy,
distribution and buying ........................ 53.2 52.3 51.0
Selling, general and administrative expenses(1)..... 35.9 38.8(1) 33.2
Depreciation and amortization....................... 2.1 2.0 2.0
Interest (income) expense........................... 0.5 0.3 (0.3)
----- ----- -----
Income before extraordinary item and income taxes... 8.3 6.6 14.1
Income tax expense.................................. 3.0 2.5 5.3
----- ----- -----

Net income.......................................... 5.3% 4.1% 8.8%
===== ===== =====

</TABLE>
-----------------------------

(1) Selling, general and administrative expenses in fiscal 1998
include a $1.8 million charge related to reserves established for
senior executive severance and store closing costs and a charge
for the accelerated write-off of specific accounts aggregating
$2.7 million associated with the Company's change in its credit
policy, effective September 30, 1998. Excluding these charges,
selling, general and administrative expenses as a percentage of
net sales would have been 37.1%.

Fiscal Year 1999 Compared to Fiscal Year 1998

Net sales increased 19.0% to $308.4 million in the fiscal year ended
September 30, 1999, from $259.1 million in the fiscal year ended September 30,
1998. Of the $49.3 million increase in net sales, $26.1 million, or 10.1% of the
increase resulted from additional net sales contributions from 60 net new stores
and $23.2 million, or 8.9% of the increase came from increases in comparable
store net sales in fiscal 1999. Comparable store net merchandise sales increased
8.7% in the fiscal year ended September 30, 1999.

Cost of goods sold, including occupancy, distribution and buying, increased
21.1% to $164.0 million, or 53.2%, of net sales, for fiscal 1999 versus $135.4
million, or 52.3%, of net sales, in fiscal 1998. The fiscal 1999 increase as a
percentage of net sales was primarily the result of higher merchandise cost of
goods offset slightly by lower store occupancy costs. The increase in
merchandise cost of goods was primarily due to a higher sales of advertised,
promotional and clearance merchandise and a change in sales mix from gold to
diamond products which traditionally result in lower gross margins. In general,
cost of goods as a percentage of net sales may continue to increase as a result
of the Company's merchandising and promotional activities, but management does
not believe that such potential increases represent a material continuing trend.

Selling, general and administrative expenses increased 10.1% to $110.7
million for fiscal 1999 from $100.5 million in fiscal 1998. As a percentage of
net sales, selling, general and administrative expenses decreased to 35.9% in
fiscal 1999 from 38.8% in fiscal 1998. Selling, general and administrative
expenses in fiscal 1998 included a $1.8 million charge related to reserves
established for senior executive severance and store closing costs and a $2.7
million charge related to a change in the Company's credit policy to accelerate
the write-off of all accounts 100% contractually past due if no payments have
been received for 60 days. Excluding these charges, selling, general and
administrative expenses as a percentage of net sales decreased to 35.9% in
fiscal 1999 from 37.1% in fiscal 1998. This decrease in selling, general and
administrative expenses as a percentage of net sales in fiscal 1999 was
primarily due to improved expense leverage in payroll, advertising and other
direct expenses resulting from the increase in comparable store net merchandise
sales and productivity gains from an increase in the number of stores in
existing markets. The Company does not expect the decrease in selling, general
and administrative expenses as a percentage of net sales to constitute a
continuing material trend.

-13-
<PAGE>

Depreciation and amortization expenses increased 21.1% to $6.4 million in
fiscal 1999 from $5.3 million in fiscal 1998. Depreciation and amortization
expense as a percentage of net sales was 2.1% in fiscal 1999 compared to 2.0% in
fiscal 1998. The increase in depreciation and amortization as a percentage of
net sales was due primarily to expenses associated with the implementation of
new computer software placed into service July 1, 1999. In general, depreciation
and amortization expenses as a percentage of net sales may continue to increase
as a result of additional investments in systems and infrastructure.

Interest income from a related party decreased to $2.49 million in fiscal
1999 compared to $2.52 million in fiscal 1998. As a percentage of net sales,
interest income from a related party decreased to 0.8% in fiscal 1999 compared
to 1.0% in fiscal 1998. Management expects interest income from a related party
to continue to decrease because of repayment of borrowings by Crescent Jewelers
Inc. and its wholly owned subsidiary, Crescent Jewelers (collectively,
"Crescent"). Crescent is affiliated with the Company because of common ownership
and management. This decrease will likely be partially offset by Crescent's
payments to the Company of fees related to the Company's guaranty of Crescent's
obligations under Crescent's credit facility. See "Liquidity and Capital
Resources." Interest expense increased to $3.9 million in fiscal 1999 compared
to $3.4 million in fiscal 1998. As a percentage of net sales, interest expense
remained unchanged at 1.3% of net sales in fiscal 1999 and fiscal 1998,
respectively. The fiscal 1999 increase in interest expense was due primarily to
higher average outstanding borrowings on the Company's line of credit. See
"Liquidity and Capital Resources."

Income tax expense increased 45.6% to $9.5 million in fiscal 1999 from $6.5
million in fiscal 1998. The Company's effective income tax rate decreased to
36.5% in fiscal 1999 from 38.0% in fiscal 1998.

Net income increased by 55.6% to $16.5 million in fiscal 1999 compared to
$10.6 million in fiscal 1998 primarily as a result of increases in net sales,
lower selling, general and administrative expenses as a percentage of net sales
and a lower effective income tax rate. The positive effect of those items on net
income was partially offset by increases in cost of goods sold, depreciation and
amortization expense and net interest expense.

Basic and diluted earnings per share increased 56.9% to $1.13 in fiscal
1999 from $0.72 in fiscal 1998. Basic weighted average common shares outstanding
decreased 0.2% to 14,590,000 in fiscal 1999 from 14,620,000 in fiscal 1998.
Diluted weighted average shares outstanding including common stock equivalents
decreased 1.2% to 14,590,000 in fiscal 1999 from 14,762,000 in fiscal 1998.

Fiscal Year 1998 Compared to Fiscal Year 1997

Net sales increased 21.0% to $259.1 million in the fiscal year ended
September 30, 1998, from $214.3 million in the fiscal year ended September 30,
1997. Of the $44.9 million increase in net sales, $46.0 million, or 21.5% of the
increase resulted from additional net sales contributions from 87 net new stores
offset by a decrease of $1.1 million, or .5% from comparable store net sales in
fiscal 1998. Comparable store net merchandise sales decreased 1.1% in the fiscal
year ended September 30, 1998.

Cost of goods sold, including occupancy, distribution and buying, increased
23.8% to $135.4 million, or 52.3%, of net sales, for fiscal 1998 versus $109.4
million, or 51.0%, of net sales, in fiscal 1997. The fiscal 1998 increase as a
percentage of net sales was the result of higher store occupancy costs primarily
due to the addition of a higher percentage of new mall stores in 1998.

Selling, general and administrative expenses increased 41.3% to $100.5
million for fiscal 1998 from $71.1 million in fiscal 1997. As a percentage of
net sales, selling, general and administrative

-14-
<PAGE>

expenses increased to 38.8% in fiscal 1998 from 33.2% in fiscal 1997. Selling,
general and administrative expenses in fiscal 1998 included a $1.8 million
charge related to reserves established for senior executive severance and store
closing costs and a $2.7 million charge related to a change in the Company's
credit policy to accelerate the write-off of all accounts 100% contractually
past due if no payments have been received for 60 days. The severance was
accrued when the executives terminated employment and the amount of severance to
be paid to each executive was established. The store closing costs were
recognized when the company made the decision to close the stores. The Company
actually closed the stores soon thereafter. Excluding these charges, selling,
general and administrative expenses as a percentage of net sales increased to
37.1% in fiscal 1998 from 33.2% in fiscal 1997. In January 1998, the Company
appointed a new President - Chief Operating Officer and a new Vice Chairman -
Chief Executive Officer. These executives resigned their positions with the
Company in June 1998 and September 1998, respectively. The direct and indirect
expenses incurred with the employment and subsequent termination of these
executives significantly impacted selling, general and administrative expenses
during fiscal 1998. The increase in selling, general and administrative expenses
as a percentage of total revenues in fiscal 1998 was also due to reduced expense
leverage associated with the reduction in comparable store sales and a general
increase in most operating expenses.

Depreciation and amortization expenses increased 26.1% to $5.3 million in
fiscal 1998 from $4.2 million in fiscal 1997. Depreciation and amortization
expense as a percentage of net sales was 2.0% in fiscal 1998 compared to 2.0% in
fiscal 1997.

Net interest expense was $0.9 million in fiscal 1998 compared to net
interest income of $0.7 million in fiscal 1997. As a percentage of total
revenues, net interest expense was 0.3% in fiscal 1998 compared to net interest
income of 0.3% in fiscal 1997. The fiscal 1998 increase in net interest expense
was due primarily to higher outstanding borrowings on the Company's line of
credit due primarily to the increase in the net investment in inventory. See
"Liquidity and Capital Resources."

Income tax expense decreased 43.5% to $6.5 million in fiscal 1998 from
$11.5 million in fiscal 1997. The Company's effective income tax rate remained
at 38.0% in fiscal 1998.

Net income decreased by 43.5% to $10.6 million in fiscal 1998 compared to
$18.7 million in fiscal 1997 primarily as a result of increases in cost of goods
sold, selling, general and administrative expenses, depreciation and
amortization expense and interest expense. The negative effect of those items on
net income was partially offset by increased net sales volume.

Basic earnings per share decreased 44.6% to $0.72 in fiscal 1998 from $1.30
in fiscal 1997 on basic weighted average shares outstanding of 14,620,000 and
14,408,000, respectively. Diluted earnings per share decreased 44.2% to $0.72 in
fiscal 1998 from $1.29 in fiscal 1997 on diluted weighted average shares
including common stock equivalents of 14,762,000 and 14,539,000, respectively.

Liquidity and Capital Resources

During fiscal 1999, net cash provided by the Company's operating activities
was $29.6 million compared to net cash used in operating activities of $33.7
million and $341,000 during fiscal 1998 and fiscal 1997, respectively. For
fiscal 1999, cash provided by operations was favorably impacted by improved
earnings and lower net inventory levels, including accounts payable, offset
slightly by increases in customer accounts receivables. For fiscal 1998 and
1997, despite the Company's ability to generate net income in both fiscal years,
the Company continued to use cash in its operations. Cash used in operations was
the result of the growth in accounts receivable and inventories, both
principally from the net addition of 87 stores in fiscal 1998 and 83 stores in
fiscal 1997. Cash used in operations was also affected by a decrease in accounts
payable in fiscal 1998 compared to increases in accounts payable in fiscal 1999
and 1997. To the extent that the Company continues to expand rapidly, it will
continue to experience significant increases in credit sales and related
increases in customer accounts as well as increases in inventories, which will
likely result in a net use of cash from operations.

-15-
<PAGE>

Investing activities provided cash of $10.1 million in fiscal 1999,
compared to a use of cash of $11.8 million and $34.9 million in fiscal 1998 and
1997, respectively. The Company added 60 net new stores in fiscal 1999 at a cost
of approximately $11.5 million. Additionally, at a cost of $2.2 million, the
Company implemented a new "enterprise-wide" computer system that was placed into
service July 1, 1999. The Company spent $11.8 million in 1998 and $9.9 million
in fiscal 1997 for the net addition of 87 and 83 stores, respectively. During
fiscal 1999, the Company was repaid the $25 million it had invested in Crescent.
The Company made this investment in August 1996. Part of the investment was in
the form of a $20 million convertible senior subordinated secured loan (the
"Term Loan") and a $5 million senior subordinated convertible note (the "Notes")
issued by Crescent pursuant to a previously entered into standby purchase
commitment. During fiscal 1999, the Company also issued loans, maturing in 2003
and amounting to $1.2 million to certain directors, officers and employees of
the Company to purchase shares of the Class A Common Stock of the Company.

Financing activities used cash of $38.9 million in fiscal 1999 compared to
providing cash of $45.0 million in fiscal 1998 and $16.1 million in fiscal 1997.
During fiscal 1999, the Company repaid bank borrowings of $38.8 million. During
fiscal 1998 and 1997, the Company had bank borrowings of $47.6 million and $19.4
million, respectively. At September 30, 1999, the Company had $39.3 million
available under its $67.5 million senior secured revolving credit facility.

On September 15, 1999, the Company entered into a three year $67.5 million
senior secured revolving credit facility. Borrowings under the credit facility
bear interest at either the federal funds rate plus 0.5%, the prime rate or, at
the Company's option, the eurodollar rate plus applicable margin ranging from
1.00% to 1.75%. The applicable margin is determined based on a calculation of
the combined leverage ratio of the Company and Crescent. The facility contains
certain financial covenants and is secured by certain of the Company's assets.
The Company used the proceeds from the credit facility together with the
proceeds from the repayment of its $25 million investment in Crescent to repay
in full all of its obligations under its then existing credit facilities. At
September 30, 1999, $28.2 million was outstanding under the new facility, with
interest accruing on such borrowings in a range from 7.13% to 8.25%. Although
borrowings under the new facility bear interest at rates that are generally
higher than the rates under the Company's previous credit facility, which may
increase interest expense, Management does not believe that this will materially
affect the Company's results. Management believes that the Company's credit
facility will be sufficient to fund the Company's working capital requirements
through fiscal 2000.

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

On May 19, 1997, the Company acquired all the rights of A.A. Friedman Co.,
Inc. of Augusta, Georgia ("AAFCO") to the "Friedman's Jewelers" tradename. In
connection with the tradename rights acquisition, the Company issued AAFCO
250,000 shares (in escrow) of its Class A Common Stock. The Company also agreed
to pay AAFCO the amount by which the sales price of the stock at June 30, 1999,
(the escrow settlement date) is less than $28.25. Prior to the sale of the
shares, the Company had agreed to make cash advance payments to AAFCO through an
escrow arrangement, which would pre-fund the minimum sale proceeds. During
fiscal 1998 and fiscal 1997, the Company had advanced $3.1 million and $4.0
million, respectively, to AAFCO under this agreement. Based on the market value
of the 250,000 shares at the settlement date, June 30, 1999, no further amounts
were due to AAFCO and the Company retired the 250,000 shares held in escrow,
finalizing the transaction.

-16-
<PAGE>

The Company's current plans are to have between 615 and 640 stores in
operation for the 2000 Christmas season. To accomplish this goal, the Company
will have to open between 51 and 86 new stores. The Company currently
anticipates that approximately 70% of these new stores, or 36 to 60 stores, will
be in power strip centers and 30% or 15 to 26 stores, will be in regional malls.
The capital required to fund this expansion, principally to finance inventory,
fixtures and leasehold improvements, is estimated to be $12.0 million and is
intended to be provided by cash flow from operations and the Company's revolving
credit facility.

Seasonality

The Company has in the past experienced a well-defined seasonality in its
business with respect to both net sales and profitability. Generally, the
Company experiences substantially increased sales volume in the days preceding
major holidays, including Christmas, Valentine's Day and Mother's Day. Due to
the impact of the Christmas shopping season, the Company experiences the
strongest results of operations in the first quarter of its fiscal year. The
Company does not expect the deferral of revenue under its changed accounting
policy relating to the sales of diamond and gold bond product warranties to
alter materially this trend. If for any reason the Company's sales were below
those normally expected for the first quarter, the Company's annual results
could be materially adversely affected. The seasonality of the Company's
business puts a significant demand on working capital resources to provide for
an inventory buildup for the Christmas season. Furthermore, the Christmas season
typically leads to a seasonal buildup of customer receivables that are paid down
during subsequent months. However, to the extent that the Company's expansion
program continues, it can be expected that increased levels of accounts
receivable related to such expansion may affect the historical seasonal decline
in customer receivables.

Inflation

The impact of inflation on the Company's operating results has been
moderate in recent years, reflecting generally lower rates of inflation in the
economy and relative stability in the prices of diamonds, gemstones and gold.
Substantially all of the leases for the Company's retail stores located in malls
provide for contingent or volume-related rental increases. In prior years, the
Company has been able to adjust its selling prices to substantially recover
increased costs. While inflation has not had, and the Company does not expect
that it will have, a material impact upon operating results, there is no
assurance that the Company's business will not be affected by inflation in the
future.

Impact of Year 2000

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.

State of Readiness

The Company currently operates under four principal information systems:

(1) an accounting system that covers all financial information processes
from the general ledger to the compilation of financial statements;

-17-
<PAGE>

(2) a credit system operating primarily at the store level and supported by
a centralized database, that provides the store with a method of
analyzing, extending and collecting customer credit;

(3) a retail system that covers the Company's inventory, merchandising and
distribution management; and

(4) a point-of-sale system that operates primarily at the store level and
facilitates product sales and gathers relevant sales information for
transmittal to the Company's accounting systems.

In 1999, the Company completed its assessment of each of these systems with
the following results:

(1) The accounting system required a software upgrade to the latest release
of the current software package. The upgrade and testing are complete
and this system is compliant.

(2) The credit system required modifications to the software programs that
operate the system. Those modifications and testing are complete and
this system is compliant.

(3) The retail system required the installation of a new software package
as well as a new hardware system to support it. The software package
has been installed and tested and has been determined to be compliant.
In addition, the Company has completed the installation of additional
hardware to support the new software package.

(4) The point-of-sale system required a software upgrade as well as an
upgrade of the personal computers in each store on which the software
is operated. The software and computer upgrades have been completed and
the system is compliant.

Costs to Address Year 2000 Issues

The Company utilized both internal and external resources to reprogram, or
replace, and test the software and hardware for Year 2000 modifications. The
total cost of the Year 2000 project was approximately $2.5 million and has been
funded through operating cash flows. Of the total project cost, approximately
$2.2 million was attributable to the purchase of new software and hardware that
was capitalized.

Risks of Year 2000 Issues and Contingency Plans

Management believes that the Company's primary risk from the Year 2000
issues relates to third party vendor and business partner non-compliance. The
Company has identified all key third parties or business partners who are
critical to the Company's business and its operations. The Company has sent a
Year 2000 readiness exposure document to each of these vendors requesting that
they confirm their Year 2000 compliance. Of the vendors that did respond, all
indicated that they would be in compliance by December 31, 1999. Those who did
not respond were contacted directly by the Company and all confirmed their
compliance. Based on the results of the analysis of the compliance efforts of
the Company's third party vendors and business partners, management believes
that no significant risk of non-compliance exists and, accordingly, has not
created a contingency plan.

Should the Company's internal systems fail to function properly with
respect to dates in the year 2000 and thereafter, the Company believes that the
decentralized nature of its store operations would allow it to continue to
operate with limited interruption. The primary effect of such a failure would be
in the management of inventory levels in the stores, the extension of credit and
the management of accounts receivable. The Company may not be able to track the
sale of its products in the stores as quickly as it currently is able to, and,
as a result, would not be able to replenish the inventory in a timely manner. In
addition, the stores credit systems may not operate properly, which could limit
their ability to accurately assess the credit rating of potential customers and
lead to lost sales as a result of credit denial or

-18-
<PAGE>

uncollectible accounts due to improper credit ratings. Also, any interruption in
the Company's credit systems could significantly and adversely affect the
collection of accounts receivable.

Following the completion of the steps outlined in "State of Readiness"
above, the Company re-assessed the risk that its internal operating systems will
not be Year 2000 compliant. In management's opinion, no significant risk of
non-compliance exists with its internal operating systems.

New Accounting Standards

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131), which is effective for fiscal
year 1999. FAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires that those companies report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services and major customers. The Company has
adopted the new requirements in fiscal 1999. The Company operates in one
segment, and, therefore, no additional disclosures are required.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". Statement 133 provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. The Company will be required to adopt the statement in its fiscal
year ended September 30, 2001. The Company does not employ any derivative
instruments and, therefore, Statement 133 is presently not expected to have an
effect on the Company's financial statements.

FACTORS AFFECTING FUTURE PERFORMANCE

Dependence on Ability to Grow and Manage Growth

The number of stores we operate has increased greatly during the past three
years. For example, we opened approximately 95 net new stores from December 1998
to December 1999. In order to meet our business objectives, we will need to
continue to expand our store base during fiscal 2000. The success of our
expansion program will depend on the performance of our existing stores, our
ability to find suitable store locations and our ability to hire and train
qualified store personnel. We anticipate that there will continue to be
significant competition among specialty retailers for desirable store sites and
qualified personnel. Furthermore, if our operations fail to generate sufficient
cash flow, we may require additional capital to finance our planned expansion.

Our growth has placed, and will continue to place, significant demands on
all aspects of our business, including our management information and
distribution systems and personnel. For these reasons, we may not be successful
in continuing our growth or managing our growth. There can be no assurance that
we will be able to fund our growth, manage costs, adapt our operating systems,
respond to changing business conditions or otherwise achieve or accommodate
growth. See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."

Competition

The retail jewelry business is mature and highly competitive. Our retail
jewelry business competes with national and regional jewelry chains, as well as
with local independently owned jewelry stores and chains. We also compete with
other types of retailers who sell jewelry and gift items, such as department
stores, catalog showrooms, discounters, direct mail suppliers, television home
shopping networks and jewelry retailers who make sales through Internet sites.
Our credit operations compete with credit card companies and other providers of
consumer credit. Management believes that Friedman's competes primarily on the
basis of selection of merchandise offered, pricing, quality of sales personnel,
advertising, ability to offer in-house credit, store location and reputation.
Many competitors are substantially larger and have greater financial resources
than we do. We may not be able to compete successfully with such competitors.
Competition could cause us to lose customers, increase expenditures or reduce
pricing which could have a material adverse effect on our business or financial
results. See Item 1. "Business - Competition."

-19-

<PAGE>

Sensitivity to General Economic Conditions

Jewelry is a luxury item, not a necessity product. As a result, sales of
jewelry may be particularly affected by adverse trends in the general economy,
such as decreases in employment levels, wages and salaries. Historically, people
spend less money on luxury items, such as jewelry, during a decline in general
economic activity. Sales of our jewelry are also adversely affected by negative
developments in local economic conditions, such as plant closings, industry
slowdown and government employment cutbacks. We also depend on customer traffic
at the power strip centers and malls where our stores are located. A reduction
in consumer spending due to general economic conditions could negatively affect
our results of operation or financial condition.

A majority of our customers use credit (either from us or another consumer
credit source) to purchase jewelry from us. When there are adverse trends in the
general economy or increases in interest rates, fewer people use credit. Our
credit operations are also affected by general economic trends. Any downturn in
general or local economic conditions in the markets in which we operate would
adversely affect our ability to collect outstanding credit accounts receivable.
During fiscal 1999, we wrote off 16.6% of our accounts receivable as a
percentage of credit revenues. See Item 6. "Selected Financial Data" and Item 1.
"Business - Credit Operations."

Seasonality and Fluctuation in Quarterly Results

Our first fiscal quarter which ends December 31 has historically been the
strongest quarter of the year in terms of net sales and operating income. Any
substantial disruption of holiday season shopping or other events which affect
our first quarter results could have a material adverse effect on our
profitability for the whole year. Our quarterly results of operations also may
fluctuate significantly as a result of a variety of factors, including the
following:

* the timing of new store openings,
* net sales contributed by new stores,
* actions of competitors,
* fluctuations in comparable store sales,
* timing of certain holidays,
* changes in our merchandise, and
* general economic, industry and weather conditions that affect
consumer spending.

See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Seasonality."

Dependence on Key Personnel

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

Potential Effects of Incentive Compensation Program on Earnings

In October 1994, we made $1.5 million in incentive loans to each of Mr.
Stinn and Sterling B. Brinkley, our Chairman of the Board of Directors. The
loans mature in 2004. We agreed to forgive principal and interest payments on
these incentive loans if our Class A Common Stock reached certain

-20-
<PAGE>

prices. If we forgive principal and interest payments, we will incur
compensation expense which reduces earnings. During 1995 and 1996, we incurred
compensation expense of $3 million with respect to the incentive loans. If the
price of the Class A Common Stock increases above the remaining price targets,
we will incur an additional $3 million in compensation expense. This
compensation expense, if incurred, will negatively impact earnings.

Fluctuations in Comparable Store Sales Results

One widely used measure of the performance of a retail company like us is
comparable store sales results. Variations in comparable store sales results
could cause the price of the Class A Common Stock to decrease or fluctuate
substantially. Comparable store sales are affected by a variety of factors
including:

* local and general economic conditions,
* the retail sales environment, and
* our ability to execute our business strategy efficiently.

Comparable store net merchandise sales increased 8.7% in fiscal 1999. There can
be no assurance that comparable store net merchandise sales will increase in any
future period. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Availability and Prices of Merchandise

We primarily sell jewelry made of gold and diamonds and, to a lesser
extent, other precious and semi-precious metals and stones. The prices of these
materials have been, and we expect for them to continue to be, subject to
significant volatility. Further, the supply and price of diamonds are
significantly influenced by a single entity, DeBeers Consolidated Mines Ltd. of
South Africa. We do not maintain long-term inventories or otherwise hedge
against fluctuations in the cost of gold or diamonds. A significant increase in
the price of gold and diamonds could adversely affect our sales and gross
margins. See Item 1. "Business - Purchasing."

Our supply of diamonds comes primarily from South Africa, Botswana, Zaire,
the former Soviet republics and Australia. Changes in the social, political or
economic conditions in one or more of these countries could have an adverse
effect on our supply of diamonds. Any sustained interruption in the supply of
diamonds from these producing countries could adversely affect us and the retail
jewelry industry as a whole. See Item 1. "Business - Purchasing."

Concentration of Control of Friedman's

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

Limited Voting Rights of Class A Common Stock

Holders of Class A Common Stock have the right to elect a minimum of 25% of
our directors. As long as there are shares of Class B Common Stock outstanding,
holders of Class A Common Stock have no other voting rights, except as required
by law. Mr. Cohen, through the Partnership, controls the outcome of
substantially all matters submitted to a vote of the stockholders. Some
potential investors may not like this concentration of control and the price of
Class A Common Stock may be adversely affected.

-21-
<PAGE>

Mr. Cohen's control of Friedman's may also discourage offers by third parties to
buy us or to merge with us. Further, the interests of Mr. Cohen could conflict
with the interests of the holders of Class A Common Stock.

Government Regulation

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

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

The Company's market risk is limited to fluctuations in interest rates as
it pertains to the Company's borrowings under its credit facility. The Company
pays interest on borrowings at either the federal funds rate plus .5%, the prime
rate or, at the Company's option, the eurodollar rate plus applicable margin
ranging from 1.00% to 1.75%. If the interest rates on the Company's borrowings
average 100 basis points more in fiscal 2000 than they did in fiscal 1999, the
Company's interest expense would increase and income before income taxes would
decrease by $534,000. This amount is determined solely by considering the impact
of the hypothetical change in the interest rate on the Company's borrowing cost
without consideration for other factors such as actions management might take to
mitigate its exposure to interest rate changes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements and financial statement schedule in
Part IV, Item 14(a)1 and 2 of this report are incorporated by reference into
this Item 8.

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

Not Applicable.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information under the captions "Election of Directors -- General,"
"Election of Directors -- Certain Information Concerning Nominees," "Election of
Directors -- Executive Officers of the Company" and "Other Matters - Filings
Under Section 16(a)" in the Company's Proxy Statement for its Annual Meeting of
Stockholders to be held on March 2, 2000 (the "2000 Proxy Statement") is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

The information under the captions "Election of Directors - Compensation of
Directors," "Election of Directors - Executive Compensation" and "Executive
Officers of the Company" in the Company's 2000 Proxy Statement is incorporated
herein by reference. In no event shall the information contained in the 2000
Proxy Statement under the captions "Election of Directors -- Executive
Compensation - Report on Executive Compensation of the Compensation Committee of
the Board of Directors" and "Stockholder Return Comparison" be incorporated
herein by reference.

-22-
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information under the caption "Election of Directors -- Stock
Ownership" in the Company's 2000 Proxy Statement is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information under the caption "Election of Directors -- Executive
Compensation -- Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions" in the Company's 2000 Proxy Statement is incorporated
herein by reference.

-23-
<PAGE>

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) 1. Consolidated Financial Statements

The following consolidated financial statements of Friedman's Inc.,
incorporated by reference into Item 8, are attached hereto:

Consolidated Income Statements for the Years Ended September 30, 1999, 1998 and
1997

Consolidated Balance Sheets at September 30, 1999 and 1998

Consolidated Statements of Stockholders' Equity for the Years Ended September
30, 1999, 1998 and 1997

Consolidated Statements of Cash Flows for the Years Ended September 30, 1999,
1998 and 1997

Notes to Consolidated Financial Statements

Report of Independent Auditors

2. Consolidated Financial Statement Schedules

The following consolidated financial statement schedule of Friedman's Inc.
is attached hereto:

Schedule II -- Valuation and Qualifying Accounts

All other schedules have been omitted, as they are not required under the
related instructions or are inapplicable, or because the information required is
included in the consolidated financial statements.

3. Exhibits

The exhibits indicated below are either included or incorporated by
reference herein, as indicated. Copies of such exhibits will be furnished to any
requesting stockholder of the Company upon request to Mr. Victor M. Suglia,
Secretary, Friedman's Inc., 4 West State Street, Savannah, Georgia 31401. There
is a charge of $.50 per page to cover expenses for copying and mailing.

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

-24-
<PAGE>

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

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

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

10.1 Amended and Restated Agreement of Limited Partnership, dated
as of May 24, 1990, among MS Jewelers Corporation and the
limited partners listed in Annex A thereto (incorporated by
reference from Exhibit 10.1 to the Registrant's Registration
Statement on Form S-1 (File No. 33-67662), and amendments
thereto, originally filed on August 19, 1993).

10.2 Lease Agreement, dated as of May 24, 1990, by and between
Friedman's Jewelers, Inc. and MS Jewelers Limited
Partnership (incorporated by reference from Exhibit 10.5 to
the Registrant's Registration Statement on Form S-1 (File
No. 33-67662), and amendments thereto, originally filed on
August 19, 1993).

10.2.1 Addendum to Lease between Friedman's Jewelers, Inc., Lessor
and Friedman's Inc. dated August 17, 1995 (incorporated by
reference from Exhibit 10.5.1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30,
1995).

10.3 MS Jewelers Limited Partnership 1993 Incentive Plan
(incorporated by reference from Exhibit 10.29 to the
Registrant's Registration Statement on Form S-1 (File No.
33-67662), and amendments thereto, originally filed on
August 19, 1993).

10.4 Representative sample of MS Jewelers Limited Partnership's
form of Installment Credit Agreement for self-financed sales
to customers (incorporated by reference from Exhibit 10.41
to the Registrant's Registration Statement on Form S-1 (File
No. 33-67662), and amendments thereto, originally filed on
August 19, 1993).

10.5 Representative sample of MS Jewelers Limited Partnership's
form of Limited Diamond Warranty (incorporated by reference
from Exhibit 10.42 to the Registrant's Registration
Statement on Form S-1 (File No. 33-67662), and amendments
thereto, originally filed on August 19, 1993).

10.6 Agreement and Understanding, dated December 14, 1994,
between Friedman's, Inc. and Morgan Schiff & Co., Inc.
regarding financial advisory services (incorporated by
reference from Exhibit 10.32 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994).

-25-
<PAGE>

10.7 Credit Agreement dated as of September 15, 1999, by and
between Friedman's Inc., as Borrower, certain subsidiaries
and affiliates of Friedman's, as guarantors, the lenders
named therein, Bank of America, N.A., as Administrative
Agent, and General Electric Capital Corp., as Documentation
Agent (incorporated by reference from Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on September
20, 1999).

10.8 Credit Agreement dated as of September 15, 1999, by and
between Crescent Jeweler's Inc., as Borrower, certain
subsidiaries and affiliates of Crescent, as guarantors, the
lenders named therein, Bank of America, N.A., as
Administrative Agent, and General Electric Capital Corp., as
Documentation Agent (incorporated by reference from Exhibit
10.2 to the Registrant's Current Report on Form 8-K filed on
September 20, 1999).

10.9 Guaranty Agreement dated as of September 15, 1999, by
Friedman's Inc., in favor of Bank of America N.A., as
Administrative Agent and the lenders under the Crescent
Jeweler's Inc. Credit Agreement (incorporated by reference
from Exhibit 10.3 to the Registrant's Current Report on Form
8-K filed on September 20, 1999)

10.10 Guaranty Fee Agreement dated as of September 15, 1999, by
and between Friedman's Inc. and Crescent Jewelers Inc. and
its wholly owned subsidiary Crescent Jewelers (incorporated
by reference from Exhibit 10.4 to the Registrant's Current
Report on Form 8-K filed on September 20, 1999).

10.11 Warrant to purchase shares of Class A Common Stock of
Crescent Jewelers Inc. dated as of September 15, 1999
(incorporated by reference from Exhibit 10.5 to the
Registrant's Current Report on Form 8-K filed on September
20, 1999).

Executive Compensation Plans and Arrangements

10.12 Friedman's Inc. 1993 Stock Option Plan (incorporated by
reference from Exhibit 4(c) to the Registrant's Registration
Statement on Form S-8 (File No. 33-85216) filed on October
17, 1994).

10.13 Form of Indemnity Agreement executed by the Registrant and
each of Sterling B. Brinkley, Bradley J. Stinn, Robert S.
Morris, John Smirnoff, Robert W. Cruickshank and Mark C.
Pickup (incorporated by reference from Exhibit 10.44 to the
Registrant's Registration Statement on Form S-1 (File No.
33-67662), and amendments thereto, originally filed on
August 19, 1993).

10.14 Friedman's Inc. 1994 Stock Option Plan for Outside Directors
(incorporated by reference from Exhibit 10.37 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994).

10.15 Friedman's Inc. 1994 Qualified Employee Stock Purchase Plan
(incorporated by reference from Exhibit 4(c) to the
Registrant's Registration Statement on Form S-8 (File No.
33-78820) filed on May 11, 1994).

-26-
<PAGE>

10.15.1 Amendment Number One to the Friedman's Inc. 1994 Qualified
Employee Stock Purchase Plan (incorporated by reference from
Exhibit 10.28.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1996).

10.16 Loan Agreement, dated November 17, 1994, between Friedman's
Inc. and Sterling B. Brinkley (incorporated by reference
from Exhibit 10.39 to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1994).

10.16.1 Amendment to Loan Agreement and Promissory Note between
Friedman's Inc. and Sterling B. Brinkley dated February 2,
1995 (incorporated by reference from Exhibit 10.39.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).

10.17 Loan Agreement, dated November 17, 1994, between Friedman's
Inc. and Bradley J. Stinn (incorporated by reference from
Exhibit 10.40 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994).

10.17.1 Amendment to Loan Agreement and Promissory Note between
Friedman's Inc. and Bradley J. Stinn dated February 2, 1995
(incorporated by reference from Exhibit 10.40.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).

10.18 Friedman's Inc. 1994 Stock Option Plan (incorporated by
reference from Exhibit 4(d) to the Registrant's Registration
Statement on Form S-8 (File No. 33-95584) filed on August
11, 1995).

10.19 Friedman's Inc. 1995 Stock Option Plan (incorporated by
reference from Exhibit 4(d) to Registrant's Registration
Statement on Form S-8 (File No. 333-06221) filed on June 18,
1996).

10.20 Friedman's Inc. 1996 Stock Option Plan (incorporated by
reference from Exhibit 4(c) to Registrant's Registration
Statement on Form S-8 (File No. 333-23757) filed on March
21, 1997).

10.21 Friedman's Inc. 1997 Stock Option Plan (incorporated by
reference from Exhibit 99 to Registrant's Registration
Statement on Form S-8 (File No. 333-49133) filed on April 1,
1998).

10.22 Form of Unsecured Promissory Note issued to the Company by
Bradley J. Stinn, Victor M. Suglia, Sterling B. Brinkley,
John E. Cay, III, Robert W. Cruickshank, David B. Parshall,
Mark C. Pickup and Paul G. Leonard (incorporated by
reference from Exhibit 10.39 to Registrant's Annual Report
on Form 10-K for the fiscal year ended September 30, 1998).

10.23 Friedman's Inc. 1999 Long-Term Incentive Plan (incorporated
by reference from Exhibit 99 to Registrant's Registration
Statement on Form S-8 (File No. 333-73271) filed on March 3,
1999).

21 Subsidiaries of the Registrant (incorporated by reference
from Exhibit 21 to the Registrants Annual Report on Form
10-K for its fiscal year ended September 30, 1995).

-27-
<PAGE>

23 Consent of Ernst & Young LLP

27 Financial Data Schedule

(b) Reports on Form 8-K

The Registrant filed a Current Report on Form 8-K on September 20, 1999,
relating to its new credit facility.

(d) See Item 14(a)(2) above.

-28-
<PAGE>

ANNUAL REPORT ON FORM 10-K

Item 14 (a) 1. and 2.

Financial Statements and Financial Statement Schedule

Years Ended September 30, 1999, 1998 and 1997
<PAGE>

Friedman's Inc.

Index to Consolidated Financial Statements

Consolidated Income Statements for the Years Ended
September 30, 1999, 1998 and 1997.......................................F-2
Consolidated Balance Sheets at September 30, 1999 and 1998.................F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 1999, 1998 and 1997.......................................F-4
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1999, 1998 and 1997.......................................F-5
Notes to Consolidated Financial Statements.................................F-6
Report of Independent Auditors............................................F-19

Financial Statement Schedule

Schedule II -- Valuation and Qualifying Accounts..........................F-20

All other schedules have been omitted, as they are not required under the
related instructions, are inapplicable, or because the information required
is included in the financial statements.

F-1
<PAGE>

FRIEDMAN'S INC.
Consolidated Income Statements

<TABLE>
<CAPTION>
Years ended September 30,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(Amounts in thousands except per share data)

<S> <C> <C> <C>
Net Sales $ 308,385 $ 259,146 $ 214,255

Operating Costs and Expenses:
Cost of goods sold including occupancy,
distribution and buying 163,983 135,412 109,352
Selling, general and administrative 110,665 100,506 71,127
Depreciation and amortization 6,379 5,269 4,177
--------- --------- ---------
Income from operations 27,358 17,959 29,599

Interest income from related party (2,489) (2,516) (1,817)
Interest expense 3,910 3,390 1,152
--------- --------- ---------
Income before income taxes 25,937 17,085 30,264
Income tax expense 9,454 6,491 11,498
--------- --------- ---------
Net income $ 16,483 $ 10,594 $ 18,766
========= ========= =========

Earnings per share - basic $ 1.13 $ 0.72 $ 1.30
========= ========= =========

Earnings per share - diluted $ 1.13 $ 0.72 $ 1.29
========= ========= =========

Weighted average shares - basic 14,590 14,620 14,408
Weighted average shares - diluted 14,590 14,762 14,539

</TABLE>

See accompanying notes.

F-2
<PAGE>

Friedman's Inc.

Consolidated Balance Sheets

<TABLE>
<CAPTION>
September 30,
1999 1998
--------- ---------
(Amounts in thousands, except share
and per share data)
<S> <C> <C>
Assets
Current Assets:
Cash $ 1,076 $ 243
Accounts receivable, net of allowance for doubtful accounts of $10,862
in 1999 and $10,072 in 1998 97,780 85,900
Inventories 114,128 105,586
Deferred income taxes 3,629 2,193
Other current assets 3,791 2,924
--------- ---------
Total current assets 220,404 196,846

Equipment and improvements, net 44,160 36,421
Note receivable from related party -- 25,000
Tradename rights, net 5,964 6,435
Other receivable -- 1,625
Other assets 4,768 1,556
--------- ---------
Total assets $ 275,296 $ 267,883
========= =========

Liabilities and Equity
Current Liabilities:
Accounts payable $ 40,818 $ 16,757
Accrued expenses and other liabilities 12,196 4,224
--------- ---------
Total current liabilities 53,014 20,981
--------- ---------

Bank debt 28,184 66,969
Deferred income taxes and other 2,194 1,419

Stockholders' Equity:
Preferred stock, par value $.01, 10,000,000 shares authorized
and none issued -- --
Class A common stock, par value $.01, 25,000,000 shares authorized,
13,226,127 and 13,442,167 issued and outstanding
at September 30, 1999 and September 30, 1998, respectively 132 134
Class B common stock, par value $.01, 7,000,000 shares authorized,
1,196,283 and 1,196,283 issued and outstanding
at September 30, 1999 and September 30, 1998, respectively 12 12
Additional paid-in-capital 118,543 119,889
Retained earnings 74,417 58,479
Stock purchase loans (1,200) --
--------- ---------
Total stockholders' equity 191,904 178,514
--------- ---------
Total liabilities and stockholders' equity $ 275,296 $ 267,883
========= =========

</TABLE>

See accompanying notes

F-3
<PAGE>

Friedman's Inc.
Consolidated Statements of Stockholders' Equity
(Amounts in Thousands)

<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock Additional Stock
------------------- ----------------- Paid-in Retained Purchase
Shares Amount Shares Amount Capital Earnings Loans Total
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1996, as
previously reported 12,517,560 $125 1,773,582 $18 $117,096 $30,115 $0 $147,354
Effect of Restatement -- note 2 (996) - (996)
-------------------------------------------------------------------------------------
Balance at October 1, 1996 12,517,560 $125 1,773,582 $18 $117,096 $29,119 $0 $146,358

Issuance of Class A common stock
pursuant to tradename acquisition 250,000 3 - - 4,247 - - 4,250
Issuance of Class A common stock under
the Employee Stock Purchase Plan 20,580 - - - 265 - - 265
Conversion of Class B common stock into
Class A common stock by an Affiliate 281,181 3 (281,181) (3) - - -
Employee stock options exercised 38,022 - - - 412 - - 412
Net income - - - - - 18,766 - 18,766
-------------------------------------------------------------------------------------
Balance at September 30, 1997 13,107,343 $131 1,492,401 $15 $122,020 $47,885 $0 $170,051

Market value adjustment to common stock
issued for tradename acquisition - - - - (2,625) - - (2,625)
Issuance of Class A common stock under
the Employee Stock Purchase Plan 23,011 - - - 287 - - 287
Conversion of Class B common stock into
Class A common stock by an Affiliate 296,118 3 (296,118) (3) - - - -
Employee stock options exercised 15,695 - - - 207 - - 207
Net income - - - - - 10,594 - 10,594
-------------------------------------------------------------------------------------
Balance at September 30, 1998 13,442,167 $134 1,196,283 $12 $119,889 $58,479 $0 $178,514

Retirement of Class A common stock
pursuant to tradename acquisition (250,000) (2) - - (1,623) - - (1,625)
Issuance of Class A common stock under
the Employee Stock Purchase Plan 31,360 - - - 254 - - 254
Stock purchase loans - - - - - (1,200) (1,200)
Issuance of Class A common stock
for services 2,600 - - - 23 - - 23
Dividends declared ($0.0375/Share) - - - - - (545) - (545)
Net income - - - - - 16,483 - 16,483
=====================================================================================
Balance at September 30, 1999 13,226,127 $132 1,196,283 $12 $118,543 $74,417 ($1,200) $191,904
=====================================================================================

</TABLE>

See accompanying notes.

F-4
<PAGE>

FRIEDMAN'S INC.
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Years ended September 30,
--------------------------------
1999 1998 1997
-------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C>
Operating Activities:
Net income ................................................. $ 16,483 $ 10,594 $ 18,766
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization .......................... 6,367 5,269 4,177
Provision for doubtful accounts ........................ 32,006 29,767 22,892
Deferred Taxes ......................................... (1,314) 146 111
Changes in assets and liabilities:
Increase in accounts receivable ................... (43,886) (41,257) (35,688)
Increase in inventories ........................... (8,542) (26,903) (14,376)
Decrease (increase) in other assets ............... (3,079) 47 (301)
Increase (decrease) in accounts payable and
accrued liabilities ........................... 31,520 (11,357) 4,078
-------- -------- --------
Net cash provided by (used in) operating
activities ............................... 29,555 (33,694) (341)
Investing Activities:
Additions to equipment and improvements .................... (13,651) (11,842) (9,919)
Notes receivable from related party ........................ 25,000 -- (25,000)
Loans for employee stock puchases .......................... (1,200) -- --
-------- -------- --------
Net cash used in investing
activities ............................... 10,149 (11,842) (34,919)
Financing Activities:
Bank borrowings (payments) under credit Agreements ......... (38,785) 47,572 19,397
Advance related to acquisition of tradename rights ......... -- (3,063) (4,000)
Proceeds from employee stock purchases and options exercised 277 494 677
Payment of cash dividend ................................... (363) -- --
-------- -------- --------
Net cash provided by (used in) financing
activities ............................... (38,871) 45,003 16,074
-------- -------- --------
Increase (decrease) in cash ...................................... 833 (533) (19,186)
Cash, beginning of year .......................................... 243 776 19,962
-------- -------- --------
Cash, end of year ................................................ $ 1,076 $ 243 $ 776
======== ======== ========

Supplemental cash flow information:
Cash paid for:
Interest ................................................... $ 4,064 $ 2,797 $ 902
======== ======== ========
Income Taxes ............................................... $ 5,625 $ 9,085 $ 9,626
======== ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements
September 30, 1999

1. The Company and Significant Accounting Policies

Basis of Presentation

Friedman's Inc. (the "Company") is a retailer of fine jewelry operating 531
stores in 21 states. The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiary. All significant intercompany
accounts have been eliminated.

Revenue Recognition

Revenue related to merchandise sales is recognized at the time of sale,
reduced by a provision for returns. Finance charges, product warranties and
credit insurance revenue are recognized ratably over the term or estimated term
of the related contracts. Finance charge and credit service revenues aggregating
$30.8 million, $27.0 million and $22.1 million in 1999, 1998 and 1997,
respectively, have been classified as a reduction of selling, general and
administrative expenses in the accompanying income statements.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Accounts Receivable

A substantial portion of merchandise sales are made under installment
contracts due in periodic payments over periods generally ranging from three to
24 months. The accounts are stated net of unearned finance charges, product
warranties and credit insurance of $18,129,000 and $15,675,000 at September 30,
1999 and 1998, respectively. Consistent with industry practice, amounts which
are due after one year are included in current assets and totaled $9,522,000 and
$9,027,000 at September 30, 1999 and 1998, respectively.

Credit approval and collection procedures are conducted at each store,
under Company guidelines, to evaluate the credit worthiness of the Company's
customers and to manage the collection process. The Company generally requires
down payments on credit sales and offers credit insurance to its customers, both
of which help to minimize credit risk. The Company believes it is not dependent
on a given industry or business for its customer base and, therefore, has no
significant concentration of credit risk.

The Company maintains allowances for uncollectible accounts. These reserves
are estimated based on historical experience, the composition of outstanding
balances, trends at specific stores and other relevant information. The
Company's policy is generally to write-off in full any credit account receivable
if no payments have been received for 120 days, any other credit accounts
receivable, regardless of payment history, if judged uncollectible (for example,
in the event of fraud in the credit application or bankruptcy) and all accounts
100% contractually past-due and for which no payments have been received for 60
days. Effective July 1999, the company amended its credit policy to write-off in
full any credit accounts receivable if no payments have been received for 90
days for stores opened after July 1, 1999. The Company made the change because
the Company believed the costs and time incurred by its employees in efforts to
collect the accounts were disproportionate in relation to the amounts to be
recovered. Effective September 30, 1998, the Company changed its credit policy
to include the write-off of all accounts 100%

F-6
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

1. The Company and Significant Accounting Policies (continued)

contractually past due if no payments have been received for 60 days. The impact
of this change in policy was a $2.7 million increase in the provision for
doubtful accounts during fiscal 1998.

The Company does not require separate collateral to secure credit purchases
made by its customers, but it does retain a security interest in the purchased
item.

Merchandise Inventories

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

Advertising Costs

Advertising costs are charged against operations when the corresponding
advertising is first run. Amounts expensed were $15,412,000, $15,225,000 and
$9,964,000 for the years ended September 30, 1999, 1998 and 1997, respectively.
The amount of prepaid advertising at September 30, 1999 and 1998 was $808,000
and $839,000, respectively.

Store Opening and Closing costs

Store opening costs are expensed when incurred. Store closing costs,
consisting of fixed asset impairment charges and accruals for remaining lease
obligations, are estimated and recognized in the period in which the Company
makes the decision that a store will be closed. The stores are closed shortly
thereafter. Indicators of impairment generally do not exist with respect to the
Company's property and equipment except in circumstances of store closings.

Depreciation and Amortization

Depreciation of equipment is provided using the straight-line method over
the estimated useful lives ranging from five to ten years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the lease term or the estimated useful lives of the assets. Acquired tradename
rights are amortized using the straight-line method over fifteen years.

Retirement Savings Plan

In March 1996, the Company adopted a defined contribution Retirement
Savings Plan (the Plan) under Section 401(k) of the Internal Revenue Code.
Employees at least 21 years of age who have completed one year of service with
1,000 hours or more are eligible to participate in the Plan. Employees elect
contribution percentages between 1% and 15% of annual compensation, as well as
the investment options for their contributions. The Company makes matching
contributions on behalf of each participant equal to 50% of the first 4% of each
participant's contribution to the Plan. Company matching contributions to the
Plan for the fiscal years ended September 30, 1999, 1998 and 1997 were $207,000,
$181,000 and $152,000, respectively. Employee contributions are 100% vested
while Company contributions are vested according to a specified scale based on
years of service.

Stock-Based Compensation

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

F-7
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

1. The Company and Significant Accounting Policies (continued)

Income Taxes

Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities recognized for financial reporting and
income tax purposes, both as measured by applying tax rates expected to be in
place when the differences reverse. Deferred tax assets are recognized if it is
more likely than not that a benefit will be realized.

Fair Values of Financial Instruments

The reported amounts in the balance sheets at September 30, 1999 and 1998,
respectively, for cash, accounts receivable, accounts payable, and long-term
debt approximate fair value due to the short term nature of the financial
instruments and the variable interest rate on debt.

Earnings Per Share

During 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (FAS 128). FAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic earnings
per common share and diluted earnings per common share. Basic earnings per
common share excludes any dilutive effect of options, warrants and convertible
securities. The dilutive effect of the Company's stock options is included in
diluted earnings per common share. There was no dilutive effect in fiscal 1999.
The effect in 1998 and 1997 increased the diluted weighted average shares
outstanding by 142,000, and 131,000, respectively. All earnings per share
amounts for all periods have been presented and, where appropriate, restated to
conform to FAS 128 requirements.

Certain options outstanding during each of the following years and their
related exercise prices were not included in the computation of diluted earnings
per common share because their exercise price was greater than the average
market price of the shares and, therefore, the effect would be antidulitive:
1999 - 825,413 shares at prices ranging from $10.00 to $21.75 and 1998 - 324,840
shares at prices ranging from $16.31 to $21.75.

Reclassifications

Certain balances as of September 30, 1998 and 1997 have been reclassified
to conform to the current year financial statement presentation.

New Accounting Standards

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131), which is effective for fiscal
year 1999. FAS 131 establishes standards for the way that public companies
report information about operating segments in annual financial statements and
requires that those companies report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services and major customers. The Company has
adopted the new requirements in annual financial statements in fiscal 1999. The
Company operates in one segment and, therefore, no additional disclosures are
required.

F-8
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

2. Change in Accounting Policy

The Company has changed its accounting policy relating to revenue
recognition for diamond and gold product warranties. Pursuant to the Company's
new policy, the company recognizes revenues, net of direct expenses, ratably
over the estimated life of the contract. Previously, the Company recognized all
of the warranty revenue at the time of the sale. The Company has given
retroactive effect to this new accounting policy by restating previously
published financial statements beginning with the fiscal year ended September
30, 1995. The effect of the restatement was to reduce net income and basic
earnings per share as follows: 1998 - $622,000 and $0.04 per share and 1997 -
$501,000 and $0.04 per share.

3. Financing Arrangements

Common Stock

The Company has two classes of Common Stock, Class A and Class B. The Class
B Common Stock elect 75% of the directors and vote without Class A Common Stock
participation on all other matters required to be submitted to a vote of the
stockholders. Each Class B Common Stock is convertible, at any time, at the
option of the holder into one Class A common stock. Upon the conversion of all
shares of Class B Common Stock , each Class A Common Stock is entitled to one
vote on all matters submitted to the stockholders.

During June 1998, 296,118 shares of the Company's Class B Common Stock were
converted into Class A Common Stock.

Bank Line of Credit Agreement

In September 1999, the Company negotiated a new credit agreement with a
syndicated group of banks "New Agreement" which provides for borrowings on 65%
of eligible receivables and 50% of eligible inventories up to $67,500,000,
through September 15, 2002, with a possible expansion of the credit line up to
$75,000,000. Borrowings under the New Agreement bear interest at either the
federal funds rate plus 0.5%, the prime rate or, at the Company's option, the
eurodollar rate plus applicable margin ranging from 1.00% to 1.75%. The
applicable margin is determined based on a calculation of the combined leverage
ratio of the Company and Crescent Jewelers ("Crescent"), an affiliate of the
Company. In connection with the transaction, the Company accrued estimated costs
of $1 million for services provided by Morgan Schiff, an affiliate, associated
with the refinancing, the purchase warrant and guarantee of Crescent's debt, as
discussed in Note 8 to the Consolidated Financial Statements. The weighted
average interest rate on borrowings outstanding at September 30, 1999 and 1998
were 7.34% and 6.64%, respectively. Amounts outstanding under the bank line are
classified as long term based on the companies intent and ability to re-finance
the agreement on a long term basis. As of September 30, 1999, $28.2 million was
outstanding under the line of credit. As of September 30, 1998, $67 million was
outstanding under the Company's then existing bank credit facility.

Borrowings under the facility are secured by certain of the Company's
assets, including inventory and accounts receivable. The agreement contains
certain financial covenants, and limits mergers and acquisitions, certain
capital transactions, asset dispositions and the incurrence of additional
indebtedness.

F-9
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

4. Equipment and Improvements

Equipment and improvements, at cost, consist of the following (in
thousands):
September 30
1999 1998
--------------------
Store and office equipment $ 31,865 $ 25,798
Leasehold improvements 25,753 21,249
Computer equipment and implementation costs 9,196 6,358
--------------------
66,814 53,405
Less accumulated depreciation and amortization (22,654) (16,984)
--------------------
$ 44,160 $ 36,421

5. Purchase of Tradename

During 1997, the Company acquired all the rights of A.A. Friedman's Co.,
Inc. of Augusta, Georgia (AAFCO) to the "Friedman's Jewelers" tradename for $7.1
million. In connection therewith, the Company issued to AAFCO 250,000 shares of
its Class A Common Stock, which were placed in escrow, and agreed to pay AAFCO
the amount by which the actual stock price at June 30, 1999 (the date of
settlement for the escrow) is lower than a guaranteed stock price of $28.25 per
share. The Company also agreed to make advance payments to AAFCO through an
escrow arrangement which would pre-fund the minimum purchase price. As of
September 30, 1998, the entire $7.1 million of advance payments had been made.
Based on the market value of the 250,000 shares at June 30, 1999, no further
amounts were due to AAFCO and the Company retired the 250,000 shares held in
escrow finalizing the transaction.

6. Accrued and Other Liabilities

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

Accrued compensation and related expenses $ 6,643 $ 3,145
Other 5,553 1,079
-----------------
$12,196 $ 4,224
=================

7. Long-Term Incentive Program

During fiscal 1995, the Board of Directors approved agreements which
provide incentive compensation to the Chairman of the Board and the Chief
Executive Officer and Chairman of the Executive Committee based on growth in the
price of the Company's Common Stock. Both of the executives were advanced
$1,500,000 evidenced by a recourse promissory note due in 2004 and bearing
interest at the minimum rate allowable for federal income tax purposes. The
incentive features of the loans provide that: (i) as long as the executives are
employed by the Company on the date on which interest is due on the loans, such
interest will be forgiven; (ii) a percentage of the outstanding principal of the
loans will be forgiven upon the attainment of certain targets for the price of
the Company's Class A Common Stock, as indicated below, provided that the
executives are employed by the Company on the date that the stock price target
is attained; and (iii) the Company will pay any personal tax effects due as the
result of

F-10
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

7. Long-Term Incentive Program (continued)

such forgiveness of interest and principal. The stock price targets and related
forgiveness percentages for each year of the incentive program are noted in the
following table:

<TABLE>
<CAPTION>
Years 1-5 Years 6-10
-------------------------------------------- --------------------------------------------
% of Original Principal % of Remaining Balance
Stock Price Target Balance Forgiven Stock Price Target Forgiven
------------------ ----------------------- ------------------ ----------------------
<S> <C> <C> <C>
$22.50 15% $32.50 50%
25.00 30% 37.50 60%
27.50 50% 45.00 70%
30.00 75% 52.50 80%
32.50 100% 60.00 100%
</TABLE>

Attainment of the stock price target is based on the average closing price
of the Class A common stock on the Nasdaq National Market for ten consecutive
trading days. The stock price targets specified will be adjusted proportionally
to reflect any stock split, reverse stock split, recapitalization or other
similar event. In addition, in the event of the death or disability of the
Executives, or a Change in Control of the Company (as defined in the loan
agreements), the remaining principal amount and accrued interest will be
forgiven. Upon forgiveness of principal under either such loan, the Company
incurs compensation expense as of the date of the respective forgiveness.

The Company incurred expense of $154,888, $154,340 and $194,263 for the
forgiveness of interest and related taxes on the loans for the fiscal years
ended September 30, 1999, 1998 and 1997, respectively. Interest was calculated
at the minimum rates allowable for federal income tax purposes of 5.45%, 5.63%,
and 7.02% for the fiscal years ended September 30, 1999, 1998 and 1997,
respectively.

Through September 30, 1999, the principal amount of each loan had been
reduced by $750,000 by attainment of stock price targets. None of the stock
price targets were attained in the three year period ended September 30, 1999.

8. Related Party Transactions

During fiscal 1999 and 1998, the Company paid $400,000 to Morgan Schiff an
affiliate of the Company pursuant to a Financial Advisory Services Agreement
(the "Agreement"). Morgan Schiff and the Company are affiliated through common
controlling ownership. Pursuant to the Agreement, the affiliate provides the
Company with certain financial advisory services with respect to capital
structure, business strategy and operations, budgeting and financial controls,
mergers and acquisitions, and other similar transactions. The Agreement has a
term of one year with an automatic renewal unless either party terminates by
written notice. The Company has agreed to indemnify the affiliate against any
losses associated with the Agreement.

On September 15, 1999, Crescent entered into a $112.5 million, three year
senior, secured revolving syndicated bank facility, led by Bank of America, N.A.
to fund its restructuring and provide for its working capital needs. The Company
and Crescent are affiliated through common controlling ownership. In addition,
certain officers and directors of the Company are also officers and directors of
Crescent. Crescent used a portion of the proceeds from the facility to repay the
Company's $25 million investment in Crescent. The Company had made this
investment in Crescent during fiscal 1997. The investment was in the form of a
$20 million convertible senior subordinated loan (the"Term Loan") and $5 million
senior subordinated convertible notes (the "Notes") issued by Crescent pursuant
to a previously entered into standby purchase commitment.

As part of Crescent's new three-year bank facility, the Company agreed to
provide certain credit enhancements and to guarantee the obligations of Crescent
under the syndicated credit facility. In

F-11
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

8. Related Party Transactions (continued)

consideration for this guarantee, Crescent agreed to make quarterly payments to
the company in an amount equal to 2% per annum of the outstanding obligations of
Crescent under its credit facility during the preceding quarter. In further
consideration of this guaranty, Crescent issued a warrant to the company to
purchase 7,942,904 shares of Crescent non-voting Class A Common Stock, or
approximately 50% of the capital stock of Crescent on a fully diluted basis, for
an exercise price of $500,000. At September 30, 1999, Crescent's borrowings
under the facility were $93.0 million. Based upon Crescent's operating
performance, Friedmans does not expect to incur losses relating to its guarantee
of Crescent's debt.

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

In March 1998, the Company entered into a $10 million participation in
Crescent Jewelers senior secured bank facility. Crescent Jewelers borrowed $7.2
million of the $10 million participation, and repaid the $7.2 million in June
1998 when the participation was terminated.

9. Stock Plans

Stock Option Plan

The Company has several stock option plans that provide for the granting of
incentive stock options to officers and key employees up to a maximum of
1,380,000 shares of Class A Common Stock. Incentive stock options are granted at
the greater of the common stock's fair market value at the grant date or at the
company's book value at grant date, as determined by the Board of Directors. All
options have a 10-year term and vest over three years.

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related interpretations which
measures compensation cost using the intrinsic value method of accounting for
its stock options. Accordingly, the Company does not recognize compensation cost
based upon the fair value method of accounting as provided for under FASB
Statement No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). If
the Company had elected to recognize compensation cost based on the fair value
of the options granted beginning in fiscal year 1996, as prescribed by SFAS No.
123, net income would have been reduced to the pro forma amounts indicated in
the table below:

1999 1998 1997
-------------------------------

Net income - as reported $16,483 $10,594 $18,766
Net income - pro forma 14,674 9,334 18,002

Basic earnings per share - as reported $ 1.13 $ 0.72 $ 1.30
Basic earnings per share - pro forma $ 1.01 $ 0.63 $ 1.25

Because the above pro forma amounts only include options granted beginning in
fiscal year 1996, the effects of these hypothetical calculations are not likely
to be representative of similar future calculations.

F-12
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

9. Stock Plans (continued)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option valuation method with the following assumptions:

1999 1998 1997
-------------------------------
Expected dividend yield 0.50% 0.00% 0.00%
Risk-free interest rate 6.02% 6.04% 6.22%
Expected life of options 10 years 10 years 10 years
Expected stock price volatility 0.517 0.491 0.0431

A summary of the activity under the stock option plan is as follows:

Weighted
Shares Average
Available for Options Exercise Price
Grant Outstanding Per Share
---------------------------------------------------
October 1, 1996 47,910 658,530 $13.57
Reserved for issuance 150,000 0 -
Granted (151,950) 151,950 17.90
Canceled 35,440 (35,440) (17.88)
Exercised - (38,022) (10.93)
----------------------------------------------
September 30, 1997 81,400 737,018 14.39
Reserved for issuance 500,000 - -
Granted (454,100) 454,100 14.62
Canceled 168,510 (168,510) (15.47)
Exercised - (15,695) (13.58)
----------------------------------------------
September 30, 1998 295,810 1,006,913 14.32
Reserved for issuance - - -
Granted (135,500) 135,500 13.09
Canceled 317,000 (317,000) (15.34)
Exercised - - -
----------------------------------------------
September 30, 1999 477,310 825,413 $13.74
==============================================

The weighted average fair value per share of options granted during the
year ended September 30, 1999, 1998 and 1997 was $5.04, $9.90 and $11.64
respectively.

At September 30, 1999, the weighted average contractual life of options
outstanding is 6.2 years and options to purchase 601,281 shares are exercisable
with a weighted average exercise price of $13.65. There were 390,523 options
outstanding with exercise prices ranging from $10.00 to $15.00 with a weighted
average exercise price of $11.65 and weighted average remaining contractual life
of 4.7 years and there were 210,758 options outstanding with exercise prices
ranging from $16.13 to $21.75 with a weighted average exercise price of $17.37
and a weighted remaining contract life of 5.8 years.

F-13
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

9. Stock Plans (continued)

Employee Stock Purchase Plan

The Company maintains an Employee Stock Purchase Plan (the "Plan") in
accordance with Section 423 of the Internal Revenue Code. Substantially all
employees are eligible to participate in the Plan and each employee may purchase
up to $25,000 of Class A Common Shares during each calendar year at market price
less a discount of approximately 15%.

10. Income Taxes

The provision for income taxes for the years ended September 30 consists of
the following (in thousands):

1999 1998 1997
--------------------------------------------
Current:
Federal $9,308 $5,396 $9,729
State 1,460 949 1,658
--------------------------------------------
10,768 6,345 11,387
Deferred (1,314) 146 111
--------------------------------------------
$9,454 $6,491 $11,498
============================================

Income tax expense reconciled to the amount computed at statutory rates for
the years ended September 30 is as follows (in thousands):

1999 1998 1997
----------------------------------------

Federal tax at statutory rate $8,514 $5,866 $10,604
State income taxes (net of federal
income tax benefit) 830 347 1,235
Other, net 110 278 (341)
----------------------------------------
$9,454 $6,491 $11,498
========================================

F-14
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

10. Income Taxes (continued)

Significant components of the Company's deferred tax assets and liabilities
at September 30 are as follows (in thousands):

1999 1998
-----------------------------
Current deferred taxes:
Assets:
Allowance for doubtful accounts $4,750 $2,076
Accrued liabilities 402 85
Deferred Revenue 385 1,299
Other 55 71
-----------------------------
Total Current Assets 5,592 3,531

Liabilities:
Inventory 1,411 950
Prepaid assets 552 388
-----------------------------
Total Current Liabilities 1,963 1,338
-----------------------------
Deferred current tax asset, Net 3,629 2,193
=============================

Non current-deferred taxes:
Liabilities:
Equipment and improvements 1,323 1,188
Other 218 231
-----------------------------
Deferred non-current tax liabilities 1,541 1,419
-----------------------------
Deferred tax asset, Net $2,088 $774
=============================

11. Commitments and Contingencies

The Company's principal leases are for store facilities and expire at
varying dates during the next 10 years. In addition to fixed minimum rentals,
many of the leases provide for contingent rentals based upon a percentage of
store sales above stipulated amounts. Future minimum lease payments under
noncancelable operating leases are as follows (in thousands):

Years ended September 30,

2000 $17,045
2001 14,876
2002 12,513
2003 9,361
2004 6,893
Subsequent years 6,176
------------------
$66,864
==================

F-15
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

11. Commitments and Contingencies (continued)

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

Years ended September 30
1999 1998 1997
---------------------------------------

Minimum rentals $21,565 $18,355 $12,597
Contingent rentals 401 446 529
---------------------------------------
Total rent $21,966 $18,801 $13,126
=======================================

The Company sells credit life, health and property and casualty on its
merchandise as an agent for American Bankers Insurance Group (ABIG), which
underwrites the insurance products. The Company has a wholly owned subsidiary to
re-insure risks related to these products. Under the re-insurance contract, the
Company's subsidiary assumes the risk of the insurance immediately after the
insurance products are sold. The Company recognizes premium expense and
commissions earned related to this insurance over the terms of the related
insurance products. Premium expense includes fees payable to ABIG, as well as
the estimated losses related to the insurance products. Losses are estimated
based on actual losses incurred in the past, and amortized over the term of the
related insurance product. The Company's losses on these products have
historically been very stable, thus enabling the accrual of reliable loss
estimates.

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

F-16
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

12. Quarterly Financial Data (Unaudited)

The following is a summary of the quarterly results of operations for the years
ended September 30, 1999 and 1998 (in thousands except per share data):

<TABLE>
<CAPTION>
For the Fiscal Year Ended September 30, 1999
Quarters Ended
-----------------------------------------------------------------
December 31 March 31 June 30 September 30
-----------------------------------------------------------------
As Restated (c)
- --------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $125,101 $61,694 $66,503 $55,087
Cost of goods sold, including occupancy,
distribution and buying 63,359 33,593 35,715 31,316
Income (loss) before income taxes 21,523 3,900 2,789 (2,275)
Net income (loss) 13,346 2,418 1,729 (1,010)(a)
Basic earnings (loss) per share 0.92 0.16 0.12 (0.07)
Diluted earnings (loss) per share 0.92 0.16 0.12 (0.07)

As Previously Reported
- --------------------------------------------
Total Revenues $134,909 $69,697 $74,117 $55,087
Cost of goods sold, including occupancy,
distribution and buying 61,069 32,205 34,600 31,316
Income (loss) before income taxes 23,857 3,667 2,553 (2,275)
Net income (loss) 14,792 2,274 1,583 (1,010)
Basic earnings (loss) per share 1.01 0.16 0.11 (0.07)
Diluted earnings (loss) per share 1.01 0.16 0.11 (0.07)
</TABLE>

F-17
<PAGE>

Friedman's Inc.
Notes to Consolidated Financial Statements (continued)

12. Quarterly Financial Data (continued)

For the Fiscal Year Ended September 30, 1998
Quarters Ended
-------------------------------------------------------------
December 31 March 31 June 30 September 30
-------------------------------------------------------------
As Restated (c)
- --------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $105,151 $48,959 $57,667 $47,369
Cost of goods sold, including occupancy,
distribution and buying 50,842 25,774 30,466 28,330
Income (loss) before income taxes 21,147 4,403 2,425 (10,890)(b)
Net income (loss) 12,995 2,783 1,568 (6,752)
Basic earnings (loss) per share 0.89 0.19 0.11 (0.46)
Diluted earnings (loss) per share 0.88 0.19 0.11 (0.46)

As Previously Reported
- --------------------------------------------
Total revenues $112,854 $56,031 $64,722 $53,702
Cost of goods sold, including occupancy,
distribution and buying 50,126 25,519 30,345 26,304
Income (loss) before income taxes 22,707 4,126 2,490 (11,233)(b)
Net income (loss) 13,964 2,607 1,610 (6,965)
Basic earnings (loss) per share 0.96 0.18 0.11 (0.48)
Diluted earnings (loss) per share 0.95 0.18 0.11 (0.48)

</TABLE>

(a) Net loss includes a reduction in the reserve for income taxes of
$400,000.

(b) Income before income taxes for the quarter ended September 30, 1998
includes a $1.8 million charge related to reserves established for senior
executive severance and store closing costs and a $2.7 million charge for
the accelerated write-off of specific accounts associated with the
Company's change in its credit policy, effective September 30, 1998.

(c) As more fully described in Note 2 of the Notes to Consolidated Financial
Statements, the Company changed its accounting policy relating to revenue
recognition for product warranties. As a result of the change in accounting
policy, the Company has restated its previously published financial
statements.

F-18
<PAGE>

Report of Independent Auditors

The Board of Directors
Friedman's Inc.

We have audited the accompanying consolidated balance sheets of Friedman's Inc.
(the Company) as of September 30, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended September 30, 1999. Our audits also included the
financial statement schedule listed in item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Friedman's Inc. at
September 30, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1999, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.

As described in Note 2, the Company has restated its 1998 and 1997 financial
statements with respect to warranty revenues recognition.

November 18, 1999
Atlanta, Georgia

F-19
<PAGE>

Friedman's Inc.

Schedule II -- Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
Balance at Balance at
Beginning End of
Description of Period Additions Deductions Period
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserves and allowances deducted from asset accounts:
Allowance for uncollectible accounts:
Year ended September 30, 1997 $6,877,000 $22,892,000 (1) $21,501,000 (2) $8,268,000
Year ended September 30, 1998 8,268,000 29,767,000 (1) 27,963,000 (2) 10,072,000
Year ended September 30, 1999 10,072,000 33,946,000 (1) 33,156,000 (2) 10,862,000

Unearned finance charges, product warranties and credit insurance:
Year ended September 30, 1997 $9,689,000 $30,555,000 (3) $27,965,000 (4) $12,279,000
Year ended September 30, 1998 12,279,000 38,200,000 (3) 34,804,000 (4) 15,675,000
Year ended September 30, 1999 15,675,000 45,078,000 (3) 42,624,000 (4) 18,129,000

</TABLE>
- ----------
(1) Provision for doubtful accounts.
(2) Uncollectible accounts receivable written off, net of recoveries.
(3) Additions to credit insurance and product warranties are the dollar amount
of premiums sold.
(4) Deductions to unearned finance charges, credit insurance and product
warranties occur as finance charges, credit insurance and product
warranties are earned.

F-20
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on December 29, 1999.

FRIEDMAN'S INC.

By: /s/ Bradley J. Stinn
-------------------------------
Bradley J. Stinn
President and
Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant in the capacities indicated on December 29, 1999.

Signature Title
--------- -----

/s/ Bradley J. Stinn
------------------------- Chairman of the Executive Committee,
Bradley J. Stinn President and Chief Executive Officer
(Principal Executive Officer)

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

/s/ John E. Cay III
------------------------- Director
John E. Cay III

/s/ Robert W. Cruickshank
------------------------- Director
Robert W. Cruickshank

/s/ David B. Parshall
------------------------- Director
David B. Parshall

/s/ Mark C. Pickup
------------------------- Director
Mark C. Pickup

/s/ Victor M. Suglia
------------------------- Senior Vice President - Chief Financial
Victor M. Suglia Officer (Principal Financial and
Accounting Officer)
<PAGE>

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------

Exhibits
to
Annual Report
on
Form 10-K
for the Fiscal Year Ended
September 30, 1999

----------

FRIEDMAN'S INC.

--------------------
<PAGE>

INDEX TO EXHIBITS

The exhibits indicated below are either included or incorporated by
reference herein, as indicated.

Exhibit
Number Exhibit Description
- ------- -------------------

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

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

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

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

10.1 Amended and Restated Agreement of Limited Partnership, dated as of May
24, 1990, among MS Jewelers Corporation and the limited partners
listed in Annex A thereto (incorporated by reference from Exhibit 10.1
to the Registrant's Registration Statement on Form S-1 (File No.
33-67662), and amendments thereto, originally filed on August 19,
1993).

10.2 Lease Agreement, dated as of May 24, 1990, by and between Friedman's
Jewelers, Inc. and MS Jewelers Limited Partnership (incorporated by
reference from Exhibit 10.5 to the Registrant's Registration Statement
on Form S-1 (File No. 33-67662), and amendments thereto, originally
filed on August 19, 1993).

10.2.1 Addendum to Lease between Friedman's Jewelers, Inc., Lessor and
Friedman's Inc. dated August 17, 1995 (incorporated by reference from
Exhibit 10.5.1 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1995).

10.3 MS Jewelers Limited Partnership 1993 Incentive Plan (incorporated by
reference from Exhibit 10.29 to the Registrant's Registration
Statement on Form S-1 (File No. 33-67662), and amendments thereto,
originally filed on August 19, 1993).

-1-
<PAGE>

10.4 Representative sample of MS Jewelers Limited Partnership's form of
Installment Credit Agreement for self-financed sales to customers
(incorporated by reference from Exhibit 10.41 to the Registrant's
Registration Statement on Form S-1 (File No. 33-67662), and amendments
thereto, originally filed on August 19, 1993).

10.5 Representative sample of MS Jewelers Limited Partnership's form of
Limited Diamond Warranty (incorporated by reference from Exhibit 10.42
to the Registrant's Registration Statement on Form S-1 (File No.
33-67662), and amendments thereto, originally filed on August 19,
1993).

10.6 Agreement and Understanding, dated December 14, 1994, between
Friedman's, Inc. and Morgan Schiff & Co., Inc. regarding financial
advisory services (incorporated by reference from Exhibit 10.32 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994).

10.7 Credit Agreement dated as of September 15, 1999, by and between
Friedman's Inc., as Borrower, certain subsidiaries and affiliates of
Friedman's, as guarantors, the lenders named therein, Bank of America,
N.A., as Administrative Agent, and General Electric Capital Corp., as
Documentation Agent (incorporated by reference from exhibit 10.1 to
the Registrant's Current. Report on Form 8-K filed on September 20,
1999).

10.8 Credit Agreement dated as of September 15, 1999, by and between
Crescent Jeweler's Inc., as Borrower, certain subsidiaries and
affiliates of Crescent, as guarantors, the lenders named therein, Bank
of America, N.A., as Administrative Agent, and General Electric
Capital Corp., as Documentation Agent (incorporated by reference from
exhibit 10.1 to the Registrant's Current. Report on Form 8-K filed on
September 20, 1999).

10.9 Guaranty Agreement dated as of September 15, 1999, by Friedman's Inc.,
in favor of Bank of America N.A., as Administrative Agent and the
lenders under the Crescent Jeweler's Inc. Credit Agreement (referenced
herein as Exhibit 10.14) (incorporated by reference from exhibit 10.1
to the Registrant's Current. Report on Form 8-K filed on September 20,
1999)

10.10 Guaranty Fee Agreement dated as of September 15, 1999, by and between
Friedman's Inc. and Crescent Jewelers Inc. and its wholly owned
subsidiary Crescent Jewelers (incorporated by reference from exhibit
10.1 to the Registrant's Current. Report on Form 8-K filed on
September 20, 1999).

10.11 Warrant to purchase shares of Class A Common Stock of Crescent
Jewelers Inc. dated as of September 15, 1999(incorporated by reference
from exhibit 10.1 to the Registrant's Current. Report on Form 8-K
filed on September 20, 1999).

Executive Compensation Plans and Arrangements

10.12 Friedman's Inc. 1993 Stock Option Plan (incorporated by reference from
Exhibit 4(c) to the Registrant's Registration Statement on Form S-8
(File No. 33-85216) filed on October 17, 1994).

-2-
<PAGE>

10.13 Form of Indemnity Agreement executed by the Registrant and each of
Sterling B. Brinkley, Bradley J. Stinn, Robert S. Morris, John
Smirnoff, Robert W. Cruickshank and Mark C. Pickup (incorporated by
reference from Exhibit 10.44 to the Registrant's Registration
Statement on Form S-1 (File No. 33-67662), and amendments thereto,
originally filed on August 19, 1993).

10.14 Friedman's Inc. 1994 Stock Option Plan for Outside Directors
(incorporated by reference from Exhibit 10.37 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994).

10.15 Friedman's Inc. 1994 Qualified Employee Stock Purchase Plan
(incorporated by reference from Exhibit 4(c) to the Registrant's
Registration Statement on Form S-8 (File No. 33-78820) filed on May
11, 1994).

10.15.1 Amendment Number One to the Friedman's Inc. 1994 Qualified Employee
Stock Purchase Plan (incorporated by reference from Exhibit 10.28.1 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1996).

10.16 Loan Agreement, dated November 17, 1994, between Friedman's Inc. and
Sterling B. Brinkley (incorporated by reference from Exhibit 10.39 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994).

10.16.1 Amendment to Loan Agreement and Promissory Note between Friedman's
Inc. and Sterling B. Brinkley dated February 2, 1995 (incorporated by
reference from Exhibit 10.39.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).

10.17 Loan Agreement, dated November 17, 1994, between Friedman's Inc. and
Bradley J. Stinn (incorporated by reference from Exhibit 10.40 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994).

10.17.1 Amendment to Loan Agreement and Promissory Note between Friedman's
Inc. and Bradley J. Stinn dated February 2, 1995 (incorporated by
reference from Exhibit 10.40.1 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995).

10.18 Friedman's Inc. 1994 Stock Option Plan (incorporated by reference from
Exhibit 4(d) to the Registrant's Registration Statement on Form S-8
(File No. 33-95584) filed on August 11, 1995).

10.19 Friedman's Inc. 1995 Stock Option Plan (incorporated by reference from
Exhibit 4(d) to Registrant's Registration Statement on Form S-8 (File
No. 333-06221) filed on June 18, 1996).

10.20 Friedman's Inc. 1996 Stock Option Plan (incorporated by reference from
Exhibit 4(c) to Registrant's Registration Statement on Form S-8 (File
No. 333-23757) filed on March 21, 1997).

-3-
<PAGE>

10.21 Friedman's Inc. 1997 Stock Option Plan (incorporated by reference from
Exhibit 99 to Registrant's Registration Statement on Form S-8 (File
No. 333-49133) filed on April 1, 1998).

10.22 Form of Unsecured Promissory Note issued to the Company by Bradley J.
Stinn, Victor M. Suglia, Sterling B. Brinkley, John E. Cay, III,
Robert W. Cruickshank, David B. Parshall, Mark C. Pickup and Paul G.
Leonard (incorporated by reference from Exhibit 10.39 to Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1998).

10.23 Friedman's Inc. 1999 Long-Term Incentive Plan (incorporated by
reference from Exhibit 99 to Registrant's Registration Statement on
Form S-8 (File No. 331-73271) filed on March 3, 1999).

21 Subsidiaries of the Registrant (incorporated by reference from Exhibit
21 to the Registrants Annual Report on Form 10-K for its fiscal year
ended September 30, 1995).

23 Consent of Ernst & Young LLP

27 Financial Data Schedule

-4-

<PAGE>

Exhibit 23
<PAGE>

CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statements
on Form S-8 (Numbers 33-85216, 33-81270, 333-17755, 33-78820, 33-95584,
333-06221, 333-23757, 333-49133, 333-58327 and 333-73271) pertaining to the
Friedman's Inc. 1993 Stock Option Plan, Friedman's Inc. 1994 Stock Option Plan
for Outside Directors, Friedman's Inc. Amended and Restated 1994 Stock Option
Plan for Outside Directors, Friedman's Inc. 1994 Qualified Employee Stock
Purchase Plan, Friedman's Inc. 1994 Stock Option Plan, Friedman's Inc. 1995
Stock Option Plan, Friedman's Inc. 1996 Stock Option Plan, Friedman's Inc. 1997
Stock Option Plan, Friedman's Inc. Retirement Savings Plan and Friedman's Inc.
1999 Long-Term Incentive Plan of our report dated November 18, 1999 with respect
to the consolidated financial statements and schedule of Friedman's Inc.
included in the Annual Report on Form 10-K for the year ended September 30,
1999.

/s/ Ernst & Young LLP

Atlanta, Georgia
December 27, 1999

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 1,076 243
<SECURITIES> 0 0
<RECEIVABLES> 97,780 85,900
<ALLOWANCES> 0 0
<INVENTORY> 114,128 105,586
<CURRENT-ASSETS> 220,404 196,846
<PP&E> 44,160 36,421
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 275,296 267,883
<CURRENT-LIABILITIES> 53,014 20,981
<BONDS> 0 0
0 0
0 0
<COMMON> 144 146
<OTHER-SE> 191,760 178,368
<TOTAL-LIABILITY-AND-EQUITY> 275,296 267,883
<SALES> 308,385 259,146
<TOTAL-REVENUES> 0 0
<CGS> 163,983 135,412
<TOTAL-COSTS> 274,648 235,918
<OTHER-EXPENSES> 7,800 6,143
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,421 874
<INCOME-PRETAX> 25,937 17,085
<INCOME-TAX> 9,454 6,491
<INCOME-CONTINUING> 16,483 10,594
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 16,483 10,594
<EPS-BASIC> 1.13 .72
<EPS-DILUTED> 1.13 .72

</TABLE>